Regency Centers Corp (REG) 2010 Q1 法說會逐字稿

(Operator Instructions). I would now like to turn the conference over to Ms. Lisa Palmer, Senior Vice President, Capital Markets. Please go ahead.

Thank you, Melanie. On the call are Martin Stein, Chairman and CEO; Brian Smith, President and COO; Bruce Johnson, CFO; and Chris Leavitt, Senior Vice President and Treasurer. Before we start, I would like to address forward-looking statements that may be addressed on the call. Forward-looking statements involve risks and uncertainties. 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 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

Bruce?

Thank you Lisa, and good morning. It is a wonderful day in Jacksonville. Recurring FFO per share for the first quarter was $0.63. This was above our guidance due in large part to better than expected same property net operating income, as a result of improved operating fundamentals and termination fees. Largest termination fee was $2.5 million related to a space already leased with expected rent commencement in late 2010. We have historically received between $0.08 and $0.12 per square foot for termination fees and typically not to front loaded. Furthermore, it is important to note that 40% of the total amount of termination fees received were in essence replacing 2010 budgeted base rent.

Recurring FFO for the second quarter is expected to be $0.50 to $0.55 per share. This is below the first quarter and beyond the impact of termination fees due to three items. First, the pushout of first quarter planned move outs into the second quarter. Second, plan interest expense is higher for the second quarter and throughout the remainder of the year as a result of lower capitalized interest. And third, there is a portion of our third-party fees that are seasonal and earned during the first quarter. During the quarter, Regency recognized an impairment of $3.6 million on one center in partnership with GRI as a result of both parties determination, that now is the right time to sell the asset. Either one might involve some short-term pain, we have long believed that it makes sense to thoughtfully execute the company's recycling plan.

In that regard, we sold two wholly owned centers where there was apprehension of our future NOI, one of which had a gain of nearly $7 million. We are raising guidance for the remainder of the year due to our expectations of higher NOI .Recurring FFO per share is expected to be in the range of $2.20 to $2.35 for the year. Same property growth is now planned at minus 2.5% to plus 0.5% with percent leased on a same property basis of 91% to 93%. The increase in forecasted earnings is, as a result of better operating fundamentals, will be partially offset by change in timing, and amount of acquisitions and dispositions as well as the number of weighted shares outstanding.

Diluted average shares have increased due to the requirement under GAAP, that we apply the treasury stock method to account for the forward equity offering until settlement. As our share price rises beyond the issuance price of the forward offering, the number of shares reflected on the treasury stock method will also rise. Since about 1.1 million shares are currently included and expected to rise to 1.7 by year end at today's price when the offering sells, outstanding shares will increase by approximately 6.3 million. Bad debt expense for the quarter was $2.3 million but included $800,000 of one-time charges related to 2009 cam reconciliations. Based upon the bad debt expense incurred, excluding this one-time charge, the health of our tenants appears to be improving.

In addition, we have received new information on a lease that was signed in the first quarter that would change total rent growth from negative 0.5% to positive 1.1%. We will revise and refile the supplemental after the call. During the quarter, we closed on the acquisition of an additional 15% interest in the partnership with GRI and our results reflect a 40% ownership in this partnership for the full quarter. I want to remind everyone that Regency's projected return on the $240 million investment exceeds 9.5%. Subsequent to quarter end, MCW sold its remaining 15% interest to GRI. As part of the agreement, Regency received a $2.6 million disposition fee at closing.

In March, Regency entered into a long commitment with a life insurance company and locked rate on $202 million of loan proceeds, secured by 13 assets in the GRI partnership. This commitment includes an interest rate of 5.8% for ten year debt with interest only for the first two years and represents approximately a 60% of combined property values. This refinancing along with equity contributions will allow the partnership to eliminate all other debt remaining in 2010 and reduce total partnership debt by 25%. It is also likely that we will take advantage of market conditions and access the bond market to refinance the 8.45% bonds coming due this year, before they mature in September.

Brian?

Thank you, Bruce. And good morning. Over the past three months the economy continued to make steady strides towards recovery while retailers built on the strong momentum of late 2009 with broad-based improvement in first quarter sales. We are beginning to see the impacts of this recovery throughout our portfolio. The leasing levels in particular are an affirmation of the trend that began in the second half of 2009. During the first quarter, we signed 351 leases, totaling just over 1.2 million square feet including 476,000 square feet of new leases.

Substantially, all of these leases were to tenants smaller than 15,000 square feet, representing a variety of uses. New leasing in the operating portfolio was particularly robust at levels 80% above the same quarter last year and representing the highest level of new leasing since 2007. Strong leasing efforts are some what negated by the level of move outs, which remain stubbornly high, causing occupancy to fall 30 basis point from the fourth quarter. We expect that by next year, move outs will return to historic norms. Looking forward, retailers whom we regularly meet are echoing this positive economic sentiment.

Last quarter, I mentioned that retailers were going back on offense with a renewed sense of urgency. That trend continues as the focus shifts to the retailers primary vehicle for driving top line revenue growth, new stores, many have announced substantial growth plans for 2010, including Panera Bread, TJ Max, Dollar General and Starbucks. Leading retailers have communicated to us their concerns about filling their 2012 pipelines. Demand has grown more intense for well infiltrated centers. At the same time, with virtually no new construction over the past few years, and with the developers unable to finance new projects, anchors are turning to the few reliable developers they can count on to help meet their expansion needs.

Strong national and regional retailers who have used the downturn to expand into now markets and secure locations at bargain prices are realizing that the window is quickly closing on vacancies in premium properties. The result is a shift of pricing power in our favor, particularly at our higher quality assets. For example, The Granada Village info center and our GRI partnership located in Los Angeles, that is slated for redevelopment, we have several junior anchors vying for space. When one national retailer submitted an offer for $12 per square foot, we simply told the representative to sharpen his pencil. We immediately got a new offer at $20 a square foot. In Northern California the major national discounter modified its most recent offer for space, agreeing to pay $2 more per square foot than whatever its competitor offered, who is also negotiating for the space.

Although, retailers are still discriminating in their choice of Real Estate, there is a discernible increase in activity and improvement in negotiations depending on the markets. This improvement is not exclusive to the operating portfolio. Development yields remain unchanged from the fourth quarter. Additionally, we completed four development projects all of which are over 95% leased. Our two newest developments, Seminole Shops and Market at Colonnade, are doing great. These projects are representative of the types of new developments that we are emphasizing, with strong anchor sponsorship, and demonstrated demand for side shop space at higher than expected rents.

While not all markets enjoy the same level of retailer demand, we are seeing interest return to markets, dependent upon residential growth that have been dormant since the downturn began. Fortunately, our exposure to these types of markets is limited. For example, we have three developments in Riverside County, California, were we have recently seen the significant pickup in leasing activity. Most important of all, a large national anchor retailer approved our Indio development, a Real Estate committee, and lease is currently being negotiated for a buildout of approximately 50,000 square feet of retail space.

Additionally, at Applegate the target anchored center in California's Central Valley, we executed one lease and are negotiating two others totaling 16,000 square feet. That project has seen a surge in activity attributable to Wal-Mart's announcement that has purchased the Home Depot parcel and will be opening a store at that location. As a result of the huge amount of capital, looking for limited supply of higher quality of centers, it is clear the cap rates for institutional quality assets have compressed significantly over the past three months.

During the quarter we did close on the acquisition of one property in our co-investment partnership with CalSTRS that was negotiated last year. (inaudible) assets is a 100% lease, anchored by Harris Teeter with Lowe's Home Improvement on a ground lease and also benefits from average household income in the area above $100,000. The projected return on the initial $31 million investment which includes the purchase of an adjacent out parcel is 8.9%. It is also worth noting that three of Regency's co-investment partners are looking to meaningfully expand their exposure to core shopping centers and want to grow there investments with Regency. We continue to look for opportunity inside our portfolio that will grow NOI and create long term value, like the three, Publix, Safeway, and Target anchored redevelopment's that are now underway in Florida, Northern Virginia and Southern California.

We began one redevelopment project during the first quarter, a shopping center St. Petersburg Florida. We executed a lease with a major fitness operator to replace a 46,000 square foot vacant box at more than triple the rent. The total return on the $30 million redevelopment pipeline is estimated to be slightly more than 10%. In light of the improving operating and capital environments and the bank's desire to kick the can down the road, we do not expect to see an abundance of distressed opportunities any time soon. At the same time, we are working on several attractive developments and value added acquisitions that meet our stringent standards and that we expect to come to fruition in the not too distant future.

A few involved distressed sellers and banks, the pipeline for promising redevelopment's while modest is growing. Furthermore, good progress is being made in converting a number of land parcels into cash or developments. In summary, there has been a noticeable positive change in the environment. While the economy is still a long way from full recovery, operating conditions are dramatically different from a year ago. We are hopeful that the economic trends will continue and expect them to translate into positive results for our portfolio and investment opportunities. .

Thank you, Brian and good morning. Last call, I shared our plans comprised of five key strategies to sustain long-term growth and recurring earnings in NAV, while securing Regency positions at the forefront of the industry. As you may remember, those initiatives are first and foremost, preserve and grow net operating income, including achieving 95% occupancy in the operating and development portfolios, which will enable to realize roughly $35 million of incremental NOI, or over $5 per share of NAV. Second, to cost-effectively and opportunistically continue to strengthen the balance sheet with access to multiple sources of reliable capital.

Third, we will leverage Regency's unique combination of development capabilities, land inventory, anchor tenant relationships and market expertise and presence to create share holder value through development, redevelopment, and distressed opportunities. Fourth, we will enhance the growth in NOI and NAV, by recycling capital from the lower growth assets in the portfolio and shopping centers with better growth profiles. Finally, we want to keep what we consider the best team in the industry focused, engaged and energized while managing operating efficiencies.

Although, much wood needs to be chopped, notable progress on those initiatives was made during the first quarter. Baring a double dip in the economy, sustainable, but gradual improvement in the operating fundamentals appears to be on the immediate horizon. As Brian highlighted, the amount of new leases that were signed during the last two quarters is remarkable. We are further encouraged by the activity on the vacant space, especially the depth and quality of the prospects. Although, we are still experiencing a modest decline in rental rates, rents seem to be firming in most markets. As Brian said, even though move outs remain high, we believe that by next year they will return to more normal levels.

Base rent on a sequential basis, declined by the lowest amount since the beginning of last year, which should be a pretty good proxy for the direction of NOI. After considering all of these factors, as Bruce indicated, we increased our guidance for occupancy and NOI even net of termination fees. The balance sheet is in good shape including the proceeds from the forward equity offering as of March 31, we had over $300 million of cash available, zero outstanding on lines of credit and a debt to asset ratio of approximately 45%. The attractive mortgage financing that was arranged in the first quarter, in the co-investment partnership with GRI, again, demonstrated the financial strength of that partnership and the desirability (inaudible) shopping centers to mortgage lenders.

Although, the anticipated amount of available developments and acquisitions from distressed sellers and developers has yet to materialize, our teams are currently working on several attractive opportunities that should come to fruition in the not too distant future. Additionally, We are working on a number of promising opportunities to create value from our land inventory and redevelopment's within our operating portfolio. As evidenced by the sale of two assets with negative growth prospects, the acquisition of a terrific center, steady progress continues to be made on Regency's capital recycling initiative.

From our perspective, it makes common sense to sell assets with risk to NOI, and recycle the capital in shopping centers that meet Regency's stringent standards, to generate more growth in NOI and NAV and result in better total returns over the long-term. To summarize my outlook, you should know that I'm heartened that the uplift in the economy and retailers, resulting increased demand, is taking root in our results and prospects. The team has emerged from the trials and tribulations of 2009 energized and focused, and has fully embraced the new integrated market arena organizational architecture.

At the same time, I'm still cautious about the economy and do not underestimate challenges on the road of achieving results that are consistent with Regency's history and that it meet our expectations. However, the team is making steady advances by effectively executing our plan and I'm confident that Regency is on track to achieve our key strategic goals. We appreciate your time and now we are ready to answer questions you may have.

(Operator Instructions). I will take our first question from Michael Mueller of JPMorgan.

Hi. Just one question on acquisitions and cap rates. I mean looking at the guidance page, and I know what you talked about in the press release in terms of 8%, 9% deals, but the supplemental was talking about cap rates in the 7% to 8% range. Seems like so far this earnings season we are hearing about other deals happening in the south of the 7% range and just wondering if you could maybe take a step back and kind of compare and contrast what you are seeing in the market versus some of the differences that we think we are hearing on some other conference calls in terms of pricing?

Brian.

We certainly agree with what you have heard on the other calls. I think that for institutional quality, A quality, grocery anchored centers the cap rates have probably fallen about 150 basis points and right now we would expect the kind of assets we are looking for to be some where in the 6.5% to 7%, and that is assuming there is no distress in the form of a seller needing to get out for recapitalization purposes or something. D quality assets we have not seen falling near that much, maybe 50 basis points. And frankly, I think the 50 basis points is attributable to the fact that there is so few A quality assets out there, that those people have to put money out or convince themselves that they probably are A quality. I think you are going to see more opportunity out there but it is probably going to be in the smaller assets, $5 million and less.

Okay. So in your guidance, I mean do you think that is still achievable what you are looking for in terms of volume and pricing?

It is going to be tough to find assets that meet our criteria, especially from a growth standpoint. And the other thing that we are going to try and do is match, making sure that the dispositions are on track, and therefore what we are really doing is recycling capital where you might be selling an asset with an 8.5 % or 9% return. It may have negative growth prospects and you may finance that, at say a 7% with 2% growth, and the total return of that asset over a longer period of time is going to be higher at the NAV.

And Mike, let me add from a pure guidance perspective as you think about the guidance that we have laid out in the supplemental of JV acquisitions of $50 million to $100 million, average cap rate of 7%, 8%, we already completed almost $31 million at close to a 9. So from a weighted average perspective, you would expect that even with what color Brian gave that we would still be able to fall within that guidance for the year.

Got it. Last question. What is the assumption now bake into guidance for taking down the forward equity?

I'm only going to let Bruce answer that question as your third question because I'm sure many others have the same one.

I'm sorry. Sorry.

That's fine.

That's okay. That's okay. We expect it to be toward the end of year.

Okay. Okay. Great, thanks.

Thanks, Michael.

Next we will go to Michael Bilerman from Citi.

Good morning. It is Quentin here with Michael. Bruce, just going back to the early termination fees that you got in the first quarter. I want to know what is baked into guidance. Maybe if you could say what was previously in guidance for lease term fees and what is in your revised guidance for lease term fees?

I gave you the range of what we would normally accept, you will find it would have been within that range, which is the range that I said our historics were. That is what we initially done, and we still have some -- projecting we would see some additional termination fees for the rest of the year. Not at the same level we wouldn't believe, but we are still projecting we would receive some more termination fees. Is that satisfactory?

I think we can work it out then. In terms of the same store NOI assumption then, the improvement in that, assuming that about half of that improvement came from the higher lease termination phase is that an accurate guess?

That's correct.

Yes. And back to your first question regarding that, the large amount in the first quarter, I think Bruce stated, it was precipitated by a new lease that we were able to sign that replaced the tenant that we received the termination fee from.

And just to be clear, so half of the change in same store NOI guidance for the year is due to higher expected lease termination fees?

Yes.

And the other half is better occupancy and rents?

Yes.

Thank you.

Thank you.

Next we will go to Paul Morgan of Morgan Stanley.

Hi, good morning. The lower end of your rental growth numbers is quite a bit lower than where you are now and I'm just kind of curious as to what -- I mean is that negative, 8% sort of based on discussions that you are having or what would it take to kind of beat down? It's pretty wide range, what would it take to be down towards the lower end of that?

Well, you know, rental rate growth is the hardest thing we can predict because you don't know which caliber centers it is going to be, whether they are large uses or smaller uses. This is a roll-up from the field and while we think that renewals should be pretty much flat going forward and there still may be possible roll-down, it is just that you have to have a wider band to account for the fact there is just uncertainty as to where most of leases can be done.

Based on what you are seeing now, are you more comfortable towards the higher end of the range in the revised same property guidance as well?

I think that is pretty fair to say.

My second question is on development. You mentioned that there are some folks who were looking at new projects, especially the supermarkets, I take it. Given your more conservative approach towards projects, I mean, do you think when you are talking to supermarkets are you able to get the types of rents that would justify moving forward with the smaller amount of shop space that would kind of echo that conservatism?

I think our guidance would reflect the fact that yes but it will be on a smaller scale than we are used to. They are very selective. They are not going to go out into the green areas. They will have to demonstrate demand and we will have to be able to do it not only under the economics that we need, but the size the project the amount of shop space. So the answer is, yes. One thing I would share with you, we did have a very national retailer fly down to visit us, brought several people with them and the whole point of coming was to say this is a listening tour, what do we have to do different in order to get the kind of growth that we need. Think that goes not only to economics but it goes to the terms under which we would structure a transaction.

Thanks.

I do think, Paul, that we expect to over time as retailers expansion plans become more robust, even on a more selective basis, to ramp up our development program. Not near the $500 million year level but the next two or three years to get it up to the $150 million year level, is our expectation.

Okay, good.

Next we will go to Jeffrey Donnelly from Wells Fargo.

Good morning, guys. I guess first question before I guess Brian, are you seeing any discernible shifts in the geographic interest from national tenants? More skid-dish in some places, in Florida and Phoenix etc. then two or three year ago where interest intensified elsewhere?

It is kind of an interesting question because clearly they are interested in the more mature markets, the coastal markets and also some of the better markets in the central part of the country, but you are also seeing nationals and strong regionals take advantage of that current weakness to expand into markets they couldn't before. That not only includes people like H.H. Gregg going from Indiana to the entire east coast, but also includes people like WinCo seeing all the weakness in Phoenix and making plans to expand down there. I think they are going where the purchasing power is, where the densities are, where the incomes are and were the various entries are highest. You are definitely seeing some people go into markets based on weakness and the kind of opportunities they can get there.

Just a follow-up. How do you think about your, I guess rollover risk, on rents in the coming two to three years. As a developer your properties are, generally speaking, efficiently leased at market or even a forward view of where market was headed. Would you agree there could be little more rollover risk in the downside in your rents the next few years, -- I guess call it older existing properties in the same markets?

I think there is a couple of thing there's. If you just look at the entire portfolio, we look at rent growth and $25 seems to be kind of the demarcation point. Anything above that we are seeing negative rent. For those leases that are rolling below $25 a foot, we are seeing positive rent growth. What happened over the last couple of years is the average rent in the portfolio has fallen from above $25 to it is now about $24. So, I think that in itself would give you more comfort that a lot of that roll-down risk has happened and is abating now and that is why I think we are starting to see -- we are being more optimistic on the rent growth. Still, if you do look at the average rent in the portfolio and look at particularly the smaller shops and compare it to the average leasing that was done in the quarter, you can say that based on that measure alone there might be room for, say, single digit roll-down on the new leases.

Thanks, Jim.

Next we will go to Christina (inaudible) from UBS.

Good morning guys. Looking at the development pipeline, the 79% leased, what is occupancy today and what should we expect will be sort of the incremental impact from the lease space taking occupancy this year? So right now you have NOI from CIP properties of $7.2 million per quarter. What should we expect that to be in Q4 result of lease space taking occupancy? And this is assuming the same portfolio so I know you will be completing some properties throughout the year.

Well, I'm not sure I fully follow the question. What we got is about -- are you talking about in the operating portfolio or the development?

Just look at the development pipeline.

Okay. Well, the amount of NOI from signed leases is $5.6 million I think.

$5.6 million.

I think that answers the question you have and I think there is an additional --

11.

-- $11 million to $12 million by getting to 95% rent over the next several years.

I understand what you are asking and I will follow up with you after the call. I don't think that we actually have that number right with us.

Okay. We'll follow up. And then, just Brian, Following up on your comments about retailers being modestly more aggressive on space needs, do you think they could be getting a little bit ahead of themselves, given the disappointing retail sales numbers that we saw this morning such that maybe the positive sentiment could pull back a bit? How much weight is really behind the new optimism?

I think -- I may be an optimist myself here. But if you look at what happened in retail. First, you had all last year where everybody was getting by on stronger margins because of better overhead control and inventory control. We did see over the last several months and a couple of quarters, much stronger top-line steals growth. First quarter same store sale growth, was like 5% plus and then you had the best March in ten years. So, I think what is happening is these higher top-line sales are leveraging the efficiencies that are in the system now and the retailers are doing very well. Again, when we had some of the retailers in here recently, their view is that it is long-term, that the big risk is behind them, they do see sales increasing and they don't feel they are getting ahead of themselves at all.

Okay. Thank you.

Thanks, Kristi.

Next we will go to Ian Weissman of ISI group.

Yes, good morning. Just on the development schedule again. If I look at some of these developments and I'm looking at the difference between the completed yield and stabilized yields and where you had initially underwrote these properties, it would tell me that rents or market rents are down 50% to 60%. Is that fair to say?

Some of them, yes. Particularly the higher markets, the mid Atlantic and California. I would say, 50 might be pushing it, but there has been a noticeable, 35% anyway in the decrease in the rents we underwrote.

So, I look at the properties as a completed yield is 2.5% and then going to 5.5%. Is that all just occupancy gains or are you thinking about rent growth in any of these markets at all?

That is occupancy gains.

That is occupancy gains.

Yes.

Are there exit strategies for developments where you are doing under 5% yields on a stabilized basis? How do you think about removing the drag of these assets?

Over time, historically Regency has been very active recycler of capital and we will make those -- reevaluate those decisions, as far as what it makes sense to sell, whether out of the operating portfolio or whether they are completed developments.

Okay, thank you.

Next we will go to Jim Sullivan with Kellen and Company.

Thank you, good morning. I have a question regarding the reallocation of costs from the development effort to the same store portfolio and maybe you can help me in terms of what that reallocation was going to be. I don't have the number in front of me. But as I recall in guidance in the second half of last year and as you talked about the flatter organization, there was so be a reallocation of a team that had been focused on development and that would be -- and that would be reflected in higher SG&A costs this year. My question is, number one, has the reallocation of costs, is that fully reflected in the operating expense lines for this quarter? Or is there more to come? Number two, on the development side, given that you have spoken in the prepared comments about some progress in some parts of the development portfolio whether there is a possibility that some of that might be reversed, some of that allocation that was talked about last year?

First of all, the biggest change that occurred, and a lot of it was related to development, is reduced headcount from 550 people to 400 people and there still is a development infrastructure that is in place, albeit, there are a certain number of investment officers that are spending some time -- more time on the operating portfolio and vice versa. And there may be some -- I don't see that there is going to be any -- necessarily any change in allocation between where we are right now.

I think the change in numbers would be reflective of the capitalization with the offsetting the gross numbers, Jim.

So what we see in the first quarter is what we should expect to see for the rest of the year with no reallocation to come?

To the extent that we pick up our -- as our development pipeline ramps up there will be additional capitalization.

Okay.

And I will I think what you are referring to is when we had the investor day in Atlanta in December we did give net G&A guidance, regarding that G&A guidance, at that time of $53 million to $56 million and we have not changed that. What we said at the time, even though gross G&A is down that is basically flat due to the fact that we will have less capitalization of overhead and we haven't updated that.

Very good, thanks.

Next we will go to Jay Habermann from Goldman Sachs.

Good morning everyone. Given your comments on the improvement leasing environment, can you give us a sense on the timing to stabilize a few of the larger developments. Has that timeframe changed?

We haven't changed it in our models. You know, I think it is still going to be -- despite things being much better the development pipeline is still leasing pretty slowly. It is leasing faster than we thought. The amount of leasing we did in the first quarter was twice what our internal plan was, but still they are relatively small numbers ,the news I gave you about the anchor in one of our Southern California properties is great news and that may accelerate it a little bit. But overall, the ones that have not moved into the operating portfolio are going to take a while. So no real change in timing.

Even if rents have come down as sharply as they have you are still seeing slow demand?

It is slow but it has picked up a lot. A few examples, down on the three projects that are in Riverside County in Southern, California, we not only have in the one the anchor that is ready to go, but we had only signed one shop lease there since the project was built. And this quarter we had three leases signed and we have one in lease negotiation. Also, down there is another center that we haven't had a lease signed in at least two years and we got two signed there. And we mentioned also up at Atwater no activity. With Wal-Mart moving in now, we are seeing a flurry of activity. This could change and we are not ready to say the stabilization date will accelerate meaningfully because we still have a long way to go. There is a lot more active.

You also mentioned move outs to return to a more historic norms by the end of the year or even next year. What do you think will drive that? Is it really just a burnoff of above market rents or are you expecting the recovery to take hold later this year?

I think it is all of that. I think we have gotten rid of our really weak tenants. I think those tenants that have stayed that are still in the portfolio are survivors and they figured out how to operate in this environment. One of the reason you might see a drop in occupancy in next quarter, there are retailers we planned to move out last year that still haven't moved out first quarter and they are just doing better. We are seeing improvement in collections. Slight improvement in collections that bodes well, so any improvement in the economy along with all those various factors, I think lead -- and we do think the leasing will at least stay where it is at are pick up. All that should translate into occupancy increase.

Thank you.

Thanks, Jay.

We will go back to Michael Bilerman from Citi.

It's Quentin here. In terms of the GRI joint venture and refinancing the 2010 debt, and both parties contributing a total of over $370 million in equity, I'm wondering in terms of the 2011 and 2012 maturities, how much equity you will need to contribute to refinance that debt?

Quentin, I don't have that number handy. It is front end loaded to the equity that we are contributing is mostly almost 70% is -- I'm guessing is the number. We are looking for that number right now. You can see it in the capital availability slide that was on the website.

Okay.

Right here, Bruce.

Our equity would be $54 million in 2011 and 2012 would be $6 million.

Okay.

Most of it goes out --

This year.

-- this year.

And so that is going to refinance most of the debt that is maturing and gets you leveraged down to a level where you think you won't have to inject additional equity above and beyond that?

Yes, that is, correct.

I'm just wondering what GRI's plans are. I know you stated before that they are in for the long haul with this joint venture. They are obviously injecting this equity which they knew about when they formed the joint venture. Are they looking at expanding the joint venture relationship? Do they want to invest in additional assets?

I will ask Hap to respond to that.

I think most definitely they -- CalPERS has a strong interest in expanding there investments in core shopping centers and I think they are very happy -- with the performance of the partnership so.

And lastly, trying to hold your new joint partner on some of the St. Louis retail assets, has anything changed there moving to Chatterhall from Macquarry? Do they want to get out of this joint venture or maybe they are going back to expanding that relationship.

I don't think they will expand, I think we will see at least, in the near term, it will be a whole position and, my assumption is over time they will look and see what they want to do in the US if they want to do anything.

Okay, perfect, thank you.

Thank you.

(Operator Instructions). Next we will go to Ryan Levinson from (inaudible) Funds Management.

Thanks for taking my call. I'm just wondering if you can address the steadily ratcheting up tenant improvements on page 24 of our supplemental? What is driving that?

They have gone up slightly. What is really driving it is the PETCO lease. If you look in the supplemental you will realize it those are all cash payments. We are $600,000 higher than we were for the same quarter last quarter and all of that is related to the PETCO lease. If you strip that out we are exactly where we were last quarter.

Last quarter was pretty high as well. I'm wondering if this is tenant improvement, especially on renewals which are at $0.79 a foot, which is three times what it was last quarter. I'm hard pressed to understand what the tenant improvement is on a renewing lease that all of a sudden it jumps so substantially?

There is fluctuations every quarter up and down. As I look over the past two years quarter by quarter there is really not that much increase. This quarter you take a look at the TIs and we did have a very large user, LA Fitness which is a special purpose building and we put a fair amount of tenant improvement dollars into that. You move that out and it drops the number 40%.

Is it the renewal number that it drops 40%.

That is the new lease.

That is a new lease for you. So it drops the new lease number 40% or the difference between --

It drops it about 40%. We also had -- and it does the same thing on the renewal side. We had a couple -- two or three restaurants across the country where they had been in occupancy for a long time, it was time to renew, the building needed a lot of work, one of them was in Phoenix, it was a really good operator, we didn't want to lose it, that is a tough market and so we did put more TIs into that. I think you step out those anomalies and you do not see much increase at all going on out there.

Seems like --

It is not a trend. It's an exception. I think that is the bottom line.

It seems like it is an exception or anomaly every quarter because --

Thank you, Ryan.

It appears there are no further questions at this time. I would like to turn the call back over to Martin Stein for any additional or closing remarks.

If there are no other I can questions we appreciate your time and interest in the company and wish everybody to have a great day and a great weekend. Great Mother's Day weekend.

Ladies and gentlemen, that does conclude today's call. Thank you all for your participation.