Regency Centers Corp (REG) 2010 Q3 法說會逐字稿

Good morning, my name is Yolanda, and I will be your conference facilitator today. At this time I would like to welcome everyone to the Regency Centers Corporation third quarter 2010 earnings conference call. As a reminder this call is being recorded and all lines have been placed on mute to prevent any background noise. (Operator Instructions). I would now like to turn the conference over to Lisa Palmer, Senior Vice President, Capital Markets. Please go ahead, Ms. Palmer.

Thank you. Good morning, everyone, thank you for joining us today. On the call this morning are 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 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 that we filed with the SEC under Regency Center Corporation specifically the most recent report, on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in these statements. Bruce?

Thank you, Lisa. Good morning to everyone on the call. Recurring FFO per share for the third quarter was $0.60 and same property NOI growth was positive 1%. FFO was above our guidance, mainly due to better than expected performance of the operating portfolio. As of September 30, the portfolio was nearly 93% leased on a same property basis. We have seen an improvement in the overall health of our -- of the tenants in our portfolio, resulting in a lower than expected bad debt expense and improved accounts receivable balances.

As of September 30, receivables outstanding greater than 90 days were more in line with our historical experience and ahead of expectations. In response to the continued improvement on fundamentals we have raised guidance for the remainder of the year. 2010 FFO per share is now expected to be in the range of $2.25 to $2.30 with recurring FFO per share between $2.35 and $2.40. Same property NOI growth is now expected to be positive with guidance of 0.5% to 1.5%. Subsequent to quarter end we completed the sale of $250 million of 4.8%, 10.5-year notes.

Concurrent with the sale, we initiated a cash tender offer for the notes maturing in both 2012 and 2011. During September, Treasury yields decreased and spreads tightened. While we had originally intended a $150 million offering in January 2011 to refinance the bonds maturing that month, we felt that with the positive market tenor and historically low interest rates it was best to increase the new offering and match the incremental new debt with an equivalent amount of tendered bonds.

The net proceeds from the issuance we used to settle the tender offer as well as remaining forward starting swaps and to repay the line of credit. As a result of this transaction, the second quarter debt offering and additional repayments, we have extended the average maturity date of the consolidated debt by nearly two years to 2016. With the remaining cash from this transaction and the limited near term maturities, we now anticipate settling the forward equity offering near the end of the first quarter.

Also subsequent to quarter end, Regency and GRI locked rate on $340 million of loan proceeds to refinance a portion of the mortgages that mature in 2011. This refinance is at a rate of 4.9% over an 11-year term. Due to our continued efforts to improve the debt positions of our co-investment partnerships, particularly GRI, we have reduced the amount of unconsolidated debt outstanding since December 31, 2009 by nearly $400 million and extended the weighted average maturity date by nearly four years to 2017. Brian?

Thank you, Bruce. Good morning. The third quarter results demonstrate continued improvement in the retail environment in general and in our portfolio in particular. Retailers have gone from kicking tires to actively leasing space which is benefiting our leasing team's aggressive efforts. For the first time in company history, we leased over 400,000 square feet of new operating space in three consecutive quarters.

During the quarter we leased or renewed a combined 1.6 million square feet of space and year to date we leased or renewed a total of 4.3 million square feet. Furthermore, we signed more new leases in our operating portfolio during the first nine months of this year than we did in all of last year. And third quarter new leasing was not only 45% higher than the 2008, 2009 average, it was also 20% higher than the average leasing volume during the heady years of 2006 and 2007. Leasing was particularly robust in our small shop spaces. Tenants less than 15,000 square feet comprised nearly 70% of the GLA leased in the third quarter.

Regionally, leasing activity was particularly strong in Northern California, Texas and Virginia and we have seen notable improvement in leasing activities in parts of Florida and in our California developments. In addition to strong leasing volumes, it appears the quality of the tenants with whom we are dealing, is also significantly better with most of our leasing activity involving national or regional chains or well-capitalized franchisees. These tenants, which include small shops are more sophisticated, more experienced and they're proven operators. Retailers have also shown a distinct transformation from caution to commitment.

We see this in the renewed enthusiasm toward expansion in their willingness to sign longer term leases. We also see it in leases being signed for specific spaces the retailers rejected a year earlier. We see it when retailers make commitment to spaces they previously leased on a trial basis, and we see it in the retailers now leasing space in our lower quality centers. This quarter, almost 20% of the GLA we leased was in these centers compared to less than 10% two quarters ago.

Nearly every other metric that we use to measure the performance of our portfolio continued to improve over prior quarters including same store NOI growth, which is positive for the second consecutive quarter and net absorption which was at much improved levels compared to prior periods. As Bruce mentioned, the existing tenants appear to be doing better overall resulting in lower bad debt expense and approved accounts receivable balances. Definite progress has been made to wring out the weakest operators. Most that remain are battle tested survivors who are feeling pretty good because they absorbed the best body blows a bad economy can hit them with and they are still standing.

One metric that did not improve was rent growth. This was particularly due to the fact that most of the leases signed during the quarter were at spaces that have been vacant for more than a year.

Although at lower rates than last occupied, these spaces are now leased and generating NOI, which improves the value of and increases the traffic in those centers. Going forward, we will likely continue to face the reality of lower market rents in some centers as leases roll upon expiration. Fortunately, over half of the portfolio is more than 95% leased and rent roll downs tend to be muted at those centers. It is also likely there will continue to be a high level of move outs in the near term as a result of a slower economy and our efforts to weed out and upgrade to better operators, but we expect the volume will decrease over time.

As anticipated, Blockbuster filed for chapter 11 bankruptcy protection in September. Although we may not learn Blockbuster's final intentions until the first quarter of 2011, we are continuing to project that they will close approximately half the stores in our portfolio.

Let me now turn to new investments. As we stated on prior calls, we will continue to implement our recycling strategy by selling lower tiered assets and reinvesting that capital into A quality centers. During the quarter we acquired Glen Oak Plaza located in the affluent North Shore sub-market of Chicago where average household incomes are more than $130,000. The center is anchored by Trader Joe's and Walgreen's and the remainder of the tenant base is extremely stable.

Many of the leases are below market, even in today's economy, so there is plenty of room for future NOI growth. We are also moving forward on several off market acquisitions that meet our investment criteria, one of which will likely close during the fourth quarter. Therefore the upper end of our 2010 guidance for consolidated acquisitions was increased to $82 million. We remain committed to our value-add strategy by redeveloping existing centers within our portfolio, by selectively converting our land inventory to future developments or cash and by developing new centers with strong anchor sponsorship and demonstrated demand for modest amounts of shop space.

Our redevelopments have been extremely successful. For example, we are nearing completion on one redevelopment with a 24-year-old Safeway anchored center in northern Virginia with a projected return on investment of more than 13%. Safeway agreed to expand their store due to our renovation and executed an additional 20-year term. This cemented our competitive position and improved the marketability of the small shops, attracting higher quality retailers that are willing to pay more for remodeled space. Looking forward, the pipeline of future redevelopment is encouraging. We continue to make progress converting land held into cash or developments. This quarter we closed on the sale of one of our parcels to Wal-Mart. Our newest developments continue to perform well.

The Publix at Seminole Shoppes had an extremely successful grand opening during the third quarter. Early annualized sales are on track to exceed the successful store that it replaced by nearly 25%. Market at Colonnade and Village at Lee Airpark continue to receive significant tenant interest and we are quoting rents above initial underwriting. These three are the benchmarks and prototypes for future development opportunities. Even though guidance for new development starts for the year was reduced, the pipeline of new opportunities appears to be growing.

In summary, the trend of improved fundamentals and increased leasing activity that began in the first quarter has continued into the third quarter. While there is still a long way to go before the economy fully recovers and our objectives are reached, operating conditions and retailer outlook are steadily improving and we remain hopeful that these positive trends will persist. Matt.

Thanks, Brian, and thanks Bruce. Good morning, everyone. Most of the realities of the downturn are still with us, a fragile economy with high unemployment and tepid growth. Pressure on rents and stubbornly high move outs. And now an extremely competitive market for core quality income producing assets. In spite of these challenges, I like Regency's cards. Gross results indicate that the portfolio is holding up remarkably well and 2010 leasing activities as you just heard has been extremely robust. We are cautiously optimistic that during the next three years we can achieve 95% occupancy and realize the related $35 million potential gain in NOI.

The reason for the cautious optimism is that recent experience has reinforced our ownership and investment proposition with the combination of strong anchors and above average household income as a proven resilient strategy. The centers that meet these criteria comprise the vast majority of the NOI in our portfolio. And we are experiencing healthy leasing activity throughout the portfolio.

In addition, many of the retailers are in good shape and expanding. As Brian indicated, this includes successful non-anchor national and regional chains. The balance sheet is in excellent shape. We face modest maturities and capital requirements during the next three years. During the quarter we successfully accessed both the public, debt and mortgage markets at extremely favorable pricing.

Regency enjoys a unique combination of existing centers with excellent redevelopment potential, land owned, anchor relationships and in-house development expertise and market presence that will allow us to profit from our value added plan. Progress continues to be made enhancing the prospects of future NOI growth through our capital recycling program that is culling properties and reinvesting the capital into centers with more reliable future NOI, often from off market transactions. It may even make sense to take advantage of the current heightened demand for shopping centers to further accelerate Regency's recycling program.

And finally and most important of all, we have an exceptionally talented and engaged team built around the special culture and organizational architecture that is intentionally focused on executing Regency's strategy to grow recurring FFO, to grow NAV, and to grow shareholder value.

We thank you for your participation and welcome any questions you may have at this time.

Thank you. (Operator Instructions). We will hear first from Quentin Velleley with Citi. Go ahead.

Good morning. I am here with Michael Bilerman as well. Just firstly wanted to touch on acquisitions. I know your joint venture partner Charter Hall, formally Macquarie has spoken about selling their joint venture interest. You obviously have the four joint venture assets, which have a book value of $63 million and then there is the DESCO joint venture which is $372 million. So I am just wondering if you could comment on your interest in those assets and with the DESCO joint venture, just wondering if you have a right of first offer or whether there is a distribution in kind or whether Macquarie or Charter Hall could sell their stake to another party and just how that might pan out?

Thank you, Quentin. There is a distribution and kind provision in our co-investment partnership agreements with Macquarie or Charter Hall and with all of our partnership agreements. That's number one. Secondly we are going to continue to work with Charter Hall to see if we can facilitate what their objectives are. But I think as history has shown that will be done on a basis that makes sense to Regency shareholders.

And then just secondly, in terms of your leasing spreads on new leases, which were down or a little bit weaker than the last two quarters, I just wanted to confirm, do you include leases that are on space vacant for more than 12 months?

We do Quentin. We don't have any restriction on the amount of time they have been vacant.

So I'm just curious, if you took those leases out on space that has been vacant for greater than 12 months, do you know what those leasing spreads would look like? It is just that a number of your peers report on that metric, so I'm trying to get an apples for apples.

We don't have it. We can get back to you on that if we specifically exclude them. What I can say, is obviously the longer they have been vacant, the worse the rent growth is. We did look at it for spaces that have been vacant for more than 10 months. And those spaces the rent growth was negative 20% and less than 10 months it was negative 8%. If you look at our -- at the lower quality spaces that we did, those were down an average of 18 months. So I think it would improve those numbers pretty significantly.

That will be very helpful. Brian, you just commented on you're coming to terms with some assets where there will be rent rolldown where market rents are lower than passing rents. I'm just wondering whether you could comment a little bit more on what assets they might be and what proportion of the portfolio you think that is apparent in?

If you look at rent growth this quarter and kind of use that as a proxy, the two things that really drove it were, first and foremost that most of our leasing was done in properties that up until now the retailers haven't been interested. Those would be just the lower tier assets. The caution that the retailers were showing is they just wanted the best space. So that's what drove it down this quarter. If that continues, it will obviously have an impact on us. But fortunately I think only 10% of the portfolio would fall into that category.

And then the other thing that happened this quarter is that 30% of our leasing was done in northern California, Virginia and Texas. And northern California and Virginia are where we have some of the highest rents in the portfolio. We think that will moderate as the rents have come down over the last year or two. I think that would give you an indication.

Okay, thank you very much.

We will move to our next question from Michael Mueller with JPMorgan. Please go ahead.

Yes, hi. You talked about possibly accelerating some asset sales. Can you talk a little about where you see the pricing for the type of product you consider selling, more the non-core stuff, where you think it is today and where you see it going over the next 12 months?

I'd say that the average, although it is going to vary, I think with our experience to date has been, and I think as we had given in the guidance, is in the eight range. I think we would expect it to stay there.

And just secondly, has there been any notable change over the past couple of quarters in terms of the leasing of developments and retailers, acceptance going into a new development project versus something that has been stabilized and up and running for some period of time?

We have. What we are seeing is consistent with the across the board feeling on the part of the retailers that they are more optimistic, they are more willing to commit. Just like in the operating portfolio, they are now willing to go to some of the lower quality properties. We are seeing the same thing in development. We are not seeing a huge surge in the development leasing, but it has picked up. Particularly in the large ones in non-coastal California, we have talked about in the past how for example Atwater has shown a lot of increase in leasing activity. That has to do with, partly with the fact that Wal-Mart has taken the old Home Depot space. But also down in Indio, in the desert, you are seeing -- we have brought in a few of the retailers a few quarters ago.

That's generated substantial interest. I mentioned in my comments that the retailers are taking some temporary space. We had a situation like that in Indio as well where Party City did a seasonal store with one of their Halloween concepts and their results were so strong they are now in negotiations to take a full permanent 20,000 foot square foot store. We have another very large user, about 80,000 square feet, talking to us about the desert. There is just a lot of good activity that is starting to happen that we didn't see, certainly not this time last year.

Great. Thank you.

Thanks, Michael.

We will move next to Craig Schmidt with Bank of America Merrill Lynch. Please go ahead.

I guess similar to Michael, I'm wondering, I notice you increased the completed projects from six to 10 going from second to third quarter. How many projects do you think you can complete by the end of year-end 2011?

Our criteria for that once again, is achieving 95% leased or within three years of anchor opening.

It looks like we will have 12 that we are counting on right now being completed by 2011.

And I will add, Craig, I think that in the supplemental, we give the costs associated with that number of projects. We have the development completion schedule by year, basically. For the remainder of this year we have guidance on the guidance page that the full year completions are going to be around $300 million. And next year we are expecting it to be a little bit north of $200 million.

And in terms of the reluctance leasing, is it more from the anchors or the small shop space at this time?

We are seeing it across the board. If you look at the leasing as I mentioned in this quarter, 70% of the GLA and 97% by number were the smaller tenants. But I also gave the example of what is going on in the desert where we are seeing the anchors being much more active. We don't have that much vacant space in the way of anchor shops or anchor GLA.

Okay, thank you.

Thanks, Craig.

(Operator Instructions). We will hear next with Jim Sullivan from Cowen & Company. Please go ahead.

Yes, good morning, thank you. Just want to follow-up, I guess, on some of the comments Brian made as well as some of the prior questions. The leasing spreads being weak and yet the leasing activity being very robust. At some point here I guess particularly since you are talking about maybe more difficult space that you are leasing, one assumes this is going to flip and these spreads are going to become more positive, particularly given what I would characterize, Brian, in your comments as a pretty positive active market. So you sound like you are very encouraged and yet the spreads are negative.

You mentioned California is one of the reasons here. So maybe it is geographic as much as anything. I wonder if you think the roll down that you are seeing in California is something that will be with you for awhile, or if you think there is a turn that you might see maybe out a year or more than that? I'm just curious when these spreads will turn nicely positive given the level of activity.

I think we will continue to see pressure as we would whether it was a good market or bad market on those properties that have their own specific issues whether it is too much shop space or whatever. And we will certainly see it, I think in the markets where the rents were very, very high, but having said that, if you look at the leases that are expiring next year the rents are about $18 a square foot and if you look at the lease rates, that average lease rate that we signed this past quarter, it is a few pennies below $18. We are reaching the point where it is flattening out. I think it would be more consistent with what we have seen the last couple quarters, which is relatively flat. With some pressure, more pressure on the newer ones and less pressure on the renewals.

And then also kind of a related question, what's the trend in TI's in terms of your discussions? As the market would be improving here, we would assume that demands for TI dollars would go down as well. Is that also happening?

It is interesting Jim, because what we are hearing from the field is that demand is going up. It is a point of discussion with everybody, but we are not seeing that in our numbers. You look in the supplemental and you will see that the growth TI numbers are down. That includes all leases whether they have had TI's or not. If you really break it down to what we call our deal specific TI's, where we look at just those leases signed with tenant improvement dollars, the new leases are basically flat over the last several quarters. The renewals are down and fewer retailers are getting it. That's the result of a couple things. One, most of our leasing -- or a significant amount of our leasing is down with PCI tenants and only 7% of those got TI's. They just don't need it.

Most of the requests are coming from the smaller tenants who would like for us to help them finance those costs. So that's kind of the color going on. We are hearing more requests for it, but it is not showing up in our numbers yet.

Looking at the leasing stats between the rents and the TI's in the third quarter, it almost seemed -- if you think about in terms of net affected rent, your duration went down slightly, but TI dollars went down more and on a net effective basis you actually probably did better than in some of the prior quarters. That was our impression.

And finally kind of tying into Hap's comment about recycling and in the process of recycling I guess upgrading the overall quality of the portfolio, should we expect that you are going to make -- I'm sure your trying to lease every empty box you have or spot you have, but should we expect there will be even more of a push to fill up the vacancies in what we might characterize as a weaker product that you might be more anxious to fill?

As we have indicated in the past, every year we have go through a rigorous analysis of our portfolio. We are in the process of doing that right now. And given the tone of the market, we may after we have gone through that analysis, may use the strength of demand to accelerate our recycling program.

Great, thanks, guys.

We will take our next question from Laura Clark from Green Street Advisors. Please go ahead.

Good morning. Going back to your comments on the off market acquisition opportunities that you are pursuing, we always wondered in today's competitive acquisition market, why would a seller do an off market deal and not take a property to market?

I don't know. I'm just glad that they do occasionally. These have been legitimate opportunities that were not taken to the mass market. Every one of these is a result of us actually calling on the owner and the owner just agreeing to work with us.

In one particular case, it is actually one of the properties we have not yet closed on it was widely marketed about two, three years ago, and we liked the asset a great deal, but it was an unsuccessful marketing. They took it off the market. We just went back and had -- the broker knew the owner, call and say would you be receptive to an offer from us and he said yes. We consummated that deal. I'm not sure why they do it, but it is happening.

And then secondly, as you are nearing completion in terms of the funding on your development pipeline, how are you thinking about the ramp up of any future development given the continued talk we are hearing around retailers actively looking for space to meet future growth needs?

Well, the properties that we talked about on the call earlier in my remarks, the three that are currently under construction or just recently finished construction, those are the kind of opportunities that we are looking for. It takes awhile to ramp up the development program after shutting it down, but we are starting to see much more activity. It takes awhile for these things to be ready to proceed. But for example there is one we are working on right now, two of them out in the Pacific Northwest that would be very similar to the kind of properties that we are talking about in Seminole Shoppes where you've got strong grocer demand, you have very shop demand.

I think where it is more difficult is on the community centers where you have large tracts of land and in many cases they are not in infill locations. The economics are more difficult to justify because the sales are not going to be as strong in those areas. For the infill grocery anchored, while there is not a lot of them, we are starting to see a lot more of them. We will proceed with them.

All right, and can you give us an idea of the magnitude of I guess what level of development you are comfortable with going forward?

We kind of followed that approach the last go around. Now I would tell you we are not going to be doing it just because they are available. But I think what our goals are would be to step it up. We think that in a few years' time we can get up to $150 million a year in new developments as well as value added redevelopments. And it will probably go straight line from next year maybe about half that much to straight line increasing it to $150 million.

Okay, great. Thanks so much.

We will take our next question from Ian Weissman with ISI Group.

Yes, good morning. Just a housekeeping question for Bruce. In prior calls you talked about provision for bad debt being about 1.5% of revenues. It fell considerably this quarter. What is your expectation going forward?

Ian, just to give you a number from your perspective on forecasting, I would use right at 1% today.

And what was the reason, just clarify, for the drop this quarter?

Again, just improved receivables. Again as we indicated in my comments a greater than 90-day percentage of revenues was in line -- much more in line with our historical experience and less bad debt expense effectively. Those were the two reasons.

Thank you.

We will hear next from Paul Morgan with Morgan Stanley.

Hi, good morning. On the Blockbuster, you said you expected to lose maybe half of them with a guess of half a percent of your revenues. Can you talk a little about, assuming that would happen sometime next year, how your wait list is looking for those sites and what kind of downtime -- you obviously have known about this for a long time. What kind of downtime would you expect given current market conditions and the visibility there?

You are right. It has been known for a longtime. And certainly all the brokers and all the retailers were aware of it too. We have had a pretty good jump on it. Overall we are expecting the downtime is going to be about 10 months, a little bit better than what the overall portfolio has been doing.

And just to give you some flavor for it, we've got for example up in Pennsylvania a great replacement tenant, it's a name you would recognize; has actually signed a lease in anticipation of that space becoming available even though Blockbuster has not rejected it yet. What they have done is sign this lease which represents in this case 40% rent growth, and it would become valid when Blockbuster -- when and if Blockbuster rejects that space and it is good for 365 days. We have one of the three the Blockbusters rejected already, one is in Village Shopping Center and there one of the Dollar concepts wanted to be there. We turned that down. We have a lot of interest.

We are fortunate enough there to be focused more on merchandising than filling it up right away. We have had -- we have another one where a multi unit food user is going to take 7,000 square feet. There is quite a bit of activity going on. That won't be the case on all of them, but we do have a pretty good head start. We assumed that 18 would be rejected in 2010, and so far there has only been three. And of those three that they have rejected, we have good activity on all of them.

Great, That's helpful. And then on -- going back to the leasing, can you just talk a little about what -- and it is not always easy, but just in terms of the absorption you have been seeing, a break out between tenants that have been poached versus incremental demand in the market. I know you have been focusing on getting folks to upgrade to your centers. How has that gone and has that a driver relative to just kind of organic demand?

I think you are seeing this quarter more organic demand. In the past we have been very successful relocating tenants into the center that were in other properties. Sometimes that's because retailers in general have been looking to upgrade their spaces. And it is not just Regency wanting to upgrade our tenant mix, but them wanting to upgrade where they want to go. This quarter you are hearing a lot more just active tenants, tenants that have been kind of on the sidelines for the last year or so are back reengaged. We heard many examples of that. You are seeing more of that this quarter than we have in past quarters.

Thanks.

Thanks, Paul.

We will take our next question from Nathan Isbee with Stifel Nicolaus.

Hi, good morning. I'm not sure if I missed this, but in your small shop space, what was your net absorption figures for this quarter?

Just by small shops?

Yes.

I don't have that.

What we gave was the 70% of the GLA that was leased -- new lease during the quarter was under 15,000 square feet.

And well maybe you can give a little color in terms of move outs? And how many small shops moved out this quarter?

We don't have that -- I don't have that number broken down. In general the absorption has been for probably the last year, stair stepping its way back up. We have gone from -- it would be a move up, and then we take a step back, two steps back toward positive absorption, step back. Last quarter we went positive. This quarter we were slightly negative. I think that trend is continuing.

Okay. Thanks.

Thanks, Nate.

(Operator Instructions). We will hear next with Rich Moore, RBC Capital Markets.

Hello, everyone, this is Wes Golladay. A quick modeling question. We noticed that other income increased to $4.2 million. Is there anything special in there that we should remove going forward?

Yes, Wes. That's effective captive insurance that we recognize and the income recognize in the third quarter based upon the experience we had over the prior year.

Okay, so that would be like a seasonal 3Q for 2011 as well?

That's correct.

Thank you.

Thanks, Wes.

And we'll take our final question from Jay Haberman with Goldman Sachs.

Good morning, everyone. To your $35 million NOI increase that you are targeting, can you get there purely on the occupancy or will we need to see some signs of rate growth over the near term?

The answer is yes we can get there purely on the occupancy.

Okay, and can you just give us a sense of where you need to be in occupancy versus where you are today?

95%.

And just ask the question in terms of rate growth. If we are sitting here today with high teens vacancy, when do you guys think you will start to see some signs of rent growth, i.e. how much rent space that was built that you think is purely not competitive with yours?

What do you mean by -- you mean -- where does high teens vacancy -- but in any event -- obviously the point is, as we get in our centers that are above 95% leased which is over half of the portfolio, we have more pricing power. And as the occupancy in our centers goes up, we will have more pricing power. And then that will probably also going to be reflective of what is happening in the market. There isn't a lot of square footage being added at this point in time. So I think, we may be under pressure for the next 12 months or so where rents are going to be flat. But hopefully starting in 2012, we will start seeing -- beginning to see some benefits of some pricing power

Okay. And I guess maybe for Brian on the leasing spread question going back to that, can you talk about space that maybe has been vacant for more than 12 months versus the more recent turnover. Is it really addressing most of that longer term vacancy? Is that really what has had the most negative impact on the leasing spreads? And then as we look forward, we should think that abates going forward?

Yes. It absolutely had the most impact this past quarter. Going forward I think we will see that leasing up more than it has in the past. History repeats itself. That space has been vacant the longest is going to have the highest -- or will have the most negative rent growth. But fortunately again, we don't have that much of that space.

Great. That's all I need. Thank you.

Thanks, Jay. If there are no further questions we appreciate your participation in the call. Thank you and have a great rest of the week and a great weekend.

That does conclude today's conference. Thank you all once again for your participation.