Site Centers Corp (SITC) 2003 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the Developers Diversified Realty fourth-quarter earnings conference call. At this time all participants are in a listen only mode. Later we'll conduct a question and answer session and instructions will follow at that time. (OPERATOR INSTRUCTIONS) As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Michelle Mahue.

Thank you Adam, and good morning ladies and gentlemen. Thank you for joining our fourth-quarter earnings conference call. I am Michelle Mahue, Vice President of Investor Relations for Developers Diversified. With me in Cleveland are Scott Wolstein, Chairman and Chief Executive Officer; David Jacobstein, President and Chief Operating Officer; Dan Hurwitz, Executive Vice President; and Bill Schafer, Senior Vice President and Chief Financial Officer.

Before we begin I need to alert you that certain of our statements today may be forward-looking. For example statements that are not historical in nature or that concern future earnings results or estimates or that reflects expectations or beliefs are forward-looking statements. Although we believe that such statements are based upon a reasonable assumption, you should understand that those statements are subject to risks and uncertainties and that actual results may differ materially from the forward-looking statements. Additional information about such factors and uncertainties that could cause actual results to differ may be found in the management's discussion and analysis portion of our Form 10k for the year ended December 31st, 2002, and filed with the SEC.

At this time I would like to introduce Scott Wolstein our Chairman and CEO.

Good morning everybody and welcome to our conference call. I would like to start by reviewing some of the accomplishments for our Company during the past year. 2003 has been an extraordinary year for Developers Diversified. Our Company faced a variety of opportunities and challenges in the midst of a spectacular list of accomplishments that I would like to briefly highlight.

On the balance sheet side we established a strategy to substantially improve our credit quality and address and investor's perceptions of our financial position. We met with rating agencies and fixed income communities, educating the market and our achievements in improving all aspects of our credit including leveraged levels, leverage ratios and exposure to variable-rate debt.

Our meetings resulted in a change in our corporate credit outlooks from negative to stable by both agencies in April. As a result the market responded by dramatically tightening our credit spreads. In July, we issued $300 million of seven-year senior unsecured notes with a coupon of 4.62 percent. And just last month we issued 275 million of five-year notes with a coupon of three and seven-eighths. Spreads on these bonds are low as a one-third of what they would have been just twelve months earlier.

Although these issues were clearly initially dilutive, it created the opportunity for the Company to take advantage of attractive rates for long-term debt and to reduce our variable-rate debt exposure which currently stands at approximately 16 percent of our total indebtedness. These efforts to reeducate the fixed income community also enhanced our ability to capture the market's demand for preferred stock at historically low coupon rates.

In March, we issued 180 million of preferred stock with a coupon of eight percent, replacing the same amount of preferred operating units that previously bore a nine percent coupon. In June, we issued 205 million of preferred stock with a coupon three, seven and three eighths, replacing 204 million of preferred stock with a weighted average coupon of 8.7 percent.

Again, although the redemption of the existing preferreds resulted in certain non-cash charges that were dilutive to earnings in 2003, the lower coupons helped to preserve our strong financial ratios for years to come.

Our bank group also recognized DDR's improved credit quality. In December we amended our credit facilities to reduce the interest rates by 20 basis points, extend the maturity to 2006, and add an accordion feature that could increase the size of the line from 650 million to $1 billion at the option of the Company. We have further enhanced our financial flexibility by taking advantage of strong market pricing available for our assets. While many of our peers have played lip service to the opportunity to benefit from the strong pricing environment for retail properties, at DDR we executed on this opportunity. We and our joint venture partners sold nearly $1.2 billion of assets during 2003 at a weighted average cap rate of under eight percent, generating gains in excess of $250 million.

Our proportionate share of these transactions was $500 million which generated gains to DDR of approximately $100 million. This market demand enabled us to focus on value creation through capital recycling. The company was able to increase our dividend and still retain an amazing $350 million of capital which will be redeployed into developments and higher yielding investments during the years ahead.

As a result of this focus on our balance sheet, we are in a substantially stronger financial position that we were a year ago. Our plan to term out debt, extend maturities and refinance variable rate debt has helped create more flexibility and liquidity than the Company has had in years without relying on the issuance of new equity for a quick fix to the balance sheet.

Concurrent with our focus on improved credit quality, we also completed several very important transactions. In March of 2003, we completed the merger with JDN Realty, ending over $1 billion of core assets to our portfolio and increasing our asset base by more than one-third. We utilized the capital market to finance the merger in a highly efficient manner. We issued over 18 million new shares to complete the merger, refinanced JDN's $300 million secured revolver with an unsecured bridge loan at a spread of over 100 basis points less, and encumbered nearly $500 million -- and unencumbered nearly $500 million of real estate assets. The Company recently repaid half or 150 million of the JDN loan.

Also, during 2003, we established three new relationships with institutional capital partners, representing approximately $1.2 billion in new equity for new investments. These relationships include the formation of Macquarie DDR Trust or MDT in November; Coventry Real Estate Fund II in July; and also a joint venture with Acquidie (ph) Financial Center in May. These new joint relationships afford our investment strategy which is highly focused and well defined.

We will utilize MDT to acquire fully stabilized core assets which could potentially include assets from our own development pipeline.

To Coventry 2, we will make $1 billion in value-added acquisitions over the next three years such as properties in need of redevelopment or re-tenanting.

Lastly, will use our own balance sheet to pursue ground up development. This development project generates the highest yield per dollar invested with initial yields of 12 percent per annum on an unleveraged basis. With nearly $1 billion of assets in our development pipeline, we are very excited about this opportunity to enhance the Company's long-term earnings growth.

At this point I'll turn the call over to Bill Schafer for the financial results. Thank you.

For the fourth quarter of 2003, DDR reported FFO of 69 cents per share basic and 68 cents per share on a diluted basis. Excluding the impact of the recently announced litigation charge, DDR's FF0 was 78 cents per share on a diluted basis which reflects an increase of approximately 22 percent over the previous year. The Company earns total FF0 of 60.1 million in the fourth quarter of 2003, which is over 39 percent higher than the 43.1 million earned in the fourth-quarter of 2002.

Also during the fourth quarter, DDR reported net income of 92 cents per share, which is nearly 163 percent higher than the 35 cents per share earned in the fourth quarter of 2002. The Company earned over 91 million in net income during the quarter which is over three times the amount reported for fourth quarter 2002. This significant increase is primarily attributable to the gain on sale of assets to MDT.

At Scott mentioned, during 2003 DDR retained approximately 350 million in capital, nearly 100 million was generated from operating cash flows and approximately 250 million was generated from asset sales. With this level of retained capital, DDR can self fund capital required for it's development pipeline thereby recycling capital and generating shareholder value.

As previously discussed during 2003, the sale of assets and joint venture interest generated approximately $250 million of gains to DDR and its partners. Although DDR did not recognize any of these gains on sale of assets in it's FFO figures, these gains do represent significant value creation. The gains result in cash inflows to the company which are then it reinvested into higher yielding investments such as development and redevelopment projects. The Company also utilized these funds to strengthen the balance sheet through the strategic repayment of debt.

DDR's JDF (ph) FFO was significantly higher for the three months ended December 31, 2003, compared to the same period in 2002 due to over 7 million in promote income associate with the sale of certain joint venture assets to the new Australian listed property trust, plus approximately 3 million in sponsor fees earned in association with LPT and the gain on the early extinguishment of debt of approximately 3.4 million.

The twelve-month periods for 2002 and 2003 however, reflect a year-over-year increase of approximately eight percent which is in line with DDR's overall historical JV FFO growth rate.

DDR also earned approximately 3.4 million in structuring and financing fees from the Australian transaction which is recorded in other income line item on the Company's PNL.

Since the beginning of 2003, shareholder value for DDR shareholders increased by approximately one billion. In connection with this increase and the value of the common equity, the Company's GNA increased by approximately 11 million over 2002 primarily attributable to the following three items.

First, the Company's merger with JDN Realty added over 4 million in incremental GNA. Second, the dramatic appreciation of DDR's stock price triggered certain compensation thresholds with regard to performance units and deferred director compensation. And third, GNA expenses increased as a result of Sarbanes-Oxley compliance for which the Company incurred additional professional costs and was required to expense costs such as flood (ph) dollar insurance premiums that it historically had capitalized.

Consistent with our comments on many previous conference calls, DDR remains committed to preserving the strong balance sheet and the Company's year-end financial ratios clearly reflect this objective. For the twelve months ended December 31, 2003, the fixed charge coverage ratio was 2.5 times as compared to 2.2 times at year-end 2002.

Debt service coverage was nearly 3.5 times as compared to 3.4 times at year-end 2002 and interest coverage was over 3.9 times as compared to 3.7 times at year-end 2002.

I would now like to turn the call over to Dan Hurwitz to discuss leasing and development.

Thank you Bill. I'm very pleased to report that 2003 was another solid year for the DDR leasing team. Overall our team of leasing professionals executed 810 leases representing approximately 3.8 million square feet of retail space. This square footage is comprised of 1.8 million square feet of new leases on previously vacant space, and 2 million square feet of renewals. In addition, the Company executed 39 transactions on the service merchandise portfolio totaling an additional 2 million square feet. Moreover, in peripheral development, our group executed 50 transactions generating value in excess of $13 million.

Our ancillary income group drove revenue to 4.8 million in 2003, a 30 percent increase over 2002. These metrics coupled with an outstanding development pipeline, continued tenant roster expansion within our sector (ph), and a seemingly improving economy, have delivered us to 2004 with great momentum.

Our sector today is clearly be sector of choice for the nation's most successful retailers with growth aspirations. The fundamental property level metrics of strong sales, coupled with reasonable occupancy costs, cannot be overlooked by any merchant with expansion plans. Moreover, in a low inflation, price deflation retail environment, the control of corporate four wall property level expenses are the quick essential elements to maintaining margin.

We are often asked how long will tenant demand last within our sector? Our answer is fairly simple, for as long as the consumer is motivated by value and convenience. We feel this bodes very well for the future.

Specifically for Q4 2003, occupancy and lease rates continue to climb over previous quarters. (technical difficulty) excluding JDN, occupancy increased an additional 40 basis points to 95 percent while the lease rate increased 40 basis points to 95.6 percent. I'm also pleased to report that occupancy within the former JDN portfolio climbed 80 basis points to 93 percent.

We continue to capture significant rental increases on expiring leases. Rental rates on new leases increased by approximately 22 percent and rental rates on renewals increased by 7.3 percent. On a blended basis rental rates for new leases and renewals increased by 12.1 percent.

Although we are excited about the basic fundamentals and resilience of her asset class, we cannot ignore the rash of bankruptcies and store closings announced over the past several months. There is no question that it is highly unusual and alarming to see store closings and bankruptcies in the toy industry at the peak of the holiday selling season. Clearly the fundamentals of that sector were far weaker than anyone could imagine in order for the timing to occur as it did.

DDR had eight Zany-Brainy locations, five in joint venture, and ten KB Toy locations, six in joint venture. The combined annual impact of store closings announced to date represent about one cent per share assuming no lease up or additional rejections in 2004.

In particular, interest in the Zany-Brainy locations, most located at our very best centers, is brisk with a variety of tenants in active dialogue with our team. We obviously continue to monitor the grocery operators very closely as fallout from market and competitive pressures continue to evolve. Penn (ph) Traffic which operates in the Columbus Ohio market as Big Bear also filed for Chapter 11 bankruptcy protection in Q4.

DDR has three leases to this tenant, two of which were assigned to other grocery tenants. Giant Eagle and Whole Foods both stronger operators that will enhance tenant mix will join our centers. The remaining lease which represent approximately at $100,000 in annual revenue to DDR has not been either assumed or rejected by the bankruptcy court, however, we already have a signed letter of intent for the space from another grocery user if that asset is returned to us.

At the present time, the net effective tenant bankruptcies while applying negative pressure on our occupancy rates appears to have had minimal impact on overall revenue. Under the category of store closures outside of bankruptcy, Kids R Us, Circuit City and OfficeMax announced store closings for 2004. In regard to Kids, the marketing effort conducted by the Toys R Us Company seems headed to a successful conclusion with numerous tenant interest in these locations.

Within the DDR portfolio we have attempted unsuccessfully to acquire one or more of our six assets only to be told they are part of a much larger package being sold to direct users, a strong indicator of market interest. We would expect more clarity on that issue from the company shortly.

In regard to OfficeMax, the Company has informed us that only two of our 38 stores are slated for closure. And with respect to Circuit City, which has also announced store closings, none of the stores within the DDR portfolio are scheduled to close. It's important to note that these tenants are not in bankruptcy. As such, they are fully obligated to pay full rent for their entire lease term with no reduction in rent.

Unlike bankruptcies, store closures by solvent retailers often provide a windfall opportunity for the Company. If we choose to recapture the space, tenants will often pay the company a termination fee to be released from their remaining rental payments and we are often able to release the space at equal or higher rates.

Last, we are very pleased with the Kmart releasing efforts expect 160,000 square feet of executed transactions to come online in 2004, representing a 30 basis point improvement in overall occupancy. That leaves us with only four partially leased and vacant stores that are still being marketed.

2003 was also a strong lease and disposition year for the service merchandise portfolio. The joint venture in 2003 generated $5 million in FFO of which DDR received $1.3 million. In addition, DDR earned an additional 2.2 million in fees. Coupled with past quarters, DDR's proportionate share of fees and revenue to date totals $9 million. That number added to DDR proportionate share, proportionate value of sales and leases of $86 million exceeds the Company's initial investment plus clearing costs by $15 million.

As we continue to reposition and refinance the remaining assets, this transactional continue to contribute positively to the Company's earnings.

I would now like to take a moment to update you on the Company's development activity. With respect to ground up projects we had several significant openings during Q4 at the Pike (ph) at Rainbow Harbor in Long Beach California. Cinemark Theatre, P. F. Changs, Game Works, California Beach Kitchen and several smaller tenants are open and operating in approximately 150,000 feet of retail and entertainment space. In addition, we had significant openings in our Hamilton, New Jersey; Parker, Colorado; Coon Rapids, Minnesota; Grandville, Michigan; and Austin, Texas projects. We are very pleased to have added additional units of ShopRite (ph) , OfficeMax, PetSmart, JC Penny, Target, Ross, Ultimate Electronics, Toys R Us, Linens N' Things, Hobby Lobby, Kohl’s, Bed Bath and Beyond and Michael's to our portfolio.

In addition as I have mentioned on previous calls, we view the redevelopment and expansion division of our development group as a critical means to maintaining and enhancing asset value within a fluid retail environment. Just to give you a flavor of the type of work being pursued by our team, I would like to briefly describe three different projects.

In Starkville (ph), Mississippi and Henderson, North Carolina, our group successfully negotiated termination agreements with Wal-Mart which had vacated these specific locations for a supercenter site elsewhere in the trade area. Working efficiently through our national tenant account program those previously vacant locations are being re-merchandised as follows. In Starkville, we will sell the former Wal-Mart location to Lowe's which will result in $4.3 million in net proceeds for the Company.

In Hendersonville, we have re-merchandised a former Wal-Mart with a first run movie theater operator, two-out parcels and Big Lots producing a unleveled cash on cost return of 11 percent. In addition, in Tallahassee, Florida DDR recaptured a Dark Lowe's Store (ph) and is demising the space into a Belk Department Store, Cato and 3 to 4 inline shops. Once again, DDR expects to generate an unlevered return of approximately 11 percent.

All of these projects represent an aggressive and creative way to reinvigorate slumping assets, re-establish market share, and enhance value at the asset level. As noted in sections three and five of DDR's quarterly financial supplement, in 2003 the Company completed 12 redevelopment and expansion projects with a total cost of $37 million. Currently we remain very focused on this value and have seven additional projects in process and another nine in the queue.

The core portfolio is constantly reviewed and analysis undertaken to on that maximize this effort within the development department.

In addition, after the successful fundraising of $300 million in equity commitments for Coventry, our value-added fund, we will complete over 1 billion in similar new redevelopment opportunities over the next three years.

At this point, I would like to turn the call over to David.

Thinks Dan. As Scott alluded to in his opening remarks during the fourth quarter and throughout 2003, DDR was able to act opportunistically closing a tremendous volume of acquisitions and dispositions that resulted in significant value creation for the Company.

At the time of the merger, we stated our intent to sell $150 million of assets out of the JDN portfolio. We implemented an aggressive strategy to generate capital through the sale of freestanding retail assets and other noncore properties. At this time we have effectively completed the disposition initiative that we had previously announced, including vacant land, DDR has sold approximately $145 million of former JDN assets and has an additional $8 million under content.

In addition, the Company and Coventry Real Estate partners on behalf of the RVIP joint venture sold three shopping centers and a portion of a fourth asset it had acquired in 2001 from Burnham Pacific. The weighted average cap rate on these sales was below seven percent which is over 300 basis points lower than the Company's cap rate on the acquisition of the properties. The aggregate sale price of these West Coast properties was around $90 million which exceeds the joint venture's purchase price by over $22 million.

During 2003, DDR strategically acquired approximately $430 million in assets of which our proportionate share was $230 million. The company acquired these projects which are located in major metro markets across the U.S. at a weighted average cap rate of 9.6 percent. These acquisitions included Flatiron marketplace located in Broomfield, Colorado, between Denver and Boulder. The acquisition was part of a 1031 tax-deferred exchange arranged as part of the Company's tax planning strategy in response to the significant gains associated with the sale of assets to MDT.

The property which is anchored by Best Buy, Linens N' Things, Nordstrom, Office Depot, Famous Footwear, Pier One Imports and the Great Indoors is very well located in an affluent space to experience exceptional growth. This acquisition represents an opportunity to add to the Company's outstanding Denver portfolio which consist of more than 2.7 million square feet.

Coventry Real Estate Fund II, DDR's new value added fund, also began acquiring properties during 2003. The first of which was Ward Parkway a 700,000 square foot retail property in Kansas City, Missouri. The Fund acquired this former two-level enclosed mall midway through the de-malling process. We continue to work with several existing tenants to relocate their stores and market space to new tenants. Including this property DDR owns approximately 2.2 million square feet in Kansas City.

The Fund closed on its second acquisition, Totem Lake Mall in suburban Seattle in late January 2004. We are currently in discussions with several large and medium box users and are evaluating different opportunities to re-tenant the space which will radically modify the layout of the center. The fund will close on it's third acquisition within the next few days. This center which has a prime location in Phoenix reflects another opportunity for DDR to utilize its in-house development capabilities and its relationships with the nation's leading retailers to reconfigure a former regional enclosed mall into a more functional and accessible format.

Phoenix is also a market DDR knows well. Including this acquisition, the Company will own more than 3 million square feet in the Phoenix market. These three acquisitions when redeveloped will represent over $200 million in asset value that will generate leverage returns in excess of 20 percent per annum. The Fund is also in negotiations to acquire two other assets in major metro markets.

As Dan mentioned the fund which will invest exclusively in value-added retail assets in need of redevelopment, re-tenanting or repositioning has raised approximately $300 million of institutional equity. DDR will coinvest 20 percent bringing the total equity to 360 million which when levered at 65 percent equates to a total fund size of over $1 billion. DDR will control the day-to-day operations of the properties and earn fees for management, development and leasing. We will also earn a promote on our investments.

Lastly, I would like to add a brief update on the performance of Macquarie DDR Trust, the Company's Austrian listed property trust. MDT began trading in late November at a price of one Australian dollar per share. The trust is currently trading at a three percent premium to its IPO price. This appreciation will provide DDR with a strong currency with which to pursue core acquisitions in the near future.

Since the November IPO, DDR has reduced the amount of space under the master lease agreement by 26 percent based on tenants open and paying rent. Based on executed leases, DDR has reduced its master leased space by 42 percent. In addition, DDR expects to sell the second phase of Riverdale Village, it's suburban Minneapolis development, to MDT during 2004. Considering the Austrian market's continued demand for this type of investment product, and the success of MDT's initial offering, it is likely that DDR will sell additional assets to the trust during 2004. However, the timing and volume of such sales cannot be determined with certainty at this point.

At this time, I will turn it back to Scott to discuss our 2004 earnings guidance.

Thank you David. With respect to 2004 we're happy to reaffirm our previous guidance of $2.85 to $2.90 per share. Even after the dilution associated with the recent $275 million unsecured senior notes. With respect to the first quarter of 2004, while there is a wide range of analysts estimates ranging from 62 cents per share to 71 cents per share, we are comfortable with the current consensus of 68 cents.

I would now like to open the phone lines to receive questions.

(OPERATOR INSTRUCTIONS) Michael Bilerman of Goldman Sachs.

Dan, I was wondering if you can elaborate a little bit maybe what's really surprised you and maybe what hasn't surprised you about the current retail environment and maybe you can talk about the 2004 open-to-buys and some of the retailer bankruptcies? And maybe weave in DDR's relative position?

Sure Mike. You know what surprises us the most quite frankly was the fact that a lot of the factors did not permit the toy business to operate at full capacity through the holiday season. There is no question that obviously every toy retailer looks to that season to make or break their year, and it's very unusual to have resources shut off during your peak selling period. Which tells us that clearly the basic fundamentals within that sector were far worse than either they were telling the market or they were certainly telling us. So that did surprise -- that is a surprise to see.

I think overall what we're going to see is that market straighten itself out because obviously the toy business is not going to go away. There is going to be a lot of cleansing in that particular sector.

Overall there weren't that many other surprises, to be honest with you. We've said many times that retail is a game of winners and losers and if you really look at the list of tenants that are closing stores or filing for bankruptcy, those are the losers. Our relative position in regard to many of those tenants is not overly significant.

The Zany-Brainy locations in particular, really are at our best shopping centers and we've had a lot of tenant interest, they are sized right for other tenants and we think we'll have a lot of positive momentum getting those boxes released. They may not be reopened and 2004, but they'll be released in 2004.

Other than that, we watch obviously the grocery sector very carefully to make sure that we stay as ahead of that curve as we can. So there aren't any unintended surprises in that sector.

Who is being the most aggressive in terms of looking for new space and do you find that you are getting a greater share of the open-to-buys than your sort of market presence?

Well, I don't know if we are getting a greater share than market presence because our market presence is pretty high with most of these retailers. But the tenants that are really aggressively going after these locations are the Pet Smarts, T. J. X, Bed Bath, Linens N' Things, Marshall's, OfficeMax even though they are closing stores, they are still opening stores as well.

Office Depot, many of your medium-sized boxes will fill these locations and I think when we see, for example, the Kids R Us liquidation resolved, and you see who the tenants are that have acquired those spaces, it will be a bunch of those tenants will be the ones I just mentioned.

Maybe a question for Scott or David. Acadia Realty Trust announced a new venture with and Klaff and Lubert-Adler targeting investments in surplus and underutilized properties. Given your relationship with Klaff and Adler from the Service Merchandise transaction, was this something that you looked at in doing with them and you passed on -- how do you foresee capitalizing on potential retailer distress in the future?

That's a very good question. I'll answer in two ways. First of all with respect to the opportunity itself, we think the opportunity for the future is extremely limited. There was a great window of opportunity for the last three years which Kemco (ph) and we took advantage of. When these types of bankruptcy auctions were not very well known and not very well understood. Since that time the retailers have become much more educated as to the process and much more directly involved so that the ability to create and profit from a lack of perfect information has really become much more limited. That's not to say we won't look at any opportunity as they arise but in the notes, Dan mentioned the situation with Toys R Us, Toys R Us as a perfect example, they closed their Kids R Us locations and really initially only talked to us and Kemco (ph) to determine if we'd be interested in buying their stores or their leases to re-merchandise them.

They received I think as many as eight unsolicited bids and the pricing got so high that we took ourselves out of the bidding and really had no interest because the profit opportunity really evaporated. I think that's indicative of what we're going to be seeing in the future. So in terms of pursuing that opportunity in a formal way with Klaff and Lubert-Adler we didn't see it as an enormous opportunity.

Secondly, to the extent that the opportunity does present itself, we effectively have replaced Lubert-Adler with Coventry II, which is a fund that has equal access to capital and has the access to our capabilities in executing the strategy. So to pursue the strategy in the future with first Klaff and Lubert-Adler really would have been duplicative of what capabilities we each have and what access to capital we each have and it would have been a bit crowded.

I think to the extent the opportunities exist, we have the capability to pursue them within the confines of our Coventry Fund, but I would caution you that in our opinion at least, we think these opportunities are much different and much less profitable than the ones we pursued in the past.

That is helpful. Do any of your Service Merchandise assets go along or you're maintaining that?

Nothing changes in the Service Merchandise partnership.

Lastly, for Bill, on the operating expenses, they seem to rise considerably in the fourth quarter and your recovery rate did not sort of stay at the same level at which it had been tracking. Was there anything one-time in nature in the fourth quarter that maybe you're going to recoup into next year?

I think your observation is very good there, and yes, there's a number of things. Our nonrecoverable type of expenses were unusually high during this quarter. That was well in excess of probably about $1 million. We did also record a little bit higher than normal bad debt, and there are -- the fourth quarter does generally result in some higher operational costs that are generally recovered, because we did have an increase in overall recoveries too, with snow removal and electric costs and such. But this quarter was unusually higher, and going forward, I don't know that we would expect something like that to that significance.

Okay, thank you very much.

Matt Ostrower of Morgan Stanley.

Just a couple of questions. On the gain on sales investment assets, was that something you guys had provided guidance for? And can you give us any sense for what gains you are building into your '04 expectations?

The gains on investment assets that were included in net income but not included in FFO?

Included in FFO.

There really wasn't significant gains from (multiple speakers). There were promotes that were included which we've talked about entire calls, but there weren't any gains that were significant.

Those promotes are tied to the sale of the asset, though; is that correct?

Well, yes and no. We get the promotes from cash flow or from sales, depending on whether we hold or sell. But there are promotes that we were entitled to primarily from the DRA partnership on the community centers that were acquired from (indiscernible).

So what you're saying is the promote activity in the fourth quarter was not tied to a property transaction per se?

No, I'm not saying that. The sale of assets from the DRA partnership and from Lubert-Adler triggered promotes. Those promotes would have been triggered whether we made the sale or not over time.

And those were, I guess, either implicitly or explicitly part of your previous guidance?

Yes.

And what are your --?

On the last conference call, we discussed the fact that even though we had reduced guidance, we would be expecting significant onetime gains in the fourth quarter. That's what we were referring to.

That's these gains in particular.

Exactly, yes.

What are your expectations going forward?

There will be similar income earned in the future, we earn similar promotes from all of our investments in the RBI fee funds with Coventry and all the new Coventry investments. We have a preferred incentive fee that is owed to us from the MDT transaction on the Coon Rapids sale from Lubert-Adler.

So that could appear in the first-quarter? Is that a fair statement?

It could be in the first or second quarter.

Besides that in the first or second quarter is there anything we should be focused on promote wise? It tends to really move our numbers and I just want to make sure we get that appropriately into our estimates.

I can't think of anything off hand.

Okay. And in the early extinguishment of JV debt, my understanding from your footnote was that that was part of F FO. The gain there was part of FFO, 3.4 million. That was part of FFO and is that something we could see again with the Coon Rapids transaction?

No, -- it's something that you wouldn't see again necessarily. This is -- we acted upon an opportunity, we found out that Linder (ph) was looking to sell in number of loans which included this one, we took an opportunity to act on that. That resulted in a favorable thing. We did have probably 500 to 600,000 to of in the core portfolio when we sold the assets to the MDT trust, when we repaid some existing debt too; we ended up taking about 5 to $600,000 prepayment penalty which is also deducted from FFO in the quarter.

It would be offsetting that gain.

Right.

Were not expecting anything explicitly going forward on the early extinguishment of debt?

No.

And then GNA, Bill, I heard your comments about what was unusual about that so is it fair to say which that we should sort of revert to a more -- like would it be fair to say that third quarter was a more normalized type of GNA level going forward?

Yes, I think third quarter was probably I don't have anything in front of me here but I think it was somewhere in the neighborhood of about 9.1 million. And we're probably looking somewhere in the 9.5 as probably recurring run rate.

Great, thank you very much.

Jim Sullivan at Prudential Equities.

Thank you. Good morning. I wanted to talked a little bit about the same-store NOI growth result in the quarter. If I reconcile what you reported for the first nine months with what you reported for the full year in the supplement, it seems, I estimate that the same-store growth rate in the fourth quarter was about .3 percent, is that right?

That is difficult to go from quarter to quarter because of the change in mix and assets that we have had. And I would have to go through and do that type of calculation. Specifically we report the year-over-year which again that mix depending on assets that have been sold or transferred kind of goes in and out. Quarter-to-quarter.

But I take it it would be fair to say based on your comments to earlier question about the operating and maintenance costs in a quarter, that same-store NOI growth in the fourth quarter certainly came down from where it had been earlier in year?

Yes. Given the level of expenses, that is probably, yes.

Really following on from that, a question for Scott. We talked about your expectations for same-store NOI growth in 2004. I think you indicated at that time that 3 percent was the number you felt comfortable with. Given what we've seen with some of the store closings here in the fourth quarter and whatever else you might see on that horizon for 2004, are you still comfortable with that kind of same-store NOI growth number?

Yes, Jim, we've just completed about half of our portfolio reviews. We've seen a little bit of erosion in the Northeast but we've actually seen better than expected forecasts in the Southeast. I think on balance were pretty much on point. One of the things I think everybody should understand as relates to 2004 versus 2003, in 2004 for the first time we are going to be bringing JDN assets into the core, in the later quarters. And that is where we're going to show the greatest same-store NOI growth because we're increasing the occupancy rate in those assets much more dramatically that we can in our own because we've inherited those assets in a much lower occupancy rate.

Can you just remind us Scott, what the difference has been in terms of where those assets were occupied when you acquired versus where they -- ?

JDN portfolio I think was about 91.5 percent occupied as to the time of the merger. And we think over the next couple of years we should bring those, that occupancy rate in line with DDR's occupancy of 95 percent. That will represent a very significant part of the core during the last three quarters of 2004. So you'll start to see that hit the bottom line.

I also think it's fair to say the issues with respect to same-store NOI that are challenging are much more with respect to the expense side and the recovery rate and nonreimbursed expenses than on the revenue side. And that is a major focus of the Company currently. It also happens to be a major focus of the tenant universe as they try to improve their margins by contesting cam (ph) charges. We on the other hand are exploring creative ways in expanding our recovery rates and one of those ways is to convert to a fixed cam type of lease from a variable billing rate which is I think going to become the trend in the industry so you will see these numbers moving around less in the future when that's implemented.

Was some of the erosion in the recovery rate in the fourth quarter attributable to that? And should we expect that to be a lower level of recovery in the near term before you can shift to a gross rate?

Some of it was attributable to that, but you'd better not expect to see it in the future. Because it something that we're highly focused on correcting.

Finally, on this point, can you comment on whether you continue to be pleased with the performance in Lifestyle Centers in terms of occupancy, space demand, rental growth?

Lifestyle Centers performed extremely well in 2003. Leading that pack was the sale of Colorado which had the largest sales increase followed by Deer Park, Leewood and Aspen Grove. All of which posted substantial sales gains and tenants are healthy and the interest on the vacant space when it exists within those portfolios remains very high.

I think it's also interesting to note that our exposure to Lifestyle Centers will be increasing as we take out Pogue and McCuen (ph) from the remaining two properties in which we were joint ventures. I think we just completed the acquisition of their interest in Deer Park in Chicago, and we will imminently acquire their interest in the Aspen Grove assets in Colorado.

Can you just remind us what the cap rates were in those buy-outs?

9.5 percent.

Final question from me. You talked about the Coventry II Fund, and the presence of a promote there. Can you summarize? I don't think this is summarized in the supplemental, but if you could summarize what at rate of return the promote that you begin to earn the promote, what the excess is and how that's divided between DDR and Coventry?

Our share is effectively 10 over 10, as is Coventry's. After the investor's receive a return of capital with a 10 percent leverage return, 20 percent off the top is paid in promotes and the balance is shared by the partners.

Very good. Thank you.

And by the way, that promote is not paid by DDR in its share of the partnership property.

Michael Mueller at J.P. Morgan ^

Question for Bill. Following up on Matt's questions, I was wondering if you could walk through the promotes again that hit in the fourth quarter? I think previously you mentioned about 6 million would hit in the fourth quarter, with about 2 million in 2004 to be recognized with respect to MDT. It looks like there is about 7.5 million that hit in the fourth-quarter.

That is correct. Yes, I think some of the net proceeds that we received from the sale and so forth were a little bit higher plus the operating aspects of those assets during the fourth quarter generated a higher promote threshold. Scott indicated, it's not all attributable to the gains; the gains to the extent when those proceeds are realized there is cash that reduces the partners actual investment and then as you deal with the operationals and say collecting receivables and so forth, you get a promote interest on those things also. There were some operational promotes in addition to the gain promotes.

So the prior guidance of 6 million and then 2 in '04 was part of the 2 million in '04 moved up to 2003 or is that still to come?

That is still to come.

Lastly, any update on the industrial portfolio?

Just continue in active discussions with several purchasers and really negotiating price. I really can't give you much more guidance than that and other than there continues to be a high level of interest and if and when we arrive at a transaction that gives us the right value for the assets we will execute.

Okay. Thanks.

(OPERATOR INSTRUCTIONS) Alexander Goldfarb of Lehman Brothers.

Good morning. Going back to the Coventry II side, I think originally it was 250 so it sounds like it has been bumped up to 300 million, is that correct?

When we went out with the offering we had a maximum rate of 300 million minimum of less than a target of 250. We exceeded the target and raised the maximum.

So it is closed now? There won't be any more. And regarding the MDT, I know you gave the GNA run rate for '04 of about 9.5 million a quarter. Is there any additional GNA that was not foreseen from the Macquarie joint venture and then following up to that, if you acquire more properties, will there be anymore incremental GNA expense?

There will not be any additional GNA resulting from MDT to the extent that more properties are acquired, we will need more people in the field to operate them but those for the most part are passed through in the commonary of maintenance charges. With respect to additional acquisitions or properties brought into the fold, it really depends obviously on the nature of those and the size of it. But if we do do future transactions of any size, we should have similar savings compared to what those portfolios were previously operated at similarly to what we did with JDN.

So obviously the answer is there will be increased expenses but as a percentage of revenue, they should hold the line or drive it down so it should be economies of scale and efficiencies.

Going to the Burnham Pacific, you had touched on it before. I think about four were sold, six were remaining. What is the timetable for the disposition of those and what's the value and then what is the potential for promotes in those?

A lot of questions there. First of all, most of the assets that were targeted for sale have been sold. I think there are two additional assets that we put on markets currently that we will expect to sell. Do you think more than that?

I think it's four of the six are in the process of brokerage are being retained.

The ones that we are not selling basically, we don't intend to sell any time in the near future. But what was the other question?

The value of those four that you are going to be selling and are those going to be sold this year and any associated promotes? Or potential for promotes I should say.

There will be promotes, yes because we return most of the equity from that particular investment so there will absolutely be promotes if and when the sale takes place. What we've got left, there's a center in Lancaster that I don't think it's going to be sold anytime in the near future, it's in the middle of redevelopment. We have a center in downtown Pleasant Hill which was the biggest component of the Burnhan portfolio from a value standpoint and there is no intention to sell that at all.

Long Beach is marketing only the supermarket anchored portion of the project so the bulk of that project will remain in the portfolio. We will be marketing some of the grocery anchored product and the half of the city of industry project that was not recently sold. There will be I think in San Ysidro which was a outlet center that we are converting to a community center, that project really isn't ready for sell either.

There will be some promotes, there will be some activity but I would say that on balance there's probably almost half of the value in the California assets will be retained.

And then just following up the Service Merchandise. I think there are about 20 left to be sold. Any update on those timetable?

Not all are going to be sold. I think we mentioned in the past, these are not just a straight disposition. Some of these are being released and financed and we have good permanent financing on a couple pools of those assets. We will continue to market if the price is right for the individual assets we obviously would sell them. It's not necessarily our goal to dispose of all of those particularly if they are leased to credit tenants.

And can you just talk about leasing in general. You guys seem to have some bigger spreads on your renewals and on the new leases. I understand part of that might be a function of just leasing vacant space. But the spreads seem to be a bit bigger than some of the other guys out there. Can you just talk, is this something we can extrapolate for the whole portfolio in terms of its spreads across the whole portfolio or is this just where the portfolio is in the leasing timeline that spreads right now are the biggest and are going to narrow going forward?

Our spreads have been prey consistent over the last several years quite frankly. There are individual quarters where timing has an impact where they might be unusually high or unusually low, but if you really look at the averages over the last several quarters and last number of years, the blended average between our leases on new deals and our renewals tends to be in the 12 to 15, 16 percent range on a pretty consistent basis.

I think a good way to look at that is most of the leases that are rolling are five-year leases and the comp stores sales growth within our sector has been pretty consistent in the 3 to 5 percent range. Rents are basically a percentage of sales at the end of the day. If you take a five year compounded growth rate from 3 to 5 percent, releasing spreads in the low 20s are very consistent with what we would expect a productive tenant to achieve in terms of sales growth over the same period of time.

I would submit that if the releasing spreads are much less than that, that might be an indicative of a problem at the shopping center where the tenants are not growing sales in lined with the national average.

Okay. The development of 282 million, how much of that is going to fall in '04?

I think we detail the projected in our supplement.

I just saw the gross number. That is fine. I will look for it. Final question is, the Jupiter development, there have been some press reports that the size of that has been reduced. Can you give an update and if it still projected at your pro forma return?

The size of the project has not been reduced, we are currently in entitlement discussions with the community. There are components of the community that would like to see more of a mixed-use project than pure retail. It shouldn't affect the overall returns on the project but it may affect the nature of the development.

Okay. The one article I had seen said that it was cut from two big boxes to one big box and that the overall --

That might be wishful thinking by the source who gave birth to that article.

You can thank one of the local Florida papers for that.

By the way, just to clarify, there may be no big boxes on that site before its over. The tenant demand is extremely high. We have not announced any tenants nor have we structured any finalized deals with any tenants until such time as we have a clear understanding of what the site plan will look like which is the exact process that we're currently in with the city.

Whether it's big boxes or whether it's medium-size boxes or whether it's specialty tenants, the complete and total picture is not yet clear on what the final product will look like.

Okay. Thank you very much.

Craig Smith.

I just wanted to -- I know this has been touched on but help in developing a run rate for the FFO from JV. If I start out with your 47.9 million at the end of 2003, it sounds like I need to take out the 7, 5 in promoted interest minus the 3, 4 in the gain on early extinguishment of debt, add back two million in promoted interest that you are going to get in '04 and then add back the revenue from MDT? Is there any other major piece in looking at the run rate?

There will probably be some changes too with regard to FIN-46 and some of those will probably ultimately end up being consolidated. I think yes, you have to factor in the MDT and as Coventry II continues to add assets and grow, there will be additional revenue from that aspect also.

It's a difficult line item Craig, to develop a run rate because there's so much activity in and out of the joint venture portfolio. Obviously we just sold several hundred million dollars of assets that were -- that we had one percentage interest in, most of those our interest was 20 percent. And now the new joint venture our interest dropped to 14.5 percent.

Other assets like the Coon Rapids asset, our interest went from 25 percent to 14.5 percent, then you replace it as Bill said with the investment activity in Coventry to where we've got really about a quarter million dollars as assets under contract already which we'll have a 20 percent interest in. It's going to move around, it's a very difficult number to really develop a run rate.

Is it possible that '04's FFO contribution from JV might be somewhat less than 47, 9? Just given the 7, 5 and promoted and the 3, 4 in gains from early extinguishment?

It could be, there could be again other merchant build type related gains and things like that that come through the JV side of things, and again, a lot of that is timing but I guess the short answer to your question is that when we budget we really don't look at that so much as an independent line item. We really look at it as a property level. That is something we can focus on and get back to you.

Okay. Thanks a lot.

David Schulman of Lehman Brothers.

Two questions. Are you comfortable with the in-house capability you have to develop Lifestyle Centers?

Yes, we are very comfortable with our abilities. We have people with a lot of experience in the mall business, we have a lot of people who came from the mall retail side who have years of experience there and we're very comfortable and we're actively looking for Lifestyle sites to develop. Hurwitz.

Because historically, you have acquired the center here through the JV and the sale of Colorado was an acquisition. And you develop with Pogue (ph) and McCuen (ph) ? Right?

Right.

So this is going to be a new thing for you to do this in house? Mostly? Not totally, but mostly?

Selectively.

Selectively. The next question is an accounting question. On your gains you reported 44.8 million GAAP gain in the quarter and 73.3 million GAAP gain, 73.9 million GAAP gain for the year. Do you have any sense of what the economic gain at that would be before depreciation? For those numbers. About, if you don't have it exactly?

That is something I'd have to get back with you on. I know it's pretty significant. I don't know if --

I'm assuming it is. But I just --?

I don't have that -- that is something we can get back to you on.

Thank you so much.

Tony Howard.

Congratulations on a good quarter and a good year. Most of my questions have been answered. But on a bigger picture issue, 2003 was a sweet spot for you guys on the financing side of the equation. I was wondering as far as you look out for 2004 and 2005, how you can improve the balance sheet even further and in driving your interest expense down further that implies what your going to forecast for as interest rates?

We still have a lot of old debt on the books that when we have the opportunity to refinance, we will refinance at lower rates. We also have an issue in preferred stocks that is above market in terms of coupon which will have an opportunity to reprice sometime in the future. It is a couple of years out. A lot of the property level financing as it matures will refinance at much lower rates.

The other side of it is to the extent that the Company grows through development or acquisitions we will be able to finance those at an interest rate lower than the blended rate on the books right now for our balance sheet. I think that there's not a lot left that we can do today because there's not a lot of variable rate debt left nor is there a lot of fixed rate that can be paid today. To the extent that we can we do it, as soon as we can.

OK, thank you.

(OPERATOR INSTRUCTIONS) Richard Moore of McDonald Investments.

How much higher do you think occupancy goes this year for the overall portfolio?

Originally when we were doing our budgeting, we felt that we could drive occupancy about 70 basis points overall. With the recent bankruptcies in a fourth quarter and some of the store closings that were announced, we're really looking more for occupancy to be flat for the year, right around the 95 maybe grow a little beyond that. And that will follow the same trend that it seems to be following every year in the past several years which is it falls off in the first two quarters and picks up in the last two quarters.

Do you think, Dan that that is sort of systemic of where your guys portfolio is at this point like in 2005 it will probably still be leveled off at the same level or do you think there is room to push occupancy?

I think there's room to push occupancy because I still think there is opportunity certainly within the JDN portfolio to increase occupancy that I think that was the press not because of bankruptcies but because of missed opportunities quite frankly. And I think we will take advantage of those opportunities and that should be able to bolster the overall occupancy rate within the portfolio.

There's a lot of debate in our business right now about what is your structural occupancy, not just space that is poor to lease but the lag time between the time that you sign a lease and a time at the tenant opens. And the general perception was always that there was 2 or 3 percent of every high-quality portfolio would have some structural vacancy in it and now I'm hearing a lot through ICSC (ph) and some of my counterparts in the business that they are looking at 4 or 5 percent just because of the overall fluidity of the market and the flow of the tenants. So we're pushing up against it, we're in that 95, 96 percent range, there's not a lot more room to go.

Thanks. And I know you guys have had a lot of interest from the traditional mall tenants in your core centers, not just in your lifestyle centers. Are you still seeing that kind of interest and maybe who are some of the key companies you are seeing interest from?

We are seeing that actually the interest has accelerated. We're seeing interest from all the conventional department store chains including May, Federated, Dillard, Penny’s, Sears, in particular Belk as well which has been very, very aggressive coming out of malls and doing an off-mall program. But we are seeing again continued interest from small stores. The typical mall tenants that not just are interested in lifestyle centers but are interested in community centers. And that goes from Yankee Candle and Casual Corner and August Max and Motherhood Maternity and Children's Place; obviously the GAP concepts are interested in a wide variety of different kinds of opportunities, Lane Bryant, etc. Kirkland's is one that recently announced a program to come out and Bombay Company has been very, very aggressive doing almost no mall locations coming out of center court in many A market malls and going into open air.

So this continues to continues to expand and we have pretty aggressive plans to meet with most of the major mall tenants at Vegas coming up in May just to make sure they understand what the quality of our portfolio is and what the opportunities for growth can be for them.

OK, great. Thanks.

You know Rich, just to mention another tenant that could be indicative of what you might see in the future, Limited II has come out with a new concept called Just Us (ph) just for our type of product which really follows on the heels of the what the GAP did with Old Navy. As those concepts become successful, which we think they will, that gives birth to other retailers looking at similar opportunities because as we all know there is not going to be significant new development of super regional malls in the United States in the foreseeable future. So to the extent that companies want to supplement their growth by new store openings they need to find opportunities in open air product because that's really where the action is going to be over the next five to ten years.

Great, thanks Scott.

Michael Mueller of J.P. Morgan.

I would like to ask Craig's question in essentially a different way. Can you give us a rough range of how much promotes sponsorship income is in the 285 to 290 guidance?

I believe there is only about 2.8 to $3 million in that number.

Great, thank you.

Patrick Biota (ph) of Investco.

This question is for Dan. Dan, a lot of the retailers recently have used a phrase or a buzzword certainty of execution, can you talk about that and what they mean by that?

Sure, Pat. What they mean, what is happening to a lot of retailers is that they have commitments that go through real estate committee and they keep in mind most retailers have to buy their goods several months in advance of the store opening, many of them nine to ten months out. And what happens in many, many cases particularly in the open air environment is if there's any kind of delay, they already bought for a particular store, you can't return the goods. All their other stores are already bought for as well so what they do is they take that merchandise if a store is pushed back a season and they will redistribute it to other stores. Well, those other stores are fully bought for and what it leads to is an overmerchandise situation which increases mark downs and reduces margin.

Today, sponsorship or certainty of execution is the buzzword for all these retailers because for a real estate department to go sit down in a capital appropriations committee meeting and get a store approved and then not have it open is a huge black eye and it is a financial hit to the company. They are trying to align themselves with developers and landlords who can deliver the space in the condition they require when they say it's going to be delivered. That keeps things much smoother for the real estate department and obviously it helps the retail with their inventory planning.

There is no quicker way to get a real estate department upset at you than to miss an opening. Because the operations people, senior management, all the merchants come down on them extremely hard and quite frankly there are just some companies that are not willing to take that risk any longer.

Okay. So what you are saying is the retailers -- if, for example, a DDR shows that they can perform and even get if the price isn't as competitive as someone else, they are going to go with DDR because of that certainty of execution, is that correct?

There's a lot of factors that go into the deal but it is correct that we have a huge advantage when we have the credibility and we can perform and the tenant, many of which have significant exposure in our portfolio already, have a history of working with us and they know we can perform. One of the other things that is important, Pat, is the documentation portion because deals get approved and then you go to lease and if you are doing a deal with someone you had never did a deal with before, you do not know if that lease is going to get signed.

We have formed leases with a lot of these retailers and as a result they know that if they go to committee and get a deal approved, not only will we deliver on time, but the document will actually get signed and there is precedent for that document.

If I can collaborate a little bit. There's also another advantage that we have and that is that unlike a lot of developers who don't have a lot of product in their stable and they are basically merchant builders, we have inventory. And often times when retailers are disappointed by developers who can't deliver new product on a timely basis, they are scrambling to find locations at the last minute where they can put the goods. When you've got inventory on the shelf which we have in the form of vacant space in high-quality centers, sometimes we can turn around and execute a store opening as fast as 30 to 60 days from the time that the retailer is disappointed by another potential landlord. And that has happened often in the portfolio where we have shown space to retailers that they rejected and then they've gotten stuck with goods that they bought for a store that didn't open and then they came crawling to us at the 11th hour and saying remember that store that we rejected, can you get it opened by November.

We can do that. And often times we're able to pick up some store openings that we wouldn't otherwise have had because of that ability.

OK, thank you.

And just anecdotally, we had a conversation with a tenant who refused to open store in 2004 because the 2004 open-to-buy was filled and he said they would open spring of '05 and we need to get entitlements for this tenant. We will proceed with the entitlements aggressively because this tenant every year comes back to us in June our July and says I need stores for November because I had a fallout. We know that there are certain tenants out there that have aggressive expansion plans and it's only natural when a tenant wants to open a 100 or 150 stores a year that not all of them will hit as scheduled. And we want to be there with an opportunity for those tenants to capitalize on that mistake by someone else.

Okay.

Michael Bilerman from Goldman Sachs.

Michael Bilerman

Sorry to drag this on. Just on the $2 million promote which is going to be associated with the Coon Rapids. You gave comfort on the 68 cents in the first quarter, is that including the 2 million?

That's a very good question that I really can't answer because the reality of the situation is a number of similar types of things that could hit in the first and second quarter and when we gave guidance at 68 cents, that is a number we are very comfortable with. If more than one of them hit in the first quarter, we will exceed that number. I can't tell you where that particular number will hit. It could hit in either quarter.

Can you elaborate on these other items?

There are things like some land sales that could happen in the first quarter or the second quarter. There may be lease termination fees that could hit in the first quarter or the second quarter, potential sales, merchant building gains and we can potentially move into first or second quarter, sales to MDT. So there are a number type of those things of items, and it is so happens this particular year between this first and second quarter is more of that kind of noise moving around than I think we've ever seen. So we gave you the guidance that we are comfortable with based on our best guess as to where things may fall. It's a little early for us to know with certainty.

Okay, thanks.

David Schulman.

One last question. Are you in any kind of conversations with Winn-Dixie over their position with you guys?

We've had numerous conversations with Winn-Dixie, because we have a number of stores that if they would be interested in leaving, we'd be interested in taking back. But as of now, the indication is that they've given us is that they are not in the real estate business, they are in the grocery business and that they are doing business and making money in those locations, they are unwilling to give them back. They feel that they have a plan, a strategy, there seems to be some indication that other announcements forthcoming about restructuring of either management, finances, both coming in the near future.

But we have had conversation and we really -- they are toeing the company line.

What about the stores that you might not be so anxious to get back? Those may be the ones they might want to give you.

There is no question. To be honest with you in some of those cases we might be willing to take them back and do a termination because in bankruptcy obviously if that happens if they go that way our claim is going to be pennies on what we might be able to get from a lease termination. But they have told as flat out they are not looking to do any lease terminations within our portfolio.

One other thing, David, that you should be aware of is that since other than some of the centers we've acquired in portfolios like JDN and other acquisitions, the great bulk of our supermarket exposure is in community shopping centers that are co-anchored by discounters, many of whom would rather be in supercenters. Often times the best thing that could happen to as is the grocer would leave because often times they have exclusives for food that preclude Wal-Mart or Target from adding foods to their store. There may be Winn-Dixie's our portfolio that really are not performing well that we really wouldn't able to replace with another grocer, but it would give us the opportunity to redevelop the project with a supercenter. That is why we aggressively pursue them wherever we can in order to try to make that happen.

Thanks a lot, Scott.

Alexander Goldfarb.

Just one follow-up on modeling for this coming year. On your interest expense with everything that's gone on with Macquarie and obviously the refinancing that you just did the five-year. Is there a run rate that you would have us go to for the year in terms of what your capital projections are going to be?

Our average interest rate right now is probably our blended is probably just a little over five percent. Again that's something I would have to go back to the detail on. We look at it --

I will call you back on that Alex.

Because from your earlier comments, it sounds like you are pretty set on where you're going with your capital.

Right.

Thank you.

This concludes the Developers Diversified Realty conference call. Ladies and gentlemen, you may now disconnect. Thank you and have a nice day.