Site Centers Corp (SITC) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen and welcome to the first quarter earnings conference call. [OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to your host, Ms. Michelle Mahue. Ms. Mahue, you may begin.

Good morning ladies and gentlemen. Thank you for joining our first quarter 2004 conference call. I'm Michelle Mahue, Vice-President of Investor Relations for DDR.

Joining us in Cleveland are Scott Wolstein, DDR's 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 reflect expectations or beliefs are forward-looking statements. Although we believe that such statements are based upon reasonable assumptions, 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 10-K for the year ended December 31st, 2003 and filed with the SEC.

At this time, I'd like to introduce Scott Wolstein, our Chairman and CEO.

Good morning. I am pleased to announce our first quarter results. We exceeded consensus estimates by three cents, including over a penny of dilution created by our January $275 million debt issuance. Our portfolio continues to produce strong results in terms of leasing and realm of growth, and our developments continue on target and within budget.

Most significantly, since we announced our Benderson acquisition one month ago, we are proud to announce that we have completed the initial financing required to close this transaction. We will close on May 10th, unless the seller's unable to deliver title or lender consents on various properties, in which case the closing would be slightly delayed.

We attribute this successful financing in part to the outstanding financial flexibility we have created through our private equity joint venture relationships and are appreciative of the strong support that we have received from the investment community for this very exciting initiative.

Last week, MDT, our Australian-based listed property trust, obtained all capital commitments from its Australian investors necessary to acquire $538 million in community shopping center assets.

I would like to point out how please we are with this relationship, and how well the listed property trust has been received by Australian investors. The equity markets in Australia have remained strong, and have been unaffected by the recent choppiness in the U.S. REIT Market.

Pricing on our penny sale to MDT equated to a 7.6% cap rate, which is 50 basis points less than the pricing obtained on the first sale back in November. All the equity commitments necessary to close the transaction were made on the first day of marketing. Moreover there was consensus among investors that we could have executed a larger transaction; however, the size of the asset poll was determined prior to the recent corrections in the U.S. REIT market. This significant investor demand indicates that if we choose, we can return to the Australian markets later this year to pursue another sizable asset joint venture.

With respect to other financing components for the Benderson acquisition, we recently priced $170 million of 7.5% coupon Class I cumulative preferred shares and issued 250 million of seven-year, 5.25 fixed rate senior unsecured note.

We have also received commitments from Bank One, Wachovia, and Wells Fargo to underwrite a $200 million, three-year, unsecured term loans at LIBOR plus 75 basis points, which is below our current lend pricing.

Lastly, receiving commitment from Goldman Sachs and Morgan Stanley for a $500 million unsecured equity bridge loan, which is also priced at LIBOR plus 75 steps.

These transactions when coupled with $500 million in proceeds from the asset sales to MDT, approximately 400 million in assumed debt, and approximately 300 million of debt that we will draw on our corporate line of credit, account for all the financing components necessary to close this transaction on time.

Although the transaction is fully funded, we remain committed to preserving our investment grade rating and it is our intention to permanently finance this transaction on a leverage-neutral basis as soon as we identify the optimal execution strategy.

Under the terms of our $500 million equity bridge, we have up to 12 months to complete the permanent financing and have several options and opportunities by which to do so.

While this gives us tremendous flexibility, we have no intention of leaving this loan in place any longer than necessary.

We are currently evaluating several attractive alternatives for permanent financing, which will likely include some combination of additional asset joint venture, issuance of common equity and/or convertible preferred stock.

For example, we have received a term sheet that sets forth the parameters of a joint venture, involving KSC Markus (ph) potential purchase of a portfolio of 250 million in grocery-anchored neighborhood shopping center assets. KSC will be touring the assets this week. The current terms of the potential sale are at a 7.5% cap rate, and are otherwise virtually identical to the $170 million transaction that we completed in May 2003.

We would retain a 20% interest in the properties and earned fees for asset management, property management, leasing, out parcel sales, construction management and disposition and would also earn a promote above a 12% internal rate of return.

This ready access to private capital is a highly valuable assets to our franchise. There are times when capital is less attractive from the public equity market and we established our joint venture relationships with KSC, with MDT, and with Coventry for exactly this type of situation.

Since the infrastructure and relationships are already in place, we have remarkable flexibility in our access to capital for these asset joint ventures on an expeditious basis.

Regardless of the ultimate mix of common equity, convertible preferred or asset JV, the Benderson acquisition remains highly accretive and a prudent use of shareholders capital.

If we were to issue equity at today's share price, the acquisition would be approximately 26 cents accretive. If we execute asset joint ventures in lieu of some or all of the common equity, the Benderson transaction would be slightly less accretive on an absolute basis, but would be more accretive on a percentage basis, reflecting the actual net equity invested.

We are well aware that some investors might be concerned that we will be tantalized by the extraordinary short-term accretion that the interim financing with the equity bridge will provide, which could amount to an additional eight cents per quarter, and thereby leave ourselves exposed to potentially less attractive, long-term financing options down the road.

Rest assured that is not our mindset. The Benderson transaction was priced at a time when DDR shares were trading below the current share price. We were delighted with the transaction then, and we continue to be delighted with the transaction now, even in light of the current market conditions.

While issuing equity at what would have been our all-time highest share price at the time the deal was announced would have been an extra bonus, we were precluded from doing so by SEC filing requirements.

But we're not crying over spilled milk. We will pursue permanent financing thoughtfully, judicially and expeditiously and we will realize a highly accretive result, which will have extraordinary strategic advantages as well. We are not going to roll the dice for an extended period of time and jeopardize the very favorable economic outcome that is available to us today.

At this point, I will turn the call over to Bill Schafer.

Thanks Scott. For the first quarter of 2004, DDR reported FFO of 72 cents per share basic and 71 cents per share on a diluted basis. These figures reflected first share increase of 16.4% diluted and 16.1% basic over the first quarter 2003 results.

The company earned total FFO of 62.8 million in the first quarter of 2004, which is nearly 42% higher than the 44.3 million earned in the first quarter 2003.

In addition to the increase in same-store NOI of 1.8% or approximately one million, the increase in FFO is largely attributable to our merger with JDN, including related increases in land sales, offset to some extent for the sale of assets to our joint venture with MDT in the fourth quarter of 2003.

During the first quarter, we sold over 33 acres of excess land and out parcels within our operating portfolio for approximately 9.5 million. Approximately 3.5 million of net land sale gains, net of tax were included in FFO for the quarter.

During the first quarter, the company recognized approximately 2.9 million in promote income, which was associated with the sales of the first phase, which is called the Outer Ring of our Coon Rapids, Minnesota property that was sold to MDT in November 2003. Since the construction of that property was not fully completed until this year, the promote was recognized upon receipt of funds in the first quarter of 204, once the asset was substantially completed and leased.

For purposes of clarification, the second phase of that property, which is called the Inner Core, is wholly owned by DDR and will be sold to MDT in May. The promote on the sale of the first phase of Coon Rapids was included in FFO and was recorded in the equity and net income of joint ventures line time on our consolidated income statement.

Should also be noted that our 2004 financial results also reflect a higher average debt cost, attributable to our focus on reducing our exposure to floating rate debt. At March 31, 2003, our floating rate debt, as a percentage of total debt was approximately 48%, which compares to 17% at March 31, 2004.

At March 31, 2004, our weighted average interest rate was approximately 5.4% as compared to 4.5% at March 31, 2003.

During the last half of 2003 and first part of 2004, we issued long-term, unsecured debt of approximately 825 million, with a weighted average coupon of less than 4.6%, which will benefit us for the years to come.

Our first quarter 2003 FFO also reflected a non-cash charge of approximately five million relating to the write-off of issuance costs associated with the preferred operating partnership units, which was offset to some extent by 1.5 million of preferred operating unit dividend savings associated with this redemption.

From a technical perspective, I would like to note that our first quarter financial statements reflect compliance with FIN46, which pertains to the consolidation of the variable interest entities.

The impact on our financial statements was nominal, only five small joint ventures were consolidated, including four joint ventures, which only owned undeveloped land. These joint ventures represent less than 40 million in total assets of which 25% related to undeveloped land.

These joint venture represent less than 40 million in total assets, of which 25% related to undeveloped land.

The cumulative effect of adoption of this new accounting standard is approximately three million, which is attributable to the joint ventures cumulative share of depreciation in excess of their book value investment in the Martinsville, Virginia Shopping Center.

In conjunction with our sale of existing DDR assets to MDT in the second quarter of 2004, we will recognize significant gains.

On the assets we currently wholly owned, we will recognize gains of approximately 23 million, approximately 80% of this figure represents pure economic gains, which is reflective of our ability to create shareholder value. None of these gains will be included in FFO.

Also related to the pending sale of existing DDR assets, MDT in the second quarter, we anticipate that we will recognize approximately 10 million of merchant building gains. These gains are associated with the sale of the second phase of Riverdale Coon Rapids, Minnesota, Erie Marketplace in Erie, Pennsylvania, and Steel Crossing in Fayetteville, Arkansas. Riverdale Village was a wholly owned DDR development and Erie Marketplace and Steel Crossings were developments that we acquired from JDN.

As part of the pending sale of assets to MDT in the second quarter, we anticipate that we will earn acquisition fees of approximately 2.6 million, and financing fees of approximately 500,000. These merchant-building gains and MDT fees will be included in FFO and were contemplated within our previous FFO guidance of approximately $3.00 per share for year-end 2004, and with our estimated accretion relating to the overall Benderson transaction.

I would now like to turn the call over to Dan Hurwitz.

Thank you Bill. I'm very please to report that portfolio fundamentals continue to remain strong, as occupancy actually increased over Q4, 2003 by 10 basis points to 94.4%, and our leased rate remains stable at 95%. This is a significant positive result as most of you know, tenants rarely open in the first quarter and troubled retailers for one reason or another often close at the conclusion of the holiday season, which makes maintaining occupancy in the first quarter, difficult.

In addition, taking into account the impact of K-Mart's change in occupancy status from the first quarter 2003 to the first quarter of 2004, the core portfolio occupancy rate increased 100 basis points from 94.7% in 2003 to 95.7% currently.

For informational purposes, the portfolio leased rate, excluding the vacant K-Mart space is 96.1%.

In addition to the occupancy and leased rates, the velocity of transactions was brisk, with approximately 1.5 million square feet leased in the quarter. Rental rates on new leases increased by 27%, and rental rates on renewals by nearly 7% for a blended 13% overall increase.

I'd like to take a moment to speak about the operational significance of the Benderson portfolio to our leasing and development efforts. At the closing of the transaction, our exposure to the nation's most successful and sought-after tenants will be broader and deeper, and our leasing opportunities greatly enhance.

For example, post closing, our portfolio will enjoy 84 Wal-Mart and Sam's Clubs, including 37 Super centers, 36 Target stores, 32 Lowes, 31 Home Depots, 27 Kohl's, 61 TJ Max/Marshals, 57 PetSmart's, 40 Bed, Bath and Beyond's, 44 Office Max Locations, 49 Barnes and Nobles; and the list goes on. The significance of that book of business, as it relates to core leasing, redevelopment projects, expansions and our development pipeline, cannot be overlooked as a key benefit of this transaction.

While the concept of pure leasing leverage is somewhat overblown within our industry, the need for strong relationships cannot be overemphasized. And this transaction permits our relationships with dominant retailers to proceed to the next level. For example, since the announcement of the transaction, we have received numerous requests from retailers for pre Las Vegas convention portfolio reviews to immediately identify potential new store locations, or just discuss how the relationship can be expanded further.

Two of those meetings were specifically designed to discuss the roll out of new concepts by existing retailers in markets where DDR had limited presence prior to the Bendersen transaction. Clearly, these discussions will provide new opportunity to both the Bendersen portfolio and the current DDR development and core asset base. Overall, the reaction from the broader retail community has surpassed our expectations, and the combined portfolio, coupled with our development pipeline, further cements DDR as the first look for tenants pursuing growth in the open air format.

Earlier in the call, I mentioned that the ICSE Convention in Las Vegas is fast approaching, and adding the Bendersen portfolio a few weeks before the actual convention poses its challenges. However, the excitement far exceeds those challenges, and we expect another full slate of meetings, dinners and various other appointments with our key retail clients.

However, as previously mentioned, unlike past years, we've been seeing a trend over the past few months of requests by retailers for pre-Vegas portfolio reviews. And therefore, using the convention as a venue for follow up and potential refinement of what was discussed in those reviews. As a result, we expect Vegas to afford us the opportunity to advance transactions as opposed to introducing transactions, which should improve our overall productivity.

Our schedules are full, and our overall portfolio and development pipeline are the strongest in the history of DDR. All of which should produce great results in the months ahead. At this point, I'd like to turn the call over to David.

Thanks Dan. As we mentioned on our call announcing the Bendersen acquisition, we currently intend to hire approximately 70 new employees to accommodate the 110 additional properties, primarily in the areas of leasing, property management, tenant coordination, property accounting, and legal.

We expect that about 57 employees will be located in Cleveland, eight in our new Buffalo office, and the remaining five in other field offices, primarily in New York and New Jersey. It is likely that a relatively limited number of new employees will be coming from the Bendersen organization, and most if not all of them will be field personnel.

This, we do not anticipate any cultural integration issues. Similarly, since the transaction was structured as an acquisition rather than a merger, the integration will be smoother. Unlike our merger with JDN, there will not be any temporary employees necessary to run parallel accounting systems, calculate year end recovery true ups, or the like. We expect to incur approximately $5 million of additional, annual G&A associated with this transaction, of which most is personnel related.

Because of the efficiencies created by the transaction, however, we expect G&A, as a percent of revenues, to decline from 5.35% as of year-end 2003, to approximately 4.8% as of year-end 2004. Our 2004 budget, which originally anticipated lower G&A as a percentage of revenue, because of the extraordinary events of last year, was reduced by 10 basis points to reflect the partial year impact of the Bendersen acquisition.

I would like to highlight two sales that we completed during the first quarter. First, as I noted on last quarter's call, the company and Coventry Real Estate Partners on behalf of the RBIP joint venture, sold a portion of the plaza at Puente Hills Shopping Center in City Industry, California, for $33 million, which reflected a 6.7% GAAP rate. This was the fourth asset to be sold from that portfolio. The weighted average cap rate on these sales was below seven percent, which is over 300 basis points lower than the companies cap rate on the acquisition of the properties.

The aggregate sales price of these west coast properties was approximately $90 million, which exceeds the joint venture purchase price by over $22 million. Secondly, I would like to mention the sale of Plaza Del Norte in San Antonio, Texas. DDR, and its joint venture partner, DRA Advisors, sold this asset for $58 million, which represented a 7.4% cap rate. This sale generated a gain of approximately $20 million of which DDR's portion was $7 million. This gain was excluded from FFO.

I would also like to mention that the Coventry Real Estate Fund II, DDR's new value added fund, has completed its equity range, generating $330 million in total capital. Due to the extraordinary demand from pension funds and other institutional investors for this investment opportunity, the fund is roughly one third larger than originally contemplated, including our 20% full investment, the total increases to nearly $400 million, which, when levered at 65% equates to a total fund size of over $1.1 billion.

We control the day-to-day operations of the properties and earned fees for management, development, and leasing. We also earn a promote on the funds investments. As we mentioned on last quarter's call, Coventry Real Estate Fund II has now closed on three properties located in Kansas City, Seattle, and Phoenix. These three acquisitions, when redeveloped, will represent over $200 million in asset value that will generate leverage returns in excess of 20% per annum.

The fund is also in negotiations to acquire two other assets in major metro markets. Also during the first quarter, we bought Folgan McEwan's joint venture interests in our Littleton, Colorado, and Deer Park, Illinois lifestyle centers. Polk was our original joint venture partner on the development of these assets, and the buy out of their interests, when the assets were full stabilized, was contemplated in the joint venture agreement. At this time, I'll turn it back to Scott to discuss our earnings guidance.

Thank you David. Our expected earnings guidance both for the second quarter of 2004 and year-end is significantly impacted by the timing of the vendors and transactions, and our method of financing the transaction. We are reaffirming our previous 2004 guidance of approximately $3 per share. However, for each quarter, that equity issuance might be delayed, our FFO per share would be anticipated to increase by eight cents in each quarter.

With respect to the second quarter, we anticipate that our second quarter results will significantly exceed current analyst consensus by more than 10 cents, largely due to the merchant building gains associated with NDC sale. I would now like to open the phone lines to receive questions.

Thank you very much. [OPERATOR INSTRUCTIONS] Our first question comes from Jim Sullivan of Prudential.

Hi, thank you. Two questions for me, first of all, regarding the internal growth strategy, according to the supplement, the same property NOI growth was about 1.8% in the first quarter. Now I'm assuming that's calculated on a GAAP basis, this is for Bill.

That's actually, Jim, on the cash, that doesn't include the straight-line rents, doesn't include lease termination.

OK, so it's excluding straight line rent accrual, as well as lease termination fees. OK, and kind of the second part to that question, I guess this is for Dan, Dan, you talked about being, I guess, pleased with the first quarter, given the impact of K-Mart and the normal seasonal weakness you see in the quarter. Are you confident, full year, still confident full year on a same store NOI growth rate of about 3%? Hello?

Yeah, Jim, currently, as we look at our budget for 2004, we are on schedule for that number. We were slightly positive in the first quarter to where we thought we would be, and of course, some of that lease up that we did the second half of last year, the beginning of this year, very positively impacted the JDN portfolio, which is a big component of that 3%. So we still are comfortable at that point.

Good, OK, and the second question I have relates to the transactional income. Obviously it's been very strong here in the first quarter and will be in the second quarter. And I guess, thinking about 2005, do you have the new joint venture where the total capital is a little bit more than you had expected you were going to have available there? But I just wondered, when you think about transactional revenues for '05, is it likely that you're going to have the opportunities to generate the same level as you're going to generate this year, or should be look at this year as somewhat exceptional?

That's a good question, Jim. I think that they reported by quarter, numbers, could bump around all over the place. But the opportunity to replicate these teams in 2005 exists not so much through the Coventry joint venture because most of those promotes will come at the back end, which will be several years away. But, we still have a significant number of assets on the right of first offer list in the NDT transaction, than have built in FFO gains that are quite significant.

So if we elect to transfer some of those assets into NDT, into joint ventures in 2005, it would be very easy to replicate some of the transaction income or one time events that we recognized in 2004.

OK, very good, thank you.

Our next question comes from Michael Villerman (ph) of Goldman Sachs.

Good morning, I'm here with Carey Callahan as well.

Morning

Michael, are you still on the call?

Hi, can you hear me?

We can now.

The question was, on the lease term fee, what did that relate to during the quarter?

There were probably about half a dozen lease termination fees that occurred throughout the quarter. And it's again, with a larger portfolio, I think there is probably more opportunities to create these going forward also.

Specifically, Michael, we had three of them where we had dark tenants that we replaced with live bodies. One being a Sports Authority where we terminated and replaced with a PetsMart. Another where we had a Fred's which we replaced with a Hancock Fabrics. And another where we had a Safeway that actually never opened in a development project and replaced them with Shop Rite, which is open and operating.

The other was a case where a tenant had significant site plan controls over redevelopment project for us, and we needed to have the flexibility to do as we saw fit on that piece of real estate. So we effectuated a termination with that tenant.

OK, the performance unit rents had a big impact on G&A last year, given the rise in the share price. Does the reverse happen now in the second quarter with share prices coming down? Will you be booking accretion from that effectively?

There is a possibility that if you recall from last year, our share price isn't that much different now than where it was at the end of last year, in fact, it's probably just slightly above. But it is certainly lower than where it was at the end of the quarter. I don't anticipate any of the adjustments.

The answer to your question is that's how the arithmetic works.

Right. I was just wondering, I don't know if there was any impact to this quarters' G&A at all?

The dilution was significant because the share price in the quarter was extraordinarily higher.

Last year though, if you recall to one of the, and again, the way the performance units were structured, it was kind of a tiered structure. With a cumulative growth, and so forth, basically they're at the maximum level. So now you're only dealing with a share price adjustment versus a multiple effect of ultimate awards. So it's not as significant of adjustments, I'll say, going forward.

OK, I think Carey also has a question.

Hey, Scott, without asking you whether or not analyst estimates by quarter would add up, which would be an unfair question to ask you, but how should we read your guidance being unchanged for the year at $3.00, but for the second quarter you'd feel like you'll deliver about 10 cents above the consensus. Does that suggest in any way, the diminution of prospects out in the third or fourth quarter?

Primarily in the third quarter, Carey. I think that the analyst estimates are probably high in Q3. We may not be far off in Q4. But yes, some of the income that would have otherwise been projected, I think, in consensus for Q3, Q4, will be front ended in Q3, in Q2.

This is fee income, presumably.

Primarily, yeah, some of it also has to do with financing and dilution from debt issuances and so forth that were really impacting more in Q3 than would in Q2, based on when it happens.

OK.

For instance, we just did $250 million in 5.25% fixed rate senior note. Those were replacing debt that was less than two percent. It will have a partial effect in Q2, it will have a full quarter effect in Q3, for instance.

OK, Scott, just organizationally, you've got a lot on your plate obviously with this acquisition. How should we think about the pace of development activity out in '05. Is this going to cause you to pull back a bit just because you're pushing the organization so much right now?

Well, really, it's completely different people. Different bodies, different, the people that are involved in implementing development pipeline are really not involved in integrating operating properties. So we still have a very aggressive development appetite, and Dan has a team in place that's actively pursuing opportunities.

OK, thank you.

Our next question comes from Mike Muller of J.P. Morgan.

Hey guys, this Josh Peter (ph) in here with Mike, actually. First question is on your Bendersen Financing. You guys talked about another $500 million that's in the one year term loan that you want to permanently finance. There's also about $300 million that you're putting on the line of credit. What are going to be the plans of that?

There's really no immediate plans for that. The overall variable rate debt exposure for the company won't increase dramatically, and part of that, we need to maintain an alliance that we have the flexibility to do pay down from further asset sales that might occur in 2005.

OK, Scott, this is Mike. The 26 cent accretion number you threw out by using equity, is that assuming the full 500 is with equity, or is that a component of it when you threw that number out?

That assumes the full component of equity, but it also assumes that one asset joint venture that we talked about on the growth of (off mic) shopping centers.

OK, so the JV happens in the balance with equity. And the last question would be...

That's not a zero sum game because of the numerator and denominator effect that the assets sales don't replace the equity on a one to one basis, it's more like a two to one basis.

OK, that's helpful. And final question, second quarter guidance, if we can just ask something about that. Is there any equity assumed in Q2 or is that going to be aggressive, do you think?

I think the equity issuance in the budget is assumed in Q2.

OK.

If not, I assume at the beginning of the quarter.

OK, thanks.

Our next question comes from Lou Taylor of Deutsche Bank.

Yeah, hi, thanks. Scott, just as a follow up to that, could you just repeat again what you said, that if you were to issue equity at the current prices, the deal would be 26 cents accretive. But if you did not, and you did more asset sales in joint ventures, it would be about the same accretion, or a little less?

What I said, Lou, is the trade off between joint ventures and issuing equity is that the absolute number will go down from 26 cents to something less, but the percentage accretion, based on equity invested will go up and will be higher so that our growth rate going forward would be positively impacted by issuing less equity, because we won't be diluting shareholders by as much of an equity issuing.

And what happens when we sell the assets into joint ventures is we generate very high returns because of the fee income that's associated with those JVs. To think of it in the extreme, if we bought $2.3 billion in assets, and if we did nothing more than sell those $2.3 billion into joint ventures, the transaction would still be significantly accretive, even if they were sold at the same price, because we would generate the fee income for managing the properties, the asset management fees, as well as the promotes.

So, the return on that as a certain example would be infinite, because we would have no net investment, but we would have a very strong accretion. That's really the trade off between asset sales and issuing equity.

OK.

very strong accretion. That's really the tradeoff between asset sales and issuing the equity.

OK, is it if you did - let's take the example, you did JVs here, then your per share accretion would be something less than 26 cents. Is that correct?

If we did all asset sales?

Yes.

Yes, we absolutely would. But, again, it would be - everything else we do in the future such as a developments would be more accretive because the share base in which we would be adding the incremental income would be over a much lower number of shares.

OK, second question just pertains to the bridge loan. Are there any extensions on that loan?

Conditions?

Extensions.

Oh, extensions. No, one-year term is basically the full. It's a six months with a six-month extension, really.

OK, and then this question is for Bill. Bill, in terms of your accretion, how much FAS 141/142 impact is there from this transaction?

There is nothing from a rental revenue-type perspective. And I'd have to go back and take a look - there would be some of the debt marked to market adjustments would be flowing through, but that's the only piece, I think, that we have in there. But we're only assuming around $400 million worth of debt.

OK, and the last question is, Scott, can you talk a little bit about your forward-development pipeline and how you've added a couple of larger projects, one in freeholding (ph) and one in Miami. Is there much more in your shadow pipeline of significance?

Well, there's a major project in Jupiter, Florida that we have spoken of in the past that we've downsized the retail component of that project because of a settlement issue, but I think that will be coming up shortly, and that will be a highly accretive development transaction.

We have a number of other projects. Maybe Dan is a better person to speak to that.

Sure, we're looking at - right now, we have about four or five projects that are of significant size that we're looking at for really to announce this year for late '05, '06-type openings. Some of them are large power centers. We have two that could potentially be lifestyle centers. And we get interested parties talking to us on a daily basis, and we have a team of people out there looking for locations that make sense for our retailers.

So there's no shortage of product. We just need to be disciplined and selective on what product we choose to pursue.

And I also think I should point out that net development pipeline really shows up in two different areas. One, on our wholly owned development pipeline, but also we have a development pipeline that's developing in the country fund, which are development joint ventures with third parties. We've reached an agreement on a new property, for instance, in San Antonio that hasn't started construction yet but will be a significant add to the pipeline.

And there are several other conversations with private developers to continue to pursue the joint venture development program that we've had in the past.

OK, so, Dan, on these projects that you just discussed, would they be wholly owned or what JV do you think at this point?

Well, at the present time, they'd be wholly owned, and then we'll decide at the point of launch where they might ultimately end up within our portfolio.

Yes, one of the other projects that I neglected to mention that's of significant scale is in Apex, North Carolina. That's a project outside of (inaudible) Raleigh which is potentially over 1 million square feet. It's actually three contiguous projects, that we think at the end of the day will include virtually every major retailer imaginable.

Great. Thank you.

Our next question comes from Chris Brown of Banc of America Securities.

Thank you. Just real quick, I just wanted to go back to the floating rate debt question. Now that you have all the financing for the Benderson transaction, I haven't actually added up all the numbers in your supplemental yet, but where do you stand right now kind of on a fixed-floating percentage? When Benderson closes in a month, where will you be? And I guess my next question would be, in this kind of choppy interest rate environment, how do you look at floating versus fixing for the rest of the year, terming out some of the floating rate debt?

Well, as we stand at March 31, our current floating rate debt was just under 17% of our total debt. With regard to the Benderson transaction, I think as Scott indicated, aside from this temporary bridge facility, it would go up I think into the low 20% range from an overall debt perspective, excluding that.

I think if you really look at what we announced today in terms of the Benderson financing, including the preferred shares, roughly $900 million of the financing, either on the wholly owned or joint venture assets, using our pro rata share, will have a fixed coupon for long term. You basically - you look at the $250 million of senior debt that we issued, coupled with the $170 million of preferred and the approximately $400 million of assumed debt and then take the debt that we put on the NVT (ph) assets, all of which is also fixed-rate debt.

So there's been significant amount of fixed-rate debt in the Benderson financing itself. Obviously, the number will be skewed higher variables in the short term because of the equity bridge, if we even take down the equity bridge.

It's certainly possible that we may permanently finance the transaction before we even borrow that money.

So how do you look at kind of going forward in this interest rate environment? I mean, are you comfortable around low 20%?

Yes, I think you would see it bounce around between 15% and 20% from time to time, and, again, because we are so active in terms of managing our portfolio with dispositions as well as acquisitions, we always need to maintain some portion of the debt that's variable in order to repay it when we have the opportunity to do so, because we can't do that effectively with the fixed-rate portion.

That's fair, and then just my real quick last question would be, looking at your kind of ratings, you're positive at one of the agencies. Now that a lot of the uncertainty of the financing's in place, have you had any discussions with the agencies on where they see you guys over time?

We have not had any discussions with the agencies since they issued their opinion of the transaction and they affirmed their ratings and their outlook in light of the transaction. And I think in light of the fact that we have rapidly executed virtually everything we presented to them, in terms of how we would finance the transaction and we intend to complete that on a timely basis, I fully expect that they will be quite pleased with the outcome.

Thank you.

[OPERATOR INSTRUCTIONS] Our next question comes from Matt Ostrower of Morgan Stanley.

Good morning. My questions have been answered, by and large.

Just, Dan, could you comment on Winn-Dixie and whether you think you have any exposure to their announcement today. And then also would that potentially generate material lease termination fees for next quarter or the quarter after?

Sure, Matt. Winn-Dixie did an option of closing a bunch of stores. We have had conversation with the company, three stores in our portfolio will be closing. Obviously, they're not closing three stores in our best assets, so I would not expect that they would result in large termination fees in the near term, but honestly, like all of our vacant boxes, we will continue to market those spaces and try to get them re-lit and execute a termination with the company.

This is an outside of bankruptcy event. They're fully obligated for all the terms and conditions of the lease, and they feel quite comfortably that this will be not just the first tranche, but the last tranche, based on our conversations with the company.

Obviously, Matt, these developments don't surprise us. It's something we've been forecasting for quite some time, and in a funny sort of way, they work to our advantage in some cases, because we have grocers like Winn-Dixie in traffic centers that are co-anchored by Wal-Mart where Wal-Mart would like to spread into a Supercenter and they've been precluded by exclusives.

So we don't look at these sort of problems in the second-tier supermarket industry as really net negatives. In long term, I think it might actually strengthen our portfolio.

The Winn-Dixies that are closing, how - do you look at replacing those with other grocery stores, or that will just be some kind of totally different use, probably?

I think on locations that we have, one of them would be a very good location for another grocer, and two of them would probably be a different retail use. Quite frankly, the competition in the market on two of the assets, Winn-Dixie was a distant second or possibly third in the market to a dominant grocer or a Wal-Mart Supercenter. So it really wouldn't be appropriate to find another grocer for that location if one were available. So those will probably be retail.

But one of the other locations has potential for another grocery user.

And it's interesting, one of the locations that's closing, the prior operator was doing over double the volume that - the first year Winn-Dixie bought that company and reopened in the space, their volume was cut by more than 50%. So the location has proved itself to be a very strong location. They haven't proved to be very effective in operating at that location. So there could be an opportunity there.

And one of the other centers really speaks to what I talked about earlier. It was a center that was co-anchored by a Wal-Mart and a Winn-Dixie, and we built a Wal-Mart Supercenter and added it to the project, which is why the Winn-Dixie ultimately met its demise.

Right, and when you look out at what other - I mean, I don't think they've released an actual store closing list, but would you feel comfortable generalizing about - when you think about 156 stores closing, would you expect a lot of those, or most of those, even, to not become - to be switched from grocery uses?

Yes, I would think a lot of them would become non-grocery uses, because as a practical matter, Winn-Dixie, in many of these markets, was there prior to the competition. The competition came in and did a better job. So, as a result, they've lost so much market share in these particular markets that it would be very, very difficult for another grocer to come in and be effective.

The only possible exception to that would be an operation like Save-A-Lot, or up here we have an operation called Marks (ph), which is a drugstore/market combination, something that's not traditional that might have accrued components. Sometimes they have been able to operate in environments where a traditional grocer hasn't.

And I suspect we'll know sooner rather than later, because Winn-Dixie intends to run a very, very aggressive marketing campaign to get rid of some of these locations, obviously, to relieve themselves of the liability. So I suspect their first look will be their brethren in the supermarket business.

Got you. Thank you very much.

Our next question comes from Alexander Goldfarb of Lehman Brothers.

Good morning. First, if you can just give your - to the extent that you can, your expectation for land sales for the balance of the year?

Yes, I can provide that. We have - as you know, we did acquire a lot of undeveloped land in conjunction with the JDN acquisition a year ago, and we continue to market that. My recollection is that we could have landfills in a $10 million area for the full year.

OK, and on the lease terms, sort of similar. Obviously, Q1 is the big one, if you have all the year-end closings. That should pretty much die down, or have you been given an indication from other tenants that there may be some more coming?

No, there'll be more coming. That's become a fact of our business. There's rarely been a quarter in the last several years where we haven't generated lease terminations. It's just something that we haven't budgeted for the balance of the year because it's something that we certainly can't predict with certainty.

But I certainly expect that we will have them in virtually every quarter.

OK. On the upsize Coventry, now that it's a third bigger than originally expected, and it's up even from the year-end number that you guys gave, is there any dilution in the returns you're expecting? Does this sort of make it harder to put the money to work because there's more of it?

No, it won't change our returns expectations. That disclaimer (ph) will remain intact. It might mean that we'll have to extend the investment period slightly. We have a two-year investment period, and then we have an extension beyond that with the approval of the advisory committee. So it's entirely possible that we might have to - it might take three years instead of two years.

Having said that, the progress to date has been excellent, and I think the investors are quite pleased, and I don't think getting an extension will be a difficult proposition.

OK, and on the Jupiter program, that still - it's currently zoned office/industrial, correct?

It's zoned industrial.

Industrial, OK. And then there's the Miami project. There was a press item that seemed to indicate a possible tax incentive to help that project along. Is that something that you would need to generate your pro forma returns on that, or that would sort of be extra on top of it?

Well, there's a large subsidy package that includes the tax incentive package from the city that actually has all been approved, for our project and the 3,000 residential units that go adjacent to our project. So that is - it is necessary to meet our threshold returns and the threshold returns of the residential developers as well, because a significant portion of that will be used for the improvement of their site as well.

OK, and that's been $169 million?

That's correct.

And what's your projected return on that project?

About 11.5%.

OK, based on the - I think it was like $89 million or so?

That's correct. That's 11.5% on leverage based on the first-year rents, without straight lining, fully loaded for vacancy factor and management fee, and a significant overhead allocation on the development.

OK, OK. And the new preferred that you guys just issued, when will the first dividend be payable in terms of when will it be expensed against your results?

It will be expensed against our results starting in the second quarter. The dividend payment I believe is on a - I think the first dividend payment will be on July 15th, but we will accrue the dividends through June 30, from the closing date, which I believe is May 7th.

OK, and if you can, can you just go back over the gains that you're expecting in the second quarter that will be a part of FFO? I know that there is a big - there was the $23 million gain, but that's not part of FFO. Can you just go over the gains that will be in the FFO in second quarter?

I indicated that we would be in the $10 million area on the merchant build.

OK, and that was - OK, and then there was the other. OK, perfect.

Thank you.

Our next question comes from Richard Moore of KeyBanc.

Hi, good morning, guys. Hey, would you go over one more time, Scott - you've got the term loan for three years. How much was that, again, for Benderson?

Two-hundred million dollars.

OK, and the rate on that, or the rough rate on that?

Seventy-five over LIBOR.

And then the bridge, same kind of rate?

Yes.

OK, and then $300 million was the line of credit, right?

That's correct.

OK, so now how do you think in terms of issuing equity to take that out? I mean, what's your strategy? Do you kind of wait and see for a while how the markets react, or what do you do, exactly?

Well, implicit in your question is the assumption that we will issue equities to take it out. That is one of really three options that we will pursue - common equity, verbal preferred and/or asset joint ventures. As I said, we're pretty far along on one significant asset joint venture. We know we have an opportunity to do another significant transaction in Australia.

We are currently evaluating what a convertible preferred deal might look like, and we're watching the market very carefully with respect to common equity. So, at the end of the day, there will be some mix of the three of those, but I can't tell you as we speak exactly what that combination will be.

OK, so you don't have some sort of target stock price for the common?

If I did, I wouldn't tell you.

Yes, I figured. OK, thanks.

Well, then, turning for a second to leasing. Dan, when you're in Vegas with these more transaction-based meetings where they're kind of making decisions, do you think that impacts '04 at all, or is that more of an '05 thing?

You know, typically, it's an '05 thing, but not this year. This year, we've been really deluged with the requests by retailers who have either had a close '04 open to buy and they've had slippage, or they were never able to satisfy all their open to buy requirements for '04. And it's not a few stores. It's a lot. We had a meeting yesterday with a tenant who's 15 stores short - comes to 35,000 feet.

So that's a big number. Part of that is developers unable to deliver what they said they were going to deliver, that certainty of execution issue that we've talked about in the past?

Absolutely.

And others is just that they haven't been able to find the locations, because, as they say, with the exception of DDR and maybe one or two others, the development opportunities are few and far between. So basically they're refocusing on infill opportunities.

OK, so do you have thoughts on maybe a year-end '04 occupancy level?

Well, we're on budget. We're a little ahead of budget from that perspective after the first quarter. These are not easy transactions to do. A lot of things have to happen. We're getting very late in the year, and one of the reasons why retailers have wanted to meet with us prior to Vegas is it's almost too late at Vegas to get all the wheels in motion to get a major anchor open. But I think we will have some positive surprises before the end of the year, but there'll be some negative surprises by the end of the year, too. So I'm still comfortable with where we predicted ourselves to be.

OK, sounds good. And then, last thing, I know it's a smaller thing at this point, but the industrial property, Scott, what do you think you're going to be doing with those?

Well, at the present time, we're managing them flexibly. We're probably going to see better growth from that portfolio this year than we will from the resale, not because they're better assets, but because we have a much easier account to deal with in 2003. We consistently get inquiries from potential buyers. We chase them down and every time decide whether or not the transaction is something that is in our best interest.

I'm confident one of them will be, but it won't - I can't predict when that will happen.

OK, great. Thanks a lot, guys.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may now disconnect.