Site Centers Corp (SITC) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Developers Diversified Realty Fourth Quarter Earnings Conference. My name is Caitlin; I'll be your coordinator today. At this time, all participants are in a listen-only mode. We will facilitate the question-and-answer session at the end of today's conference. If at any time during the call, you require assistance, please press "star" followed by "zero"; and a coordinator will be happy to assist you. As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the presentation to your host, Ms. Michelle Mahue, Vice President of Investor relations. Please go ahead, madam.

Thank you, Caitlin; and good morning, ladies and gentlemen. Thanks for joining our fourth-quarter earnings conference call. 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 Schaefer, Senior Vice President and Chief Financial Officer.

Before we began, 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 would like to introduce Scott Wolstein, Our chairman and CEO.

Good morning. I am pleased to announce our fourth-quarter results of 69 cents per share and total FFO for 2004 of $2.95 per share, which represents a 17% increase over 2003. While this quarterly result represents only a 1.5% increase over fourth quarter of 2003, after adjusting for the 2003 fourth-quarter transactional income, which netted $6 million more than during the fourth quarter of 2004, the per share increase would have been approximately 13% on operating basis.

Our portfolio continues to demonstrate strong leasing fundamentals, which reflect the growing strength of our asset class and the quality of our portfolio. Moreover, we continued to structure and execute transactions during the fourth quarter that support our investment strategy and result in long-term value for shareholders.

2004 was an outstanding year for our company in several respects, and I would like to highlight some of our significant accomplishments. During the year, we sold approximately $735 million of assets, generating significant funds, with which to reinvest into market dominant community shopping centers. These sales generated over $93 million in gains, of which approximately $68 million were not included in FFO at the consolidated level. In addition, our joint ventures sold assets with an aggregate value of approximately $165 million and recognized nearly $44 million in gains, of which approximately $30 million of gains at the joint venture level were also not included in FFO. The weighted average cap rate on the total $900 million of dispositions was approximately 7.5%.

On the acquisition front, we improved our ability to execute large transactions with certainty and efficiency. In March, we announced our $2.3 billion acquisition of over 100 operating assets from Benderson Development Company, which we closed in phases throughout the year. In conjunction with this acquisition, we raised our dividend 11%; and to finance the transaction, we accessed a variety of sources, including common equity, preferred equity, senior and secure public debt, and bank term loans. Since we acquired the portfolio, our tenant response has been very strong. We have increased the lease rate by over 100 basis points and continue to evaluate new opportunities to improve the tenant mix and the internal growth of this portfolio.

In order to better align our Benderson and JDN acquisition portfolios with our community center investment strategy, we expanded our relationships with Kuwait Financial Centre and Prudential Real Estate Investors through two new joint venture transactions. The properties contributed to these joint ventures in the fourth quarter of 2004 were neighborhood grocery anchored center that we had acquired from Benderson and JDN, which represented above over $330 million in gross asset value. As a result of the sale of Benderson assets to these joint ventures, we have retained the portfolio of dominant community center assets, reduced our exposures to the neighborhood grocery anchored center sector, and improved our implied yield on the remaining assets that we hold in our consolidated portfolio.

Of the total Benderson properties acquired, those that were purchased through our KFC joint venture represented approximately 8% of the portfolio based on an asset value and a weighted average cap rate of 7.5%. Those that were purchased through our Prudential joint venture represented approximately 4% of the portfolio at a cap rate of approximately 7.8%. And those that were initially purchased through our MDT joint venture represented approximately 13% of the portfolio at a cap rate of 7.5%.

In November, we announced a $1.15 billion acquisition of 15 Puerto Rican shopping centers from the Caribbean Property Group, which closed last month. This acquisition positions us as the dominant retail landlord in Puerto Rico, a US Commonwealth whose economy is fueled by consumerism and whose developable land is highly constrained by physical barriers. As Dan will discuss, considering the feedback we have already received from US retailers, we are very pleased with the acquisition and the opportunities the Puerto Rican portfolio presents. We expect that the 7.4% initial cash yield, which equates to 7.6% GAAP yield, will increase by approximately 20 basis points by yearend as a result of increased property revenues, including ancillary income sources.

We also hosted an investor tour of these Puerto Rican assets last month, which was very well received and provided analysts the firsthand opportunity to better understand the dynamics of this local trade area, consumer demands, and the outstanding sales productivity of this portfolio. The transition has been very smooth, and, as David will describe in greater detail, our staffing progress both in Cleveland and in Puerto Rico is proceeding on schedule.

The financing of the acquisition is complete and was comprised of our $250 million common equity offering, $660 million of assumed debt, and approximately $300 million of proceeds generated by the sales of the neighborhood grocery anchored shopping centers to the joint ventures, which we recently discussed. Following our announcement of the Puerto Rican transaction, we announced an increase in our 2005 quarterly dividends of 54 cents. Based on this amount, our 2005 anticipated dividend of $2.16 per share will be 11% higher than our 2004 actual dividend.

As I mentioned, portions of the financing of the Benderson and CPG acquisitions were provided by our joint venture partners. Our joint venture activity is a critical component of our growth strategy for several reasons. First, it maintains alternative sources of capital over the long term, in both good times and bad. Second, it enables us to capitalize on strong institutional demand for retail assets, thereby preserving our capital, inducing our returns for additional fee and merchant building income. Third, it allows us to better align our portfolio with our long-term investment strategy of owning market dominant community shopping centers.

Since the beginning of 2004, our MDT joint venture portfolio grew to 27 properties, totaling over 12 million square feet valued at $1.6 billion. This growth included a secondary offering in May, comprised primarily of former vendors and assets plus additional sales of five assets from our existing portfolio that closed in December 2004 and January of 2005. We will continue to expand this relationship through additional sales to MDT that will close over the next few months.

Also during 2004, our Coventry II joint venture acquired four additional assets, bringing its total assets under management to nearly 4 million square feet, representing over $320 million in pro forma net project cost. These value added projects are anticipated to generate a leverage and total rate of return to DDR in excess of 20% per annum, in addition to the fee income, which we are receiving and will receive in the future.

Although 2004 was an exceptional year, we are operating on all cylinders throughout the Company to make 2005 just as successful. Our outlook for leasing and development is very strong, as well as our opportunities for future joint venture activity. At this point, I would like to turn the floor over to Bill Schafer, who will discuss highlights from our fourth quarter results, as well as capital market opportunities for 2005.

Thanks, Scott. As Scott mentioned, for the fourth quarter of 2004, DDR reported FFO of 70 cents per share basic and 69 cents per share on a diluted basis. For the year ended December 31, 2004, the Company reported FFO of $2.95 per share on a diluted basis, which compares to $2.51 per share in 2003. The Company earned a total FFO of 86.8 million in the fourth quarter of 2004, which is 23% higher than the 70.7 million earned in the fourth quarter of 2003 and the Company earned total FFO of 343 million for the full year, which is 31% higher than the 263 million earned in 2003.

The Company's fourth quarter results reflect approximately 2.5 cents of dilution due to the sale of 300 million of grocery anchored assets to joint ventures early in the fourth quarter and to a lesser extent, the sale of nearly 100 million of assets to MDT and our 250 million common equity offering, both of which occurred in December 2004.

DDR's joint venture FFO was significantly lower for the three months ended December 31, 2004 compared to the same period in 2003 due to the following items. In the fourth quarter of 2003, the Company earned over 7 million in promote income associated with the sale of joint venture assets to the MDT venture. In addition, the Company earned over 3 million of fee income from its ownership interest in the US manager of MDT. Also, one of Company's joint ventures had a gain on the extinguishing debt, which resulted in 3.4 million of FFO to the Company in 2003. The aggregate of all these -- of these three items was approximately 13.5 million or 15 cents per share in 2003.

Since the beginning of 2004, shareholder value for DDR shareholders increased by approximately 1 billion. In connection with this increase, the Company's G&A increased by approximately 1 million, attributable to higher compensation expense associated with certain equity awards, primarily performance units and deferred director compensation. During 2004, the Company incurred approximately 5 million of G&A cost relating to these plans of which 50% was incurred in the fourth quarter.

In addition, G&A expenses increased as a result of Sarbanes-Oxley compliance, in which the Company incurred additional internal and external professional cost. Although absolute G&A expense increased due to the significant efficiencies we've recognized through our growth in 2004, our G&A as a percentage of total revenues declined significantly from 5.35% for the year ended 2003, compared to 4.9% for 2004. We expect G&A in 2005 will be approximately 12.5 million per quarter, which represents approximately 4.7% of total revenues.

The Company's dividend payout ratio also increased during the fourth quarter as a result of the dividend paid to new shareholders associated with our December equity issuance and due to lower FFO in the fourth quarter as compared to the second and third quarters when we recognized more transactional income. We anticipate our 2005 dividend payout ratio to be between 66% and 69%.

I would also like to take a moment to discuss our philosophy towards variable rate debt. Generally speaking, we look to maintain a floating rate debt percentage of total consolidated debt between 15% and 30%. In times when the yield curve is deepening, we may be above the 30% level and as we see the yield curve flattening, we will look to reduce our exposure to variable rate debt by locking in favorable long-term interest rates. In fact, following are acquisition of assets from CPG, we entered into a 10 year, $300 million treasury lock of just under 4.08% through May 9th 2005, which is when we can pay 360 million of CPG's floating rate debt.

At year end, our floating rate debt exposure was approximately 20% of total consolidated debt. Following our CPG transaction, that percentage increased to 37% and following our anticipated sales to MDT and the repayment of 360 million of CPG debt, our floating rate debt will approximate 29% of total consolidated debt. In our internal projections, we have also increased our re-forecasted rate of floating rate debt by over 60 basis points to a LIBOR rate of approximately 2.7% for the first half of the year and 3.1% for the second half of the year. The 25 basis point LIBOR rate adjustment will have a quarterly impact of approximately 700,000.

Consistent with our comments on many previous conference calls, we remain committed to preserving our strong balance sheet, and our yearend financial ratios clearly reflect this objective. For the 12 months ended December 31, 2004, the fixed charge coverage ratio was 2.3 times, debt service coverage was nearly 3.1 times and interest coverage was over 3.6 times. I would now like to turn the call over Dan Hurwitz to discuss leasing and development.

Thank you, Bill, and good morning. I'm pleased to report that leasing and development activity continues at a very strong pace throughout the portfolio. Specifically in regards leasing, Q4 was extremely active with 317 leases executed representing 1.52 million square feet of retail space. The rental spread on new leases reached 25.8%, while renewals were 8.4% for a blended increase of 12%. For the DDR core portfolio, which includes the former JDN assets and excludes the former Benderson assets, occupancy rose to 94.6% and the leased rate was steady at 95.4%. The occupancy percentage represents a 30 basis point increase over Q4 2003, and a 10 basis point increase over Q3 2004. For the year, the DDR leasing team executed 1175 leases, representing 6.5 million square feet of space.

I would like to take a moment to bring you up-to-date on the Benderson master lease spaces. Benderson, originally, master leased 97 spaces, which, due to space voiding has been 100 total units. As of today, 74 spaces are executed and open, representing 609,242 square feet. 12 spaces have executed leases but are not yet open, which represents another 57,225 square feet. Two spaces have pending deals and executed letters-of-intent, representing 34,400 square feet, and 12 spaces have no activity, representing 227,026 square feet. And of the remaining space to be leased, the majority are located in assets held in joint venture. The rental levels achieved have consistently been at or slightly above the master lease rental level, and overall, we are very pleased with tenant interest in upstate New York and the other geographical areas represented by the former Benderson portfolio.

As most of you know, we have recently closed on the CPG Puerto Rican portfolio, and from a leasing perspective, we are excited about the merchandising opportunities represented by these quality assets. We have already met with numerous tenants that are interested in either expanding their existing presence or entering the market with additional units. These tenants range from large property retailers such as Wal-Mart, JC Penney and Lowe's Home Improvement, to medium box tenants such as TJX, Borders, Best Buy, Bed Bath & Beyond, Linens 'n Things and Jo-Ann Stores, to even smaller tenants such as Spencer Gifts, Justice, Coldstone Creamery, Aeropostle and Footlocker just to name a few.

While a 97% lease portfolio, averaging over $360 per square foot of sales, represents its challenges in manipulating tenant mix, as we have seen over the years, the fluid and competitive nature of the retail business always creates opportunities going forward. I am confident to our expansion and redevelopment efforts, creative and aggressive releasing and active property management, we can take this portfolio to the next level and beyond in regard to income, credit quality, tenant mix and physical appearance.

Now, I'd like to shift to the development landscape. During our analyst tour in Puerto Rico, we received numerous questions regarding the impact on project yields due to the abundance of private capital chasing the sector. To answer the question properly, it is important to note that not all development projects are created equally, as internal capabilities, access to information and reputation can offer counterbalance potential irrational pricing. For example, the projects that are most negatively affected from a yield perspective by aggressive private capital are Greenfield development projects with a low complexity factor, which attract local developers who build for fees and narrow spreads between value and cost.

We have seen numerous markets where competitive private developers offer their lead anchor tenants heavily subsidized deals that drive project returns into the 8 or 9% range with hopes of exiting in the 7% range on top of recouping significant fees throughout the process. In situations such as that, we do not compete effectively and are unwilling to lower our return requirements to respond to that competitive dynamics.

However, develop projects such as midtown Miami, Apex North Carolina, Pittsburgh, Pennsylvania, or Mount Laurel, New Jersey all of which are fully described in our supplemental and have been the subjects on prior quarterly calls, require a specific expertise in developing capability and are less impacted by the competitive pressures previously described.

Midtown Miami, for example, required extensive development skills to navigate the approval and subsidy process from local authorities in addition to requiring significant risk capital at an earlier stage in the progress. Our realistic competitors for that project for other public companies with similar cost of capital, which kept the process disciplined and will ultimately result in a threshold lower return in the 11% range. The project was simply too complex for unsophisticated developers to credibly pursue.

In Apex, North Carolina, Mount Laurel, New Jersey, and Mount Nebo, which is our Pittsburgh project, we are faced with short land control agreements, which required acquisition at a point in the process that most local developers could not respond, due to the inability to secure major tenants within the shorten timeframe. Again, our access to the retail community and our ability to gauge tenant interest affords us a significant strategic advantage in deciding the viability of a particular site. Smaller developers, without such access to retailers, are not competitive in that situation.

Another area, where we are able to combat the market pressures of abundant private capital is the certainty of execution category. In many cases, we're seeing product that landowners or municipalities want to insure that a project is build professionally and delivered as represented in the initial presentations. For example, in Mount Laurel, New Jersey, prior to our involvement, the land was mired in 10 years of litigation between the proposed developer and the municipality due to a lack of trust that transcended the desire for the project to proceed.

When we reaching the agreement with the landowner, we immediately met with the municipality and our national track record coupled with market reputation resulted in the settlement of the suit that quickly permitted the entitlement process to conclude. Upon completion that project will also return in the 11% range. So the answer to the question of whether a bundling capital is low in development yields, is yes, subject to product heights which is exactly why we do not pursue the type of project most affected by this trend. Yield pressure, we are currently -- we currently feel on our pipeline relates to construction and labor costs that increase in a timeframe between our initial pro-forma assumptions, and the actual conclusion of the entitlement process in a construction bidding completion. Fortunately its important to know that very often market rents also increased within that timeframe which helps us offset the pressure from the increased construction costs. But even with that current cost dynamic, we have been able to maintain 300 to 400 basis point spread between cost and value, which still makes shopping centers development, a very attractive business.

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

Thanks, Dan. I'm pleased to reiterate Scott's point that our Benderson transaction is complete. During the fourth quarter, we acquired the last four properties from Benderson for approximately $32 million. And total, DDR acquired 107 assets aggregating 18.5 million square feet or from Benderson for $2.3 billion. As Scott mentioned, the integration with Benderson went very smoothly, in light of our experience as a consolidator in the market, we truly made the acquisition of large portfolios, part of our franchise.

An important aspect of our integration is that we do not hire many employees from the former owners thus alleviating the cultural issues that often play mergers and acquisitions. But we instead we create opportunities for internal promotions, which have significant positive effect throughout the company that being said we've also have a great success in hiring a limited number of employees and managers from JDN and Benderson, which does important roles at DDR.

I'm also pleased to announce that during the fourth quarter DDR purchased Buena Park Downtown for $91 million to its Coventry joint venture. The property, which is the 5th investment in the public and through real estate fund, is comprised of three distinct components, totaling 1.1 million square feet. The first is Buena Park Mall, a 780,000 square foot in close Mall and incurred by Wal-Mart, Sears, Burlington Coat, Ross Dress for Less, Bed Bath and DSW Shoe Warehouse. The second is Buena Park Place; a 200,000 square foot open-air community center incurred by Kohl's, Circuit City, Office Depot, Michaels and PETsMART. The third is Park Center and Entertainment Center a 137,000 square foot open-air and Entertainment Center anchored by 18-screen Krikorian Theater and featuring a variety of restaurants and in-line retail shops.

The property offers a unique Orange County location, a true infill market with outstanding demographics and significant barriers to entry. Buena Park Downtown is located adjutant to Knott's Berry Farm within three miles of Downtown Anaheim and within one mile of the intersection of Interstate 5 and State Route 91, which are the region's busiest freeways. The Property is 81% occupied and provides a rare lease-up opportunity in the Orange County market

On the disposition side we continue to experience strong market demand for our project fact finders disposition assets. Through the fourth quarter we sold seven assets totaling approximately $34 million, bringing our 2004 total to 15 assets representing approximately a $110 million in gross proceeds. We've also been actively transferring assets to MDT. In December, we sold three community shopping centers located in Columbia, South Carolina, Lewisville, Texas, and Birmingham Alabama to MDT representing an aggregate value of $96.8 million. Our disposition cap rate of 7.75% and it's favorably to our 2002 acquisition cap rate of 10%.

In January DDR sold two community shopping centers located in Aurora, Colorado, Irving, Texas to MDT, representing an aggregate value of $64 million. Require these assets in 2002 to our JDN merger where approximately 10%, which was 275 basis points above our weighted average disposition cap rate of 7.25. These two from of JDN projects were previously identified for potential purpose on MDT like a first offer list. Including these recent transfers to MDT joint venture -- owns 27 community center assets across the US, totaling over 12 million square feet and representing approximately $1.6 million in aggregate value. We anticipate that MDT will acquire an interest of at least $250 million in additional DDR properties and a blended cap rate of approximately 7.25% over the next few months subject to approval by the Board of the Manager of MDT.

In the fourth quarter 2004, our RVIP joint venture sold two shopping centers located in Mission Viejo and city of industry California for approximately $51.2 million. We acquired these assets from Burnham Pacific in 2002 for cap rate in excess of 10%, which is more than 260 basis points above over weighted average disposition cap rate of 7.4%. We currently have $19 million of other form of Burnham Pacific assets under contract and we expect to close during the first half of this year.

With respect to the CPG transaction, I'd like to highlight a few operational issues. As we've mentioned at our November conference call, we've announced the transaction, during next three years, representatives of the PMI, which is CPG's management affiliate, will be handling the onsite management and local leasing for us in Puerto Rico. We will be opening a DDR regional office in Puerto Rico shortly, which will hire the property management directors of the Puerto Rican assets, a regional leasing manager and a regional tenant coordinator. The property management director has been hired and progress has being made regarding the other two positions.

In our Cleveland headquarters, we have a dedicated leasing director in place who will review all leasing opportunities and the Vice-President Property Management, who is responsible for all budgets, forecasts, and capital request relating to this portfolio. We are also controlling all the property accounting and national leasing from our Cleveland headquarters. As a result of the CPG merger -- actually CPG acquisition, we planned to add eight employees. At this point, I would like to return the call over to Scott, who will provide additional comments and 2005 guidance.

Thank you, David. We are very happy to reaffirm our previous guidance of $3.15 to $3.25 per share for 2005. However, we would like to provide some additional clarity on the assumptions underlying these estimates. We anticipate that we will generate approximately $39 million in merchant building gains, all of which, we expect to occur in the first two quarters of the year. We will recognize 17 million in merchant building gains in the first quarter, associated with the sale of the two former JDN and development assets that we sold to MDT in January.

In addition, we anticipate MDT will acquire an interest of at least $250 million in additional properties, which will include other former JDN and development assets that will generate additional merchant building gains of approximately $22 million. In conjunction with these sales, we expect our earnings of approximately $1.3 million in financing fees associated with the MDT Joint Venture. Obviously, these merchant building gains will have the effect of inflating our earnings during the first and second quarters of the year.

With respect to acquisitions at this point, we have not included any significant acquisitions in our 2005 guidance. However, we continue to evaluate potential opportunities available in the market. We are quite positive about our operating prospects for the year and therefore, we are pleased to affirm our guidance despite certain adverse factors that will affect earnings in 2005. As Bill discussed, since our last conference call, we have substantially increased our budget expectations for interest expense. And, our disposition activity, which is been very effective in capitalizing on today's favorable pricing, has actually exceeded our expectations and has the dilutive affects on earnings.

In addition, during the second half of the year, we will begin trading stock options, as a G&A expense. We currently estimate this accounting change and will impact the FFO by 1 penny in the second half of the year and by 2 cents on an annual basis. As I indicated previously, we expect significant merchant building gains in the first and second quarters, which will have the effect of inflating FFO during those periods.

Despite the fact that our results for the first and second quarters will probably be in excess of 85 cents per quarter, we caution you to follow our guidance and resist the temptation to extrapolate the first two quarter results over the full year. At this point, I would like to open the line to receive your questions. Thank you.

Ladies and gentlemen, if you wish to ask a question at this time, press key "star" followed by the number "one" on your telephone keypad. If your question has been answered or you wish to withdraw it, press key "star" followed by the number "two." Questions will be taken in the order received. Press key "star" "one" to begin. Sir, your first question comes from Matt Ostrower of Morgan Stanley.

Good morning. A couple of -- I guess, more detailed questions. Can you just give us some clarity about what it was a tax benefit in the quarter?

Sure. We did get, we have received actually a tax refund from our prior year, which is primarily the largest part of that, and we were little conservative probably in some earlier quarters with our general accruals associated with taxes.

Okay. And so we sort of applying the same sort of tax rate, as we have in the past for driving trying to going forward based on the gains you're talking about producing?

Yes. And I think those numbers are kind of -- as we have mentioned our net of tax.

Okay. Right. I'm sorry. That's correct. Okay. And then, going forward on the land business or land sales gains, can you give us any guidance for that component as well?

It will probably be lower than what we incurred in 2004. I believe we had in the neighborhood of $12 million or so in 2004. My expectation is, it will probably be close to that maybe half of that amount.

Okay. And I guess, finally, did you guys bid on first Washington?

No, we did not.

Okay. Thank you.

Your next question from Mike Mueller from JP Morgan.

Hi. Kind a following up on Matt's question, in '04, the way we look at you had about 34 million of one time type items land sales gains, promotes, etcetera. Was understand now, we're talking about 46 million between the merchant building gains and the land sales. Is there anything else that would push that number higher or is that a year-over-year discrepancy kind to going about 12 million bucks?

I'd like to add, we didn't nicely breakout that way for 2004 and prepare for this call. I think that the number you're quoting is the net number.

Okay.

The result in 2004. If you recall, there were some other impairments recognized in 2004.

There's some small impairments.

So I think there may have been, I think the gross number might be fairly capital.

Okay. We will check in on that. Okay. Thank you.

Your next question from Alexander Goldfarb of Lehman Brothers.

Yes. Hi. Good morning. On just going -- continuing on promote see arena, one of your press releases, when you sold some product from -- involved with Coventry, it looked like there maybe some funds winding down in a language suggested that there were further sales. And perhaps you touched on it earlier, but if you could just go over some of the -- if there are any ventures, which may be wound down and what the anticipated promotes may be?

There are potential ventures that could be wound down, none of that is in our budget. So we would -- we are reluctant to give you guidance, as to what that number might be. There are some very successful projects that remain in that first Coventry Fund that will yield very significant gains. At this point, we have no reason to believe that that -- those dispositions will occur in 2005, so we haven't budgeted.

Okay. And you are referring to RVIP 7 (ph)?

I lose track of the numbers but I'm referring to projects like Deer Park.

Okay.

Chicago, the Pleasantville, and the Burnham Pacific.

RVIP 7.

Which is in RVIP 7.

Okay.

And there is a few other pending sales.

Okay. So, if I understand you correctly, while there maybe some promotes, they are not in the no guidance for this yearend, it sounds like what you're saying that the promotes likely won't be realized from next year?

I am not really giving you any prediction, as to when there will be realized, I'm just saying that for purposes of our budgeting and for purposes of your budgeting, I would not include that in your plans until we are more definitive.

Okay. Next, there was another retail Company that had restatement and one of the items related to their -- the way they book their JV accounting and some of the promote treatments. I'm wondering, are you guys aware of any change in the way that you account for your joint ventures and especially those with promote features?

No, we are not. I mean, my read of the information is that came out with -- I guess the release -- yesterday or the day before was basically that Company was using estimates and we don't do things based on estimates, we record the actual amounts and according with the accounting literature so for. So, I don't anticipate any changes and how we have been continuing to account for our joint ventures and way to promotes.

Okay. And then, Dan, it is for you. Are you in discussions with or is Kmart or Sears in discussions about converting any of the Kmart or Sears Essential?

We had previously approved in not the latest Sears Kmart transactions were proposed transaction with the original 50-store tranche. We had approved a conversion of two of our Kmart stores, two Sears; Sears at that point in time had not identified what they're going to convert it to. There's either going to be BB brand or some other concept, and in the period of time from when we approved it to now, the Sears Essential seems to have been got other concepts. So we anticipate them going forward. One is in San Diego and the other is in Rochester.

Okay. Thank you.

Your next question comes from Chris Capolongo of Deutsche Bank.

Hi. Good morning.

Good morning.

I guess I owe you guys a thanks because I ended up getting snowed into the -- on the Puerto Rican property tour and got stake of lecture days?

We weren't so lucky. Well done.

But, you know, I got to read the paper and one of the things I noticed was that there could be some tax changes. I guess, currently, there is an excise tax on imports, and they were thinking of going to a sales tax structure. Could you just give me a broad process or just speak through how that might affect your properties sales?

Well, I don't think those kind of recessions really mirror those in the United States. We have few. We have our President who have been talking about doing exactly the same thing at the Mainland. Obviously, it had the impact of allowing people to retain more of their disposable income, which increases demand. In the other hand it has the impact of raising cost for goods, which had a dampening impact of demand. And I don't think we have enough data basis -- the economy has really made this change in the past to really know if that's a positive or negative at this point. I also don't think its highly likely that these things happen quickly. If you're stuck around a little longer, you probably read some articles advocating statehood and advocating elimination of any differences between the tax system in Puerto Rico and that at the United States, which I think has an equal likelihood of occurring. So, I don't think there'll be a material impact one way the other, but it's certainly something to watch as we go forward.

Okay. Thanks a lot.

Your next question from Taina Rosa of Caribbean Business.

Hello. I'd like to ask you about your MDT joint venture. I read that you plan to -- and you also mentioned that you plan to in the next few months sell some of your assets in your portfolio to MDT. I was wondering if any of the malls in Puerto Rico could be included in this transaction?

Not in this tranche. There is a possibility that MDT could invest in some assets in Puerto Rico in the future, but at this point we haven't made that decision.

Okay. And another question I have is that you were mentioning that you could be expanding and redeveloping some of the local malls. I wonder if you have any specific plans for any malls here?

Well, not at this point. We're working with our retail partners to gauge interest and these include the ones that are currently operating in Puerto Rico and those that would like to trade in Puerto Rico. And once we have those conversations and we understand what the interest level is and what the demand is, we'll then formulate the appropriate plans to accommodate their needs.

I have one more question. It's about your office opening here in Puerto Rico. Do you have any more information like, for example, where it will open and you said eight people, do you know the positions of these people?

I can answer that question. The office will be in one of the existing shopping centers and it's being built up now. And the eight people includes personnel here in Cleveland. In Puerto Rico, we will have tenant coordinator, a leasing manager, a general manager for property manager, who has already been hired, who is already resident in Puerto Rico, and probably an administrative person. So, I think the maximum number of personnel at this point in the Commonwealth will be no more than four or five at the most.

Okay. Thank you very much.

Ladies and gentlemen, if you wish to ask another question, please key "star" followed by the number "one" on your telephone keypad. If your question has been answered or you wish to withdraw it, please key "star" "two." Again ladies and gentlemen, please, key "star" "one" now.

Your next question comes from David Schulman of Lehman Brothers.

Yes. Hi, I have a question for Scott. Do you see any fallout from any potential bankruptcy at Winn-Dixie, which has been widely discussed in the financial markets?

First of all, (inaudible) this is your 12th trying, I guess, probably, and questions on our conference calls. We'll miss you.

Thank you.

Yes. We do have some Winn-Dixie exposure.

More talking, in general, market-wide, not only your direct exposure but how you saw to see it looking at the retail map.

Well, I mean, clearly this is just part of a trend that we've identified now for a few years. I think it's tip of the icebergs and I think there will be significant amount of supermarket dislocation as a result of the penetration of these markets by Wal-Mart and wholesale clubs et cetera. You know, we've -- it's one of the reasons why, as an investment strategy, we prefer owning grocery stores in centers and also have other strong anchors, so that if we lose a grocery store tenant, it doesn't destroy really the attraction of the shopping center.

But I have certainly read, as you have, lot's of commentary that says that the transfer of market share to Wal-Mart and others is only going to affect the third or fourth supermarket in the market, but I think that's wishful thinking and not really the thinking of the number one and two grocers in each market. I think everybody is highly concerned about it. Wherever you have a 20% or 30% pricing differential, you're going to see massive shifts in market share. And I think it's our job to anticipate that and plan around it. And the long-term, I think it's somewhat positive for our specific asset class because I think what you're going to see in general is a higher proportion of groceries being sold in more regional locations, which is where we tend to invest.

Okay. Thank you.

Ladies and gentlemen, to ask a question, please key "star" followed by the number "one" on your telephone keypad. Sir, your next question comes from Eric Rothman of Wachovia Securities.

Good morning. Just a -- two quick questions for you, I was hoping if you could help us quantify or maybe how we should think about, are you have been to enhance the yield on Benderson transaction on a levered basis after all the various different sales? Isn't it -- the benefit of having reduced your grocery exposure, have -- how have you also boasted your yield there?

All the dispositions that were made out of the Benderson portfolio were immediately reinvested in other assets at similar cap rates. So there really wasn't any dilution, if you will, from asset sales. It was really was just a reshuffling the deck, if you will. And so the improvement and the yield from the portfolio really drives from at the operating level, which is really a combination of leasing by our team and leasing by the Benderson team, because as you recall, we were unable to include the master leasing income in our operating results initially, and as Benderson has successful in leasing the master lease space users, we're able to bring in additional income from that portfolio.

Sure. That actually leads me to my next point. The -- of this master leasing income it was helpful to have the breakdown of how many are open and executed, what portion of that master leasing income is now showing up in FFO?

No master lease income will show up in FFO, because it were the payments on the master leasing space. But basically on a consolidated level, there is just a few spaces that remain subject to a master lease. It's a very nominal amount. Having said that all of that in the plan -- in the fourth quarter, it wasn't recognized because we couldn't recognize it until tenant in occupancy.

Right.

So it will be recognized in 2005. But it's not -- you won't have seen much of that in the numbers for Q4 in 2004.

Okay. So what hit until 2005, because at the moment -- the results reported this morning, the income is still held out of FFO?

A good measure of it, yes. I mean a lot of the leases that Dan disclosed has been leased and occupied -- weren't leased and occupied for the full quarter of Q4 2004.

Sure. And can you remind us what the total income from all the master leases originally was?

If we go back to the script, I think we could add it up for you. Well, on a consolidated basis, I don't have the number as it relates to the master leases that ended up in joint ventures whether it was MDT or KFC or Prudential. But, I think the amount that was out of site of -- on a consolidated basis, it was about 1.4 million just for this year.

1.4 million, is it?

Yes.

Okay. That's all I've got. I appreciate your time.

Ladies and gentlemen, if you'd like to ask a question at this time, please key "star" "one" Sir, your next question comes from Carey Callaghan of DDR.

Scott, you know this MCW transaction, I guess, was a record for Australians investing in the shopping center category in the US. Does that in anyway, in your opinion, satiate some of their demand? It sounds like, you know, you've got the 64 million and the 250, which is going to happen in near term, but in longer-term is there enough appetite for MDT to continue to grow in your opinion?

Yes. I think so. I think there is -- first of all, as I read the release on that transaction, there is going to be a significant amount of assets sales out of that portfolio that's going to fund a portion of the costs. So, the actual offering for that deal, I think, was only about 800 million or 900 million in equity, which sounds like a lot, but probably, rephrased in the last six months in the United States. So it's not that -- it's really not that monumental. When you take the Australian-based LPTs, there has been significantly more than that raised each year. The other thing, I think, to keep in mind is it's probably a slightly different investor base, because the yield on our securities over there is much higher than Regency CountryWide is, because they invest primarily in the local market; the United States investment is just part of the protocol for that entity.

And there is a yield premium required by Australian investors on investing in the United States, which might be hard to believe based on the pricing from that transaction. But, generally speaking, those investors taking higher yield will gravitate more to the pure place in US real estate, if you will. Our information -- and we obviously speak to our counterparts down under at least weekly, is that demand over there is actually quite strong, and we're ambitiously looking for other opportunities to grow that company even as we speak.

Great. And then a question for Dan if I could. Now that you have a little bit of time and perspective on the holiday season, can you just comment on how the fallout from this holiday season is in terms of space coming open compares to last year? I guess, we've got the space to deal with it at some point here, but just in general how a comparison?

Well, in general, I think the good news from the holiday season was, even though the numbers weren't off the charts -- the charts from, you know, by any respect, clearly, most of the retailers met their plan.

Very often, there is some sort of dislocation, positive or negative, in January and February as a result of holiday sales. But the last couple of years, it seems that retailers really had their inventory levels down, their plan is pretty tight, and it's relatively uneventful. Sales are okay, but they're unplanned, which means margins have been able to be maintained and I think we saw that with Wal-Mart and Target just this morning or last night. So, I think there really was no big hiccup one way or the other, Carey. It was -- people went to holidays, they did fine. New store expansion wasn't impacted positively or negatively by holiday, everything seems to be relatively status quo.

Any comments, Dan, on Circuit City. They've announced some store closures and who knows what's going to happen, given the change in the ownership structure there. But -- any thoughts there?

Well, we've spent a lot of time with the Company lately, and as a practical matter, they have clearly, a number of stores that are drag on the Company that they need to exit. I mean, it's no different than any other retailer, once you've identified those stores it is imperative that they figure out an exit strategy. And they -- I'm sure you've seen the list and it's not overly extensive, but it will have an impact on them. They're still looking for new stores. Their new store prototypes are doing well and they are happy with the prototype. They're not happy with the old prototype. And the question is, how much pain do you have to suffer to get from the old prototype to the new prototype? And that's true with everyone. That's true from Circuit City, that's true with RadioShack, that's true with JCPenney. It's true with anybody who's going through a transformation of a retail format. So, we continue to work with them. We're pretty close to the situation and we monitor it on a regular basis.

Thank you.

Operator, are there any more questions? Operator?

Apparently, we're having a problem with the Operator and we're trying to rectify that situation. So, please hold on.

Thank you, sir. We have fixed that problem.

Okay.

Mr. Callahan, please key "star" "one" at this time to ask your question. Okay, ladies and gentlemen, if you'd like to -- here's Mr. Callahan again, please go ahead.

No, actually we're all set. Thank you.

That was the final question. I'd like to conclude the fourth quarter earnings conference for Developers Diversified Realty. Ladies and gentlemen, thank you and have a great day.