西蒙地產 (SPG) 2004 Q2 法說會逐字稿

Welcome to the Mills Corporation second quarter 2004 conference call. As a reminder this conference is being recorded today, Tuesday, August 3, 2004. I would now like it turn the conference over to Mr. Noam Saxonhouse, VP of Investor Relations. Please go ahead, sir.

Welcome to the Mills Corporation second quarter 2004 earnings conference call. Please be aware that statements made during this call that are not historical may be deemed forward-looking statements. Although the company believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained and it is possible that our actual results may differ materially from those indicated by these forward-looking statements, due to a variety of risks and uncertainties. Those risks and uncertainties include but are not limited to the national regional and local economic climate, competitive market forces, changes in market rental rates, trends in the retail industry, the inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, and changes in the market rates of interest. We direct you to the company's various filings with the SEC, including Form 10-K and Form 10-Q for a detailed discussion of risks and uncertainties. Acknowledging the fact that this call may be webcast for some time, we believe that it is important to note that today's call includes time sensitive that may be accurate as of only today's date, August 3, 2004.

This call will include statements and presentations of certain financial measures that have not been calculated in accordance with generally accepted accounting principles, which are commonly referred to as non-GAAP financial measures. Such non-GAAP financial measures include but are not limited to funds from operations, EBITDA. Additional information regarding such non-GAAP financial measures included the definition of such non-GAAP terms, presentation of the most directly comparable financial measures, calculated in accordance with GAAP and a reconciliation of such non-GAAP financial measures to most directly comparable GAAP financial measures, is required by regulation G, is set forth in our supplementary information in the company's current report on form 8-K as furnished to the SEC on June 30th, 2004. The supplementary information is also available on our website at www.themills.com, under the heading Investor and Financial and SEC Filings. Participating in today's call will be Larry Siegel, Chairman and CEO, Mark Ettenger, President, Jim Napoli, President- Operating Division, Jim Dausch, President- Development Division, and he's calling in from New Jersey, Ken Parent, Operating Officer, Greg Neeb, CIO and MJ Morrow, CFO. Now I'll turn the call over to Larry.

Good morning and welcome to the Mills Corporation earnings call for the second quarter of 2004. We continue to score major victories on a number of fronts, as we execute our business strategy, and position the Mills for dramatic sustained growth for years to come. I want to share you with some of our biggest wins, some of which I am announcing today for the first time. Let me begin with the Meadowlands. We have made significant progress in the past year to bring to life the incredible Meadowlands Xanadu. The [INAUDIBLE] process is in its final stages with the last state environmental impact hearings underway this week. I am pleased to announce that we scheduled a ground- breaking ceremony for September the 29th. During our ground breaking event, we will announce more than 15 of what will be the greatest collection of sponsors and major tenants, world class media, entertainment, sports and retailing brands to ever co-locate at a single venue. We will announce five leases totaling 1.1 million square feet, and generating in excess of $30 million of NOI. It will be an impressive lineup creating an unprecedented consumer environment. Kan Am, which has pledged 250 million in equity, already has funded $125 million; $101 million of that has come since the beginning of the second quarter at a rate of nearly $1 million per day. This is the most successful raise in the 26-year history of Kan Am's closed ended funds. The bottom line, Meadowlands Xanadu is now well on its way to becoming a reality, at a rate that will produce double-digit stabilized returns. Construction at the Continental Arena site is already underway, and we are on schedule to grand open Meadowlands Xanadu, the country's most exciting sports,entertainment, and retail destination.

I am also pleased to share some extremely important news that substantiates our long-held belief that our Landmark Mills properties are equal in value to traditional top quality regional malls. Premiere institutional investor JP Morgan Fleming has entered into a definitive agreement to acquire a 50% equity interest in Ontario Mills. The unleveraged yield on the transaction is below 6%. The Mills will receive net proceeds of $50 million, which we will use to reduce the balance on our outstanding line of credit, and for general corporate purposes. We will continue to manage the property and expect to close later this month. We ran a competitive process for the sale of this joint venture interest, and received attractive proposals from six knowledgeable North American investment institutions, all of whom were highly selective and have long-term focus. JP Morgan's investment in Ontario Mills is a testament to the quality of the Mills asset class, and represents the first of what I expect to be a continuing investment relationship with JP Morgan and other institutions. Our great progress at the Meadowlands, and significant investment that JP Morgan has made in Ontario, are very important and positive events, but there's more good news I want to tell you about.

Leasing is hot. On a comparable properties basis, our leasing team has signed 30% more leases so far this year than over last year's very strong performance. An example of this robust leasing environment is our 3 Landmark Mills projects under construction now. They have seen tremendous lease up in the last quarter, as these projects near completion. Cincinnati Mills has been transformed into what is, in my opinion, the best working mall we've ever opened. It's absolutely stunning. When we grand opened it on August the 19th, Cincinnati Mills' 1.5 million square feet will be over 95% leased including anchors. Inline space will be 89% leased, and 82% occupied, with retailers such as Charlotte Russe, Forever 21, American Eagle, and [INAUDIBLE], complementing the 15 existing, exciting strong, anchors that include Saks Off 5th, Bass Pro, Coles, and others. Cincinnati Mills will also feature Johnnie's Toys [PHONETIC], a 77,000 square foot FAO Schwartz-style toy store, which is a Cincinnati institution. Vaughan Mills, which is set to open November the 4th, now is 84% leased, up from 69% on our last call. New anchors include Hudson Bay Companies new Designer Depot concepts, Linens 'N Things, Urban Behavior, La Senza/La Senza Girl, and NASCAR SpeedPark. Ivanhoe Cambridge will share in the success of the first enclosed mall to be built and opened in Canada in 13 years. Interest in Pittsburgh Mills also is extremely high with grand opening a year away. This is key because Pittsburgh Mills, with a 1.14 million square foot galleria, and a million square foot big box retail campus called The Village, represents an evolution of our Landmark Mills concept. The Galleria at Pittsburgh Mills will include for the first time a full price wing, with previously announced department stores Kauffman's and J. C. Penney, and now 165,000 square foot [INAUDIBLE] Grand and a value and entertainment wing. I believe that Pittsburgh Mills will be the dominant center in the Pittsburgh market, and one of the most successful Landmark Properties in our growing portfolio.

Other developers already are copying this innovative concept, but they lack the Mills' expansive network of retailers, which spans value, moderate, high-end, entertainment, and international merchants that is essential to this type of all-encompassing destination. The Mills is recognized as a leading innovator in the retail industry, because we approach each new project as an opportunity to redefine the shopping experience. This is something we have been doing for the last 15 or 20 years. Pittsburgh Mills' exciting new refinements ensure that the Landmark Mills model remains the state-of-the-art shopping technology. We also continue to make progress redeveloping the regional malls we've acquired. In the short time since we've closed on the Cadillac Fairview portfolio and Riverside Square barely 18 months ago, we have begun significant renovations and are about to start several expansions. These enhancements will add substantial value to our regional properties.

Our key indicators continue to be strong. NOI is up almost 5% when adjusted for termination fees. Occupancy for stabilized properties is up .6% to 94.6%. All [INAUDIBLE] rent spreads for inline are up 10.5%. Comparable anchor spreads are up 155%, again separating us from traditional mall operators. And sales per square foot have jumped from $332 per square foot in last year's second quarter, to $348 per square foot this year. Finally, we are making steady progress on the international front.

Last month we submitted a plan for the redevelopment of the Mercadi Generali site, a prime location within a kilometer of the coliseum in Rome's city center, and we continue to pursue exciting development opportunities in Valencia, Seville, Barcelona, Milan, and Glasgow. More important, we are building on the success of Madrid Xanadu, by enhancing our ability to [INAUDIBLE] develop, acquire, and manage premiere off shore retail and entertainment destinations.

We have hired international real estate veteran Ron Weidner to oversee that operation. Ron has overseen $10 billion of real estate transactions, both debt and equity, throughout his career. He has 10 years experience in banking in the U.S., and for the last 12 years he has lived overseas working in global real estate. Ron most recently was a founding partner and principal of WestWind, where he --

We have temporary lost our speaker; we apologize for being disconnected.

I'll continue where I think I left off. We were talking about Ron Weidner's new addition to the Mills team. As I said, Ron has overseen $10 billion worth of real estate transactions, both debt and equity, throughout his career. He has 10 years experience in the banking in the U.S., and for the last 12 years he's lived overseas working in global real estate. Ron most recently was a founding partner and principal of WestWind, where he drove the investment strategy. Before founding WestWind, he served as CFO of Europe forTishman Speyer Properties, where he built from scratch one of the best real estate operations in Europe, and managed investment and development opportunities for a number of high profile projects valued at $2.5 billion. Ron is well known and respected within Mills. Mark Ettenger and I have known Ron for close to 15 years. Ron provided the construction financing for two of our first malls, Sawgrass Mills and Gurnee Mills, and he and the company worked together on the Opry Mills and Great Mall transactions, which he facilitated for Kan Am's open ended fund.

All of us are understandably optimistic about the domestic and international prospects for the Mills Corporation. We look forward to sustaining our leadership position as we continue to execute our business plan and build shareholder value. Now I'd like it turn it over to Jim Dausch.

Thanks, Larry. I'm talking to from you Giant's Stadium in New Jersey. During the past quarter, we took a number of positive steps forward in the company's development business. Let's examine them in the context of the three legs of our business strategy. First, our Landmark Mills development pipeline is alive and well. As Larry mentioned, we have the Cincinnati Mills opening on August 19th. This is a complete makeover of a distressed regional mall, which we purchased only two years ago. Then we have Vaughan Mills in Toronto on November 4th, and next year at back to school, our Pittsburgh Mills campus. This development activity represents well over 3 million square feet of new GLA added to our portfolio over the next 12 months.

In addition to the 3 new Mills projects, we will begin construction soon on the Colonnade at Sawgrass Mills, a 110,000 square foot collection of high-end shops and restaurants, our third expansion of Sawgrass in the last 10 years, and the first to take advantage of the 550,000 square feet of expansion space, which we have worked to entitle over the past three years. Wannado Kids City, the 120,000 square foot children's extravaganza, opens August the 12th at Sawgrass. Construction is underway on a renovation of that center, as well as a similar face lift for Potomac Mills to complement the introduction of the many new tenants there. To complete the Mills picture, we continue to make progress on several new Mills sites in Boston, Vallejo, California, and Portland, Oregon, and on the addition of 5 new anchors to the Great Mall of the Bay Area, and actually work has started on the first of these anchors. The second leg of our development strategy involves non-Mills full price retail and entertainment centers. The biggest of these, of course, is Meadowland Xanadu, our family entertainment and retail center in northern New Jersey. This project is now completing its regulatory approval process.

All state and federal hearings will conclude this month, and we fully expect that all necessary permits should be in hand in time for the ground breaking ceremony, and initial tenant announcements that Larry mentioned before. The primary legal challenges by disappointed bidders to the legality of developing Xanadu on the Meadowlands Sports Complex were unanimously rejected by the New Jersey appellate division during the second quarter of this year. The master plan approval process with the Sports and Exposition authority, as contemplated by our redevelopment agreement, will also be completed by this month, and the remainder of the project documentation with the authority should be ready for execution before the groundbreaking at the end of September. Indeed, with the concurrence of the Sports Authority, and the approval of the New Jersey Department of Environmental Protection, nonregulated initial utility and site work began in July, and will be ongoing with the completion of the permit process. Beyond the Meadowlands, work and more progress continues on final deal documentation with the city of Chicago, and with CBS Viacom, on our 108 North State Street project, and on the beginning of the entitlement hearing process. We believe we will be able to start construction of this project early next year. Entitlement work and deal documentation also continue with the port commission in San Francisco on the piers project.

On the more traditional regional mall side, we've made solid progress in the short time we've owned the regional malls acquired in the last year or so. In Del Amo Fashion Center, our entertainment wing, to replace the old vacant Montgomery Ward wing, is now fully entitled, and should start construction this year. These entitlements will also enable us to add a new fashion department store to the center. The follow-on entitlement process for the reconfiguration, expansion, and redevelopment of the entire center is now underway, and should be completed around the end of the year. This work could start construction early next year.

In Riverside Square, we plan to expand the center by reconfiguring and expanding one of the existing department stores, and adding up to 90,000 square feet of new high-end speciality and restaurant space. Discussions continue with the department stores, and we expect to start the entitlement process there shortly, to enable new stores to begin to open in 2005. In Broward Mall, we've recently made a lot of progress on the large expansion scenario with our department store colleagues, and as a first stage, we plan to add both a new 75,000 square foot AMC cinema, as well as an additional 50,000 square feet of lifestyle GLA adjacent to the cinema. In White Plains, we've completed an exterior face lift of the center, opened a new Sears unit, and new restaurants and other retailers. In the Esplanade, we're working to add a new cinema and restaurant complex to the center. And in North Park, we're negotiating to take back one of two units of the same department store in the center, and convert that unit into new lifestyle GLA. With this positive groundwork, we can realistically expect to execute this program to produce significant additional value in our regional mall portfolio in the near future.

Let me summarize some progress on the third leg of our development strategy, and that is International. In Rome, we recently executed a JV agreement with Lamero [PHONETIC] and Company, a $4 billion development and contracting company headquartered in Rome. And that venture submitted 1 of only 2 proposals to redevelop the former fruit and vegetable market market in Rome, the Mercati Generali, which is located only 1 kilometer from the coliseum as a 750,000 square foot retail entertainment and cultural complex. We're very optimistic about our prospects, and the double digit returns that project is showing.

In Spain, we're completing documentation of a JV deal with Gruppo [INAUDIBLE] there, for an 800,000 square foot retail and entertainment center in Valencia. Our partner has already begun site work. Tenant interest is very strong and we could break ground on the center itself before year's end.

In Glasgow, where we're in the predevelopment planning and joint venture documentation process with our local partner, Wilson Bauden [PHONETIC], we're advised to expect a definitive judicial decision on the land entitlement by September. Our partners are very optimistic about the outcome. With a favorable decision, this project can get in the ground during the second quarter of next year.

In Spain, the regional government in Madrid recently announced its plans and route for a new train service that will connect Madrid Xanadu with the Madrid regional train network, with two stations located right at the project . This service should be operational within two years. New business work continues in Europe in Barcelona, in Seville, and in Italy, in Florence and Milan. We continue to be optimistic about the prospects for a responsible development effort in Europe, with good sites, strong local partners, solid government support, enthusiastic tenant interest and now with Ron Weidner's advent, a strong on-the-ground management team to lead our efforts there and drive them forward. Now I'd like to turn the mike over to Ken Parent.

Thanks, Jim. I like to bring you all up-to-date on our operating and financial results. Fully diluted FFO per share increased 12.2% to 92 cents in the second quarter of 2004, from 82 cents in the second quarter of 2003. This quarter's FFO per diluted share benefited from a FAS 141 adjustment of 2 cents per share. Selected highlights of the quarter over quarter growth are as follows: Same project NOI grew by 2.3%, generating incremental FFO of 2 million. Excluding the impact of termination fees, which were unusually large in the prior year's quarter, same project NOI growth would have been 4.7%. FFO for new projects which had not stabilized in 2003, contributed 1.5 million to FFO in the second quarter. FFO related to acquisitions, less sales to joint venture partners, increased $8.5 million net of related interest expense. FFO from land sales was 800,000 more than in the second quarter of 2003. Development fees and interest income of 11.1 million related-- relating to the Meadowlands project increased by a total of 10.3 million from the prior quarter of 2003. We recorded this income on the basis of recent partnership negotiations with Kan Am and the strong development progress we have made during the course of the year. Including non-Meadowlands development fees from 2003, the 10.3 million increase reduces to 8.9 million.

Reducing FFO, abandoned project costs increased 1.1 million, versus the prior year's quarter. G and A expenses were 4.6 million above last year's levels. About 2 million of this increase can be attributed to the overall growth in our company. The remaining 2.5 million is related to both quarterly timing of certain items, and nonrecurring costs, such as employee bonuses, Sarbanes Oxley costs, or fees and costs related to systems implementation. FFO was also negatively impacted by an increase in a preferred dividend and distributions of 2.4 million. Overall these net positive earnings items were partially offset by an increase in the [INAUDIBLE] diluted share count of approximately 4.2 million, largely due to the fourth quarter 2003 conversion of Vystar's [PHONETIC] preferred stock into over 3 million shares of common stock.

I am sure you all notice a new line item on our income statement, minority interest and consolidated joint ventures. This line item is related to FIN 46 [PHONETIC], which you may recall we implemented at the end of the first quarter. The most significant change is that Madrid Xanadu, Pittsburgh Mills, The Meadowlands, will be called variable interest entities, or VIEs, are now partially owned, consolidated entities. Our partners' interest in the properties has now captured the minority interest. This line item in our income statement just released, for instance, is almost entirely comprised of The Meadowlands fee and interest income I alluded to earlier. In prior quarters, pre-FIN 46, these amounts would have been separately reflected in other fee income and interest income.

Now I will spend a moment on our guidance. For the year we are maintaining our guidance of $3.90 to $4 per share. We still anticipate core NOI growth of over 4% for the year. Additionally, strong openings of both Cincinnati and Vaughan Mills will augment this year's earnings. This guidance includes the impact of some of the nonrecurring or unusual items that I referred to above, including higher G and A, and interest and fee income, which will net out close to zero. All told, there are a number of moving pieces but we feel confident with our original guidance for the year.

Before moving on to our balance sheet, I want to spend a minute on our rent spreads. We have changed our [INAUDIBLE] rent disclosures to give a more complete and relevant picture of the activity here. We felt this was necessary because of the limited nature -- limited number and nature of the transactions that happen on an annual basis. Now we disclose both all in and all out, including new and significantly redemised space in the all in category, and same space spreads. The new disclosure -- the new disclosures continue to reflect very strong performance in this area. The same space spread -- same space spread, for instance, came in at nearly 155% for the quarter, and has been strong historically as well. The all in all out also numbers reflect strong performance.

During the current quarter, we pushed comparable center occupancy to 94.6% by leasing space to permanent tenants that has historically been occupied by temporary and seasonal tenants. Although temporary tenants are not included in our closings for calculating rent spreads, we did achieve cash rent spreads on an all in basis of 10.5%, even while leasing some of the more challenging space in our portfolio to permanent tenants. As you may know, as many of you know, some of the other regional mall REITs report their inline rental spreads on a straight line basis to allow analysts to make consistent comparisons. When you look at what our rent spreads would have been using the straight line method, it is interesting to note that using GAAP rent spreads on our stabilized Landmark Mills portfolio would have added 8% to our rent spread on these properties in 2003.

I will now focus on our balance sheet, where the strength and performance of our properties and management team allow us to access capital from a variety of sources. First, Larry has already talked about how JP Morgan will become a non-managing member of Ontario Mills, allowing us to pull 50 million out of this transaction, net of fees. Second, now that Kan Am is paying their portion of The Meadowlands project, our net investment is dropping; since June, Kan Am has invested $101 million, bringing their total investment to $125 million. They continue to have a very successful raise, and raise money daily. Third, we are making progress on the [INAUDIBLE] agreement, another proposal, which, if successful, will enable to us pull in additional capital out of this asset as well. These transactions, together with the prior JV interest sales of operating [INAUDIBLE] , speaks strongly of our ability to recycle capital, completing the larger array of affordable capital alternatives available to the company.

From a debt perspective, our projects continue to garner a tremendous amount of interest. We have received a number of proposals for the construction loan for Pittsburgh Mills, we are in the final stages of selecting a new bank here-- additionally we are in the process of refinancing on a Colorado Mills with fixed rate debt.

A quick review of our capital structure reveals the following characteristics: 3.4 times interest covered ratio, versus 3.9 times a year ago, adjusting for the impact of the sales of joint venture interests and foreign currency gains, these numbers fall to 3.0 times and 3.5 times respectively. A trailing 12 months dividend to FFO payout ratio of 60.4%, versus 67.1% in June 2003. Debt to market capitalization of 49.2% versus 54.9% a year ago. As we discussed in our last call, we continue to prudently fix our floating rate debt where appropriate. Since we last spoke, we have fixed our debt on Discover in St. Louis, through [INAUDIBLE], just as we promised. As I mentioned, the new mortgage on Colorado will also be fixed. Additionally, we are considering fixing the debt at Madrid Xanadu. If we complete these transactions, 81% of our debt will be fixed to the end of the year, and 68% of our debt will be fixed to maturity.

Finally I would lining like to spend a moment talking about the Ontario sale. JP Morgan bought a 50% interest in the project, taking 37% from Kan Am, representing all of their interest, and 13% from Mills, allowing to us keep a 50% managing general partner interest in this great property. Larry has also covered why this is a watershed event in the company's history, from a valuation perspective. Nonetheless, I would like to share some additional thoughts. As Larry noted, the cap rate on this deal below 6%. In fact, the in place cap rate is 5.85%. Adjusting the number for the in place above market debt, the cap rate drops to approximately 5.71%. Even though Mills is only selling a 13% stake in the property, the transaction provides evidence for the value we create in the properties we own. The undepreciated book value of this 8--year-old asset, including leasing commissions and tenant allowances, is $199.6 million. This means that in addition to providing investors with an unleveraged double digit yield since its completion in 1996, the property is now worth almost 300 million more than it cost to build. We firmly believe that this asset traded at a level on par with the premium malls that have sold over the past 24 months. Note that the cap rate is significantly lower to those used by many of the analysts in determining NAB. That concludes our prepared comments. We would now like to turn the call over to question and answers.

[OPERATOR INSTRUCTIONS] Our first question comes from the line of Ross Nussbaum with Banc of America Securities.

Good morning everyone. I'm here with Amy Delone [PHONETIC]. A couple of questions. First, can you comment on what the status is regarding the purchase of PGC stake over at Madrid Xanadu?

Yeh, we we expect to close out in the next 30-60 days, Ross. I don't think at this time it would be appropriate for us to really comment further on it because there is some negotiations still to come, but I think once we close in the transaction, and report upon it you will be pleased with what you hear.

Okay. And I apologize, but you lost me a little bit with the minority interest line item. The bulk of that, you are saying, from a development, one-team development fee on The Meadowlands?

Yeah, the development fee, the development fees that we've begun to recognize now on The Meadowlands in this quarter, I think we talked about in prior calls, that we start recognizing development fees on this project this year, so we've begun to recognize development fees and there and interest income as well on that project in the quarter. And those two items comprise almost all of the line item that's labeled Minority Interest in Joint Ventures.

So there's no net income -- where is the partner share of net income from Madrid?

The partner share of net income from Madrid is-- after depreciation is very nominal. So their share is in that as well. [INAUDIBLE] -- but it's just a very, very small number.

Okay. And can you give us just a sense, just for purposes of NAB calculation, what would the minority interest be on the ride side of the balance sheet for your partner's equity interest?

I'm not sure I know that off the top of my head.

Okay. I'm follow you with up later on that.

If you wouldn't mind, please.

On the G and A line, can you give me a sense of what you really think a run rate is here? It's kind of going up exponentially. I guess getting a little concerned that it's going to continue to do so. At what level do we start seeing some more reasonable G and A growth?

I think our guidance is probably increased in the G and A line from prior quarters. Probably about 10%. I think that's largely due to the nonrecurring items, you know, there's other items that impacted that as well but I think the G and A will be higher from some nonrecurring items that we just didn't anticipate earlier in the year.

Okay. Can you difficult us a sense of their quarterly run rate that you're kind of targeting or --

I would target a -- well, I'll target an annual number, 33 and 34 this year, but again that includes the nonrecurring items. You know, so if there was no growth in business in the future, you might anticipate 30 to 31in the future, but of course there will be growth in the business and the G and A will go up somewhat.

Okay. And last questions on the leasing front. Obviously the anchor releasing spreads are pretty fantastic at 150+%. But if I look at your TIs in leasing commissions, and specifically what you are refer to as nonrecurring, they've also shot up pretty dramatically to, you know, over 80 bucks a foot year to date. So, you know, if you net those numbers out, you know, it paints a little bit of a different picture. I'm curious in your thoughts on, you know, that nonrecurring number just seems to every year be recurring, and is it something we should continue to expect?

Well, I think we'll always have opportunities to improve the malls and do creative things but, you know, the returns on those dollars that you're seeing, Ross, are pretty strong. The returns on dollars, where we respent it for some of these anchor deals, you know, is at least nine if not more-- percent-- if not higher. A lot of them are double digit deals. I think we're making good money where we spend it and even where we're not spending money, we're making very good spreads. That's why the 155% is the number that it is.

When you talk about those returns, is that an incremental return?

That's the incremental return, absolutely, the new rent versus the old rent, and divided by the dollars that we're spending.

Okay. Thank you.

Our next question comes from the line of Gary Boston with Smith Barney. Please proceed.

Good morning. Just to follow up on Ross' first question there on the development fees coming off the Meadowlands. I think you said that piece was about 9 million of the 11. Is that -- you're expecting that to be a pretty good run rate for those fees going forward, and how long did they continue once they get into the actual construction process?

First of all, I think the development fees and the interest income total $11 million, and what I said is on a --when you compare that against that same interest income and development fees recognized in the same quarter last year, it's about an increase of 9 million.

Got you.

So about 11 million, and really an increase, for purposes of understanding our variances, of about -- $8.9 million. And, you know, we expect the development fees, you know, as we have in the past last year, it was a little bit lower, and we said that they were going to be higher, at least $15 million this year and I think that, you know, we're going to be in that 15 to maybe even more on this year, including that -- when I include that interest income. When I look at the interest income and that development fee together, which as I said, was about $11 million so far, I think that those two together are going to grow to 17, $18 million perhaps for the year. And I would expect going forward that development fees, you know, would continue with what we had previously suggested was our kind of our stabilized run rate, which is about $15 million.

Great. In terms of the balance of the year, any -- or actually headed into 2005, in terms of guidance for dispositions, are there any other projects out there where you're looking to maybe take a joint venture partner on to take some money out of it?

I think we alluded to, Gary, this is Greg, I think we alluded to one that Ken mentioned in his prepared remarks. But at this point, you know, I think, you know, we're going to continue to look at that and evaluate it but on our fundamental development pipeline, I think it's pretty well funded today as we speak, so, you know, with the partners that we have in place at the development -- at the development asset level, so I think barring something that is above and beyond our base business model, I would say at this point you would see -- we would not do something.

Okay.

Gary, just to say, you know, there continues to be interest in other properties that we're currently developing ,and we have had discussions on several of the other projects, most notably the urban projects and, you know, there is a possibility down the road that we could -- we could do something there.

You know, I said except [INAUDIBLE]

Right, right.

Just my final question. You mentioned your expectation of hitting 4% in terms of core internal growth for the year. And you're sitting at about -- a little shy of that and it was weaker in the quarter. What are the assumptions that you're using to sort of ramp that up in the second half to get you up to the 4% for the year?

Well, I think, you know, as we mentioned, the termination fees depress the yield a little bit in the second quarter. Without that that number was above 4%, or the increase, and that will continue on through, you know, the rest of the year, and also we have some anchor openings that are coming for the last six months and, you know, our occupancies project to be pretty high by the end of the year, all told, including the inlines. So I think -- the strong performance, you can see it after you make the adjustment for the termination income in the second quarter and that's only going to improve. So by the end of the year, I think we're actually predicting about 4.5% but hold me to 4%.

Okay. Thanks.

Our next question comes from the line of Jay Leupp with RBC capital markets.

Hi, good morning, I'm here with David Ronco [PHONETIC]. Larry, could you give us a little bit of an update on the leasing progress at Del Amo, and when you think, with the pace of that have redevelopment, that will become less of a drag on the overall portfolio occupancy? And then also talk a little bit more about what you're doing at Sawgrass, since last quarter?

Yeah, well in Del Amo, Jay, as you know, we're about to embark on a large redevelopment and expansion of the property, and it's fairly complicated and has required us to move some tenants around and to not renew some leases as we prepare for that. As Jim said on his -- in his prepared remarks, we're about to start on the expansion portion of that over the next couple of months and that will be one piece of it. That should shore up one end of the development's occupancy, and then starting the beginning of next year, we're actually going to connect the bottom level of the center. It now is interrupted by a road, and that's going to be connected, and so I would say probably by the -- by the first or second quarter of next year, that should be shored up and you'll start seeing probably some stronger occupancy increases.

Okay. And then could you touch a little bit on what you're doing at Sawgrass?

Yeah, as you know, we're opening Wannado on August the 19th, and we're merchandising an awful lot of children's uses around that now. As Jim has said in prior calls, we have a 550,000 square foot expansion approval on that property that we're starting to utilize now, and the first piece of that is going to be 110,000 square foot colonnade expansion that will be an outdoor, high end manufacturer strip that will be beautiful and with valet parking and other things. There will be a four restaurants, very strong names that will be part of that expansion, and we -- you know, we intend to embark on that over the next couple of months, and then on the additional 400,000 plus square feet or so that we have remaining, we're in the planning process.

Okay. And then just following up on the lease expiration and the principal repayment issues; 11% of your portfolio overall expiring in 2005, can you talk a little bit about 2005 leasing activity, and how much of that you're doing today? And then also your plans for repayment or refinancing on the 173 million that comes due next year.

Well, as I said in my prepared remarks, we signed 30% more leases this year comp in our comp centers than we did last year. And so leasing is very hot and is basically done for this year. I don't know, Jim, do we have a number for next year yet? Do we know what that number is? Do you want to give some light to?

Clearly in 2004, we're already around 55% of our -- that we are ready to work with. At this point -- of course, it's not all signed but this is what we've been working with at this point for -- I'm sorry, 2005, excuse me, 2005. And we're well into 2005. Actually, we even at this stage of the game in 2004 begin looking at the renewals that are coming up in the beginning of 2006, anything coming up early in 2006. So we're -- we're well on our way to doing what we have to do.

Jay, it's Greg. With respect to -- if you look at the principal -- the maturity date that we have outstanding, the principal thing that we have coming up is Colorado Mills and I think we can talk about on the line is that we are in the throes of refinancing that now.

Last question, Larry. In the way you've divided your portfolio of malls, you've got the Mills Landmark Centers and then the 21st Century Retail and Entertainment Centers. Are you making any effort to consolidate thematically what you're doing with the 21st Century Retail Centers? Are there any sort of common themes or positions that you're doing that is similar to what you've done with the Mills Landmark Centers?

Well, we are going to add and, you know, I've talked to some of you about some of this. We're going to add some unique anchors to the regional malls, I think over the coming year, which will help differentiate them. Number one, number two is as Jim was talking about, we are going to add entertainment restaurants, theatres to some of those projects. And Jim has done, I think, a fabulous job in terms of cross pollinating regional mall tenants, promotionally-based primarily into our Mills projects, and also bringing a lot of the more special speciality Mills tenants, one-of-a-kind tenants and populating them into our regional mall portfolio. So you will be seeing a bunch of that on I think a going forward basis, and I don't think the themes are going to run together because our full-priced projects will continue to be full-priced projects. I think just with differentiating tenants and anchors that make them more dominant in their respective marketplaces.

Thank you.

Our next question comes from the line of Matt Ostrower with Morgan Stanley.

Good morning. Ken, I know you talked about some of the year over year comps. When I sort of take out the fee differential that you talked about, the $9 million, it's about 14 cents a share. And so, you know, looking back, sort of sequentially, that would bring your earnings in the second quarter, if I take that out, to 78 cents, but you recorded 85 cents in 1Q '04, so that's a seven penny sequential decline. I would guess that half of that decline is attributed to the sale of Opry? What else am I missing there?

I don't know if half of it is attributable to the sale of the Opry, when you factor in the use of the capital that we got for selling it. I think what you're missing is the spike in G and A in the quarter which is unusual. I think there are some things that -- that was at least $2.5 million there, which would be a little over 6x cents of-- it kind of went off things that were either kind of timing-related or just completely nonrecurring. I think there as also some things that ran through the quarter in the properties when I compare it against the second -- compared against the first quarter?

First quarter, yeah.

Against the first quarter. You know, I think there are some -- there were some one-off things in the properties. I think, you know, from the first quarter as well, but they weren't -- weren't really particularly material and, you know, I'm just kind of thinking through what else it could be going sequentially-- as you've asked.

I think there's some product abandonments.

That's right of over $1 million, A million one in the quarter.

Okay.

Kind of a lot of little things, Matt. I think the quarter for us as you know are challenging sometimes, but I think on an annual basis, we're still within our guidance and I think the line items, again, some of the usual things are going to impact line items perhaps from prior guidance will kind of net out to zero. So I think, you know, we will in substance keep with the guidance and the geography of what we talked about.

Okay. And then in terms of the proceeds that Kan Am will receive from the Ontario sale, I know, or I thought there was discussion at some point, about them potentially using this capital to increase their interest in Meadowlands. Is that till on the table? Was there any discussion about what they were going to do with that money?

No, no, there's been no discussion with what they are going to do with the money. They've had an unbelievably successful raise thus far in The Meadowlands. They really haven't been raising for that long. They've raised the majority of it without even a prospectus out, which they just recently got out. They've raised $125 million so far. They've returned to us, and they're raising about a million dollars a day. You know, this project, you know, like I said, we are ground breaking September 29th. We're announcing 15 anchor stores that represent 1.1 million square feet of space and $30 million of NOI. You know, we still believe in our -- in our double digit returns for the project and, you know, I think we're comfortable where we are in terms of ownership levels in that project. I think Kan Am, because they're raising so successfully, would like to buy out, but we think there's too much value there and probably won't do that.

Okay. And then --

Matt,

On Ravens --

Hey, Matt, Matt, I think we described it more as a catalyst to fund their existing obligation [INAUDIBLE].

I see, I see. Okay. On Ravenscraig [PHONETIC], I got an e-mail, it sounds like there was a recent court decision that sort of stopped or halted the redevelopment process of that site. Is that right, and does that have have any bearing on the project at all?

Jim, are you still there? Do you want to answer the question?

Yeah, there are actually two proceedings that were going on, Matt, this is advice that we're getting from our partners. One was the challenge overall to the entitlement. The second one and the one that you just read about, was a challenge to an action, a further entitlement action, that the local land authority had taken before the main decision on the initial entitlements was decided. And the court in that second more limited one, indicated that the land authority should have waited to make that decision until the overall decision, which is due, I believe, by September, is made. And so it's basically a temporary setback, and I think can you can guess what the -- what the local land authority's decisions are going to be on those further entitlements, assuming that the first is decided favorably.

Okay. Finally, if I heard you correctly, the rate on the loan of the Ontario asset that's being sold here sounds like it's materially higher than the cap rate that its being bought at, and I just wanted to understand, you know, how that works from the perspective of somebody buying it.

The cap -- the blended interest rate in Ontario Mills is 6.8%. So, you know, when you make a mark to market adjustment for that, you know, taking present value into it to where the current, you know, market rate debt would be for the investment grade loan, give or take is, you know, -- there's an approximately a $12 million sort of adjustment that you would make to the purchase price.

Right. I guess I'm just sort of it -- it seems to me, unless I'm misunderstanding how the loan works, it sounds like sort of a negative cost of carry for JP Morgan and their client.

Correct. I mean, relative to -- I mean, obviously there is a negative spread for the value of the carrying cost of the debt versus the asset.

I'm just trying it understand the logic of that.

The logic of it?

Yeah. I mean, how can they make any money that way?

There's still an equity return on that, and they're an IRR based [PHONETIC] investor.

So the debt isn't the full value of their investment, just some separate equity piece?

I think -- maybe I'm not understanding you correctly, Matt, JP Morgan will own, when we close, a 50% equity investment in Ontario Mills.

Right.

They are going to -- they are going to step into the partnership subject to the existing debt in place.

Right.

Which you have -- which, as you have correctly surmised, has a 6.8% interest rate blended for the existing debt.

Right. Okay. I guess I'll catch up with you-- It just seems like their going in return is lower than their cost of debt, so I just don't understand how they make any money on it but I guess that's not your problem.

I think they're long term focus investors, and there's still an equity return and they're looking at their IRRs.

Right, so cap rate has to come down more, basically?

I don't know. I don't want to say that, but I think that there's, you know, growth in the cash flows and they've done a [INAUDIBLE] on the asset.

Okay. Great. Thank you.

Our next question comes from the line of Craig Schmidt with Merrill Lynch. Please proceed.

Good afternoon.

Hi, Craig.

Hi. I'm very happy to hear about the groundbreaking on September 29th. I'm assuming that's still allows for an 06 opening for Xanadu?

Our plan is, Craig, to try and stick to that schedule. I mean, you know, we're starting probably a month later than we anticipated, and, you know, our schedule still shows that, and we're going to do our best to maintain it.

Great. And on the 15 sponsors and anchors that you're going to be announcing, what does that represent of the total anchors and sponsors at the project?

The 15 anchors, the 15 names that we're going to be announcing are not the sponsors. Those 15 names will all be anchors. We will be announcing in addition to that, another 4 or 5 sponsors, core sponsors. The anchors that I talked about, those 15, represent 1.1 million square feet, so that's not sponsorship square footage, that's anchor square footage. And that's where the $30 million of NOI is being derived from. The total anchor number, there are 19 anchors and 2 department stores and off the top of my head, I think you're talking about another half a million square feet plus or minus of anchors that will be announcing either at the opening, because some of them are at the groundbreaking rather, because some of them are now in negotiations, or closely thereafter.

Great. And if I heard right, Jim said there's 5 new anchors coming to the Great Mall of Bay Area.

Yeah, we -- we have either signed or have documentation of 5 new anchors at the great mall of the bay area. One is under construction. Two others will go under construction shortly and, you know, we expect that this -- this asset over a very short period of time will become as valuable and as dominant as Ontario, you know, the new train line, the new public transportation line, has opened there and traffic is terrific and sales are great and and speciality leasing is very strong and the area is very strong and we expect to be able to make this an Ontario-like asset in the very near future.

Are you able to name the anchors at this point?

I don't know. What have we announced so far? I don't -- do you remember what we've announced so far? I don't remember.

Hey, Craig, just so I don't get anybody in trouble, in terms of preannouncing, if I can just look at that, you know, I'll be glad to tell you offline what we've announced, once I go back and talk to Greg Goodman and see what we have and haven't so far.

I can tell you right now that one is a high fashion -- high fashion anchor of about 30,000 square feet. You can probably guess what that is . One is a -- is a junior department store of about 100,000 square feet. One is an entertainment anchor of about 25,000 square feet. The other is a hard goods store of about 30,000 square feet. And I can't recall the fifth one off the top of my head.

The last question is on Del Amo, it looks like the entertainment piece is moving really well. Is there any sense of a timeline when you might be able to announce a fashion department store for that project?

We're now in negotiations with two of them that we hope to complete in the near future, you know, you never know exactly when you're going to complete them, but hopefully in the near future, and hopefully we'll be able to announce those maybe even by our next conference call, but if not, soon thereafter.

Thanks a lot.

Our next question comes from the line of Greg Andrews with Green Street Advisors. Please proceed.

Good morning.

Good morning.

Following up on Del Amo, any update on the sale of the residential piece of that project?

Yeah, Greg, this is Ken. I'll address that. We were seeking to get something done this year. We still think that's a possibility. You know, we have to go and get the thing approved for residential and, you know, that particular piece of property, whether it's residential or something else has tremendous value and we may still yet sell it. We think there's a transaction that could be had this year even without the approval in place. But it will either happen late in the year or something will happen next year.

So it has, what, like a general plan approval, but not specific entitlements for building the units is that -?

Jim, do you want do go through that?

Yeah, the entitlement status is this, it is zoned among other things, for residential at a density of I think -- don't hold me to -- it's like 27 units to an acre, but you still need a conditional use permit from the town and so -- and those things take some time and as you can imagine, being out there, do generate a good deal of discussion. The town would like to look with us at a bunch of different uses; as Ken says, there are, there are other uses that that land is very, very valuable for, and some of them can be mixed with residential. We've agreed to embark on a process with the town that brings everybody to the table together. But it's basically a conditional use permit. The property is already entitled for it now from a zoning point of view.

And as Ken said, the -- you know, that -- even without the entitlement this year, that sale could possibly still take place this year.

Great And then follow up on Ontario and the line of questioning that Matt was pursuing, it strikes me that perhaps there's a 10-year roll coming up there, since the project was developed kind of in the mid '90s. Is that part of what's factoring into kind of -- I mean, I guess is it fair to say that the cash flow growth at that particular asset in the next few years is probably going to be better than at some of the other properties?

No, I don't think that's true at all. I mean, you developed a whole bunch of them as you probably remember, Greg, in '96, '97 and '98. So, you know, you got a whole bunch of 10-year rolls coming in -- a bunch, probably 6, 5 or 6 of those properties. So, you know, that's -- that's -- that's the first one, obviously because it's the first one we developed since we went public in '94 when we opened it in 1996.

And let me just, Greg, this is Greg, just to help sort of elaborate on Matt's line of questioning. The [INAUDIBLE] help understand better JP Morgan's view on return. This asset has $146 million of debt on it, based on the valuation today, that's a 30% leverage level. What you have here is a lot of equity, so the returns, although the debt depresses the returns base based on the cap rate, there's a lot of equity returns because of the dollar size of the equity.

Fair enough. Okay, lastly, could you tell us what the land sales gains were for the quarter, and also whether there's any change to the outlook for the full year?

Do we have any? Maybe -- we're checking on that, Greg. I think we may have had some small activity in the quarter. I don't think there's anything significant. I think, you know, our guidance of what we gave earlier in the last quarter, I believe, was about 20 million, and I think we're going to stick with that guidance for now.

Perfect. Thanks very much.

Our next question --

I'm sorry, just to answer Greg's question on the gain, it was 1.2 million of gain in the second quarter for land sales. That's the no share gain.

Our next question comes from the line of Rich Moore with KeyBanc Capital Markets.

Good morning.

Good morning

Do I understand that the consolidated 3 properties, is that right, came as a result of FIN 46?

That's right.

And then you mentioned, I think in the supplemental, that at some point you might deconsolidate those? I mean, maybe you could explain why they're consolidated and why you could deconsolidate them.

Yeah, it unfortunately involves a technical discussion and you know, given that we expect on Madrid to shortly be the only -- to own 100%, that obviously wouldn't be deconsolidated, but as we achieve a certain hurdles, primarily of getting financing in place for the other assets, the construction debts, that would basically be the time -- looking at my CFO to make sure I'm giving the technically correct answer-- but that would be the time when you would deconsolidate those assets. It's crazy because they would only be consolidated for a not very long period of time, but that's the way the accounting works.

Going forward, would you say that all the development JVs would probably be consolidated from FIN 46?

I think --

Yes, until construction finance, until third party financing is in place and all of the equity is in place.

Okay. I got you. Okay. Then looking at leasing for a second, Colorado and Discover, I think, are the 2, you know, maybe oldest properties that aren't in comps, is that right, and do those go in soon?

Yeah, our perspective has been to sort of log two calender years, and then sort of bring those into the comparable analysis.

Okay. So those are soon to come, I take it?

Discover is soon and Colorado is the year after.

Right. And then did you guys give a year-end '04 occupancy target?

We did not.

Do have you one? Is it roughly what it is now? Is it going to come up some of the rest of the year?

Yeah, I think it -- go ahead.

[INAUDIBLE] the same question -- our view is that it's going to sequentially come up a little bit from where it is here.

Okay. Okay. Great and then -- did you guys stop disclosing average base rents? I couldn't find it in the supplemental in its usual spot.

We can check on that, Rich. Average base rents, I think are -- we disclose -- we disclose the rent in conjunction with the percentage rents.

Okay. I mean, did you -- what I mean is, did the average base rent per square foot on the rent page there used to be rents or do you guys have those, do you have the rents for square foot?

I do not have that handy. We can get that for you if that's something that you still are interested in.

Yeah, great. It is. Thanks and that's it for me. Thanks, guys.

Thank you.

We have a follow-up question from the line of Ross Nussbaum with Banc of America Securities. Please proceed.

Hi, guys. With respect to the leasing on Cincinatti and Vaughn, are there any temp tenants in those numbers or are those all leases over one year?

Those are all leases over one year. You got to remember in Cincinnati, I mean, Vaughn, I think is leasing up just fine on, you know, on maybe a little bit different schedule than you see U.S. malls lease up, just because it's in Canada, and things lease up maybe a little bit later. I expect that to be one of the best mall openings that we've ever had, maybe even eclipsing Ontario. I just walked through Cincinnati last week with Nick McDonough and Jim Napoli and others and the place looks beautiful. We're going to open it very strongly leased. I think one of the reasons, Ross, it happened maybe a little bit later is because it was the re-do of a failed mall that people had been in and out of before, and I think they needed to see the finished product before they had faith that it was going to be the -- you know, the tried-and-true Mills project, and that happened kind of late. It started kind of happening in February when we had a big party out there and it's just crescendoed really taken on steam in the last couple of months and, you know, we're all very excited, and kind of surprised by the momentum it took on and, you know, how highly leased we are going to open it.

Okay. And how many anchor boxes are vacant at each of those properties at opening?

At this stage in the -- in all properties?

No, just Cincinnati and Vaughn.

Where, in Cincinatti? In Vaughn-- in Cincinnati there is one anchor box that -- that's [INAUDIBLE] where we put this Johnnie Toys in on a temporary 18-month lease or something like that. Two years I'm sorry, two year lease, but we have plans to take that 150 or 60,000 square feet on two levels and split it up. We have uses for all 150,000 square feet, and that will be enhancing to the yield and, you know, we'll open -- we're starting plans on that. And in Vaughn, I think there might be one anchor box left, you know, but there -- you know, we've made an awful lot of anchor deals there. There are more anchor deals at that project now than you see the typical Mills project that opens in this country at a -- that we open in this country.

Okay. And can you give us an update on what's going on in Houston, on the land that you've got JVed with Simon, and what's the activity there and what's your understanding of their plans?

Our understanding of their plan is that they are going to develop a lifestyle center there that is going to be Foley's and Dillards, and and they're -- you know, they're moving ahead with those plans.

And you're a 50/50 partner- is that correct?

That is correct.

Okay. And what do you think your share of the capital is going to be there and what's the timing of that?

I don't think we -- we haven't been given budgets for that.

No, they haven't supplied us with budgets with that yet.

Mean, we expect very -- you know, they've been building some of these centers successfully. You know, we expect to see the budget soon and, you know, we know it will be done responsibly and I'm sure it will be a good center.

There's not an obligation for to us fund the capital. We'd obviously get diluted down, but that was contemplated as part of the original deal. If we want to be a 50/50 partner, we can. If we don't want to fund all that capital, we don't have to, and obviously would get diluted down.

Right. And final question is can you tell us, are you still involved in the bidding for the GM portfolio or have you guys dropped out at this point?

You know, all we can tell you, Ross, is we don't comment on rumors until transactions are completed.

Thank you.

Our next question comes from the line of David Fick with Legg Mason, please proceed.

Good afternoon. I just want to congratulate you guys on really hitting on all cylinders here in terms of development and redevelopment stuff.

Thank you.

The JP Morgan JV structure, just to make sure everybody is clear on it; this a pure [INAUDIBLE] deal. There's no guarantees or promotes or anything like that?

That's correct.

That's correct.

Okay. The Ontario sales per square foot, how do those relate to your overall portfolio sales?

You've got -- you know, you've -- it's in the upper echelon, you know, but there are other centers in that upper echelon that are Ontario-like, for example, Sawgrass, which we all know, Arundel, which has been on fire and gains momentum every year, Potomac, which, you know, has picked up enormous sales, just over the last year and as I said before, Milpitas, the Great Mall, which we will be changing the name of soon, to a Mills project, and, you know, we think they're all in the same category range as Ontario is.

And this is the only Mills asset so far with rated debt though, is that correct?

With rated debt?

Yes.

No, no.

There are others?

We rated debt on most of our stabilized assets.

Okay. Thank you. The trigger for the fees at Meadowlands, is that because of more Kan Am participation and funding on their part?

It was a lot of things, David. You know, I think, you know, we were being conservative until we achieved certain hurdles in the predevelopment/development stage of the project and I think we feel extremely, you know, confident now with where we are. So that was a big piece of that. And I mean, having Kan Am step up and fund all that equity, it was, you know, I wish I could tell you that there was a -- you know, a checklist for this, but I -- we were I think reasonably conservative in not booking anything before, and we just felt that we had checked off enough of the boxes if there is such a thing, to feel comfortable with recognizing that revenue now.

Including, David, enormous leasing, which will be reported, you know, in the next --

Right. As part of the -- I'm sorry, Larry, as part of the Kan Am raise, they actually did fund a big piece of the fee. It's completely nonrefundable so some of -- part of that $100 million they recently raised went into our pockets not only just to return some of our investments but to pay us for a big chunk of the development fee already.

Your burn off on the Kan Am equity return guarantee is upon the ultimate financing of the property, right?

That's correct.

Then lastly, you had a fashion anchor that you had sort of talked about at Arundel Mills. Are you any closer there?

Yeah, we -- we just have not announced it yet, David, but because, you know, they are not ready for us to. But, you know, that is -- that a committed deal, and we will announce it when they tell us it's appropriate for us to announce it.

Awesome. Great, thanks, guys.

We have a follow-up question from the line of Matt Ostrower with Morgan Stanley. Please proceed.

On Ontario, just for evaluation purposes, can you give us some sense of the earnings, of the sales productivity in that mall?

Yeah, do we know what -- do have you this on you?

Yeah, I mean, Matt, that center is doing, you know, better than $400 a foot, but I don't think it's -- as Larry has alluded to, I think it's in a band of our best centers and in fact, I think it's not the best center in the portfolio.

Great. Thank you.

Just straight sales per square foot.

Thanks.

Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed.

I was wondering if you could comment on or shed some light on the sequential pickup in the expected investment cost for Cincinnati and Pittsburgh. It looks like each one is about 10% in the second quarter?

I know on -- on Cincinnati, it's the Elder Beerman box primarily that Larry alluded to, and the anticipated reconfiguration of that box. And I'm not sure on Pittsburgh, I know that we had changed our development plans there somewhat. We still expect to get the same return, but I know the development plans have changed.

We banded some of the amount of square [INAUDIBLE]

Increasing the square footage is main thing we did.

In Pittsburgh one of the things that we did is we were going to do a target deal attached to the mall, where we were going to sell the land. Now that's go to an out parcel, and we're doing a Sears deal, which is going to be a build and lease deal. That's one of the reasons for the increases.

Okay. So the GLA that's listed, even though that didn't change, the actual project size is getting a little bit bigger for different reasons?

Correct.

Real quick you mentioned million dollars of debt deal cost. Where's that in the P&L? Where does that flow through?

Million dollars in what?

[INAUDIBLE] flows through other net.

Okay. Other net. And then lastly, the guidance that you reaffirmed, does that include any other dispositions or acquisitions aside from the JP Morgan deal?

That includes no other acquisitions, and it does assume that we are going to do a deal on Del Amo but that is not

Mike, it's one of the variables, let's put it that way. We have -- Ken alluded to some of the variables, there's more variables, leverage is one of them, if we would do a deal on a joint venture basis, [INAUDIBLE] it's a range and therefore the basis for the range and we're satisfied with that range.

The timing of that deal, you know, if that happens at Del Amo, is not significant in terms of the impact on the numbers.

Okay. Okay. Thank you.

Gentlemen, there are no further questions at this time. I will turn the conference back to you.

Thank you for joining us and we'll talk to you again next quarter. Thank you.

Laid and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you disconnect your line.