西蒙地產 (SPG) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Mills Corporation third quarter 2004 earnings conference call. (OPERATOR INSTRUCTIONS) I would now turn the conference over to Mr. Noam Saxonhouse, VP - Investor Relations. Please go ahead Sir.

Welcome to the Mills Corporation's Third 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 statement 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 rate of interest. We direct you to the company's various filings with the Securities and Exchange Commission 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 it is important to note that today's call includes time sensitive information that may be accurate only as of today's date November 9, 2004. This call will include statements and presentation of certain financial measures that have not been calculated in accordance with the generally accepted accounting principals which are commonly commonly referred to as non-GAAP financial measures. Such non-GAAP financial measures include but are not limited to funds from operations and EBITDA. Additional information regarding such non-GAAP financial measures including definition of such non-GAAP terms presentation of the most directly concurable financial measure calculated in accordance with GAAP and a reconciliation of such non-GAAP financial measures to the most directly comparable GAAP financial measures 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 September 30, 2004. The supplementary information is also availible on our website at www.THEMILLS.com under the heading Investor Relation and Financial and SEC Filings. Participating in today's call will be Larry Siegel, Chairman and Chief Executive Officer; Mark Ettenger, President; Jim Napoli, President - Operating Division; Jim Dausch, President Development Division; Ken Parent, Chief Operating Officer, Greg Neeb, Chief Investment Officer; and M. J. Morrow, Chief Financial Officer. And now, I will turn the call over to Larry.

Good morning, and welcome. Our achievements of this quarter and recent past quarters further position the Mills as much more than an innovative developer of retail and entertainment destinations. We are still at our core a developer and will remain so. Our record of recent openings and pipeline of future projects speak to that. But today we are a company with a market capitalization of more than eight billion, we own a portfolio of 38 retail properties with 47 million square feet of leasable space. Our investment partners at the asset level include some of the world's top institutions. We have relationships with 3,000 retailers from North America, South America, and Europe that encompass full price value, manufacturers outlets, traditional department stores, category retailers, restaurants and sports and entertainment venous. Because of our exemplary track record, we have access to billions of dollars of capital at favorable terms for many sources. We have expanded into Europe and now Canada and anticipate extending our reach in those markets. As our portfolio of productive assets and our portfolio of productive assets is rich of opportunities for expansion, redevelopment, and increased value.

Last weeks grand opening of Vaughan Mills, our first project in Canada through more than a 300 thousand shoppers, the highest turnout in our history and a response that supports my view that Vaughan Mills will be one of the most successful properties. The mills combined our most extensive U.S. retail relationships and development expertise with our partner Ivanhoe Cambridge's strong Canadian experience to achieve what no developer in 14 years has been able to accomplish; successfully build and open an enclosed retail center in Canada. This property's premiere location outside Toronto is among the best in our portfolio. Nearly six million people live within 40 miles and the average household income in that market exceeds $70,000 Canadian.

The city of Vaughan is Canada's fastest growing and the surrounding area is expected to grow by more than 20% in ten years. No wonder retailer interest has been so strong. We opened the property at 93% leased and 91% occupied and have brought new retailers to Canada including Bass Pro Shops, Burlington Coat Factory, Lucky Strike Lanes, NASCAR SpeedPark, Benetton Outlet and many others. Other major tenants include the world's largest Tommy Hilfiger Outlet, a new concept from Hudson's Bay Company called Designer Depot, H & M, La Senza/La Senza Girl, Linens 'N Things, Urban Behavior, The Children's Place Outlet, Winners Home Sense and more. This successful opening paves the way for additional opportunities in Canada. We have an exclusive agreement with Ivanhoe Cambridge, the development arm of Canadian financial power house Caisse de depot to jointly develop a total of four Mills branded centers in Canada. And we are currently evaluating a number of potential development sites. Ivanhoe Cambridge will perform entitlement, construction, in-line leasing, and other day-to-day tasks while we handle project design, management, anchor leasing and merchandising. This arrangement will enable us to apply a greater concentration of our personnel to other development activities. Vaughan Mills is the third development project we have opened in the last 12 months after St. Louis Mills last November and Cincinnati Mills this past August adding 3.7 million square feet of leasable area to our portfolio. No other developer has done that. For us, it's business as usual.

Looking ahead, our pipeline, the most extensive in the industry, of ground up developments as well as redevelopments and expansions to our existing properties promises sustained growth from strong productive projects for years to come.

Now, I would like to spend a moment to share with you some of the progress we're making at the Meadowland. Last month, we crossed one of the final milestones on the way of making the extraordinary Meadowlands Xanadu a reality by signing our land -- our land lease with the New Jersey Sports and Exhibition Authority. With an executed lease and all the state permits in hand, we are busy converting the high tenant interest I mentioned to you on past calls into tenant commitments at rent rates that we expect will produce double digit returns. At an October 5th event celebrating a land lease deal we announced the first 23 tenants and interactive content providers which will account for more than one million square feet of space. A sampling of the tenants that will help create the excitement and drawing power of Meadowlands Xanadu include a 167 thousand square foot Muvico, which will be the country's largest multiplex theater, a 178 thousand square foot Cabela's, a 25 thousand square foot Virgin Megastore, a 43 thousand square foot House of Blues, a 113 thousand square foot Wannado City, a 32 thousand square foot Lucky Strike Lanes, and an 18 thousand square foot Balducci's and many more. Elle Magazine, Entertainment Weekly and Viking will sponsor the fashion, entertainment and food and home courts. All told, half the leasable space of Meadowland Xanadu was committed before groundbreaking. I don't know of any other large scale consumer development that can make that claim. Here is another metric that illustrates just how enthusiastic the support is for Meadowlands Xanadu. Kan Am and it's investors already have funded more than $210 million and have fully subscribed the $250 million to which it committed -- to which it committed last December.

Meanwhile, in Chicago, our plan to acquire the land parcel at 108 North State Street has been approved by the city's Community Development Commission and is awaiting final approval by the city of Chicago. We will develop approximately 400 thousand square feet of retail, entertainment and dining offerings for this urban lifestyle center in the heart of Chicago's vibrant loop. We expect to receive approvals of the redevelopment agreement by the end of the year and begin construction early in 2005. We are in final negotiations with Kan Am to join us as a 50% J V partner on 108 North State Street as well as on our San Francisco waterfront project piers 27 through 31. This reflects the steady progress we continue to make on these two projects and their strong economics. These the only project in our pipeline. Jim Dash will give you an update on the progress of other band of developments and redevelopment activities in a moment.

Let me turn for a moment to our GM portfolio acquisition which we closed October the 15th. GM selected us to acquire 50% managing part -- managing partner interest in these properties not on a bid price alone but on GM's recognition that we, better than any other developer or operator, can maximize the value of retail assets through our expertise in merchandising, development and management. We will boost the productivity of these properties significantly higher than their already impressive sales of nearly $400 a square foot.

Over the years we have made some big promises and we've consistently delivered on those promises. Ten years ago, when we went public, we were a small company with four centers. We said we would build a national franchise of Mills branded destinations. Today, we have 17 successful landmark Mills assets with more on the way and they have proven institutional acceptance as blue chip retail investments.

Just a few years ago, we said we wanted to expand to Europe. Now, with the successful Madrid Xanadu under our belt, we are the only U.S. developer to have built and operated a major retail center in Europe. In addition, we and our partners are optimistic that in the next few days, city of Rome will award to us the rights to develop the Mercati Generali site in the heart of the city and within a kilometer of the Coliseum.

We also laid out a strategy requiring traditional regional malls to complement our Landmark Mills Centers. We said that in three to five years a third of our portfolio would consist of regional assets. We went from owning zero in November of 2002 to today to owning interests in 18 regional properties representing approximately 40% of our NOI. The list goes on and on. We said we would re-merchandise our centers aggressively, replacing low-performing tenants with more productive ones and due in part to that strategy, in-line releasing spreads though nine months stand at 12 .1% ad anchor spreads are at 76.6%. We said that occupancy rates would climb and today we stand at 95.3% an increase of a point and a half from a year ago. At the same time, sales per square foot jumped from $334 to $351 a square foot. We said we would succeed at the Meadowlands and opening in Canada, and by understanding retail at the consumer level leveraging the expertise of the industry's most accomplished team of professionals and working very hard, we achieved all of those things.

We have a pipeline of opportunities other developers company only dream about and based on our proven track record of delivering on what we promised, I am confident that we will transform these opportunities into abundant new value for our shareholders.

Now let's look at the numbers. Third quarter FFO was 89 cents up 4 .7% from a year ago. We are reiterating our four-year guidance to $3.90 to four dollars. Earnings per diluted common share more than doubled in the third quarter to 93 cents primarily due to gains on joint venture sales. Third quarter stabilized comparable property NOI increased 6 %. The performance of our operating properties together with the progress on our development pipeline demonstrate the solid fundamentals of our business model.

Before I turn the microphone over to Jim, I want to welcome two new independent members to our board of directors. Colombe Nicholas was formerly the President and CEO of the Anne Kline group and before that served as President and COO of leading fashion brands including Giorgio Armani, Health-Tex, and Christian Dior. Colombe's expertise in strategic planning and brand positioning in the retail and fashion industries will bring fresh insight to Mills' efforts to enhance the consumer experience through the exce -- through exceptional retail offerings. Her addition to the board will help the Mills strengthen our already strong currant retail relationships and help us develop relationships with brands with which we do not yet have ties. Sir Frank Lampl is a pre-eminent international construction expert. He served for 20 years as Chairman and CEO off the Bovis Group, one of the worlds leading project and construction management companies where he was instrumental in building Bovis' international reputation and expansion through acquisitions in the U.S. and the establishment of subsidiaries in Europe, South Africa, Latin America, Asia and Australia. Throughout Sir Frank's distinguished career, he had -- he has consistently demonstrated akeenability to develop successful construction management operations around the world. In addition, his global network of industry relationships and deep understanding and management of construction costs analysis makes him a valued asset to the Mills board as we build our international businesses. These two remarkable individuals have experienced expertise that complement and enhance the capabilities of our board. I look forward to working with them as we continue to build on the success of the Mills corporation.

Now, I would like to turn the call over to Jim Dausch.

Thanks, Larry.

We took a number of positive steps forward during this past quarter in the company's development position. Let's examine them in the context of the three legs of our business strategy.

First, our Landmark's Mill development pipeline is alive and well. As Larry mentioned we successfully opened Cincinnati Mills on August 19 and this has enjoyed a very favorable reception from the consumers to date. And of course last Thursday, we and our partner Ivanhoe Cambridge had a successful opening of Vaughan Mills and the opening weekend traffic and sales have exceeded everyone's expectations.

Now it's on to Pittsburgh Mills, the first mills with full-priced department stores including Kaufmann's, and JC Penney, with full price in-line stores and also a great line-up of typical Mills type anchors including Linens 'n Things, Sears Grand, Borders Books, Dicks, NASCAR SpeedPark, Lucky Strike Lanes and Cinemark. Pittsburgh mills also features a campus of value stores led by Wal-Mart and Sam's, giving the consumer a full range of value, full-price retail and entertainment offerings in one great location in the northeast Pittsburgh market. We've scheduled Pittsburgh Mills for a July 14th 2005 opening. In addition to the three new Mills projects, we have begun construction 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 ten years and the first to take advantage of the 550,000 square feet of expansion space which we've worked to entitle over the past three years. Wannado Kid City, the 120,000 square foot Children's entertainment complex opened on August 12th at Sawgrass. Construction is also underway on a renovation of that center which will be complete by this year's holiday season. We've also begun a similar face lift for Potomac Mills to complement the introduction of the many new tenants there and to set the table for a future lifestyle expansion. To complete the Mills picture, we continue to make progress on several new Mills sites in Boston; in Vallejo, California; in Portland, Oregon; and on the addition of five new anchors to the Great Mall of the Bay Area.

The second leg of our development strategy involves full price retail and entertainment centers. The biggest of these of course is Meadowland Xanadu, our family entertainment and retail extravaganza in northern New Jersey. We made substantial headway here in the last quarter. We completed our master plan approval process and as Larry mentioned executed our ground lease with the Sports and Exhibition Authority. We've received all of our state permits, we continue to make progress with our federal fill permit and expect it to be forthcoming very shortly. Construction work to begin and provide replacement parking for the New York Giants started last week. Court challenges to the project continued to be pursued so far unsuccessfully by Harts Mountain and Westfield. We believe these suits and any related suits to be without merit and not likely to hold up construction or opening of the project. Once the remaining federal permit is received and, as I say, that's anticipated relatively shortly, construction can begin full speed looking towards a late spring 2007 opening.

Beyond the Meadowlands, work and progress, as Larry described, continues on our 108 North State Street project. This is a mixed use project where we'll act as developer of 400,000 square feet of retail and entertainment space and as master developer of an overall complex that includes office, hotel, and residential components developed by others. All of this will be constructed above and linked to a state of the art CTA train station providing high speed service to O'Hare and Midway Airports. With a preliminary approval of our land deal with the city, which we obtained recently, and the ongoing progress and documenting the CBS Viacom deal, our entitlement process in Chicago can now start in earnest. We actually have a planning commission hearing scheduled for this month and we can project a conclusion to that process in time for a start of construction 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 Montgomery Ward wing is now fully entitled and we'll start construction this year with an opening in the spring of 2006. A new state of the art AMC Cinema will anchor this wing. The follow-on entitlement process for the re-configuration, expansion, and redevelopment of the center is now underway and should be completed around the end of the year. This could start construction early next year.

In Riverside Square, in Bergen County, we plan to expand the center by re-configuring and expanding one of the existing department stores and enabling us to add up to 150,000 square feet of new high end specialty space. Discussions continue with the department stores and we expect to start the entitlement process shortly. this will enable a 2007 completion of this expansion.

In Broward Mall we plan to add both a new 75,000 square foot AMC Cine -- Cinema and an additional 50,000 square feet of Lifestyle GLA adjacent to the cinema. Lifestyle expansions are also planned for three of the new centers in which we have acquired an interest from GM: Meadowood in Reno; Briarwood in Ann Arbor; and Stoneridge in Pleasanton, California.

Now, I'd like to give you an update on our international development business. Ron Weidner is now fully aboard as head of our international unit and is leading a strong but lean on the ground management team in Europe to drive forward the substantial development pipeline we've been pursuing there and to generate new development and acquisition opportunities as well. On specific projects, in Rome, we and our partner Lamaro and Company are one of two remaining bidders for the rights to redevelop the Mercati Generali, the old fruit and vegetable market one kilometer from the Coliseum into a 750,000 square foot retail, entertainment and cultural complex. The final selection jury sessions were completed last Saturday and a decision is expected momentarily. our partners are very confident in the expected outcome. Once a decision is made by the city there is a 60 day period in which the award is confirmed by the regional government and then a concession agreement and licence are -- licenses are negotiated with the city, a process that could last about 180 days. And then you build. So with the decision expected any time now this project could well be in construction by mid 2005.

In Milan our local partner who is holding the land and running the approval process anticipates that he will receive all municipal approvals by the end of this year and all reginal approvals by next spring for the Segreti project, a mixed use retail and residential project in the affluent and dense north east suburbs.

In Valencia we continue to refine the terms of our joint venture agreement with our local partner Gruple Viastir (ph) and will then seek the so-called second license you need to just to open any large retail anchors in Spain before beginning construction of the project. Our partner is optimistic that this license will be granted by the reginal authorities of Valencia. We now anticipate a start of our own construction work in mid 2005 although our partner has begun some site work here already this year.

In Glasgow we expect a final ruling on the court challenge to the projects entitlements by years end. Our local partner Wilson (indiscernible) believes that this ruling will be in their favor. Meanwhile we're finalizing the terms of our joint venture agreement and still expect to be able to break ground by mid 2005. Aside from these relatively immediate opportunities we continue to pursue other attractive prospects in the intermediate term in Barcelona in the southwest suburbs of Milan and in suburban Florence and Rome. Overall our approach to international development once the initial pre-development phases I described are completed should produce the start of construction of at least one project a year by next year.

And Now I'd like to turn the mic over to Ken Parent.

Thanks Jim.

I'd like to bring you all up to date on our operating and financial results. Fully diluted FFO per share increased 4.7% to 89 cents in the third quarter of '04 from 85 cents in the third quarter of '03. Selected highlights of the quarter-over-quarter growth are as follows. Same project NOI grew by six percent generating incremental FFO of $4.1 million. Termination fees for the quarter were approximately $350,000 higher than last year. FFO from acquisitions and new projects which had not stabilized in '03 like sales to joint venture partners increased 2.8 million in the third quarter. FFO from FAS 141 adjustments were 1.8 million this quarter versus one million in last years third quarter. T income for the quarter was was up $8 million versus 2003. The bulk of this quarter's fees can be seen in our minority interest and consolidated joint ventures line item. As we explained last quarter since Meadowlands and Pittsburgh our consolidated projects, we need to recognize our fees in this line item. The recognition of fee income does not occur at a steady rate during the course of a development project. Therefore it would be inappropriate to view this quarter's elevated level of fees as a run rate.

Reducing this quarter's FFO, G&A was $2.8 million higher than last year. This increase was attributable to the implementation of our new JD Edwards System, costs associated with compliance with Sarbanes-Oxley and our continued efforts to increase the depth of our management team in US and Europe. FFO from land sales was $3.5 million less in the third quarter of 2003 -- less than the third quarter of 2003. Land sales are always heavily weighted towards the fourth quarter. This year will be no different. FFO was also negatively impacted by an increase in abandoned project costs of $1.6 million or more than two cents per share. This quarter's FFO was further reduced by an increased in our preferred dividends and distributions of 3.4 million in the quarter. This includes $2.3 million from our series F convertible preferred issuance. This issuance was was completed immediately after the GM transaction was announced. The offering removed any uncertainty about how we were financing this acquisition. It also allowed investors to see the level of leverage we plan to utilize in our business model. Of course, the timing of the offering caused approximately 2 to three cents of delusion during the quarter after adjusting for our reduced line balance.

As I will discuss later, despite the temporary drag on earnings in the third quarter the Gm transaction will still be slightly accruing in 2004 although the timing of this equity rate the was a factor from us deviating slightly from consensus FFO expectations for the third quarter it will not effect our full year 2004 guidance. Speaking of which, we are maintaining our 2004 guidance of $3.90 to four dollars per share. I wish I could give you a narrower range. However, the variability inherent in land sales, fee recognition, and the timing of potential of J V arrangements makes it impossible for me to confidently predict our FFO per share for the year within a tighter range than what I announced. With that said, I'm extremely enthusiastic about the core operations of our company.

Our comp property NOI is up 4.4% year-to-date and we anticipate that we will end the year with NOI growth in excess of 4%. Land sales also looks very promising. We are in negotiations on 25 pads at 11 properties. Although we know that not all these deals will materialize, we are confident that we'll book gains in the $25 million range for the year. G&A will also exceed our original guidance. We expect G&A costs to exceed $35 million due to Sarbanes-Oxleys costs -- Sarbanes-Oxley costs, our new accounting system and increased staffing commensurate with the larger asset base. While changes in accounting rules, acquisitions and de-leveraging impact, the sales -- de-leveraging impact of the sales of our JV interest have caused our FFO per share to be somewhat unpredictable on a quarterly basis. We are still comfortable with the 2004 guidance which we laid out for in you February.

Throughout the year, we have communicated that had our FFO will be back end loaded. The GM acquisition and the timing of our convertible preferred offering have exaggerated the portion of our FFO for the year that will come in the fourth quarter. As I mentioned before, our comp property NOI growth for the year is expected to come in above 4%. The majority of our NOI growth is due to increased occupancy, rent spreads and new anchor tenant. Increased income from Carson Kiosks in our mall -- in our malls further boosted our NOI growth. This business really ramped up for us starting in the fourth quarter of '03. Across our portfolio retailer demand for space continues to be strong. All but two of our comp centers had year-over-year increase in occupancy. Many of our non-comp properties reported strong quarters as well. Both Del Amo and Dover showed impressive year-over-year increases in minimum rents and NOIs -- NOI growth during the third quarter. Additionally, discover had a good quarter. The strong sales figures we saw at this property early this year that were due -- due to the new AMC Theater and the continued population growth of Wynette County and now -- and are now being translated into increases in in-line occupancy which is up seven percent verses last year. Sales across the portfolio increased despite the tougher comps this quarter.

On the same store basis, year-to-date sales were up 3.6%. These numbers were negatively impacted by the hurricanes that hit the southeast in August and September. In addition to Sawgrass Mills being closed for five days, we saw a sharp drop off in traffic in the days before and after the hurricanes hit the area. Despite the negative effects of the weather, our same center gross sales per square foot increased to $355 per square foot which is the highest it's ever been. Our increasing gross sales indicate that our leasing team's efforts to bring highly productive tenants into our centers have been successful.

We had a very busy quarter from a capital perspective. In August, we issued $316 million of convertible preferred stock upon the equity portion of our GM acquisition. The coupon of this security is only 6.75% and the conversion price represents a 33% premium to our stock price at the time of issuance. On October 15th, we closed on the GM acquisition and completed the financing for the transaction. Our share of assumed debt was 170 million. -- $170 million. Our share of the new mortgage debt which was placed on the Falls, Stonebridge, Briarwood and Meadowood was $410 million. The remainder of the purchase price was funded through a combination of the proceeds from the preferred offering and the $200 million three-year term loan. Once we refinance the floating reportion of our assumed debt next year, 66% of the debt use to fund the acquisition will be fixed rate. The fixed rate debt we have used in the acquisition has an average interest rate of 4.6%. The average rate for all debt used in the trans -- the transaction was under four percent. The pricing on these loans reflects lender views of the quality of the assets and the conservative levels of leverage we are utilizing. After adjusting for the drag and preferred offering and assuming an increase in cost of variable rate debt the Gm transaction will be slightly accreted in 2004. In 2005, the transaction will be accreted due to the spread between the (indiscernible) and the cost of the capital employee to fund transaction.

In Europe, we completed the buyout of PGC's interest in Madrid Xanadu this August. Based on a put option from our original J V agreement, with PGC we were able to purchase their interest in the property for 35 million Euros. In 2006, we'll make a true up payment to PGC based on a 7 1/4 cap rate on the prior 12 months NOI. Since we now own 100% of the project it'll be easier for us to pull equity out of Xanadu through a joint venture or refinancing. The proceeds could then be used to fund our growing European pipeline. At the Meadowlands, Kan Am's fund raising has been nothing short of spectacular. In four months they had raised over $185 million bringing their total investment in Meadowlands to almost $210 million dollars. This has exceeded everyone's expectations. Kan Am's contribution to the Meadowlands partnership has allowed us to pull capital out of the project. Our investment in the Meadowlands now stands at $68 million.

Given how much our capital structure has changed since September 30th, I would like to take a moment to review our financial ratios, taking into account the closing of the GM transaction. Adjusting for foreign currency gains and the implied interest expense in NOI associated with the GM transaction, our interest covered ratio would be 3.5 times versus 3.3 times in the 12 months ended September 30. Adjusting our fixed charge ratio for the same items yields a coverage ratio of 2.2 times versus 2.4 times. Our debt to market capitalization including the debt associated with the GM transaction using yesterday's closing stock price stands at 48.2%. This compares favorably to last year's leverage ratio of 53.9%. As we promised on our last call in addition to swapping up the debt on discover in St. Louis, we have also refinanced the constructual loan in Colorado with a $170 million non-recourse loan. Taking into account the GM acquisition 68% of our debt is fixed or swapped through the end of the year and 58% of our debt is fixed or swapped through maturity excluding the debt on properties which opened in 2003 and 2004 or are slated for major redevelopments. 70% of our debt is fixed or hedged through maturity. Furthermore we evaluated the prospects of swapping additional debt, associated with Me -- of with Madrid, the Cadillac assets and our term loan which would bring our fixed rate percentage in-line with our historical mark. Our current capital structure not only provides us with a financial flexibility to pursue our development and redevelopment plan, it also utilizes an optimal mix of flowing rate debt and swaps to ensure that we minimize the cost of debt financing while protecting ourselves from rising short term interest rates forecasted by the yield (indiscernible).

That concludes our prepared remarks. We would now like to turn the call over to Q & A.

(OPERATOR INSTRUCTIONS) Michael Billerman, Smith Barney.

How much of the $8.7 million fee in the quarter related to Pittsburgh versus Meadowlands?

The majority of it related to Meadowlands. Actually very little of it related today Pittsburgh.

And what triggered such a large fee income this quarter versus last?

Well, I think, you know, a couple of things happened. I think the last two quarters, we made significant progress on the project and we also firmed up our budgets, particularly in the area that impacted the fee income calculation so we really, I think, from a project conception to date have caught up with the fee income to where it should be in the last two quarters. Going forward, you'll see a definitely reduced level of fee income recognized at that project as we look to open it over the next 24 months.

How much fee income do you expect coming in the fourth quarter and is there a certain level we should think about for 2005?

Well I think you have 10 to $15 million of fee income yet to be recognized at the Meadowlands and you can expect to be come in fairly rapidly over the next couple of years so I would say in the fourth quarter, its not going to be -- it's going to be a million to two million dollars.

Okay. Just trying to (indiscernible) for a second, I know you're a venturest currently looking at Vancouver and Calgary and Montreal, when do you think the first of new development could hit in Canada?

Well we're are currently looking for sites, Michael, and we where coming close in one of those markets to -- to tying up a site, you know. I can't confidently predict when it will start, because we still have to learn more about the approval processes in that market, but, you know, we'd hope that, you know, over the next year or so, that we could find a site and probably get started in Canada.

Okay. Just trying to lease rollover for '05, you have about 14% of your in-line and Oleon portfolio rolling 15% in the JVs. How far along are you leasing that space and what sort of rent spreads are you looking at and where is that space concentrated in?

The space is, I think, pretty much across the portfolio.

It's equally rated. If you look at the J V rating, Michael, verses the comparable it's fairly equally weighted across that spectrum. And I think while consistent with the rest of it, all our leases are pretty well staggered out, you know throughout the next five or six years.

I want to address the --.

Are there any major tenants or specific leases where you are worried about rolldowns there?

Any major tenants that we are worried about -- ?

In the roll that you have in '05, any major tenants or any significant leases where you are worried about a rolldown or do you think it'll be more of the same? Next --?

I don't think, John, there are any major tenants that are involved in that -- in those numbers at all.

And how far along are you in leasing that space right now for '05?

When I checked, recently, 66% of those deals are made or in the works being made now.

And what sort of bumps are you getting on average?

I don't have that number. I don't know, but there is obviously a significant increase. I don't know what that is.

We'll get back to you with that number, Michael.

Hey, John, Michael, this is just so you know where we are in -- we're in the middle of our budgeting process which we, you know in our -- just like we have every year, when we do our next call, we'll establish our guidance and get back to you on the details of how our next year's numbers look.

Okay, and do you have a cost for Rome now that that looks most likely to be happening?

It's somewhere around 150 million.

Your share or --?

The budget shows, Michael, approximately $150 million to -- to redevelop the existing structures Which are going to remain and then to build the new space besides that, which will get us about 750,000 square feet of leasable space.

And how much of that 150 are you required to fund?

Well, right now, it's contemplated that the deal with our partners will be a 75-25 arrangement. So we would be 75% and they would be 25%. The costs obviously, we'll finance it like we normally do. Expect to be able to get at least 70% financing at that project so you think a third of, you know, 150 million, maybe 150 to 175 is the range of the project. We'll in total finance about a third of that with equity and we'll be 75% of that.

What does your budget tell in you terms of your anticipated yield?

I think the yield on that project is very good. I mean the yield on that project has an opportunity to be double digits. Certainly, the land costs, we are fortunate, very little land costs in this budget. So that's really not a factor. The concession arrangement calls for a very modest amount of land lease. So we are, you know, this is a project in the middle of Rome which we expect to have a pretty significant yield on for a European project.

Okay. Thank you very much.

Also, you should know, Michael, that -- and Jim can speak to this better than I can, Jim Napoli. And in fact, he is going over there tonight. There is tremendous demand for that project. it's the first project, new project to be built in the center of Rome in 60 years.

Sounds exciting.

Ross Nussbaum, Banc of America Securities.

In order to get to your full year guidance, it's a huge jump in the fourth quarter and I'm -- I'm wondering what else is going in there besides the normal seasonality, besides a jump in land sales. You're going to have an offset from the lower development fees. Is there anything else that's going to go on in the fourth quarter that's going to cause FFO to jump up to what looks like at least $1.24?

I think, Ross, -- I think it's, you know, when you look at where we are with land sales through 3/4s and the guidance that we provided you, it's a very significant number. So, are you guys aware of anything else? I mean the seasonality is -- is fairly significant as you know and that, combined with the land sales are the only thing that pops --.

And that we actually closed general motors and didn't just have equity raised without, you know, we'll have that fully functional in the fourth quarter.

What is the total land sales year-to-date? You said you're going to do in excess of 25 million for the year?

We think we're going to do 25 million. That's our best guesstimate at this time.

And what's the total year-to-date?

The year-to-date is -- how much is it? About 4 or 5 million.

4 or 5 million?

I'm looking around to try to get a more specific number but I'm sure it's in that range.

Okay. In terms, Larry or Jim, of the Meadowlands, what is the hold-up? And I -- maybe that's not the right word, but why hasn't that final federal fill permit not been issued yet? ..

The federal permit can't be issued until all the state permits are in. The way that the 404 permit process works, is the feds can't do any -- can't issue a permit until the state permits are in and the state permits in this particular case, because of the project is relatively complicated, are very extensive. So the feds have done what they can to date, but need a little time to review all the stuff that just came in at the beginning of October. The state still has to forward to the federal -- to the feds the regional transportation plan that was part of their permit process and when that is done, the feds can make a decision. We think that will happen relatively shortly.

And is there any --.

Just to correct, the land sale number was 2 7 -- I think 2.7 million through 91 so I was a little high.

Is there any magic to the year-end approaching in terms of any kind of a drop-dead date or anything like that on the Meadowlands?

no.

No? Okay. With respect to the same store NOI number of plus 6% for the quarter, if if my math is right, there was a pretty big divergence between your consolidated and your unconsolidated properties. It looked like it was negative four percent for the consolidated and up 15 for the unconsolidateds. What -- it looks like it's something in the expense and the recoveries line?

Hey Ross, the biggest -- the biggest problem you have there is that it's not comparable because Opry went from one line it item to the other. So it's not -- it's not -- unfortunately that's how it has to be, that's how we had to present it but they are reasonably consistent in fact, there is a little bit of a disparity but it's -- but it's, I think it's more along the lines of, like -- it's a couple of points, delta difference which is just -- has to do with the projects that are on each line.

Got it, so it's just Opry jumping around?

Right.

Okay. And I guess a similar line of questioning. You've given the same story NOI and occupancy and sales numbers for your Mills project. How about your regional malls? Are there any occupancy or sales or NOI stats you can give us for those projects? Because those are not in the comp pool.

Correct. They are not no the comp pool. They are in the sales numbers. That's correct. And they are in our total occupancy number.

So that 95 3 occupancy number includes the regional malls?

The -- well we get two. We have the total and we give the comp and that's correct. And the total absolutely includes the regional malls.

Now are you including just the in-line space or the anchors in there as well?

It does not -- it -- it does not include department stores.

It would be helpful if you guys could break that out for us going forward?

You want the regional mall pool broken up from other assets?

Yes, please.

Okay. We'll get that for you.

Okay. Appreciate T thanks, guys.

Jay Leupp, RBC Capital Markets.

Good morning, here with David Ronco. 150 basis point jump and stabilized occupancy and also the 6.1% (indiscernible) growth you saw for the quarter -- could you give us your thoughts as to what you think were the primary drivers of those numbers and also your numbers and also you're numbers on leasing spreads on expiring leases for the quarter and your outlook for the fourth quarter in '05 if you have one?

That's a lot of questions, Jay. I'm not sure that I tracked them all. I know the quarter was up substantially. We did have some percentage rents kick in from tenants that came into the break points in the quarter which was a -- which was a pretty good number.

The primary -- the primary -- obviously, occupancy was a big factor in driving the NOI. Which is why you have of the increase in occupancy commensurate with the increase in NOI. You had also -- you had -- you saw -- you see that we had the anchor -- some of the anchor deals hitting which are -- continuine to drive that, plus the 12%, you know, spread. And also, I think, you know, we have a concentration focused on our push cart program which has been a big, you know, help to drive those numbers as well.

Okay.

And I think those are principal factors.

Okay. Pittsburgh Mills, the first Mills concept you talked about with full price retailing, can you talk a little bit about the difference in positioning of that particular mall versus the classic Mills development and also the differences in tenants -- tenant mix in the in-line tenants that you'll see with the first -- the full-price retailers?

Well you're going to see in -- in Pittsburgh Mills, you'll see full price tenants as special tenants as Jim talked about, Jay. You will also see a lot of value-related tenants in that shopping center, just like you have in -- in -- in our Mills projects and it really is -- it really is a campus type project the way it's laid out. And it really is the coming together of all of the different retail venues in one place that we've been talking about for such a long period of time. So, you know, we expect people to come and -- and not only shop the Mall but -- but shop the campus the way we've laid it out and the way the whole thing interrelates. The -- a lot of the off-price and the value is also on the periphery which will cause people to shop inside and outside.

Okay and then lastly, Larry, the October acquisition of the 50% interest in the 21st Century retail centers. Can you talk a little bit about, just broadly, your plans for positioning of those malls if you have aggressive plans there, if you're going to be lumping a Mall like Hilltop in the same category as the blockhead orange in terms of, it looks like now they're all going to be 21 Century retail and entertainment, how are those malls going to change going forward? And that is the ones where you just depart the 50% interset?

You're -- which ones are you talking about, Jay? I'm sorry --.

Briarwood.

Like the GM properties, for example?

Exactly.

Well, what we expect to do, Jay, is we see -- we see opportunities to make those projects more dominant in the respective marketplaces and to grow NOI and it's going to be more than just, you know, pushing rents and pushing occupancy costs. It's going to be in expansions and retrofits of those properties and, so, in all of the GM properties, you will be seeing expansions of lifestyle centers -- lifestyle areas that will include restaurants, it will include some entertainment, it will include lifestyle uses that aren't currently in the shopping centers. We will be adding some department store anchors to some of those projects and create wings that way and in a few of them, just a couple of them, we will be adding some less traditional retail. For example, in one of the projects that we're thinking about in the Washington metropolitan area, we're thinking about adding 100,000 square foot gourmet grocery store to the project which we think will enhance the project tremendously. So it's really going to be across the board in terms of enhancements, traditional enhancements and also some less traditional enhancements.

Craig Schmidt, Merrill Lynch.

Good morning. I was wondering. Are you able to announce the five anchors that are going into the Great Mall of the Bay Area?

Well, we already announced, I think our Kohl's deal which is one of them. I'm trying to think. There will be a Sears Appliance Store that will be the second one. There will be two fashion off-price stores, one that has signed a lease, the other one that is soon to sign a lease that have not given us permission to yet announce their names. But we will be announcing them soon as we did in Arundel Mills with one not too long ago. And there will be an entertainment use that we will put -- that we will put as an adjacency to the very successful movie theater and to the most successful Dave and Busters in their chain.

Great and how many more anchors will you be adding to Meadowlands beyond what you announced in October?

There will be -- there will be some time the first part of the year, Craig, we'll be adding -- we'll be announcing two to three fashion anchors and we have another -- I think it's four other boxes in -- not in the fashion area where we will be announcing retailers, some of which hopefully before the end of the year.

And sponsors, I thought you were going to get two more, is that right?

Well, actually -- actually, there are going to be -- there are going to be two more interactive court providers that we're coming very close to announcing and then there should be several very lucrative sponsorship deals that -- that hopefully, will lead to many more that we'll be announcing also in the next several months.

David Fick, Legg Mason.

I would like to congratulate you on the Vaughan project. We had a chance to look at it and we are really blown away. All my questions but one have been answered and that is, if you could drive into the G&A and sort of parse that out a little bit in terms of the hiring and your Sarbanes-Oxley costs and then maybe give us a little bit more detail on your Sarbanes-Oxley process and what you have learned and systematically where you think you are in -- systematically in terms of how your year end opinions going to come out?

Okay, with respect to Sarbanes, we are approximately, you know 90 to 100% complete. Our documentation, 80% complete the management testing. Our auditors are coming behind us in that process. We have not identified anything at this point, you know, that gives us cause for concern. Obviously the year end procedures can't be done until after year end. In terms of costs, it's very substantial, both of the in-house cost and really you have to view it as almost another separate complete audit fee.

That's up 2 million dollars of process fee?

At least 2 million of cost this year, yes.

Okay. And how do I think about the run-rate then in your G&A going forward as it -- you know, we were -- sort of all these moving pieces catching up this quarter?

Well, I think -- I don't think the run rate is based on this quarter, David. There is definitely some exceptional things as there were in the last quarter. You know as you said, we're going to be every bit of 35 million for the year, perhaps a little bit more. You know, I think that there were certainly some inefficiencies in our G&A as we ramped the business up this year. We had temporary help, we had consultants, you know, to help us get to where we need to be. And I think we'll get a little bit tighter in our G&A going forward but, you know I also think that the business will grow. So as the business continues to grow, that'll bring some incremental costs. But, you know I believe if the business were stagnant, which it wouldn't be, but if it were stagnant, I think, you know we could be at the $35 million number going forward.

Okay, so if we were to think about this in terms of, you know, 8 million a quarter, 9 million a quarter, sort of in that range, the higher end of that?

I think that is about -- is about right. You know, the fourth quarter will be -- will be high because we pay bonuses and we record those in the fourth quarter. So you'll see another big quarter this year in the fourth quarter to get to that higher number, but, yet, your number is about right.

Mike Mueller, J. P. Morgan.

Ken, this time last year on the call, you commented on '04 guidance even though you hadn't put out official guidance. Just wondering, looking at the consensus estimates out there and the low 440s, do you have any general thoughts on '05 at this point?

Yes, I think, you know, we are as Greg alluded to, we are, you know, in the process of a budgeting process, you know, a budgeting for next year. This is -- you know, you guys -- you all can appreciate this. There's a lot of complicated things that go in -- and we are looking at some of these big pieces, trying to tie them down. You know, we have a lot of opportunity for growth, but I can't really, you know, speak more definitively about the numbers next year until we get through this in the next 30 to 45 days.

We're in the process, Mike, of rolling up all the information that we have compiled over the next couple of -- over the last couple of months and once -- once we have that, we'll -- we will give specific guidance.

Okay. Is there any update on the sale of an interest in Del Amo?

Negotiations are underway. Expect to be able to tell you something in 30 to 40 days. Negotiations are underway and going quite well.

Okay. And last question. Wondering, can you give us an occupancy number for Cincinnati at opening?

Do you have that in front of you? It was around 80, I think, but let's get -- let get -- total project is 90. We'll get the number. We'll get it for you, Mike.

Okay, thanks.

Anything else, Mike?

I guess last thing would be, increased land sale guidance of about five million bucks this year, just wondering what's driving that?

I just -- you know, the inventory is pretty vast. We are doing particularly well at Pittsburgh, some of the deals that we are going -- that we are making and expect to close have in some cases exceeded our expectation. The demand is very strong, so it's just -- we have a very robust program. I can't necessarily put my finger on the one -- one particular item but just a robust program. We are doing very well in that area.

Two things, Mike, that have happened, is the Pittsburgh land sale program has gone much faster than we thought it would go. We're basically sold out of that project and also for much bigger numbers than we expected, much, much bigger numbers than we expected and I'll give you another example. I mean, we budgeted with Ivanhoe Cambridge land sale program and Vaughan that was going to go through 2006 and not -- we're not closed, but we are basically committed at numbers in excess of what we anticipated on all the land or practically all the land in that project. So the land sales have gone extremely well.

Okay. Do you think it could be tough to replicate this number in '05?

You know, I think that we have plenty of inventory. One of the interesting things -- no, I think we could get certainly the 20 to $25 million in '05 but one of the things that we are looking at this year, because we have such -- such tremendous inventory is to look at doing some ground leases, maybe build suits and, you know, that will be evaluated because that effects capital and it effects FFOs. So we'll evaluate that. It's one of the items that's -- that's making it tough to kind of pin down next years earnings but we'll evaluate it in light of what our earnings will be and what the impact will be on earnings and also what our capital will be. So I think if we wanted to, I think the inventory is there to achieve those numbers, we just have to nail that down for the next 30 to 45 days as to what our intent is.

Hey Mike, it's occupied, it's 92% overall and I think it's close to 95% leased and in-line is 75 as of September 30th and I believe it's popped up a couple of points since then.

It's about 77 1/2 now, right.

(OPERATOR INSTRUCTIONS) Matthew Ostrower, Morgan Stanley

It's actually Suzanne Sorkin. I just have a quick question about Pittsburgh Mills, the supplement indicates that the company's required he equity is 29 million but it looks like that you guys have funded 68 million. Can you explain the discrepancy.

We're just sort of -- we will have a construction loan that will -- we are in final negotiations which will take us down to that expected equity requirement and that should happen in the first quarter.

And then just on the land sales that 2.7 million year-to date, is that your share or total?

That is our share.

Okay, and last question, looks like your recovery ratio fell sequentially and on a year-over-year basis. What was the cause and what do you expect going forward?

Well I think -- I think you have to look -- if you go into the 8-K, you'll see the NOI details, I think what you'll see is our comparable, actually properties -- actually was increased in fact it went from -- here, I will just get the right numbers. I don't want to guess. It went from roughly 107 to 109. And so what's happening is, you know, on the face of the income statement you get from non-comparable properties and things like, you know, Del Amo's would have -- sort of weighed into that and it's not really reflected of the sort of the ongoing stabilizing business. And so that the phase of the income statement is not probably the -- the best place to -- to track those recoveries. If you go back to page 10 or on 11 of our 8-K, I think you will see what I'm talking about.

Rich Moore, KeyBanc Capital Market.

Hi, good morning Guys and congratulations on Vaughan. I wanted to ask just a few quick things here. Year end '04 occupancy target, what are you thinking there?

I think we're sort -- I think where you see us now, Rich, is where we sort of were we expect to go down the stretch at. Maybe give or take, maybe a little movement up but I think not a lot.

And then the other OpEx was up -- was -- operating expense was up, was that the dead deal cost you e talking about, Ken?

What line item where you looking at Rich?

I think it's -- I have it as other operating expense. I don't know if that's exactly the way you guys put it. But it went to 4.5 million.

I don't know, are you on the J Vs, are you on consolidated? where are you looking? .

I was looking on the consolidated, yes.

You know the -- if you are looking at consolidated, I think there are more properties that have been consolidated this year versus last year, you know certainly with the VIEs and everything. So that could be it.

If that -- if you're looking at consolidated, Rich it comes through that other net line item that's sort of down towards the bottom of that. That's were you will see those costs that Ken was talking about.

Okay, that's good, Yes, I can figure out from there. Thanks, guys. And then that preferred -- that preferred, if we don't count that in -- in diluted until it -- I should say, as soon as, even though it's contingent, as soon as it becomes dilutive, we should put in the diluted shares, right?

yes, that's converted.

Okay great, and then you guys didn't discuss much in the -- I know you are very busy but, you didn't discuss much in the way of acquisitions. Anything going on there, or are you just -- is that kind of quiet at this point?

I think -- I think, Rich, you know -- you know, as things come up, we'll look at them opportunistically and if they -- we think they make sense and we think they -- they subscribe to our -- our -- our, you know, philosophy of -- of -- of something we can add value to, that we will -- we will pursue them. You know, so, you know, that's -- that's, you know -- .

Okay, I got you. Any portfolios you're looking at, Larry?

Some things out there, Rich, that have been publicized.

Okay. Good enough. Last thing, if you guys can comment a little bit, you did a little bit on the retailer interest. It sounds like it's pretty strong. I'm curious a little bit about the -- the tenants coming from Europe, from Canada and then going vice versa back from the U.S. into Canada and Europe. I mean tell me a little bit, if you would about that, you know how that's going or what you see there?

I'll give you -- I'll give you a perfect example. One of the anchors that -- that we -- we put into Vaughan, it's a 25,000 square foot fashion anchor that is one of the best merchandise stores I have seen in a long time. It's not in the States now. We're talking to them about -- they have 60 stores in Canada. We're talking about them about six or seven projects now in the States. So that's an example of -- of tenants coming from Canada here. We announced some of the tenants that we took up there. Jim, you may want to talk about some of the tenants that are going other places.

Well the ones from Europe, certainly, we have a number of them that we've been in negotiations with. We have proposals, counter proposals, back and forth, particularly on two projects that's our shops at Riverside and, of course, the Colonnade shops down at Sawgrass. We have tenants like Kate Spade, Adolfo Dominguez, Ellesse, Cochenille, Etro , GianFranco Ferre, Iceburg, Mango, Miss Sixty, Murphy and I, Samora, Ted Baker, Versace, Valentino and quite a few others.

Okay so then going the other way, Jim, to Europe would any of the U.S. tenants go to Mercati? Is that a possibility?

Well actually, it's interesting. We have been getting a number of phone calls about it. Frankly, the -- there are quite a few tenants, as you know, that are already retailers that are already in Europe. But interestingly, a project like Rome attracts, I think, the attention of the whole retail community so those who have an interest in going to Europe are starting to reach out to us and talk to us about that. So that it should be an interesting process.

I'll give you another example, Rich. You know, Wannado which we opened so successfully and I know you took your kids to in Florida and it's such a great attraction was interested in going to us to Canada in Vaughan. You know, they're interested now in going with us to Europe, to Spain, which was obviously a natural extension for them in Spanish-speaking company, anyway. So I think you're going to see not only regular retailers crossing boundaries with us but also, boxes like I talked about the Canadian big box retailer fashion coming here and entertainment, you know, guys that we will be taking across borders too.

Wonderful, thanks Larry. Yes, I had to bring the kids down there so I could get the real expert opinion on that.

Greg Andrews, Green Street Advisers.

The yield on Vaughan. Can you comment on the initial yield on the first year and then what you expect it to be stabilized, please?

You are talking about -- I don't recall what the first one was? You are talking about stabilizing in the tens?

The first year yield -- the first year yeild, Greg, should be at least eight and a half, nine, something like that. I mean, it was a highly leased project. In fact, I'd be surprised -- I had to get to the map. I'd be surprised if it wasn't in excess of nine and as Larry said, it will eclipse 10, you know, third year.

Yes and the other -- the other good thing, Greg about the project, is that it -- I think it was so welcome and by -- by all of retailers there, because it is the first project to have -- new project to have opened in 14 years and it did open so successfully that I believe that we and Ivanhoe are going to be able to push rents now in the remaining spaces.

Just more broadly, you know, you have so many different projects all over the world now and of different types, you know, projects like Landmark Mills where I think you have a very good sense of the formula that works. And then maybe some of these mixed use projects which are a little more complicated, how do you think about the return targets for all these different projects? I mean, what -- do you have a baseline that -- below which you just turn things down or --? I guess, I'm trying to get a better sense of how you underwrite.

I don't think we have a -- just, you know, a standard baseline, Greg, because, you know, each project is unique. You know, when you could build a project in the middle of Rome, gosh, you could build that for eight and a half, nine cap rate or yield on a cash on cost yield, I think you'd build that but we're going to do much better than that. You know, I can't say that we're going to replicate that kind of success everywhere. But I think, you know what you have there is you have an environment of very low cap rates, generally lower costs of capital so that if we financially engineer something right, you know, we can make, you know, quite -- we can make quite a good return on our money. And where you might build for a tenant over here, you could make more money building for an eight and a half or a , nine over there in many, many cases. I don't think there is a magic day -- a magic -- a magic number. We are very driven by how much value we can create which -- which, you know, is -- is -- which is dictated by the value of the real estate, obviously the location in the market and also by the cost of the capital and however we financially engineer the program. So in each case, we are looking at we can make -- we can make more value of dollars we invest, you know, over there, for various reasons than we can over here, and I think that makes sense because that's what you need to do to justify the risk of going abroad.

Yes, I mean if you look at the European projects in general, Greg, you'll see lower returns historically than we have here over here. I know in Madrid and now in Mercati, our numbers show better which is -- which is a positive thing, but I think Ken's right. It depends on where you are and on a greenfield site, you know, you can expect to get a little bit bigger yield and maybe on urban site, better real estate, and you're creating more value and more valuable real estate, might be a little bit less and in Europe, you may be looking at a little bit less too. But you evaluate them on a -- on a project-by-project basis and, you know, what the spread is going to be versus the cap rate and make a decision based on the values that are created.

And then two more little questions, on Madrid you mentioned the buyout of your partner and -- and that they would be a true up potentially next year. Do you have a sense of how big in dollars that might be? And also, how is that accounted for? Is that a contingent obligation or does that reflect as a liability?

No. We havn't recorded a -- it's a -- we haven't recorded anything on the accounts today. That would be a , you know, it would be an equity transaction at the time it occurs, obviously. I don't think, based on our initial -- this is a -- the way the formula works, it's a 7 1/4 based on a defined NOI. And, you know, agi -- there, you have a completed project, you know, again in a major market. I think that cap rate is very highly leased, performing very well. I think that's a great cap rate and -- but when you go and actually run the formula, I just -- you know, that we agreed upon with our partners, I think let's just say it's -- it's -- it's very positive for the company. So, you know, what the dollar amount would be next year is based on a trailing 12. It can trigger at any time -- the true up any time between now and the end of 2006 or the middle of 2006. I can't remember exactly. I think in the middle of 2006 based on a trailing 12-month NOI again as defined, apply the 7 1/4 cap rate run it through the water fall and that's what the buyout would be. I don't think it will be materially higher than the 35 million Euros that we've already put out to acquire 100% of his interest in the whole project.

Okay, great. And then lastly, it looks like just year-to-date, your CapEx at least in terms of non-recurring tenant improvements and lead -- leasing costs have been running higher than in the past couple of years. Is that -- is that an anomaly that, going forward, we'll see kind of a return more to the -- to the historic average or -- or is there something else going on there?

I think over the next 12 to 24 months, you -- we will see a lot of dollars spent on the anchors. There is a tremendous amount of opportunities. What you see in the current 8-K is -- for the dollar that went in is basically three or four large anchors and a handful of other plays. You know, we're getting around nine, ten, eleven percent, you know, returns on these dollars, so you know, it's -- obviously, if you can -- if you can add to your existing portfolio and -- and develop and add these anchors at those kinds of returns, you know, on a relatively risk-free basis, I think those are -- you know, we do that all day long. But I will -- I do think you'll see that kind of activity over the next 12 to 24 months as we fill out our anchor inventory.

I think what -- I think, Greg and I -- Ken -- Ken said it really well but one of the things that we promised a few ears years ago is that we would add a bunch of anchors to our existing portfolio and derive good yields and drive NOI. I think we added 35 or 40 of them over that period of time, some number like that and there is a lot more opportunities left in the portfolio. You know, it could be equal to that amount again. We are in the process of evaluating that and we will be taking advantage of that over the next several years.

David Fick from Legg Mason.

I was just wondering if you would comment briefly on dividend policy. You had a practice of increasing it in the spring. I know it's a board-level decision but I was just wondering if you had any thoughts there.

You know, I -- well, this is Ken. I will just speak and you guys can jump in. I don't think we want to comment on the dividend until we have the opportunity to vet it through the board. Obviously the growth is up significantly. You can draw your -- you know your own conclusions but I don't think we are -- I don't think that's something that we can really comment on.

Yes, we've grown, as you know, at three percent a year. Our last year was more than that, five percent, and you know, we will vet it with our board and do what's most prudent for the company realizing that we are a growth company.

Angel Hoak (ph),

Most of my questions have been answered, but just to follow up on Rich's question on your acquisition strategy, do you have the manpower right now to integrate a big project like that Willmer Wright or would you be more focused on some of the exciting projects you already have on your plate? And or, if you bid on something like that, could you bid in pieces?

You know I don't want to comment -- I don't want to comment, you know, bidding in pieces or any specific acquisitions. I mean I think that wouldn't make a lot of sense right -- you know, for us to do. But, you know, I think that, given that the success we've had with the GM portfolio and the six -- you know, and the team that we have now engaged, fully engaged as, you know, completely on the operations development and leasing side. You know, I think that we've -- we have you know, the strength to do -- continue to do more if we choose to do more. And I think we have a scalable business model given the people who are in this room and who have been speaking on this call. I think we can certainly, if we chose to, to look at something, we could certainly skill our -- our team up to handle it.

You have to -- as some of you know, we added Bob Ferguson who's one of the pre-eminent redevelopment guys in the United States. He has a great team that works with him, you know, we're making great proj -- progress on Riverside, Cadillac and the GM portfolios under his -- under his supervision and, you know, like I said before, if we believe there is something out there that we can add value to or our model, we will potentially look at it.

You have done a great job so far. Keep it up.

HallJones, AEW Capital Management.

I will be quick. I know this has been a long call. But I was just curious if you guys had an estimates of what the FAS 41 impact would be of the GM portfolio and if not, when do you think you will have those numbers finalized?

We don't -- we don't have it and we'll probably have it next -- next call. You know, it's not something that we -- we analyze this or underwrite these things. That we really, you know --. We buy things on a cash basis, as you know so, well it will probably be -- I think we have a 12-month period to book that in and you'll see it in that time, probably by the fourth quarter.

Okay, thanks.

And Mr. Siegel, there would appear to be no further questions at this time.

Thank you all for attending the call and we'll talk to you again next quarter. See you (indiscernible).

Ladies and gentlemen, that does conclude our conference call for today. We thank you for your participation and ask you please disconnect your lines.