西蒙地產 (SPG) 2005 Q2 法說會逐字稿

Welcome to the Mills Corporation second quarter 2005 earnings conference call.

[OPERATOR INSTRUCTIONS]

I would now like to turn the conference over to Noam Saxonhouse, Vice President of Investor Relations. Please proceed, sir.

Welcome to the Mills Corporation second quarter 2005 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, we can give no assurance that its expectations will be obtained. It is possible that our actual results may different materially from those indicated by these forward-looking statements due to a variety it 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 Securities and Exchange Commission including Form 10(K) and 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, August 5, 2005.

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 operation and EBITDA. Additional information regarding such non-GAAP financial measures including 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 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 June 30, 2005. This supplementary information is available on the website at www.themills.com under the heading Investor Relations and Financial and SEC Filings.

Participating in today's call will be Larry Siegel, Chairman and Chief Executive Officer; Mark Ettenger, President; Jim Dausch, President, Development Division; Ken Parent, Chief Operating Officer; Gregg Neeb, Chief Investment Officer; and M.J. Morrow, Chief Financial Officer. And now I will turn the call over to Larry.

Good morning.

I am very encouraged by the progress we are making on our ground up developments, redevelopments of our existing malls and our international expansion.

Let's start with our development projects. Construction and pre-leasing of Meadowlands Xanadu continue to move forward. Fill operations have been completed. The first parking facility was topped off on Tuesday and foundation work for the entertainment and retail center began in early June. In addition to the 1 million square feet in anchor commitments we announced in October, perspective in-line tenants have shown strong interest. By November 1 of this year, two years prior to grand opening, we expect to have submitted lease proposals for more than a quarter million square feet or 40% of the in-line space. As many of you know, our latest AK filing contains an update on the expect cost of Meadowlands Xanadu. With the final state and federal permits we received this spring, we now have been able to fully define the core elements of the project. We have had the core project costed out by various construction firms and independently verified. Incorporating these construction cost estimates, we expect the based entertainment retail center to cost about $1.2 billion, although we continue to conduct value engineering and buy out savings analysis. Jim Dausch will elaborate in a moment.

I want to emphasize two points. First, our investors' enthusiasm for this project continues to grow. CanAm which in the spring completed its $250 million funding for the project, has agreed to expand its investment to up to $400 million. This additional funding by CanAm and its investors demonstrates their confidence in Meadowlands Xanadu and the value I believe it will create.

The second point I want to make is that our pro forma still pencils at 9% yield on the low end for this project with 10% if we achieve upside opportunities such as ancillary revenues. Last month, we opened Pittsburgh Mills, the latest evolution of our landmark Mills asset type. This is the first Mills branded center to feature traditional department stores, Kauffman's and J.C. Penney, as well as Sears Grand, a Cinemark cinema with the region's first commercial IMAX theater and nearly 200 in-line stores. To compliment the enclosed mall, a campus of big box retailers, including Wal-Mart, Sam's Club, Lowe's and others will open in phases beginning the -- later this year through 2006. With its broad mix of value and full-price retail entertainment, we believe Pittsburgh Mills will dominate the northeastern Pittsburgh sub market. That was apparent from opening day when crowds rivalled those of last fall's Vaughan Mills grand opening. Kauffman's reported the strongest opening in its history and Penney's is well ahead of its plan to date.

Now, I'd like to share with you some of the progress we are marking with redevelopment activities at our existing properties.

First, the Colonnade Outlets at Sawgrass Mills; we continue to evolve and enhance our landmark Mills centers. The Colonnade concept, a luxury outlet lifestyle wing, is one that I believe can be replicated at centers across the Mills portfolio. Interest is very strong for the 110,000 square foot addition of Sawgrass Mills. In fact, there already is demand for another expansion at Sawgrass. The mix of high end outlet shops and restaurants includes the world's first outlet stores for premium names David Yurman, Stewart Weitzman, Muriel and Polo Kids; Barney's newest prototype, the first in south Florida; Burberry which will open its first Mills outlet store and its the largest in the United States; Ferragamo, first full line apparel outlet in south Florida; a 45,000 square foot Neiman Marcus last call outlet; Escada and St. John's, both of which are relocating from inside Sawgrass Mills to double the size of their spaces; Coach's first Mills outlet store; Cole Haan; Crate and Barrel's first outlet store in Florida; Max Mara; the first MissSixty outlet in south Florida; a Grand Lux restaurant and many others. The Colonnade opens this holiday season and I invite you to the grand opening celebration.

At the Shops at Riverside, we have signed a letter of intent with Bloomingdale's to create a new 78,000 square foot home store expansion, allowing us to substantially increase our offering of high end retailers and restaurants. New tenants joining the recently opened Barnes and Noble and Siegfried Olsen Day Spa, will include Hugo Boss, Pottery Barn Kids, Polo Collection, White House Black Market, Esprit, Burberry, Ferragamo, Petit Bateau, Kenneth Cole, P.F. Chang's, and Rosa Mexicano. In addition, this reconfiguration enables us to expand some of our highest producing existing stores including Luis Vuitton, which will double in size, Coach, which will relocate and whose expansion will transform it into a new flagship store, and J. Crew, which will relocate to a larger space. All told, we're adding almost 200,000 square feet of space at the Shops at Riverside to transform it into New Jersey's high end retail destination of choice. Construction will begin this year for a phased opening during fall 2006 through spring 2007.

And at Stoneridge, our plans are to allow Nordstrom to build a new 147,000 square foot store adjacent to its current store. We would recapture the current space and convert it to 89,000 square feet of high end specialty stores on two levels and possibly a 75,000 square foot cinema on the third level. We also would add nearly 50,000 square feet to the exterior of the mall for restaurants and an anchor. This expansion of one of our most productive regional centers would be completed in phases between the fall of 2007 and the spring of 2009.

Now, let's talk about our overseas initiatives. We continue to improve our already dominant retail and leisure center in Spain, Madrid Xanadu. On Monday, we announced that Intrawest, the operator of renowned ski resorts including Whistler Blackcomb in Canada, Snowmass and Mammoth Mountain in the United States and Les Arc in France and Heineken, the global brand and franchiser of more than 400 eating and drinking establishments in Spain, have signed lease agreements to operate Madrid Xanadu Snow Dome, Spain's only indoor snow sports mountain. Intrawest and Heineken will invest a combined 3.5 million Euros to renovate and enhance the Snow Dome.

In Rome, the city has handed over to us the Mercati Generali site and leasing has begun. We anticipate signing the concession agreement this month and begin construction this year for an opening in 2008. Situated in a densely populated residential section of Rome with on-site access to subway, bus and car, I believe Mercati Generali will become a major cultural and retail center.

We also continue to pursue a number of development and acquisition targets across Europe and we have begun exploring markets in Asia. Jim will elaborate in his remarks.

Ronald Weidner, head of our International Operations is building a team experienced in all phases of international real estate. Most recently, Ron has hired Peter Todd, one of the most highly regarded retail executives in Europe to head up leasing efforts at The Mills international operating properties and development projects. Peter joins us from Jones Lang LaSalle in London where he oversaw all of JL's European retail operations and managed a staff of 300. What's more, he knows us, having worked with us in Ravenscraig, Saint Enoch, Sagrada and other projects. So he has hit the ground running. Peter also has worked on major transactions involving companies such as Inter IKEA, Costco, Decathalon, Pilar and Arcadia.

As I have said before, we are first and foremost a development company. We are leveraging our development accoutrement to continue to develop innovative quality assets from the ground up, evolve and enhance our great Mills branded properties, add value to productive centers we have acquired and expand internationally.

Now I would like to turn the microphone over to Jim.

Thanks, Larry.

You would think that after Larry's discussion of Pittsburgh and the Colonnade and Riverside, Stoneridge, Meadowlands and International that there wouldn't be much to talk about development and redevelopment, either in the U.S. or internationally. But there is a lot more and I would like to give you some information on some of our other projects, as well as some additional detail on the Meadowlands.

First, on the Mills side, at Potomac Mills, a proven Mills winner, our renovation is well underway and scheduled for completion this year, complimenting the ongoing remerchandising of that landmark Mill center in the Washington area and as a fitting climax to the 20th anniversary celebrations for the first Mills project.

Renovation is also underway at the Great Mall in Milpitas,California, and will be completed by November of this year. This recently acquired center is being beefed up by the addition of five new anchors, including a Sears outlet and a Nike factory store, now open, as well as by a new Coles unit, now under construction, and two other impact anchors still under negotiation.

In terms of future Mills activity, we continue to make progress on a new Mills opportunity in the Boston area and following on the continued success of Vaughan Mills in Toronto, we are working with Ivanhoe Cambridge, our Canadian partners on two opportunities north of the border, One in Calgary and one in Montreal.

Our 21st Century full priced entertainment and retail projects also continue to make strides. At the Meadowlands, we continue to defeat the desperate efforts of disappointed competitors and their allies to stop Xanadu in the court. By this time, both state and federal courts have denied preliminary injunctive relief to Hartz, West Field, a homebuilder's organization and the Sierra Club. The Giants' litigation against the state and against Xanadu continues, but we do not expect this litigation to effect our ability to construct and operate Xanadu. Indeed, earlier this morning, a state court in New Jersey denied the Giants' request for a preliminary injunction to stop the project's construction and therefore it will continue as it has for the past five months. We however, continue to have serious discussions individually and collectively with the Sports and Exposition Authority, The Giants, the Jets, and representatives of Governor Codey to try to come to an agreement which would allow a new and exciting state of the art football stadium and related ancillary facilities to be built for the two teams by the 2009 NFL season. But again, the outcome of these discussions does not effect our ability to construct or operate Xanadu.

As Larry mentioned, our most recent 8(K) filing contains an update on the expected cost of Meadowlands Xanadu. It goes without saying that this is a very large -- 2.2 million square feet of GLA -- and complex project which still has some moving parts, parts which we are continuing to test for both cost and revenue potential. The entertainment retail center which is now in construction and leasing, we expect to have a net cost of about $1.2 billion. Although there continue to be certain value engineering and construction buy off savings exercises ongoing with respect to even this portion of the project in construction, this cost estimate now reflects the current modest increase per square footage, the merchandising mix and the anchor lease deals for more than 1 million square feet of space now committed and rents appropriate to the current estimates. It also reflects the cost of the final permit and approval process at the state and federal levels. This was an extended process in which costs were incurred for legal counsel and consultants, as well as for the conditions imposed by the regulatory agencies for their approvals, as well as the cost of defending the entitlements from attacks from various quarters for which our defense has been so far very successful. It includes the escalation in materials cost and interest rates which everyone in our industry has experienced and it also reflects an extension of the anticipated project schedule to the late fall of 2007 as a result of the extended permit schedule and some acceleration cost to maintain the current schedule and of course, it continues to carry the $134 million of cost associated with the empire tract.

The $1.2 billion cost estimate now also includes several opportunities which we have identified for yield supportive additions to the base project, two of which we have now locked in. The largest of these two is $135 million of structured parking costs which we had originally planned to have financed to a public agency; however, we have extensively studied the revenue potential of these garages with the help of experts in the field and determined to capture the revenue. Under applicable law, we cannot realize the capture of this revenue if the garages are publicly financed. For this reason, we now plan to include them in our project financing package. The other additional revenue generating element is a separate $20 million revenue generating utility system.

There are still other project elements under study for scope, cost, financing, and management. For example, the Ferris wheel, the Snow Dome and the collection of interior and exterior signs and other elements that will form part of the project's sponsorship and thematic partnership program. The cost of these elements could range between $75 million to as much as $300 million. The sponsorship thematic partnership program has by far the largest cost and revenue impact, but it's individual and collective elements are effectively being pre-sold now, so that revenue and cost can be appropriately balanced before significant irrevocable cost commitments are made. We expect this pre-sale and the related analysis of the sponsorship program, the Snow Dome, and the Ferris wheel to continue for a few months longer before final decisions are made.

Moving on to other projects. In Chicago, there is equally heartening progress on our 108 North State Street project. This mixed use project, retail, office, residential, and hotel will be built over a state of the art commuter train station on a full block opposite Marshall Field's landmark downtown store. Design work, looking towards a foundation permit application in October -- and that's the precondition to closing on the land with the city in December -- is well underway. We have invited bids on the residential and hotel towers with a return and selection in early September and interest is substantial. We look forward to opening the new CBS office and broadcast facility in the fall of 2007, and the retail portion of the project in spring 2008.

We continue to make substantial progress on the entitlement process on the San Francisco Piers and expect to have that process completed by the spring of next year.

On the traditional regional mall front, we are making solid progress on the redevelopment of Del Amo Fashion Center, a new entertainment wing, anchored by a state of the art AMC theater is in construction and on time for a May 2006 opening. This project is now 70% leased and we've obtained commitments from some terrific merchants for this wing, including Urban Outfitters, Anthropologie, Aveda, Forth & Towne, which is a new concept from The Gap, as well as restaurants such as Left Bank, R.A. Sushi, P.F. Chang's and Lazy Dog. The follow on mall redevelopment is entitled and will begin construction next year around the time the entertainment wing is completed. And, as you've heard in the past, Crate and Barrel is already commitment to joining the Del Amo campus in a new 35,000 square foot store.

Other progress to report on adding value to our regional mall portfolio. At the Esplanade in New Orleans, we've signed 55,000 square foot AMC Theater that will be joined by several restaurants to add a new dimension to this center. At Westland, in Hialeah, Florida, we're adding new restaurants which will be opening between this fall and next spring. In Southridge in Milwaukee, Steven Barry's added a large new store, joining Cost Plus, and Linens-N-Things in our redeployment of the former Yonkers department store. And speaking of former department stores, we've signed Wal-Mart to occupy a former department store position in the Hilltop Mall in the San Francisco Bay area. We have been anticipating and planning for the possible closure of the Macy's store at Marley Station and the Kaufmann's store at the Mall in Tuttle Creek and the Robinsons-May store at Del Amo. And already have plans to redeploy the buildings into productive use following negotiations with Federated. We continue to plan for the expansions of Broward Mall in Plantation, Florida and Meadowood Mall in Reno. And finally, we are working on very exciting plans for a Del Amo style major redevelopment and expansion of Southdale Mall in Edina, Minnesota which we have recently acquired.

And it's not all redevelopment work, either. Predevelopment work is continuing on a planned new lifestyle center at Woodbridge, Virginia anchored by Hex and Wegmans, where we expect to be in construction by mid 2006. Other predevelopment work is ongoing on full priced entertainment retail complexes in Valijo, California and on the Candlestick Park site in San Francisco.

On the international front, some other positive developments to report beyond Rome and the Madrid Snow Dome, which Larry mentioned. We continued to work productively with our local partners in Glasgow, Scotland and on the details of our joint venture agreement for Ravenscraig and on the layout and merchandising of this project where appeals by competitors to stop the project were denied by the Scottish courts in May. Also, we continue our redevelopment and expansion planning for St. Enoch Center in downtown Glasgow. In Madrid, we've received an executed lease from Brickman, a pan-european home improvements anchor for our 150,000 square feet power center adjacent to Madrid Xanadu and expect to be able to complete licensing and preconstruction work in time for a start of construction by spring of next year and an opening by late fall, 2007 or spring 2008. In addition to this out parcel, we also have approximately 41 acres of entitled out parcel land adjacent to Madrid Xanadu on which we can build more than 335,000 square foot of retail, leisure, and hotel facilities.

Beyond these projects we continue to pursue future international development opportunities in Milan, in the Rome suburbs and in Spain and Valencia, Seville, and Barcelona.

Finally, as Larry mentioned, we have begun to explore new development opportunities in Asia. We expect to follow the same deliberative and strategic process for projects there that we used for our international program in Canada and in Europe, seeking great locations with access and demographics, opportunities to apply expeditiously and leverage our development, entertainment, and merchandising expertise, since we are developers not mere investors, strong local partners who will hold land and run the entitlement process and enable us to bridge local cultural, political, and construction issues, strong support or even participation from local government and strong interest from key local, regional and international retailers.

Thanks. Now, I would like to turn the mic over to Ken.

Thanks, Jim.

I would like to bring you up to date on our operating and financial results. On a restated basis, fully diluted FFO per share increased by 7.5% to $1.01 in the second quarter of 2005 from a restated $0.94 in the second quarter of 2004. The following items explain the change in FFO -- FFO from acquisitions of $15.2 million was off set by sales of joint venture partners of $7.8 million, generating a net increase of $7.4 million for the quarter. FFO benefited from FAS141 adjustments of $1.5 million in the second quarter of '05 which was $200,000 more than the second quarter of last year. FFO from our share of land sales was $4.4 million in the second quarter, an increase of $2.7 million.

Net fee income including management fees increase $2.2 million in the quarter versus last year. As we explained on our last call, this figure is the sum of the management fee, other fee income and the attribution of the Mills of the elimination of interest and fee line items less the cost of fee income. Most of the increase is a result of management fee for the GM assets, St. Enoch and Vaughan Mills. These assets were all acquired or opened after the second quarter of 2004. The decrease in the attribution of elimination of fees and increase was largely offset by a decrease in the cost of fee income.

Reducing FFO for the quarter compared to last year was a loss of approximately $600,000 or $0.01 relating to the operations of the Snow Dome at Madrid, Xanadu. For the year, the negative variance was approximately $0.02. The loss was primarily the result of declining performance of the Snow Dome and the facility was being prepared for the transition of management. We originally planned for this transition to occur during the first quarter. The actual transition actually occurred earlier this week on August 1. Now that Heineken and Intrawest have taken possession of the Snow Dome, the negative impact on FFO will cease.

During the second quarter, comp property NOI fell 1.1% or $1.3 million. Comp property NOI growth in the quarter was negatively impacted by a $3 million decline in termination fees and a $1.9 million increase in landlord expenses. As you know from past quarters, termination fees, while predictable on an annual basis, are relatively hard to forecast on a quarterly basis. We expect our termination fees to be consistent with our orignal forecast for the year. The increase in landlord expense can largely be explained by bad debt write offs of close to $1 million associated with just one tenant, Just For Sports. Like termination fees, bad debt write offs can vary by quarter but are more predictable for the year. After adjusting for both termination fees and landlord expenses, NOI growth for the quarter was up 3.5%. Year to date NOI is up 3.6%, adjusting for termination fees. At our comp properties, occupancy is up 1.2% year-over-year. Minimum rents are up 4.3% year-to-date and we are projecting NOI growth for the year to be between 4% and 5%.

Returning to the variance analysis, G&A was up $3.9 million from the prior year period, primarily due to increased personnel and other costs in Europe as we continue to grow our international platform compared to the beginning of construction on Mercati Generali. We are also moving forward on development projects in Scotland, Italy and Spain and have begun to explore opportunities in Asia. Our new MIF system also contributed to the G&A variance.

Preferred dividends increased $7.9 million over the second quarter of 2004 due the our series F which was increased in August of last year and our series G -- I am sorry which was issued in August of last year and our series G, which was issued in May of this year.

Moving from the second quarter to the full year, our original FFO guidance for the year remains at $4.35 to $4.45. However, a number of items have occurred that will make achieving the upper end more difficult. Some of the variances I discussed that relate to the second quarter will impact the entire year, including the unanticipated loss of the Madrid Snow Dome and the G&A increase. Furthermore, we raised $80 million more through the series G preferred than originally budgeted, causing some mild dilution, although we are benefiting from a leverage reduction.

On the positive side, our leasing activity has been good and we should be able to achieve strong NOI growth. And our land sales activity has been robust through the first six months of the year, putting less strain on year end performance. All told, we believe it is prudent to focus people on the lower end of the range for the aforementioned items which we did not anticipate when our original guidance was established. However, the higher end of the range is still achievable, of course, should land sales and fees exceed plan.

Under pinning our FFO estimates for the year are the strong results we continue to see at the properties. Sales are increasing rapidly. At comp centers, trailing 12 month sales were $362 per square foot, a 4.9% increase over the year ago period. On a growth basis, our sales increase 9.6% to $375 per square foot. This rise is indicative of the quality of the assets we have acquired over the past 12 months. With our sales rising rapidly, it is not surprising that our comp property occupancy climbed to 95%, a 1.2% increase over the year earlier period. In-line leasing spreads were also strong at 15.6%. As is often the case early in the year, one anchor deal can derive anchor spreads up or down dramatically. This quarter, one deal at Grape Vine Mills where we brought it a Forever 21 to replace an Off Rodeo Drive, caused the rent spreads to shift from positive 95% to negative 5%. In aggregate, we see -- at aggregate, everything we see at the property level is very encouraging. That's why we are projecting 4% to 5% NOI growth for the year.

Now, I would like to build a bit on Larry and Jim's comments about the Meadowlands and specifically discuss the partnership arrangements. The project is being developed by a partnership comprised of two parties consisting of Macally and a separate Mills CanAm partnership. In the development partnership, Macally has contributed $32.5 million of equity in exchange for a 20% residual sharing interest that is partially subordinated. The Mills CanAm partnership will fund the balance of the required equity and Mills will earn all the fees. Each party earns a 9% preference prior to residual splits. The Mills CanAm partnership is structured similarly to other CanAm partnerships in that Mills receives substantial period interest. In this partnership, Mills was to initially fund one-third of the equity for the two-third residuals after 9% preferences are paid. However, given the strong interest shown by CanAm's investors for this project, it is very possible that CanAm will raise more than its required equity, which would reduce our equity requirement. In the event of a CanAm over raise, the parties have agreed that the residual splits will remain uneffected, thus further enhancing our promote. To date, CanAm has funded $316 million and we expect that their capital raise could reach $400 million. Depending on the ultimate cost and -- project cost and financing, this could leave us with an equity requirement less that the $165 million that we presently have invested. Given the potential level of Mills equity required for this project, the large amount of fees Mills will earn and the 9% to 10% unlevered return Larry spoke about earlier, we expect our levered return to be very significant.

Moving on to the balance sheet, as promised on our last call during the second quarter, we reduced our exposure to floating rate debt by refinancing the mortgages on Hilltop -- at Hilltop, Marley Station and Lake Forest. The transaction allowed us to pull $50 million of incremental capital out of these assets. Today, almost 67% of our debt is hedged to maturity and close to 75% is hedged through the end of the year. This means that less than 15% of our market capitalization is exposed to floating rate debt using yesterday's closing stock price.

Given how much our capital structure has changed over the last year, I would like to take a moment to review our financial ratios on June 30, 2005 as adjusted for the acquisitions of Saint Enoch, Southdale, and South Ridge, as if they had occurred on June 30, 2004. After removing the impact of foreign currency gains and the one time benefit of our cumulative adjustment for 1036 from the 2004 interest coverage ratio and adding the interest expense and NOI associated with our recent acquisitions, our adjusted interest coverage ratio for the 12 months ended June 30, 2005 would be 3.3 times versus 3.3 times in the 12 months ended June 30, 2004. Adjusting our fixed charge coverage ration using the same method to yield coverage of 1.2 times versus 2.4 times for the 12 months ended June 30, 2005 and 2004 respectively. Our debt to market capitalization, using yesterday's closing stock price stands at 47.6% versus 49.7% at March 31 -- June 31, 2004.

Our current capital structure positions us to execute on our extensive development and redevelopment opportunities.

That concludes our prepared remarks. We are now prepared to take your questions.

Thank you. [OPERATOR INSTRUCTIONS]. Our first question comes from the line of Michael Bilerman, Smith Barney. Please proceed with your question.

Hi, it is Jon Litt here with Michael Bilerman. I wanted to talk about Xanadu for a minute. You said that expected costs were about 1.2 billion. That puts it at about $545 a sq. ft. To get your 9 to 10 yield, you need to be netting rent of 50 to $55 a foot. And I wanted to talk about or get some sense from you about what levels of rents are coming in and have you achieved rents on average at this level in any of your other projects?

Well, I can run through, if you like, I can run through all of the income items for you if you want, Jon.

What do you mean by the income items? I am trying to get a sense of your tenant's names.

Yes, I'm going to get the specialty too. But it will get -- I think it will put the whole thing in context, if that's okay?

Yes, go ahead.

We have in place anchor income now of 30 million, which at 1.4 million sq. ft. is about just under 22 -- just under 21.50 a foot. There is some additional anchor space left to be leased, which will increase -- which will create additional anchor income. All main street activities, kiosk push carts, et cetera, and we base this on 10% of NOI using Ontario and some other Mills, as a example, it's $8.3 million. Sponsorship, we only have in here as a typical Mills project we obviously, expect to get much more, but using, again, Ontario as a comp, sponsorship we have in it at $3 million. Percentage rent, we have using last year's 10-K, that percentage rent was about 2.25% of minimum rent. So we have $1.9 million of percentage rent in there. Some alternative income sources is the parking income, which we have been studying over the last six or eight months, which is going to be about $19 million a year. And utilities, profit on utilities which will be about $2 million a year.

Right now, as I said in my script, we expect over the next couple of months to have about 250,000 sq. ft. of small store proposals out and tenants that we have talked to, and the rents that we are getting very little sensitivity to are in the $67 range; plus or minus, to take you to a total NOI of about $108 million. Which we think has upside associated with it in various places; anchors that have yet to be leased. Because we are not using up all the FAR additional specialty that we may be able to lease to. Additional sponsorship over to 3 million. Obviously, we expect to get that and some other things. So as far as that is concerned, we do feel comfortable. And, again, if you look at the comps in the New York Metro market, the mid 60s range, 65 to $67 is extremely achievable, especially on a site like this, less than four miles from the Empire State Building adjacent to Manhattan with all of the other attributes that go through it.

Have you achieved that level at any of your other projects of rent?

I mean we don't have any other project like this; in this kind of location. So, of course, the answer to that is no.

On the Giant's situation, in I guess a worse case scenario, if they prevailed, you would -- if I understand the situation, right, you would not be aloud to open on Sundays. And that would be eight Sundays a year. And the question is, if that happened, do you think there would be a material impact to the rent you would get from your tenants?

This is Jim Dausch. Let me comment on that. What the Giants have asserted in the case that they have filed so far in which they were unsuccessful this morning, is a right to stop the project from being built. Because it assertedly violated some rights they have to surface parking. That is a contention that's without merit, which effectively the Court found this morning in finding there was no likelihood of success on the merits.

The Giants have not raised issues related to our so-called "game day" operation. But if they were to do so and were to prevail on a Sunday situation, you are talking about a day which because of the Bergen County Blue Laws, you have a good deal of the retail part of the project closed anyway. And as to which the balance of the center could be opened but would be captive to the 80,000 Giant's fans who come on those days and their families. We don't expect that -- the Giants to prevail on that kind of a claim if it is, in fact, asserted. And, therefore, it's not -- it hasn't entered into much of any of our discussions with our merchants so far.

That would be curious there -- is that they want you to stop in order to get the parking to accommodate the new stadium?

Not really. If you are talking about the current suit that is pending, they claim a right under their existing contract with the Sports and Exposition Authority to a certain number of surface parking spaces, which in our view is incorrectly characterized. But in any event we are providing, that "we" and the "state" are providing them. If they were -- the "game day" assertion -- and I don't want to characterize something that they haven't yet asserted with -- also doesn't have anything to do with parking because under our agreement with the state we are required to reserve for the Giants a certain number of parking spaces on their game day, exclusively for Giant's fans. And our parking plans and our parking layout allows for that.

Okay. I just want to move to the Snow Dome for a second. There was some controversy when this thing was first built about whether it would be profitable or not. Is there failure of the original operator, any testament to the economic success of the project? And what's Intrawest's thought processing in coming in, are there any rent adjustments or anything like that?

Yes, hi, Jon, this is Ken Parent. I think the Snow Dome has been performing profitably prerent since it is opened. The problem is we have, when we bought the Snow Dome we bought our partner out last year, I think it was in August when we bought them out. We assumed 100% ownership of the Snow Dome. And it was always our intent, of course, not to be a Snow Dome operator. So we went out and looked for somebody else who we could lease the facility to. So for an interim period we were actually operating it ourselves. And we are just, quite frankly, not Snow Dome operators. So when we thought that we were going to transition this thing over in the first quarter, we let go of our -- of the guy who is operating it for us. We assembled some Enoch staffing to maintain it for awhile and we stopped marketing the Snow Dome in the Madrid market. And that proved to be damaging to the operations as the transition took longer than we thought it was going to take. So we experienced some losses that we just didn't think we were going to experience.

But I would say there is no way is it indicative of the operating potential of the Snow Dome. Intrawest is coming in and they are paying us a good rent. So we know longer have to worry about making money or operations so much to the Snow Dome directly. We are getting rent now. We are getting rent from Intrawest. We are getting rent from Heineken. There are healthy upside clauses in those rental agreements. And we expect to turn a loss leader into something fairly profitable for us.

What kind of cap rate do you think you'll have on cost on the Snow Dome? Based on --. [multiple speakers].

That's a good question. I would say it is probably about, with all the rent in place, I think it will stabilize because the rent has steps in it. I think it will stabilize around 9%, somewhere like that. It will probably be between 8 to 10% based on the rent and the cost of the Snow Dome originally.

You should know also, Jonathan, that this is a business that they are excited to get into and they have told Ken and others that have been negotiating this deal that they would like to do others. And so they see this -- obviously they are very well known in the United States for running ski resorts. They just expanded into Europe. That is one of the reasons they wanted to do this, was to enhance their brand in Europe. And they are talking to us about Meadowlands too.

Yes, we had four strong bids for the Snow Dome. We chose Intrawest because they are just absolutely first-class operators, and we like them. They are great people, and we think that -- we are not going to have a conversation about Meadowlands and possibly pick up the conversation with some of the others that we had about Madrid on the Meadowlands as well.

Also, Jonathan, Greg Neeb usually points out when I am wrong, so I just wanted to let you know that in Riverside; for example, our rents will probably approach $60 a foot. In places like Brierwood and Stoneridge, we are in the 50s. So I mean this is not -- those rents are not out of the realm at all.

Could you just spend a minute or two on Asia and your plans there?

Yes, we have been looking at Asia probably for the last 18 months or so, thinking about different scenarios and didn't want to go over there unless we could achieve a lot of the same things that we did in Madrid, which would be a strong level partner. We wanted a stable environment. We were very intrigued by the way Madrid Xanadu worked with El Corte Ingles and having them from the get go just gave that project so much momentum that it practically insured the success of the project. So in Asia, we are doing the same thing. We are working with a couple of partners over there looking at various things. We have identified a couple of specific projects. We are also looking at in those various locales to have a working relationship with the dominant retailer or department store there. And we are doing that now in two locations in Asia. And if all of those pieces fall together, then it would be something that we would probably entertain.

Two more questions on this. Where would be the areas you think you would be breaking ground there? What markets do you think you are going to go into in Asia? And is there any G&A cost associated with -- starting to work over there -- embedded in G&A or has that been capitalized?

In terms in talking about specific markets, because there are a lot of competitors out there that --. [multiple speakers].

What countries?

Yes, well, it is the same thing. I mean one of the countries there might identify specific opportunity and the other one is, we are initially looking at. So we are not going to go into detail on the countries yet. Hopefully, we'll be able -- I said we are working on a specific project in one of the countries and if that comes to fruition, which we would know probably towards the end of the year sometime, then we will identify it at that time. And in terms of G&A, there you want to talk --?

We don't have any G&A that is specific to Asia right now. I mean we have probably a little bit indirect G&A, and I imagine that has fallen -- most of that has fallen through the bottom line, but it's just not significant. But we have nobody in the ground. We don't have any operations to establish there.

Great. And I think Bilerman has some questions.

Yes, I just want to go over the consolidated joint ventures. Ken, I think you talked about last quarter how as you move through the year you are going to be recognizing a larger percentage of the KanAm NOI. I think your FFO share went from 55 to 63 sequentially. Where do you see that tailoring out the rest of the year?

Well, obviously, as we move towards the fourth quarter, which is our highest cash flow quarter and cash distributions are what drives the percentages. You would expect to have a good quarter in the fourth quarter. So I would say that through the balance of the year we should at least be on average of where we were for the first six months. If not, even a little bit better.

And have you given more thought to actually providing the full pro rata unconsolidated joint venture statement? You give the FFO, but just on a line-item basis I think it's helpful to understand the moving pieces?

Michael, this is Greg. We continue to look at that and Jay, Ken and I, we are all working to try to achieve additional disclosure in that area.

What is the hesitation of not providing that.

It is the non-GAAP income statement that you are basically creating.

But you provided two of the line items, such as, your share of net income and your share of FFO. You just want to show your share of NOI or some of the other key line items because you are back out for minority interests, that's where you are getting your bump because you are always consolidating a 100% of the NOI any ways.

Yes, I mean I think what you get for the most part is a pretty reasonable depiction of our share of FFO, which for the most part applies pretty consistently to some of the line items. Some of those -- the little bit of lumpiness that you talked about does come from land sales which are not NOI because certain products will have different percentages. So that does drive some of it and we could probably try to enhance that disclosure some. But other than that, I mean for the most part, those percentages are pretty consistent for NOI and FFO.

And could you just go over your projections for land sale income for the full year and for your fee income? What is your current budget for those two items?

Well, we are going to retain our budget that used at the beginning of the year. Probably more towards the high end of it. So I think we were at 35 for the both? 35 million for the both. And I think we've achieved 10 or 11 of the fee income so far and we have achieved about half -- 10 or so of the land sales. So we are more than halfway through the budget and I think it is definitely possible that we could exceed those numbers. But as I said in my guidance discussion without those increases -- we are going to stay at $35 million. It is possible to increase them, if we do great. We'll get higher than lower end of the range, for right now I think the proper thing to do is just to leave it at $35 million. But recognizing that there is definitely some upside potential there.

Thank you.

The following question comes from the line of Ross Nussbaum at Banc of America Securities. Please proceed with your question.

Hi, guys, good morning. I am here with Christine McElroy. Larry, I want to follow-up on the Meadowlands if I could real quick. The 2.2 million sq. ft., I think you had referenced 1.4 million sq. ft. of anchor boxes that you already have leases or commitments on?

Right.

What would be the square footage total of all the anchor boxes your planning?

There might be another 100,000 sq. ft. of anchor boxes.

Okay. And then the same question on the small shop side. What is -- you've got 250,000 sq. ft. that you are working on. What is the additional square footage?

The total small store GLA right now, although, we might be able to increase it a little bit, is in the 800,000 sq. ft. range.

Okay. So that makes sense. Okay, I wanted to nail down a little more information on the parking. And I think you called it the "alternative income of 19 million." You're going to be park -- it's going to be paid parking for all visitors to the property on a daily basis?

If you don't mind, Jim is our resident parking expert, so he can answer this question.

Which probably indicates how little expertise there is here. Anyway, we have -- we worked with central parking with Walker Parking with the Sports and Exposition Authority and examined the possibility and the feasibility and indeed the necessity of keeping paid parking at the Meadowlands. All the parking at the Meadowlands as you know at the moment for concerts, for the games, for the racetrack is paid. And we looked at the major retail concentrations in the New York Metropolitan area and found that indeed some of them, in fact, are parking.

In working out a system for managing the parking, which is a shared parking arrangement that involves both the office facilities, the existing parking for the Giants and the Jets and the Continental Airlines arenas, and the roughly 8,000 of structured spaces that we will be building, we've discovered that it would be feasible and, in fact, a financially attractive for us to operate the paid parking facility here. And when we are talking about paid parking, we're talking about $3 a visit for retail and entertainment customers. That the charge for Giant's fans would be about what it is today. And that given the great number of people who will be visiting the project on an annual basis after the -- after all of the expenses are deducted and we make the required payments to the Sports and Exposition Authority that are required by our deal with them, would leave us revenue in the range that Larry indicated or potentially even a little bit higher.

Yes, one of the things that we have done is after looking at all of the models, Ross, that $19 million number was a relatively conservative number if you look at the models.

Well, also it was -- that those assumptions were given to us by the countries' preimminent parking operations.

Right.

Came into studies and helped us with all of this. So it is not just something we came up with.

No, that's why -- I mean I wouldn't hold myself out to be a parking expert. But this analysis was not done over a month, it was done over a period of six to nine months, and tested and embedded by a number of different people. Critiqued by the Sports Authority. It takes advantage of their experience with operator paid parking. And the paid parking system in the Meadowlands as part of our deal with the Sports and Exposition Authority will be managed by a single, professional entity that we will select.

And that 19 million, how much of that is parking? How much of it is what Larry referred to as the "alternative income?" And what are you referring to when you say "alternative income?"

That piece of it, I'm sorry if I wasn't clear, Ross. That 19 million is all parking.

I got it. Okay, thanks Larry. Turning to Madrid. I just want to make sure I am okay on this question. The reason that the restaurants at the Snow Dome were having trouble is because those also had the same operating issues with the Snow Dome? It isn't a problem in general with all of the entertainment or restaurant venues at the property?

No, not at all. They are operated by the same group, part of the buyout. They were operated by us, post buyout. And quite frankly, one of the sit-down restaurants we had closed for periods of time. So, no way is it indicative of what's happening outside of that space with the entertainment facilities of the project.

Yes, if you go through it, Ross, which I know you have you know that those restaurants actually sit within the Snow Dome with very little, if any, frontage onto the mall. So, it gave them a disadvantage. The other restaurants have good locations on the mall and are performing well. Now Heineken has come in and they will put their brand and their expertise into this thing. And now with the expertise of having Intrawest run the Snow Dome those two together, I think will do a good job and hopefully those restaurants will turn around. Heineken believes that or they wouldn't have signed the lease that they did.

Well, so does Intrawest, obviously, because they not only signed the lease, they guaranteed it.

They guaranteed, right.

So it's --.

Yes, right.

Okay, one question on the financing front, if I add up all your development and redevelopment activity and I assume sort of the historical leverage levels that you've used at the project financing level, my math says you will need somewhere around 550 million of equity to minimum to get you through the end of '08. Does that sound about right to you?

It's 550 through the end of '08?

Yes.

I bet that is probably not terribly off and -- in terms of our numbers and just sort of gross [indiscernible].

Yes, okay. And then the final question, this is a numbers question. I just want to make sure I am understanding a footnote. You have a footnote on your financials [indiscernible] reconciliation where you talk about including basis amortization of 6.5 million from the unconsolidated joint ventures. What -- I am not quite sure what that is? Is it --?

That relates principally to the GM acquisitions where we bought into existing entities; did not have a step-up of basis at the lower entities. So outside basis sits on our books and is amortized there.

So that is noncash income that is being included in FFO? And it is getting added back to net income --?

It's getting added back off of --. [multiple speakers].

It is just depreciation of the purchase price. The exact same as depreciation of the purchase price. It was just that the purchase price wasn't pushed down to the underlying entity since we bought into existing partnerships and the purchase price sits on the upper tier of books as an investment. But it is a real estate cost.

Okay. And what were the FAS 141, the debt premium amortization, and the straight line rent numbers for the quarter? Were those in the supplemental? I may have missed them.

The straight line rent was --.

Right, the straight line rent was in there. Yes, the just borrowed --.

[indiscernible] 1.5 million and -- but I'll have to grab the other number.

Straight line is in the 8-K schedule.

I am sorry. The FAS 141 was 1.5 million?

Right.

Correct.

And then the debt premium amortization?

That is virtually nothing.

Okay. Thank you.

Your next question comes from the line of Chris Capolongo, Deutsche Bank. Please proceed with your question.

Good afternoon. Just back to the Xanadu construction budget, I am just wondering what savings you reasonably expect to squeeze out [indiscernible] due to the construction budget, is it a 1% number? Or is it a 5% number?

We are in the process of going through that exercise now and a lot of the cost here obviously is in building the project. It is a complicated project as Jim said. You have an awful lot of uses in the building that have heavy loads associated with them that are going up on the upper floors, which have increased the cost. You have a 190,000 sq. ft. movie theater up on four and five. You have a 60,000 sq. ft. live theater up on four, I think it is. Three or four, I don't remember. Those -- you have our Wannado -- the Wannado concept from Sawgrass up on the very top level. So those are very heavy loads. And that's been one of the reasons for the increase in cost.

What we are trying to do now is carefully go through the design and see just how much we can value engineer out of that without changing the experience for the customer. And that is been an ongoing process and we are in the middle of that. And I hesitate to say just how much we are going to be able to get out of it. That's the process -- the process started in the last month or so. It will be going on for the next couple of months and we hope to take out, not just millions, but tens of millions of dollars out of the project.

Okay, and then just quickly on the main Federated boxes. What are owned by them and what are leased? If you're going to --.

I have it right -- we have that -- oh, three stores. Two are leased and one is owned by the anchor. Operating covenants are in place in two malls. Both the Lawnmower and Tuttle are covered by operating covenants titled until 2017. And Marley Station is one that we've expected to close since we made -- since we heard about the merger. And again, we have been -- this is something that we -- I don't think anybody does as well as we do. How many boxes that we open a year at very high rents and we have plans for all of these boxes and hopefully we are going to be able, after our negotiation with Federated to do some very accretive things with them.

And then just finally on the land sales. Now are these sales part of existing projects or are they just existing development projects or pads that you just have in inventory that you just decided to sell sooner rather than later.

No, these were primarily at -- Pittsburgh is part of that development program. The out parcels there.

Okay. And then you characterized them as strong-than-expected, but you didn't want to raise the guidance on how much we are going to see this year?

Yes, I said, we generally don't have this level of land sales for the first six months, so we really cleaned out some of our budget for the year. Again, is it possible that we will achieve outside land sales? Absolutely.

Well, we are working on other land sales that aren't in the budget. Some of them are large. Whether we are able to close them this year or not, we don't know. We will see.

Okay, great. Thank you very much.

The next question comes from the line of Matthew Ostrower at Morgan Stanley. Please proceed with your question.

Thanks. Just on '06, I know you are not giving any official guidance at this point, but can you give us a sense for whether we should be expecting growth to accelerate or decelerate and, in particular, sort of what are the main drivers there? As I look down your -- the delivery schedule it looks to me like we are talking about much more growth in '07 than '06. And is there any point in sort of focusing on where consensus is these days? And is that appropriate at this point?

I really don't feel it's appropriate at this point, Matt. You are right, '07 obviously has some tremendous opportunities there. But so does '06 with the redevelopments and other things that are coming on. But it is just too early for us to really comment on it.

Is it possible, Ken, in your mind, I guess without getting too specific, is it possible that you are able to sustain the same level of growth from '05 into '06?

Yes, it certainly is possible. But again, it is just too early for us to comment. We are just into our budget season and I just don't feel that comfortable with it right now.

Yes, we just -- actually, Matt, we just started -- we should be finished with our budget process sometime probably in the middle of next month or something like that and then we will have a better idea.

Okay, and then Larry on the Xanadu, Meadowlands, I know this may be beating a dead horse at this point. But you have been pretty clear for the last year or so that this was going to return easily a double-digit. Is what I think the number you through out was 11%, sometimes higher than that. And that we have seen, I think over and over again as analysts is some of these big complicated projects they start at these sort of optimistic levels and they sort of gradually wind themselves down.

And I want to just get a sense from you, Larry, about your confidence level that we are not going to see additional declines in yield guidance here. How locked in are these costs? And are they -- sort of big picture, if you're talking about what caused the yield to go down? The guidance and the yield to go down, is that really tied? It sounds like mainly through an escalation and construction cost since your first budget came out?

Well, I think first of all, and I know I am an overexuberant guy. But I think the yield I've been using is 10. I don't think we've ever said 11. I have seen some of our runs as much as in the low 10s. But we are trying to be realistic and give a range. Obviously, the costs have gone up. This now has been costed out by multiple contractors. So we are comfortable I think with where the construction costs are and I know Jim had two very well known construction companies costed out and another one reviewed the construction cost. All of those numbers have been garnered over the last couple of months. So I think we feel pretty comfortable with the cost. And I personally feel comfortable with achieving these revenue projections. I don't think any of them are unrealistic. Having around $30 million of anchor NOI already are basically done, gets us a lot of the way there. We have started in earnest since ICSC, leasing the small space. That's why we're going to start sending out proposals now.

Our Manhattan presentation or leasing office is going to open in September. We are going to start taking other tenants through that. Again, I don't think that these rental numbers for specialty stores are aggressive in the least. And if you take a look at some of these other things that we've talked about, I mean we have in the numbers $3 million. The numbers I read before are projections that are obviously much higher. $3 million of sponsorship, obviously, it would not be a good day for us if we only achieved Ontario like sponsorship income in the Meadowlands. We should do better on percentage rents. We should do better in temporary main street activities like kiosks, push carts, ATM, and other things.

So, again, I think that number is a realistic number and gets you to the 9%. I do think there is upside over and above that in additional FAR that we haven't built out yet. We haven't announced our fashion anchors yet. There could be some additional small store GLA because some of those fashion anchors may be smaller than we originally anticipated. So, those things we have going for us. And so overall, yes, we do feel pretty comfortable between nine and 10 with hopefully, if things go well upside. And the last thing I am going to say is we have all been in this business. We're studying it for a long time. And nothing replaces great real estate and this is, again, as far as I am concerned, one of the greatest pieces of real estate that one would ever be privileged enough to develop. And I would be surprised if there are not opportunities here that we are not even anticipating it. But time will tell.

Okay. And then just two final questions. The year-over-year drop in fixed charge coverage, we have been used to seeing fixed charge a little bit higher than it is now. Is that something that you're going to try to bring back up again when we think about our estimates going forward? And then finally, I think we've been waiting sometime to hear about a fashion anchor at Del Amo, and can you give us [indiscernible] on that?

I will address the fashion anchor and Del Amo while everybody else is scrambling through the numbers here. Your fashion anchor at Del Amo we were really hoping to have it ready to announce by this call. Hopefully, we are within millimeters of being able to do that and hopefully, you'll hear that in the very, very, close time period.

And that's not -- the delay in that is not a product? It sounds like the leasing there is going well. It is not a product concern about the quality of the project or anything like that?

No, we are more encouraged by that project than we ever have been before. That the lifestyle center which is about I guess 400,000 sq. ft. plus or minus, is that the size, Jim? Plus or minus is already 70% preleased. We feel very comfortable about where that is going. The quality of the retailers and the restaurants are some of which we announced today, but we'll be announcing more between -- before now and the end of the year, has far exceeded our expectations. Crate and Barrel, hopefully this anchor that we are going to announce will catalyze the rest of the redevelopment where we are again getting extremely favorable readings from all of the retailers that make up the most dominant regional malls in the country.

So we feel very comfortable that starting next spring we are going to be opening up a great wing and soon after that making this one of the most dominant projects in the United States. And given the demographics and given the lack of competition and all the rest of those things, it just could be terrific. And also lastly, the potential closure of the Robinson-May store just again gives us amazing upside opportunity. And we have very good prospects if that happens to take individual floors there, that would be very representative of a project like that.

Great.

And Matt, on fixed charge I think there is just a couple of dynamics. One is that we do have this in fixed charts and I think we have our FX gains there. And so adjusted I think -- I don't have the number right of hand, but it is probably flat as opposed to 2.4 to 2.3. We've done some -- we did some preferred, so that's way down.

Okay. Larry, I am glad you had a chance to get some of that exuberance across. [Laughter].

The next question comes from the line of Michael Mueller at JPMorgan Securities. Please proceed with your question.

Hi, couple of things here. First on the balance sheet. If you are looking at the 31% floating rate, that exposure, that is factoring in swaps per year end. If you extend those out to say mid year or even into the first quarter, does that 31% number increase notably or is it still in that same ballpark.?

Yes, Mike, what you see, if you look at our fixed rate debt percentage is 66.8 and fixed rate percentage was swapped to 69.2, so through maturity the ratio is only a couple of points difference. So it doesn't drop significantly.

Okay, it is still probably in the low 30s though, correct?

Correct.

Okay. And then secondly, just back to the Meadowlands real quick. Based on what you think is going to happen with respect to KanAm's funding, I mean if we're thinking about from a modeling perspective. The project comes on line, 1.2 billion in costs. I mean how do we think about your share of the FFO and the NOI coming from this end relative to what it was beforehand?

Well, I think the best way to look at it is, again, this is going to be a consolidated partnership. It's going to be subject to our new and improved [LABD] accounting. And as our share of the promote, which is going to be fairly significant and this project goes up, our share of the FFO should be fairly healthy. So right off the top, it is hard to say. We will probably come out and get somewhere around 50% of the FFO. And it is possible certainly to get some upside as the project matures and we start delivering -- start getting into the [indiscernible].

Okay. And last question, land sale gains and development fees for the balance of the year. Anything notable in terms of Q3 versus Q4 in terms of how they should lay out?

No, I think the fee income should be equal in the last two quarters and the land sales will probably more be weighted to the fourth quarter of the ones that remain.

Okay. Thanks.

The following question comes from the line of David Fick, Legg Mason. Please proceed with your question.

Good afternoon. Just going back to that percentage ownership question and percentage of FFO from the Meadowlands. Yesterday on their call, Mitch Hersh said the following -- "I would like to remind everyone that Matt Kelley's investment in this very significant project is only 32.5 million for a 20% share in the entertainment and retail component, which is certainly on the order of magnitude of a billion dollars." That would appear to be a little bit aggressive in terms of his statement. How would you characterize their share of the income from this project?

I would say that for $32.5 million they got a subordinated residual share of the cash flow of 20% and then certainly -- obviously doesn't equate to a 20% economic interest of the project. And to really evaluate, I think the deal between the partners you have to look at a bunch of pieces, David. Obviously, the fees [indiscernible] are pretty substantial in this project with the development fee. And management fee is based on gross rents, gross revenues, and the sponsorship fees. All those things added in together I think weighs pretty heavily. It makes this project very profitable for us kind of on an equity basis.

They also have -- I don't want to get too much into the details because it would take 30 minutes. But there are other factors I think that weigh into our favor that need to be considered when evaluating that the relative partnership perspectives. They do have a subordination of cash flow in their preference and there's some sub -- partial subordination on the capital. So the piece of the capital that is above 20 -- whatever 20% or 80% -- or the reciprocal 80% of the 20% on $32.5 million we get out first.

So when you kind of factor those things together plus the fact that obviously they are in this for the hotel and the office and I think they are going to do extremely well there. Because I think the project will do very well. But they have -- they are obligated to take those pads down over certain times and there's a fixed price on that. But to add to that price is some carry associated with those pads, that where the clock starts clicking in a few years. So all those things -- I think when you throw all those things together and you look at the relative partners economics in this partnership I think they are fairly balanced. I think -- we didn't give up 20% of the project for $32.5 million.

Okay. This is just a detail. But Jim, you mentioned the Power Center [indiscernible] by Hex, it's their understanding there's not going to be a Hex going forward. What do you think is going to happen there?

It is actually not a power center. It is going to be a Lifestyle Center with Hex, which will be Macy's and Wegmans.

Okay. You just haven't got that transition documented yet?

Correct.

Okay. One more detail on Meadowlands. Was the availability of a tip for the parking still in front of you when you made this decision or did it go away and was that part of what drove your need to generate revenue there?

No, the tip is still there. And I mean it is not a classic tactic when I think of financing, but it is the equivalent of that. And that is still there and we are still using it for other eligible purposes. It is just under the New Jersey law, if it were to be financed through that public financing you could not have it operated for profit.

Okay. What is Madrid yielding today?

It has got to be above 10%. I really don't know, David. I haven't looked at that in awhile. But the project is doing very well. It remains highly leased. Sales are up -- it has to be about 10%.

Okay. How long is the new Snow Dome lease with Intrawest and how long is the agreement with Heineken?

The Intrawest deal is 7, with two 5-year options and the Heineken deal is -- is it 10? The 10 year? Yes, 10 years with some options, I think.

Are there any kick out clauses?

No. Not in the Intrawest deal. And I don't think there are in the Heineken deal.

Okay, great. Thanks.

They are real deals, David. They are producing nice income flows.

Great. Thank you.

The next question comes from the line of Craig Schmidt, Merrill Lynch. Please proceed with your question.

Good afternoon. Just to follow-up on the questions on Del Amo. Does the Robinson's closing sort of preclude Bloomingdales from coming in there as the new fashion anchor?

No, I had this discussion with them when they called me, Craig. And that is something that is obviously a possibility. I think hopefully with the new fashion anchor, that we hope to announce imminently that that could enhance that possibility. The question is with the other opportunities that we have for that space, and the income that we could derive from it, is that something that we really want to do. So, it is something we will look at. There are other anchors that have contacted us about space in Del Amo that we have not had space for.

An example would be a very well-known, high-end gourmet market of about 60 or 70,000 sq. ft. That might be a great tenant for the lower level of that space. So, there are things that we are working on just besides replacing it with another department store. Because hopefully once we announce this new department store you will still have five -- one, two, three, four department stores associated with the project. Don't necessarily need the fifth. As you might remember the space, this is space that goes right through the middle of the mall. So again, it could be a highly valuable space.

Great. And then say within the next three and a half years, how many major new European projects that are ground up do you think you might have built?

In the next three and a half years? I mean we have always said we would like to -- are you talking about ground up?

Yes.

Well, you are talking -- we have always said we wanted to start one and open one a year. I guess three and a half years from today, if we are lucky we could have two new ones. Possibly three ground up open.

Okay. Thank you.

We have a follow-up question from the line of Michael Bilerman, Smith Barney. Please proceed with your question.

I just wanted to know how much of the floating rate debt is attributable to development projects where you are actually capitalizing the interest, so it's not actually hitting the P&L in interest rate hikes?

I guess, and Michael I'm just going off the -- it's probably over -- it's over half.

Yes, but then you capitalize if you weighted average cost of debt anyway?

I am sorry.

You capitalize your weighted cost to debt, right?

You are going to capitalize on whatever the cost of that debt on those profits.

[multiple speakers] The specific debt on that asset, right?

Right.

And so while that cost is being attributable to the project from a net earnings perspective, it is only really about 15% floating rate debt?

That's correct. That's about right. We'll get you -- we can get you the right numbers. It is just a calculation off the 8-K schedule.

You had said on your FFO that on Xanadu, 50% of it would go to Mills out of the box? I was trying to understand if you have more than two-thirds of the capital coming from KanAm, how do you get to 50% coming to Mills.

Well, the way I did that, if all we got were preferences paid on the capital, then you're right it would be lower. We would start off, I guess, at about a third or so. But I don't expect that to be the case. I expect there to be some residual share initially and since that initial -- that initial residual share would go in our favor, but that's basically to promote, that would increase our share of the FFO. But it may not be 50%. Jon, [sic] it may be 40%. I really don't know. I honestly haven't done that initial calculation.

What is the hurdle on the KanAm capital?

All the capital is 9%.

And then after that you go to whatever your preferences are?

After that it is the residual share, so we would get two-thirds and they would get one-third.

And then just trying to understand the language that's in the 8-K on Xanadu. The 35 to 85 additional where the Mills partners have funded 350 in the 35 to 85. That is just to get to the 1.2 billion of cost or that's for these other types of things you are talking about that may be enhancing to the project?

Well, I've added a little -- I've assumed that there's possible that we would have -- I mean that's the -- KanAm is going to come out at about 400. They'll get between 350 to 400, and that's the number you need. When I say that 35 to 85, or whatever the range was, that's what you'll need. They are going to come out to about that number I think really where ever the cost come out. But when we look at the Mills share, the Mills range is really more effected by I think the ultimate cost of the project and the financing. So when we give those ranges there isn't anticipation just to be cautious that there maybe cost above the billion two.

And the cost above the billion two would be revenue enhancing types of items?

You got it. So, it will be between 100 and 200. We could quite frankly be below 100. But we expect to be between 100 and 200 even allowing for some additional cost above the 1.2.

And what are you thinking about right now in terms of financing out the project in terms -- I see you say 60 to 70%. What is your ballpark in terms of rate?

In terms of rate? I think you're going to see hopefully that fairly much in-line with the rest of our construction loans. Michael, I think what we are hoping to do is to get a sort of an interim land loan en route to our typical construction loan and that's what we are pursuing as we speak.

Okay. And, Ken, I just wanted to follow back up on the foreseeing income. When you take those three items on the income statement, for the six months I get 14 million and you had commented about 10 or 11. Is there other things that are going on in these line items?

Yes, there's some management fee income in the attribution line.

And that would be separate from this 35 million that you are talking about?

Yes.

Okay. And -- okay, great. Thank you.

Mr. Siegel, there are no further questions at this time. Please continue the presentation with closing remarks.

I appreciate all of you joining us. And we will talk to you again next quarter.

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