西蒙地產 (SPG) 2005 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Mills Corporation's third quarter 2005 earnings conference call. [OPERATOR INSTRUCTIONS] I would now like to turn the conference over to Mr. Noam Saxonhouse, Vice President, Investor Relations. Please go ahead, sir.

Welcome to the Mills Corporation's third 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, it can give no assurance that its expectations will be obtained. And it is possible that our actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties. Those risks and uncertainties include, but are not limited to the national, regional, and local economic climate, competitive market forces, changes in market rental rates, trends in the retail industry, inability to collect rent due to the bankruptcy or insolvency of tenants or otherwise, and changes in market rates of interest. We direct you to the Company's various filings with the Security 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, 2005. This call will include statement and presentations about 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 includes, 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 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, as set forth in our supplementary information in the Company's current report on Form 8-K as furnished to the SEC September 30, 2005. This supplementary information is also available on our 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, Greg Neeb, Chief Investment Officer, and M. J. Morrow, Chief Financial Officer.

Now I'll turn the call over to Larry.

Good morning. First, I want to make a few comments and then outline what we will cover today. We know that our third quarter results are disappointing and we have a lot to explain to you.They reflect the results of some significant unexpected items, as well as a miss in core performance relative to expectations. We know and respect that trust with all of you, all of our constituencies, is critical to the success of our business and future growth. Through statements earlier this year, the postponement of our conference call, and this quarter's results clearly challenged that trust. That trust has been built on a strong foundation over the last ten years of delivering on our promises and producing strong returns, that generally meet, or exceed expectations. I am committed, and the entire Mills management team is committed to rebuilding that trust. This starts today.

We have grown over the last few years from an entrepreneurial development Company focused on essentially one product, Landmark Mills, to a diverse and complex business that operates and develops a range of retail venues on the international stage. While our external growth strategy has been successful, the Mills has clearly reached a stage where top management needs to increase its focus on forecasting and planning and enhancing our performance management, accounting, control, and reporting functions. This is underway. We need to ensure that our infrastructure can meet the demands of a business ripe with opportunity.

Now let me outline what we intend to cover today. Mark Ettenger will explain this quarter's results and then provide you with some positive steps we are taking related to the matters I just mentioned. Then Jim Dausch will update you on the progress we continue to make on our chief development and redevelopment projects. And, before we take your questions, I will come back on to discuss our outlook and commitment to the future.

Now I'd like to turn the call over to Mark Ettenger.

Before I go through the numbers, I want to provide you with an understanding of why we postponed our earnings call and describe, generally, a process we went through over the last couple of weeks. We were very disappointed about having to postpone our earnings call and delay the filing of our 8-K, but it was clearly the prudent choice, under the circumstances. As you may have already seen in our 8-K, there were a large number of, call it, atypical items impacting earnings in the third quarter and we will address each of them in detail.

During our closing process, many of these items came to light, as we reviewed projects, receivables, property performance fees, and all other components of our business. I can assure you that we undertook an extremely thorough review during our closing. Over the weekend of October 29th, we concluded that we needed additional time and information to satisfactorily complete our review and analysis of certain remaining items. Despite our best efforts to complete our internal processes by November 1st, the date of our original call, we decided to take an additional week to ensure all the items received the appropriate consideration and were incorporated in our enhanced 8-K disclosure.

As you might imagine, it was a very difficult week for us. But more importantly, we want to apologize for the confusion it has caused for all of you. Some have asked why the press relief -- release was so brief. Frankly, given the number of items and the issues that had not been resolved by Monday, October 31st, when we postponed our earnings call, we determined that to provide partial information in a press release or a call would be imprudent and would ultimately only heighten confusion. We expected to be criticized for this, but continue to believe it was the appropriate decision under the circumstances.

As we have now filed our 8-K, let's go to the numbers where I'll start with NOI. Our reported comparable property NOI for the quarter declined by 5.2% from last year's third quarter. NOI was negatively impacted by a quarter-over-quarter increase in bad debt expense of $4.1 million, largely attributable to two factors. First, 3.1 million of the 4.1 was the result of a straight-line rent receivable writeoff from a single tenant. This writeoff is related to the assumption and modification of leases on several skate part -- skate parks by a new operator. Second our allowance for doubtful accounts increased by $1 million.

Additional factors, reducing comparable property NOI in the quarter, which will be of particular interest to investors who focus on a -- on a cash concept of NOI, include a $400,000r decline in FAS 141 income, and a $2.1 million decline in straight-line rents. Neither of these items were expected to be this large. Lastly, our net operating expense recoveries from tenants were down on a net basis by over $1.8 million in the quarter. The decline was attributable to a revision of our estimated 2004 year-end billings, as the actual billings were completed and charging the difference to earnings in the third quarter of 2005. Estimating revised recoveries is a common phenomenon in the mall business, and the size of the adjustment relative to the overall estimate was not significant.

None of the adjustments described above, decline in noncash rents, the additional bad debt reserves, or the 2004 operating expense recovery true-up, was contemplated in our original guidance for the year. The sum of the adjustments for bad debt, straight-line rents and FAS 141 and true-up of recoveries reduced third quarter 2005 NOI by about 7% from the third quarter, 2004. So, in other words, if you want to reconcile this, NOI would have been up 2.5% but for these items. It should be noted that our lease cancel fees at comparable properties were down $3.8 million for the nine months ended September 30, 2005, below expectations for the third quarter. While some are predictable on an annual basis, based on historical averages, these cancellation fees will be quite lumpy quarter-to-quarter.

For the nine months ended September 30, 2005, reported comparable property NOI declined by 1.4%. The adjustments I described for noncash minimum rent items, additional bad debt reserves, the 2004 operating expense true-up, as well as lower -- lower termination fees impacted NOI growth over the nine months by approximately five percentage points. In other words, excepting these items and just to help reconcile the numbers, NOI would have been up 3% year-to-date throughout September 30th.

For the fourth quarter, we are now expecting approximately 1% NOI growth. Many factors weigh into this, including our current estimate of lease cancellation fees, percentage rents, and a myriad of other factors. The difference in our guidance of four to 5% NOI growth that we've discussed previously versus the 3% I just mentioned relative to year-to-date growth having reconciled at those factors, is due to many items, including our full-year expectations for minimum rent growth, lease termination fees, and our [inaudible] push cart and kiosk business. Both lease termination fees and revenues from push carts and kiosks are variable on a year-to- year basis, and push carts and kiosks are usually strong performers for us. This year it appears that both items will come in below expectations.

Moving to FFO, for the quarter, we reported FFO per diluted share of $0.45 versus $0.97 in the same period in 2004. I want to highlight the most significant sources of the negative variance. The decrease in straight-line rents, which I mentioned above, impacted both comp and noncomp properties and reduced FFO per share for the quarter by $0.03. The increase in the allowance for doubtful accounts at both comp and noncomp properties reduced FFO per share by $0.10. The quarter's results also include an allowance against a note receivable from a tenant, which reduced FFO by $0.07 per share. The decrease in net recoveries, due to the revised estimate discussed above, have properties owned in both periods negatively impacted FFO in the third quarter of '05 by $0.03 per diluted share.

This quarter's results were also negatively impacted by $0.14 of writeoffs related to two potential development projects, one in Tampa and one in Florence Italy. After a thorough review of each project, it was decided it was not likely that these projects would be completed. We also took a $0.01 per share impairment charge in connection with the impact of hurricane Katrina on the Esplanade, our mall in suburban New Orleans. Additionally, our original budget for the year assumed we would have recognized fees of about $0.08 per share in this quarter. While we'll still receive the same level of cash for our development and leasing services, our earnings for GAAP and FFO purposes will be lower.

These adjustments explain $0.47 of the variance between our results and our own internal expectation for the quarter, which were not far from consensus numbers. This leaves about $0.14 of variance, which was due to lower than expected NOI growth and land sale gains, and higher than expected interest expense. Understanding this $0.14 is complicated, but let me give you some directional insight. As noted earlier, and just for reconciliation purposes, NOI growth for the quarter after adjusting for the items we've already touched on, would have been about 2.5%. This is about 4.5% below the NOI growth for the 7% we had anticipated for the quarter. This shortfall in NOI explains roughly $0.07 of the variance.

Our budget also assumed we could book between $0.03 and $0.04 per share of land sales in the third quarter, which did not occur. The movement in short-term rates during the quarter caused interest expense to rise, creating a negative variance to our expectation of about $0.02 to $0.03. Those factors explain most of the $0.14.

I would like now to address our full-year guidance in light of this quarter by reconciling back to our original guidance of $4.35 of FFO per share. Obviously, certain elements I've just described will lower our previance -- previous full-year guidance. These include the $0.47 of adjustments that were mentioned for the third quarter, as well as the lower than expected NOI and higher than expected interest expense, in the third quarter, which totaled $0.09 to $0.10 per share.

As we described above, NOI is expected to be up 1% in the fourth quarter versus our original expectations for 7% growth. We anticipate that this delta will lower FFO in Q4 by $0.10 per share versus our original forecast. The negative variance, due to higher short-term rates in the third quarter, will continue into the fourth quarter, further reducing our FFO per share by another $0.02 to $0.03

Finally, as our business continues to grow, our G&A continues to rise, and we are anticipating G&A will come in above our forecast for the fourth quarter, creating an additional $0.06 variance to our expected FFO per share. The net result is lower guidance by $0.70 to $0.80 per share, generating $3.55 to $3.65 per share ,with approximately $0.47 of, call it, atypical-type items.

While what I've described is obviously disappointing, I want to point out some improvements we've made in our 8-K in response to investors' requests for information. In addition to disclosing our share of straight line-rents, land sales, termination fees, FAS 141, 142 income, we've also added a schedule that shows our net development, leasing, and financing fees. This will allow investors to track our fee account relative to our guidance. We have also provided a year-to-date pro rata share income statement that shows our pro rata share of every line of the income statement. Investors now have significantly more information to analyze our results than previously.

With the new pro rata income statements, those analysts prefer to study the whole business on a proportionate share basis can do that, as well. Even with our expanded disclosure, we do recognize that the Mills is a difficult Company to model. Not only are we growing rapidly and expanding internationally, but in our attempt to access the most advantageous capital, our structure includes numerous joint ventures with varying terms, convertible preferred securities, et cetera. All of these factors contributed to the complexity of our financial statements. We are dedicated to working with the analyst community to ensure that investors receive the quality of information they need to evaluate our results, and that our transparency is enhanced.

We will continue to spend the human and capital resources to enhance our systems and address our control deficiencies, so that our infrastructure can be brought in line with the size of our existing business, as well as be prepared for the growth Mills will likely experience. In particular, we must improve our forecasting and performance management systems so that we can proactively manage and measure our core performance. I can promise you that Larry and I, along with senior management, are focused on this issue. We are committed to improved execution and discipline through all aspects of our business. Jim?

Thanks, Mark. Excuse me as I move the microphone. I'd like to give you a summary review of our development and redevelopment pipeline. In December of this year, notwithstanding hurricane Wilma, we expect the first of the stores in the [Colinated] Sawgrass to open. The pace of this opening has been somewhat affected by the damage, the power outages, and the diversion of public and private resources to hurricane relief and repair. Nevertheless, some of the stores had made a good deal of progress before the hurricane struck and survived without major damage, including a new Neiman Marcus Last Call, a new Crate and Barrel outlet, plus high-end outlet stores like Barneys and Burberry's. Some of these stores, plus a new Grand Lock's Cafe have the opportunity to be open before the holidays, and intend to make the try. They'll be joined, either then or in January by the balance of the 110,000 square feet of upscale outlet store, including Cole Haan, Farragamo, David Yurman, Escada, St. John's, Hugo Boss, Valentino, Kate Spade and others.

Now let's talk a little about Meadowlands Xanadu, which recently completed its seventh month of uninterrupted construction. The first parking deck of this project is now complete and fully operational, and we're now able to complete pile driving for the entertainment retail center, which pile driving is already 60 to 95% in other parts of the site. You'll see the seal coming up in December. The project remains on schedule for a fall, two seven -- 2007 opening, a little more than two years from now, and within the general costs and revenue parameters we gave last time around.

At that time, I reviewed with you the costs of the projects as they then stood, and the issues we were addressing that could affect the overall economics of the project. One of those is the snow dome, and I'd like to give you an update. We're in the midst of an extensive value engineering exercise on this, one of the main anchors of our entertainment line-up, and I can report some progress on that front. We're also working on improvements to the revenue side of the snow dome, especially the 70,000 square feet of leasable so-called warm-side restaurant, bar, and retail space included within this facility. We still have more work to do on this element of the project before we can state costs and revenues for you to rely on. But there is progress and, of course, we haven't started construction on the snow dome yet and won't be ready to do so until the middle of next year, at the earliest.

Most of the other still pending costs are in the sponsorship and thematic partnership programs. In these programs, we've clearly made progress in driving the initial deals, and there continues to be real interest among the many remaining prospects. We're still relatively early in making cost commitments and cost projections. And this is important to keep in mind, the revenue deal drives what costs we'll invest in terms of signage and other stuff that is hung-on or attached to the building. Our plan gives us the flexibility to tailor the costs to the deals as they are coming along, and to maintain an acceptable revenue-to-cost ratio. Our plan also gives us the flexibility to venture part or all of this program with a third-party provider and to substantially reduce our costs, while still maintaining some share of the revenue and the upside. We'll update you in coming quarters on how this goes.

You may have read in the New York area press about the September agreement between ourselves and the New York football Giants, related to the proposed construction of a brand-new state-of-the-art football stadium at the Meadowlands. This agreement requires a dismissal of the Giants' pending litigation, and permits them to build a new stadium plus some ancillary facilities outside the stadium. We agree to pay the Giants $15 million when they finalize their agreements with the state for the new stadium and when they receive all their permits. This will be the only payment to any of the teams, and there is no longer any agreement with respect to a 10% carried interest by the team in Xanadu, as had been the arrangement with the Giants at the time of the 2002 competition and thereafter. Most importantly, there are no restrictions on game day operations by Xanadu, none at all. Finally, on the litigation front at the Meadowlands, earlier this month the federal court in Newark dismissed the challenge filed by Harts to our Army Corps permits.

We have two other projects in construction currently, and both of these are redevelopment projects. First, Galamo Fashion Center, the new entertainment wing anchored by state-of-the-art AMC theater, is in construction and on schedule for an opening next year. There are terrific merchants committed to this wing; Urban Outfitters, Anthropology, Aveda, Ann Taylor Loft, Levis, Eddie Bauer, a flagship Bath and Body Works, as well as restaurants like Left Bank, Ra Sushi, P.F. Chang's, Lazy Dog, Jerry's Deli and now, Morton's.

Next the shops at Riverside Square. The expansion of this center, involving the expansion of the Bloomingdale's store and the addition of 150,000 square feet of new small store and restaurant space, is now in construction following the completion of our entitlement proceedings in August, since our last call. We expect the new Bloomingdale's Home Store to open next summer, and the first new high-end tenant spaces to open late next fall. We now have five projects in the preconstruction phase, which have cost, to date, in excess of $10 million each. These projects are: 108 North State Street in Chicago;, the Potomac Town Center in Woodbridge, Virginia; the Piers in San Francisco; the Mills project in Tewkesbury, Massachusetts; and the Mercati Generali project in Rome. I'd like to give a quick summary of each one.

First, about to start construction, our ground breaking will take place next week, is 108 North State Street in Chicago. This mixed-use project is located downtown, directly across from the Marshall Field's flagship store and Daly Plaza. The overall project is anticipated to have retail, office, residential, and hotel components, all built over a state-of-the-art Chicago Transit Authority mass transit station. The retail component will consist of 265,000 square feet of GLA in fashion, restaurant, and entertainment uses, and the office component will be anchored by 100,000 square-foot CBS mid-west broadcasting headquarters. We've also signed a letter of intent with Morningstar to tenant an additional 190,000 square feet of office space above CBS, and are actively working on a lease document, which we expect to close in December of this year. The residential and hotel components will be developed by others later. The CBS facility and the retail are expected to open in the fall of 2007, and the Morningstar office facility in spring, 2008.

Potomac Town Center in Woodbridge, Virginia, is a mixed-use project, anchored by Hechts and Wegman's. It should complete its entitlements by very early next year, and should be in the ground by mid-year 2006 for a fall, 2007 opening. We are developing this center in a partnership with Lerner.

The Tewkesbury Mills project, located along Route 93 in North Boston, has cleared its local entitlements and is in the process of state and federal approvals. With the support of the local communities, the Commonwealth of Massachusetts, and of Senator Ted Kennedy and Congressman Marty Meehan, federal funding is committed for the new interchange to service this project, as well as three large local employers. This project should open in late 2008 or early 2009.

Now let me say a word about the situation at the Piers in San Francisco. As you may remember, we won the right to develop this project in a competition in 2001. The award was from the Port of San Francisco, a semi-autonomous city agency. Since the award, we've made very substantial progress on this project. We received site plan and design approvals by the Port of San Francisco and the State Lands Commission. We have concluded a financial deal with the Port, which received approval by the Port Commission. We have an agreement-in-principle with the YMCA for its facility to be located on the project site. We've defined and received approval for the design of this historic restoration work necessary to receive the historic tax credits that are part of the program. And we're very far along in the EIR process, all the while maintaining overwhelming public support for the project, 65% city-wide in a poll taken just four weeks ago.

But three weeks ago, a member of the Board of Supervisors, who has opposed the project from the days of the competition and claiming inaccurately that the Mills and the YMCA couldn't develop the proposed Y facility that's a part of the project, attempted to use a recently-passed city ordinance to call a snap vote by the Board of Supervisors, on all of three days notice, to find that our project wouldn't comply with this ordinance. Quite apart from the serious legal issues relating to due process that this tactic raised, there's now a city attorney opinion that says this ordinance can't be used to prevent the Port of San Francisco from continuing our environ -- our environmental permit process and our ground lease project. With this kind of progress and public support, if necessary, the project can be legally revetted with the voters at a referendum next June, and kept on our development schedule.

Finally, there is Mercati Generali in Rome. We were awarded the concession to redevelop this landmark market complex by the city of Rome earlier this year. Pre-construction work has already begun in conjunction with the city, with an ordinance survey complete and geologic and archaeological surveys and excavations underway. Design of the project is proceeding and we and the city must follow a two-stage design approval process that should conclude next year around this time, when full-scale construction would then begin, allowing a late fall, 2008 opening. On the legal front, one of the two parties who challenged the award of the concession has now withdrawn the challenge and, unless settled earlier, the other challenge will be decided by the Italian courts in the first quarter of next year.

In other international development, new site work will commence before year-end on our 150,000 square foot tower center, adjacent to Madrid Xanadu, with the execution of an anchor lease by [Brickermann], a Home Depot-type store. We expect building construction will begin next summer for an opening in the following year.

That concluding my remarks, and I'll turn the microphone back.

Thanks, Jim. Today's results, while disappointing, [inaudible] the high-quality of our assets and the strength of our growth program. While we take very seriously the impact of this quarter's results, I am confident the changes we are making, coupled with our capable management team, high quality assets, and strong development pipeline, will drive us successfully forward. I am upbeat about the prospects for the Company and its investors for several reasons.

First, while we have added significantly to the size of our portfolio, we have also boosted the quality of our assets. As I've said before, we have a consistently strong set of properties. As Mark mentioned, sales at our U.S. centers have increased from $325 per square foot in 2003 to $382 per square foot today, and comp sales are growing at 5% annually.

Our growth program remains intact. We have identified in our 8-K $2.8 billion in development and redevelopment projects through 2008. Domestically, five major projects already are under construction or about to commence construction. Meadowlands Xanadu has been in construction since March, and is scheduled to open in late 2007. 108 North State Street, we expect to take possession of the land parcel this week, and break ground next week. The Phase One expansion of Galamo Fashion Center is under construction, which includes the 400,000 square foot open-air lifestyle wing, expected to open during the summer of 2006. The $114 million expansion at the Shops at Riverside, which is under construction and expected to open in late 2006, and $108 million expansion to Stoneridge Shopping Center is planned to start in mid-2006.

About six years ago, we began laying the groundwork for our international growth strategy. To date, we have developed or acquired three projects in three different countries, Spain, the UK, and Canada. These properties, and the international management team we have assembled, form a foundation for additional growth. The most immediate opportunity is Mercati Generali in Rome, where pre-development is well underway. We are actively pursuing several sights Ivanhoe Cambridge in Canada that look very promising, and we hope to piggyback on Vaughan Mills' success with more productive centers in Canada. Our international business remains an important avenue for future growth.

To sum up, while we experienced a very difficult quarter from an earnings perspective, I'm optimistic about the future. We have lots of work to do and are taking important steps, as Mark described, to ensure we have the right infrastructure in place. Our assets are of high quality, our growth prospects are strong, our team is committed. We are dedicated to rebuilding your trust and driving an entrepreneurial, professional, and increasingly disciplined Company. Now we will take your questions.

[OPERATOR INSTRUCTIONS] The first question comes from the line of Michael Bilerman, Citigroup. Please go ahead, sir.

Hi, good morning. It's John Litt here with Michael Bilerman. Mark, some questions on the core. You went through some of the one-time stuff, but I'd like to focus a little bit on the core. You said that the -- that you had an expectation for NOI in the third quarter of -- I think you said 7%. It would have been up 2.7, if you took out some of these one-time items. I think you said that, for the fourth quarter, part of the reason for reducing the numbers, about $0.10, was related to NOI. I'm trying to get a sense of what's going on at a core level when you strip out some of this one-time stuff that's causing the core NOI to come up light?

The numbers you said, John, are exactly right. It's a lot of complicated factors, as I mentioned. Minimum rent growth is slower than we expected. Lease cancellation fees are down. There's no simple single answer.

I think thats fair. I think our lease cancellation fees, which there are deals that we're working on that actually can improve what we expect to get, but I think it's very prudent to put the numbers in the forecast we did. I think our lease cancellation fees, based on the numbers we've given you are actually down $2.5 or $3 million. Mark mentioned some of the things in the call, along with the land. But I think there's also some. you're going to see from higher -- you're going to see some higher legal costs, if we really go to clean up some of the receivables, talk about the reserves; We want to really go, be very aggressive about our collections. So, I think you're going to see some of that coming in. I think you'll also see we've provided allowance to do some promotional spending, to really promote the projects in the fourth quarter. You'll see some of that coming through. I don't think, John, it's any one big thing. I think it's a number of little things. I think, hopefully, we'll have good results next year, as these things start to turn around.

But is it -- this is Michael speaking. How much of it is in the Mills assets versus whether it be more in the traditional malls or the GM portfolio? It looks like it's concentrated into your Mills assets.

I don't know that it's concentrated into our Mills assets. The GM is not part of the analysis that we give you. That's not in our comp center growth. I wouldn't say it's focused necessarily on the Mills.

I think if you look at the comp pool, you'll see that the Cadillac assets are in there and other assets that also have an effect.

Do you think the weakness at the core is kind of broad based through the Mills and traditional assets?

It depends. I think we're talking, John, here about sort of reconciliation of our sort of views for estimates versus where we're coming in, and you're talking about a couple points or so of NOI growth that we're explaining on a full year.

Right.

And I think -- so if you look at that and the detail of that, there's certain elements of these things that are in both sets of properties, but in the comparable, there is a higher proportion of Mills assets.

I think when we talk about weakness, if we take out some of the adjustments that Mark went through, we detailed out in our press release, we're still in the 2.5, 3% expected range for the year. Actually not so bad. What we're trying to reconcile is the number that we gave you that it would be higher than that. We had very lofty expectations of growth in the core portfolio. We just -- obviously we didn't hit that, but the numbers are still in a reasonable range, in a historical range of what we've been achieving over the last several years, after making the adjustments.

In your development schedules, historically you've pointed out assets that you're looking to do. But Tampa was new to us, as was Florence, and Boston hasn't been on your schedule. I guess one of the concerns is we don't even know they exist and then we're getting writeoffs for it. How can you give us some help in understanding what's out there that could potentially come up? And when do you see fit to put them on the development schedule?

Let me just start, Larry, a little bit. I think if you look back, maybe we could increase this disclosure, John, and I think we're -- that's what we're trying to do as we go forward. I look back on the June 8-K and we do know Tampa and we know Boston, but do we -- can we extend that disclosure or talk on the call or in the 8-K? Those are conversations we're having.

And also, John, I think, as you know, as we look at any of these things, we're trying to do things that propel a Company forward in a positive manner. I mean, the Tampa, looking for a site in Tampa for a project is one of the strategies, is based on Sawgrass' success. I mean that's one of the best properties in the United States. It performs exceptionally well, and we think another tourist-based market in Florida is appropriate to be looking at for something. It was hard to find the appropriate site there. We did find one. It was on the north side. It was -- there's a lot of other development that went on up there, and it just became cost prohibitive just over the last couple of months. Oh that did make sense.

In Europe, we've been working there for six years, and Jim has mentioned [Osmanora] before, which is the site in Florence. We worked on that. We would have loved to have done that project. It's a great market. It's an under-retailed market in Italy, even for Italy. And it was just a matter of not being able to work out the appropriate layout to have that thing work correctly because of the zoning that was in place, and the way it made us kind of position the footprint of the buildings. And we've been working on trying to resolve that with the municipality. We had some positive discussions about that, and then that kind of turned around on us.

That's helpful feedback. Maybe the idea is, if you look at your supplemental, you have $705 million in construction in progress. I assume part of the cost for Tampa and Florence were included in CIP last quarter. So maybe breaking that out so that the financial community is aware of where potential issues may fall would be helpful for us to get our arms around what potential writeoffs may come down the road?

Hopefully you've seen, Michael, that this is where we've been headed with our schedule. We have the potential new development schedule, which we've recently added on top of the under construction schedule and the redevelopment analysis. And we've also -- we can expand the opportunities. We talk about the markets and locations without being specific into some of the dollars in certain markets like Tampa or like Boston, which we noted but maybe didn't give all the detail of the dollars in.

And we have included in our 10-K also the summary of the larger projects and the total costs associated with them.

Right.

But we could perhaps clarify.

And Michael, Jim expanded his discussion in that area, as well.

That's cool. My only other question was related to the HLBB and the consolidated share of FFO. You've seen that rise 55% to 63%, and in this quarter it was 75. Can you just help us understand what the -- I guess the seasonality as you have the cash flows increasing, how should we think about that into the fourth quarter and the effect into 2006?

We certainly, as we said early in the year, do expect seasonality as cash distributions increase towards the latter part of the year, that you will see on average those numbers go up. However, I don't think you're going to see them continue to grow beyond where they were in this quarter. I think you will see, on average, that they should settle in around the 60 to 65%, but with quarterly variations throughout the year.

Just to add, in our forecast, I think we're between 50 and 65% for the fourth quarter, more consistent with where we were through the first nine months. It is possible again, because of the way it works, depending upon what the cash distributions are, it is certainly possible that that would increase. We talked about in earlier calls that we did expect it to go up in the last half of the year, so apparently it did. Obviously it did.

Right.

And I agree with M.J. We wouldn't expect it to continue, but it is possible that we'll have a high balance for the fourth quarter. Again, in our reforecast, we put in somewhere between 60 and 65%. That's the number that we're giving you.

It actually on a nine month -- when you look at -- you aggregate the nine months or the year, you know, and you look at the product, it very much hovers around that 60% number. It was 60%, including all of the assets with HLBB calculations. It was 60% in last year for nine months and it's 61% then for nine months of this year.

Okay, thank you.

The next question comes from the line of Lou Taylor, Deutsche Bank. Please go ahead, sir.

Yes, thanks. Could we just move to the next item in the run rate, and that's the G&A, the extra $0.06 in Q4. Can you talk about what that consists of?

There are a variety of items in that. We had some additional accounting consulting costs in there. We have increased our staffing internationally to meet our pipeline. We've got a new general counsel. I'm not sure that will long-term be a runrate as we achieve efficiencies in our systems, but we do have some added costs this coming quarter.

Could you now -- or next, just talk about the C recognition that impacted the third quarter by $0.08. You collected the cash but you didn't rose it from a GAAP perspective. What are the dynamics that caused that $0.08 variance?

I think the way we recognized C income is on a percentage of completion of the activities. And that, from a GAAP standpoint, we have looked at our methodology, and we had anticipated adjusting our fee recognition for changes in certain capital structures and have since determined that we will not do that, and that we will only change our estimates based on the actual dollars of cash revenue and the actual internal costs incurred and so, it is just basically a change that will, on an ongoing basis, reduce the level of C recognized for GAAP income purpose,s but does not change the actual cash received or the actual cost incurred. It really goes to the elimination percentage between us and our partners.

You should also add that it is not -- that the [inaudible] is not a reversal of these recognized [multiple speakers] by any means. We really feel it was, in effect, an acceleration of the recognition of these, if you will, and, Lou, that's not something we could do for third quarter.

Right. So, to summarize here, you're now going to recognize fees when paid as opposed to percentage of completion?

No. We will continue to recognize these on a percentage of completion. What Ken was saying, in our guidance, never in our actual numbers, we had anticipated an ability to increase the portion of the fee we recognized on certain ventures, based on lowering the elimination percentage, our ownership percentage. We are no longer going to do that and are going to maintain the elimination percentage based on the original capital structure of the ventures and, therefore, will have lower GAAP fee income recognition. But it really doesn't change the cash that the Company receives nor the expenses that the Company incurs to earn those fees.

So, as an example, we expected that for one of our partners to fund more of their originally anticipated share of a partners capital contribution, we thought that that would result in a higher fee -- in effect, a higher fee portion coming to us. Either we do have those results or we expect the partner's capital to be higher than the original anticipated pro rata part of the partnerships. We are not [inaudible] aspect.

Last question just pertains to the note receivable writeoff and the bad debt -- bad debt writeoff. Were they related to the same operators or parties?

No.

Then I guess what drove the no receivable writeoff then?

The no receivable was an investment -- effectively it was structured as an investment in a partnership. You can think of it as a tenant allowance. That's not the way it was structured. It was an investment in a partnership in the form after note. Unfortunately, when you have a note, not a tenant allowance, it's subject to a different test. It's subject to a collectability test, which means that you have to go out and determine that you can, you feel very comfortable and actually receive the proceeds of those notes back. It is obviously a very different way of looking at it, as opposed to a tenant allowance. We just simply came to the conclusion, based on this tenants performance, that that note receivable -- \we didn't feel comfortable enough for that note -- the establishment of that note would be, in fact, collected, so we decided to write it off in the third quarter.

Okay, so this is a partnership with a tenant who operates some space?

It's not a part -- it's not really a partnership. It's just -- it's an investment that was done in the form of a note receivable to a tenant, and it is no longer deemed collectible.

Is the tenant still operating or is the tenant out or --

The tenant is actually still operating.

Okay. But you're recognizing the rent from the tenant but not the note or income from the note?

Yes. All aspects of the lease, otherwise, will be respected, but we -- again, we concluded -- this is obviously not what you do with tenant allowances, but when you have to form a note, this is what you've got to do. It's not collectible. We just don't feel it's collectible. We need to write it off and that's what we did.

That's our best judgment at this time.

Even though the tenant is still in the space.

Okay. Thank you.

The next question comes from the line of Ross Nussbaum of Bank of America Securities. Please go ahead, sir.

Hey, guys. Good morning. Couple questions. First is the expense recovery rate for the quarter was obviously impacted by the true-up that you took for last year, but going forward what can we expect for a recovery rate? I know historically it's been over 100%. Is that not going to hold going forward?

I think recovery rates have come down some across our portfolio given just the changes in the business where we are doing certain deals as gross deals or --

caps.

Or there are caps on [inaudible] throughout the portfolio, so I think you will see an overall decline in the recovery percentage from historical highs in excess of 100%, but I don't think it will be as dramatic as it appears in this quarter.

Also, because of the promotional has made it into the recoveries. [multiple speakers] That probably will have some -- I'm not sure. It also creates some volatility.

The promotional side.

Correct.

Okay.

Quarter-to-quarter.

A follow-up question on Lou's questioning on the note receivable. Two questions. One, can you tell us who the tenant is? And, two, why was it structured this way to begin with? It sounds like, if it was just a tenant improvement, why not just account for it like every other TI?

It was actually inventory that was bought out of bankruptcy, and then the note was -- I guess we assigned it to an operator. The way that this tenant was -- the way we originally got in the relationship with the tenant was a little bit different. But because we had to go in to another tenant and buy the assets out of bankruptcy -- I hope I'm getting this right. We bought the note, bought the [inaudible] of bankruptcy. We assigned the asse -- or assigned note, I guess, to the tenant. And that's how -- so it started that way. That was a little atypical from our formal -- obviously the way we would --

Ross, it's Mark. A simple way to think about it is we bought a tenant out of bankruptcy. We then sold the tenant -- financing, is a simple way to think about it.

Are you prepared to tell us who the tenant is?

It's a furniture provider.

A furniture provider?

Yes.

Furniture store. Retailer.

The next question, this is a follow-up to John's question to John's question. I'm trying to get a sense of -- you're guiding us down roughly $0.10 in NOI in the fourth quarter. There was roughly that magnitude of an impact in the third quarter. We're talking about $0.40 of NOI on a full year basis going away. That's 10% of our FFO estimates. And I'm just trying to reconcile the fact that occupancy looked okay. Rent spreads looked okay. It's just hard to figure out where it came from. I guess explaining to us that it's complicated doesn't give me too much comfort in figuring out where it all went.

Ross, just a second. On your math, I'm not sure if I understand what you're doing. But the two variances that we're talking about -- we said $0.07 and $0.10 -- those are for the third and the fourth quarter. That's sort of a falling out of the entire year into that quarter. What your view of next year's growth is going to be, we're in the two -- two and a half range, sort of adjusted. We haven't given guidance as to what our NOI will be next year. I'm not sure that the math that you're doing imputing the -- if I got it right, the sort of that runrate every quarter is what we are suggesting for next year. We haven't give given that guidance.

So when you say that there's roughly a $0.10 hit to fourth quarter '05 from lower than expected NOI, so you're not suggesting that we use that as a runrate into 2006?

Let me -- let me -- I mean, you've got to realize that -- that's correct. Because the second half of our year was more heavily weighted for higher NOI growth, so when you look at the full balance of the year, the delta that we are explaining there is, in order to get to our 4 to 5%, you had a number. We have -- Mark said we would be 1%, for instance, in the fourth quarter. In order to get to the four to 5% for the year, you're talking about a 6% delta there, because -- and that piece, we're not suggesting that you have a 6% delta every quarter as a runrate going out into next year. That's just the dynamics of this year.

And the quarter NOI is larger. I don't think that's what we're saying.

That's helpful. On 108 North State Street, the cost obviously escalated because you're now including the office building in there. What prompted the decision to -- for Mills to own the building going forward rather than selling off that piece? And can you just refresh us on the economics of that development? What kind of a yield are you expecting now and how much office space do you still have to lease there?

How much office space we have left to lease? The project -- we had been out considering having a developer do the entire office portion. Where we are in that analysis, as everyone knows, we have both CBS and Morningstar. Morningstar is a letter of intent. With that announcement, we felt that the stability of the project -- we were satisfied that we would take on the construction of the project. Jim can elaborate on the analysis we've done and the costing of that, and our satisfaction with the returns that we'll earn on the entire project. Needless to say, the overall project with the office component, meets our return requirements.

That's correct. I mean, the project's been scrubbed incrementally, from the retail point of view first, then adding the CBS facility in it, which were the two -- those are two were the basic two requirements of our deal with the city. When the Morningstar opportunity came along for them to take a big slug of space above the CBS thing, it was also analyzed incrementally, and the decision was made, because it did meet our yield requirements and because we could feel relatively comfortable with the costs, to go ahead and take that on, assuming that the Morningstar deal were closed by the end of this year. If it were not to do so, the cost would then come down. We'd still have our project, because we're not required to do that additional increment and we would have the CBS facility, which essentially occupies all of the space in that building, as well as our retail projects, with the opportunity to do the residential and the hotel later on with other people.

And you should understand, Ross, that we had office developers interested after -- especially after the CBS commitment to take over the development of that office building, and we talked to them. And then, in the middle of the process working with the city, the mayor wanted to have more verticality in the project than just CBS. And at that point, we really didn't want to take the risk of necessarily building a lot of spec space. And because of the luster of having CBS there, and the great location that it occupies in the city, we were very lucky to have 190,000 square foot Morningstar commitment, which nobody would know about right now, if the CEO of Morningstar hadn't sent out a press release announ -- announcing it. But with both of those tenants in place, we felt comfortable with the specs and everything else and having a building with very little -- how much spec space is left in the building?

Two floors.

A couple of floors. About 50,000 square feet, so not a lot. And we've had interest in that space also, because of the two users that we have. We decided, because of the yield enhancement and because, also, the value creation and the caprate that this was going to provide that it was -- and also the fact that we're in the process of bringing in a joint venture partner into the project. It was -- it was the right thing for us to do. But we're not in the office business, and if this had been a speculative situation, we would not have come close to it. You know, it's better to be lucky than good sometimes, and we got very lucky with CBS. And then we got doubly lucky with Morningstar, and that's why we decided to do it ourselves.

Thanks, guys.

The next question comes from the line of Michael Mueller at J.P. Morgan. Please go ahead, sir.

Given the change in '05 guidance, given how you're changing what looks to be the fee income recognition, what's happening with NOI and G&A, I really think you guys need to at least address the '06 consensus estimate out there. I think the people are really going to look forward to '06 as opposed to '05 here. And the Street is sitting there at 480. It looks like a lot of the $0.47 -- or portion of the $0.47 items may not just be one-time in nature. Plus you talked about other runrates going up. Can you give us any sort of initial color as to what you're thinking for '06 relative to where the Street is right now?

It's Mark. During this call, no, we're not prepared to provide '06 guidance. We're in the middle of our budgeting process for '06 right now, and we want to wrap that up before we give guidance. We typically do that in February. We can try to do something sooner, but we've got to wrap up our basic budgeting process. And I think it's obviously incumbent on us to be as accurate as possible, given the circumstances of this quarter, and we're just not ready to do that now.

And we understand, Michael, your request and we usually do give guidance at our first quarter conference call for the year. We do promise that we will try. And I underline try to get it out earlier, given the circumstances of this. But we are in the process of finalizing the budget.

We're doing it right now, Mike.

We're doing it right now. And we will get it out to all of you as soon as we possibly can.

Okay. I appreciate that. But, I mean, is it your sense when you look at the 480 number that it is within the realm of possibility, or it's just not anymore?

Again, I don't think we should be commenting on that right now. Like I said, we're going to try and get our guidance out quicker than usual, as soon as possible, to give you guys some comfort on what next year is going to be. It would be imprudent for us right now to comment on that until -- especially given this quarter, with all of -- with all of -- you know, with what is left to be done, and we want to be able to look at it and scrub it and have everybody look at it and not shoot from the hip in any way, shape, or form, and make sure it's very accurate before we disclose it.

One other question. Wondering -- you touched on some of this -- can you give us what the expectation is now for Q4 or full-year G&A, lease term, development fees, land sales, some of the items that just tend to be moving parts from quarter-to-quarter?

Yes. We -- this is Ken. I think our land sales are going to be the at higher end of what we had predicted earlier in the year, which should be around $20 million. There is opportunity, as there always is, for that number to go up, but that will be close to guidance. Development fees we expecting to be $18 million. We -- definitely we have a whole lot to go in the fourth quarter. I think we recognize most of that. There's opportunity there, too, but that's the number that we have. That's a number we're comfortable with. That's our best guesstimate at this point in time. The G& A given the six point trend set that Mark talked about, is obviously going to be a higher number than what we had anticipated. As previously forecast. That's going to be something that could be as high as $60 million for the year.

That's right.

You know, there's going to be just a lot of cost coming through in that fourth quarter, and Mark's dealing with all this stuff that we're going through, and that's going to be a higher number for the year.

Michael, we've tried to look at these factors, and there's different things that Ken described, and probability weight some of these things to come up with our estimate of where we're going to be and come up with a mid-point in that estimate. There's a range because there's things that can go both ways. We've probability weighted that as best we can.

Okay, I don't want to hog the call but one last question relating to Q4 NOI. How much of the dropoff that you're looking at -- you mentioned carts and kiosks coming in lower. How much of the NOI dropoff would you say is related to recovery, something that may be sticky going forward, versus the one-time seasonal items that just happen to be coming in lower this year?

I think the major -- I think we talked about what's really impacting the recoveries. They have come down as M. J. has said. I don't think that they're going to come down materially going forward. I think what happened this year from last year is, yes, we did have an actual drop in the recovery, but also we had the adjustment from last year -- the adjustment to last year's estimate that impacted this year. I don't know if the runrate and recovery is -- we would expect to get worse. I wouldn't think that at all.

As a promo.

Okay. Thank you.

The next question comes from the line of David Fick, Legg Mason. Please go ahead, sir.

Good afternoon. Did I hear you say, Greg, that you're assuming a 2.5% NOI growth in '06?

No. That's not what I said. I was trying to make sure that the analysis that's in the fourth quarter, which has a 6% variance to our forecast, that you want to be careful about it. If you just take that 6% variance and forecast it out for all -- every quarter of next year.

I understand that. Your same-store NOI growth for the fourth quarter, what would that figure be after lease termination fees?

I'm sorry. What would it be if we backed out lease terms? In comparable periods?

yes, for the fourth quarter projection.

We have pretty modest lease termination fees at the moment into our fourth quarter projection. I can get you the exact number but if you will give me a second. If you have another question, I'll come back to that.

Whatever it is, Greg will look for it -- the lease termination fees for the year expect to be down three and a half, three million, something like that.

Don't worry about it, we'll see you Friday. For Jim a couple questions. Is there an additional anchor at the Meadowlands this quarter? You had 13 versus 12 last quarter.

Not that I know of, David. I'll look at that. And when we see you on Friday, we can go through it. I think we -- if you exclude the snow dome and if you exclude the -- if you exclude the snow dome and you exclude the department store, you've got 80, 88% of your anchors in the project either signed or letters of intent signed and being finished. But I'll look and see this one it is.

David, it may have been simply the split of an uncommitted anchor space, which originally was a two-story space into two smaller one-story anchors.

That's exac -- I should have known that. He's exactly right. That's exactly what it is, David. That's exactly what it is. You're right.

Okay, can you comment on how much you have invested in the Piers project so far?

The project, Piers? M.J.?

I think approximately $30 million.

Okay. Any progress on -- that you can talk about at the Galamo Fashion anchor? And I guess that's not integral to Phase One on the redevelopment side?

You should know that we're very encouraged and very excited by the way the life style wing is leasing. And what we'll do, David, when we see you on Friday morning is we'll bring up the lease plans so you can see it, and that's a commensurate -- the way its leasing is very commensurate with as if we had another fashion department store anchor. So you'll be pleased to see that. On the fashion department store side, there was another meeting yesterday, and we're just -- we're actually working with two. But the one that has been close and is still very, very close is hopefully coming. Department stores are very material, and it's very tough to pin them down, and we're doing the best we can to do it as quickly as we possibly can. But the rest of the project, as I said before, as you'll see on Friday, is leasing to a quality that is extremely encouraging.

What are the chances that you will give us a schedule breaking out your $705 million of construction in progress, by project?

We'll consider here, Dave. We can evaluate that. I think again we continue to include additional disclosure and particularly we're spending the bigger dollars.

Who's paying for the archaeological work in Rome and how much have you invested there so far?

First of all, the archaeological and geologic work in Rome is, like, maybe $.5 million, five, $600,000 when it's complete through, like, the middle of next year. And I think -- I think we're funding that.

We and our partners.

Joint ventures.

So it's not the city that's funding it?

No,

Okay. Last development question. Your in line leasing progress at Meadowlands, how are you doing against pro forma?

So far -- again, we're in the preliminary stages. I have a meeting with the guy, Bob [Marona], who leases it every week. We have another meeting this Friday. He's extremely encouraged by the demand, and there has not been. thus far. resistance to the -- not only the minimum rent but also the total occupancy costs that will be required for us to meet the pro forma that -- the numbers that I spoke about on the last conference call. So it seems to be going fine, and the demand is high, and again we can discuss that in more detail when we see you, if you like.

My last question is to Mark. Mark, you've known since you came into the Company a couple years ago that the infrastructure wasn't working the way you would have liked, and you've talked about improvements. The Company has hired a lot of people. You've added systems and you spent a lot on G&A on this already. I hear your comments today, but I hearing is, gee, we're going to work harder and do some things, but you don't say what those things are. Kind you kind of get into the specifics of what the program's going to be so we can be assured this isn't just sort of more of the same?

Sure, that's a fair question. And you're right. Over the last year and a half, we've talked about -- we've talked with you about enhancing our infrastructure, and we've continued to grow at the same time we've talked about that. Those acquisitions and development. We have not moved as far forward on our systems conversion as we would like, so then our forecast and planning ability is behind where it should be based on where our current operations are and where our operations are likely to be. We have a consultant working with us now and have set up a best practices office here, in order to get that systems conversion done. We expect to -- we're in the middle of recruiting a new chief accounting officer. We are very focused on enhancing our -- the planning and forecasting piece of our business is the piece that needs catching up. And that just requires getting the systems done, and we are working daily on that now with a consultant.

Is it fair, as a follow-up, to conclude that you're not looking at major acquisitions at this point, until you get this stuff dealt with?

Yes. I think, David, that's a good question. We have domestically a lot on our plate, and we think we have some exciting opportunities with some good joint venture partners. We're going to move forward with those and effectuate those and make those very successful. I think what you're going to see domestically is a slowdown to some extent, put more focus on opportunity set that is harder to find in Europe but, when you do find it, the success there is pretty high because of the supply and demand situation. Here in the states, we're just going to be more selective and more prudent, I think more judicious right now, while we're getting some of these things that Mark talked about in line and running a lot more smoothly than they're running now. So internationally, we'll continue to be opportunistic and look at things. If we have the opportunity and we're lucky enough to break ground on something, we'll move ahead. And here we have an opportunity set that's on our plate we're just going to work on real hard. That includes the redevelopments. It includes asset management of the existing projects, et cetera, better than we have, and we're going to be concentrating more focus on that stuff.

Thanks a lot.

The next question comes from the line of Greg Andrews, Green Street Advisors.

Good morning. I'm here with Mike Kirby, John Lutzius and Ben [Yang]. Mark you mentioned the controlled efficiencies that you're now in the process of trying to address. I'm wondering what you can offer in the way of assurance that you've kind of caught everything, as of this call?

The controlled efficiencies that we note you'll see in our filings relate a lot, in civil terms, in a lot of ways to communication issues. I should have answered this in the last discussion. We've moved to more of a regional organization, and that will be increasingly formalized over the next several months, so that line officers will have a formal way of communicating with each other, which will improve the forecast and planning issues I mentioned before. The controlled efficiencies that I noted do not have to do with accounting policy per se. They have to do with procedures and communication among -- amongst executives primarily, so we're going to work on that. A heck of a lot of this has to do with our systems. Our systems are just not sized -- our IT systems are just not sized for the business that we have, and we've got to take a deep breath and get that fixed.

Obviously you delayed your call once and were, I think, probably under some pressure to get this call done today. Is it possible that, in that process, you've missed some of the -- some items that might crop up in, say, the fourth quarter?

This is M.J. speaking. And I believe, the audit committee believes, that we have thoroughly reviewed everything and that the financial statements are accurate and in accordance with GAAP, and that's why we have released earnings and are preparing to file our 10-Q today.

That being said, Greg, the development business is not just the asset management business and nothing we anticipate, because I think M.J. and everybody did a very, very thorough review. Any time you're in this business, things happen. Nothing we anticipate, nothing we've seen, nothing that has made us rush this call, as you said. Just trying to get it done in a period of time where we can get you as accurate information as we possibly can.

Okay. And then just to follow up on the accounting policy side, it strikes me that there's still a lot of gray area or at least an area where management judgment comes into play. And in some of those areas, I think of Mills as a Company that's adopted, perhaps, more aggressive stances. Just for example, on predevelopment costs, you could take reserves against those rather than just periodically having writeoffs that kind of come out of the blue. Have you thought about revising some of your accounting policies to take more conservative approaches. given that you pursue a lot of developments and some of them just aren't going to pan out?

Before M.J. answers the question, there's one thing I want to set straight, Greg, is we are a development Company and, for as much development as we do, I think that if you look back you'll see the writeoffs have been modest in respect to everything that we've done out there. I mean, I know there are people like you and others that -- you know -- that Meadowlands -- didn't think we'd start the Meadowlands project. It's going to end up being a great project. In Toronto, we opened up one of our best projects [background noise] that was on the books for a long time, as we were working through it. If you talk to the Case or the Ivanhoe Cambridge people, they'll tell you how unbelievably successful it is. You look at a project like Madrid Xanadu, there are people that would have had us writing that project off. It's turned into, again, a landmark project. First U.S. developer to go overseas and develop anything of significant like this, which is really going to be the foundation for great growth over there in the coming years. And even in the project we're going to start next week, 108 North State Street, and the amount of time that that took. So I don't think the [background noise] size of the projects, the amount of the revenues over the last few years have been that meaningful.

Greg, to your point -- and I'm sure M.J. will vouch for me -- I think there are elements in this quarter that indicate an increased levels of conservatism by the Company in our judgment and Larry's had a more disciplined approach. I would say a more practiced approach. If you look at the items we took this quarter, many are management judgments to take writeoffs or to incur an earnings hit, like in the skate park thing where we felt we should change operators, we made a modest termination fee and took a $0.06 to $0.07 hit to earnings, but it was the right economic thing to do. What you see in this quarter is partially attributable, not totally attributable, to a more conservative approach.

But consistent with that, Greg, it is prohibited under GAAP to take unspecified reserves. The criterion says 67 is that you should capitalize preacquisition plus predevelopment costs for a construction project, when the costs are identifiable to a specific project. The cost would be capitalized if you already own the project and you believe that it is probable that you will [background noise]. So any project that meets these criteria, you need to capitalize the costs to be in accordance with GAAP. And when your evaluation of the probability of the project changes is the only time you take a writeoff. You're not allowed to have an unspecified reserve. So you will see -- and you've seen it, if you look back over the quarters, quarter-to-quarter variations in abandoned project costs, because the nature of our business is you have them. Work on a project, think that it's all going forward, and then find out, as in Florence, that the entitlement process isn't going the way you expected it to, you can't get the site plan you wanted, and that, therefore, your opinion concerning the probability of the project changes and you take the writeoff.

We've actually had discussions with our auditors about reserve concept, and M.J.'s is absolutely right, I agree with her. In the last 11 years, we've only had two or three conversations about it. We would love to do it. We realize not every single thing on the balance sheet is going to come to fruition. But as [inaudible] cannot pick every single project we go down [background noise] at this point, and now we've written them off. While it's obvious that something is going come off, we simply cannot book a reserve that is not GAAP.

Right. I wasn't suggesting you take reserve for something unspecified. I was suggesting that there's a management judgment in describing what is probable. You know, I think opinions about what is probable might differ, and there's probably a tact you could take that's more or less conservative in making that judgment, whether it's with respect to a development project or with respect to a bad debt reserve. Or similarly on the interest side, there are various methods for capitalizing interest and doing it at the marginal cost as opposed to the average cost or the actual interest cost you're paying on a construction loan -- you know -- tends to be more at the aggressive end of that spectrum. I'm just interested in your view as to how you look at those accounting policies and compare them to some of the peers.

I think everything you said in a general sense is right. We've cast a wide net in the development business, and we have a rigorous process of reviewing the projects and where we continue to believe we should spent dollars because, when we're spending dollars, it means we think we're going to get there. We've cast a wide net. Over time there'll be more abandonments. It's impossible to predict what quarter they'll fall in. And like every area of our business, we're going to need greater discipline and greater rigor, but we're very comfortable with where we are right now.

Okay, thank you. And, then, last question. On the bad debt reserve, it looks like a portion of that, about $0.04, was noncomparable properties. I'm just wondering if there was some sort of surprise in -- with respect to some of the properties you've acquired in the last year that we should be aware of?

I think that the portion that related to noncomparable was spread through both -- largely actually to properties that have been opened or taken out on the redevelopment to undergo redevelopment, where there's been some changeover in tenants. I think some of it has -- does relate to one or two acquisition properties. So really it's spread across the board in the noncomparable properties. It's not concentrated in one particular center or category, whether it's a recently opened, under redevelopment, or acquisition property.

Okay, thank you.

The next question comes from the line of Rich Moore, Keybanc Capital Markets. Please go ahead, sir.

Good afternoon, guys. Going back to that last question, I mean, why do you think these particular items -- certainly some of the accounting issues -- were not caught in the February items that you guys identified?

Rich, these are not restatements or corrections of errors. All of these relate to items that arose during the quarter, you know, changing evaluation on the probability or assessment of a project, changing our evaluation or assessment on the collection of a note receivable as --

Taking the skate park --

-- taking the skate parks out was a business decision to improve the operator at those five locations.

Third quarter transaction, obviously.

Yes. Third quarter transactions. So these are -- these are either appropriate changes in estimates or business decisions or changes in facts and circumstances that impacted the third quarter.

So you're saying that early in the year, when you guys did an accounting review, you might have looked at these and not decided at the time that anything needed to be done. That is Right?

Or they didn't arise at that time. The skate park deal just happened a few weeks -- you know -- in September. [multiple speakers] Yes, new operator. It's transactionally driven.

Alright, fine. That's great. Thanks. As Mike Mueller was pointing out, we're all going to have to think about '06 numbers even though you guys aren't ready until, say, February or maybe sooner to do them. And as we look at these -- I mean, I want to go down some of the line items. If you guys look at the different items that you identified, for example, in the press release, that add up to the $0.47, I mean, which of those -- I mean, let's just take straight-line rent, I assume, carries forward. The bene's carries forward. Is that right?

Which one did he say? [multiple speakers]

The adjustment that you had which was about a penny in that goes forward into the next quarter. Right?

Rich, this is Greg. I would characterize the majority, and I think this is how we feel, of the $0.47 is sort of atypical. And whether you want me to go through all of them, but the majority of them are that. Maybe theres are a couple of pennies that are not, that's debatable. That's our general view, that they are atypical. And, not necessarily -- you may or may not put them in the runrate.

I hear you, Greg. But things like [inaudible]. now come one. You know, those are really atypical? The straight-line represent, the FAS income?

If you read the press release for the straight-line rent, for instance, if you have sort of an adjustment to your receivable balance, I don't know if that continues or goes forward. And that's a big portion of that item. So that's why we're calling it out.

Okay. And then, I guess the most important one in the list, for me anyway, is the fee income. I mean, this $0.08 drop, that sounds like it will be $0.08 every quarter going forward. That is roughly correct?

No. This is Ken. I don't think that is true. I think -- I mean, we obviously have many projects we continue to develop. We have a lot of -- I don't know exactly what the number is, it's not in front of me -- we have lots left to go on that land, even though we have the $0.08 drop. There's a lot left of fee income on the Meadowlands. We're about to start a joint venture project, you know, block 37, where there will be fee income. We're going to do one at [Mercati] where there will be fee income. So, I still think there's plenty of opportunity for fee income.

And quite frankly, RIch, that $0.08 in that specific instance is -- you know, we're going to have fees. We're going to have capital structures that's set in the beginning, they don't changeover the whole time, and we have that a lot, the majority. And, so, this kind of thing is something that's, quite frankly, not been a historic issue, and I'm not sure it's going to be that big of a going forward issue.

I think I got you, guys. Then when you look at that note receivable that you wrote, do you have any others of those? Is that a common sort of thing that you have with tenants?

It's not common.

It's not a common thing. That note originated many years ago.

2002.

Was it 2002? About three years ago. And there may be a few others, but that is absolutely not the way that we normally make cash contributions. It's basically done in the form of tenant allowance. We did do one a few years back at MovieCo, where I think we had a $10 million note, or something like that, and we collected on the note and made a healthy return. We did that as part of the development process that we felt we needed to do to build the shopping center, and it turned out to be a very, very good investment -- I don't know what it is, if you total up all the amou -- all of these that we have in our portfolio, it is not a -- it is not a big number. I mean, it is not a large number relative to the total CapEx that we have now are tenants. That's certainly not the way we structure these things. That was done for a very unique circumstance.

Okay, great. And then last thing, I just want to make sure I understand. I think M. J. said it. None of these goes backwards. Right? There's no chance of a restatement of any kind. based on any of these items?

They're third quarter items.

So there's nothing that you would need -- because, like fee income, for example, sounds like something that you would have to go backwards and examine how you did fee income before, but you're saying, Mark, that that's not the case?

No. On the fee income, Richard, that was an estimated number in our guidance of a change we thought -- a way we thought we would be recording fee income.

It was never booked.

It does not -- for the future, it does not impact anything that has been reported in the past.

So, M.J. all of these items are nothing to do with the potential for a restatement. Is that correct?

That's correct. We are issued our -- you know, we're assigning our 10-Q. These are statements preparing the GAAP, as they are not restated.

Thank you very much, guys.

The next question comes from the line of Craig Schmidt, Merrill Lynch. Please go ahead, sir.

I wondered what the environmental factors were that resulted in the slower minimum rent growth?

you know, Craig, we're going to have to get back to you on that answer, because we don't ha -- you know, we'll look at it and get back to you with an answer.

The minimum rent growth, just to be clear, after adjusting for the straight-line affect was over 3%, I believe, or will be at least for the reforecast year-over-year. Still going at a decent number. Still consistent that the adjusted NOI will be for the year. But I think that [inaudible] is probably somewhat below our original -- perhaps they were lofty, but our higher expectations were [inaudible] for 2005.

But we will also get you some answers on that.

What are the major redevelopments you're currently pursuing on the Cadillac Fairview portfolio?

We're actively pursuing Broward right now, which would be a lifestyle wing, movie theater, and a gourmet market, potentially. We're pursuing -- it's been put in front of me now. We're pursuing the Esplanade, which -- it's interesting, since the hurricane, has even gotten more interest from some tenants. And that is going to be several big boxes, a theater and maybe a large outparcel use. We are pursuing Dover right now actively. We have 80 acres there that is extremely desired right now.

We are working on better access to that site, which we hope to be able to do soon. We are working on a lifestyle component right now in North Park ,actually potentially consolidating the two Dillard stores to one and adding some lifestyle uses to it. And that's -- is there anything else, Jim? Oh, yes. Yes. And White Plains. We're taking that disadvantaged first floor of the project, and we're breaking it up, retenanting it and making it better ambience for that area and for the customer. And we're also looking at some other potential revenue generators there, too.

Is it taking longer to pursue these redevelopments than you thought maybe initially, or do you feel you're pretty much on track?

No, I think, interestingly enough -- and I don't know why this is necessarily, but the GM portfolio seems to be moving -- we just bought it a year ago, and already we have active development activity at Stoneridge and the Falls and other places. Cadillac has taken probably a little bit longer than we would like, but over the past, I would say eight or nine months, it's gained terrific traction, and we're moving forward with some of the things I just talked about. And I think over the next couple years you'll start to see some interesting results.

Right in your backyard, Craig, is a great example of, I think, one of the better, more innovative, more value enhancing redevelopments are being done, and that's at Riverside, where you really are going to end up with some of the highest-end tenants in Burgan County, all under one roof at that shopping center with new three restaurants added to the four existing ones, and a great day spa opened and Barnes and Noble that just opened very successfully. A great shopping center that operates very well there seven days a week, that all of the better or higher demographic profile people that live there will be able to enjoy and not have to go into midtown to shop.

Yes, one of the -- This is Jim Dausch. One of the things you do see since we bought the Cadillac Fairview portfolio, in a couple of the cases, is the pace of the way the department stores react has been affected by some of the more recent consolidations and the acquisition of May by by Federated. It hasn't changed what they're willing to do or what our plans are, but you do get a certain distraction from the people that you're dealing with. It tends to, in a few cases, extend things out a little longer than I think we originally thought. On the other hand, you hit a good one like Riverside where, notwithstanding, the Bloomingdale's at the Federated acquision of May and the distraction, they were able to move that one forward simply because they recognized, as we did, what an opportunity it was.

Jim brings up a good point. It goes all the way back, Craig, as you know so well, in Florida, with [Browards], for example to [inaudible] going on the market a couple years ago and how that just -- the dynamic just changed for the whole marketplaces, as to how the department stores are looking at what their priorities are. So it's just working through all that stuff. But at the end of the day, if you have good properties, which we think we do, and good opportunity set, which we think we do, you'll prevail. So we're just working through it, and I think a bunch of these will show a the difference.

Thank you.

Your next question is a follow-up question from Michael bill Lerman, Citigroup.

I had a couple of follow-up questions. Ken, you talked about 20 million of land sales and $18 million in development fees. Can you just help me reconcile that with page 13 of your supplemental? I guess your fees of 12.9 million and add back the 4.2, so 17.1 year-to-date. Then would you expect only one million more for the fourth quarter?

I think the fees lead we predicted a fairly modest amount. I think it should be a 1.4 or something, on top of what we recognized. I'm not looking at the 8-K right now, but I know it is a small amount. In the land sales, it's probably the other income. It's probably the gross-up amount. Right?

Yes.

So do we know what our net share is, so we can help him with that number? Obviously, when I gave you the $20 million number, that's our share, and what you're looking at in that 8-Q is a number that -- because it's all the consolidated JV's is a grossed up number so I don't know what our sh --

I just wanted to make sure of which one it was. Your land sales, your share is ten million year-to-date, 19 million gross, so your 20 million relates to your share?

Yes.

Yes.

Yes.

Okay. So ten million more of land sales in the fourth quarter?

This is correct.

I'm going to say it again, Michael, that it's probability weighted, and there's transactions that could go that -- for fees for land sales, for other elements of this. That's why we have established a range.

And I'm just trying to understand. I want to make sure because it is your share and gross shares. I want to make sure we understand where your minds are, at least. Now that we've got the numbers right. In the G&A, you talked about 60 million. How much more in the fourth quarter may come from severance payments or excess payments that you wouldn't expect to be a runrate going into next year?

There's really, I don't believe, anything in there for severance payments. There are, as Mark alluded to, certain one-time costs associated with our consulting efforts that are ongoing to establish the best practices office, legal and accounting fees incurred in connection with some of the work we've been going through recently. Those are more of the items that are of an unusual nonrecurring nature that are in the revised fourth quarter estimates. There are no significant amounts associated with severance.

I guess the question is, to what degree, Mark, do you think you're done putting in the controls and processes and procedures and to what degree might we continue to see increases in that line item, the G&A line item, as you're building that effort?

In terms of being done, I think that this effort will extend well into next year, and we will have additional consulting fees in the '06 numbers when we give them, and to change the organizational infrastructure is going to take well into 2006. So I'd expect to have -- and then what you'd hope would happen -- I don't want to predict this numerically. You'd hope when you have the systems in place and have less reliance on manual accounting and you have systems in place and you can budget better, that you can get efficiencies that let you bring the G&A back down.

But, if you look at -- you've got 40 million, basically, for the first nine months. You're essentially forecasting a little bit over 20 the fourth quarter. Is there anything more seasonal that would not allow that to be a runrate, i.e., 80 million plus of G&A into next year?

I have a good answer. We have not -- we have not put together a G&A budget for next year.

Then maybe just talk about the fourth quarter. Is there something in the quarter that's making fourth quarter to be 21 million relative to 11 to [multiple speakers] million?

The accrual of bonuses. [inaudible], we're just looking at a schedule.

I'm trying to understand how 14 in the third quarter goes to 21. Obviously that's a big number in terms of seven million bucks, eight million.

I think, if you look back historically, you'll see our fourth quarter is always bigger. There are seasonal items that they don -- come to think of it, [inaudible] bonuses are always accrued in in the fourth quarter, so that's a big one.

The fourth quarter tends always to be seasonally higher than our another quarters, so it's not necessarily indicative of the runrate. But there are number of, as we said, one-time things in this year's number.

Well, if you guys ever have additional color, that would be helpful. On the lease term fees, those are booked into minimum rents or is it elsewhere in the revenue side?

They go into other property revenue.

Other property revenue. Okay. The notes receivable, you do disclose in your supplemental now on page 13, that you guys have 50 million. Is that effectively how much would be outstanding to things like what you wrote off this quarter?

No. The majority of that relates to TIF notes, so a very small percentage of that would relate to tenant --

Our tax increments, financing receivables.

Yes. I may have missed it. The Chicago project, what is your expected yield and, in terms of a JV, how much of the project are you thinking about selling down?

Well, we haven't announced the JV. We are working on the JV that would be fairly -- something probably along the lines of what we've done in the past. In terms of the yields, I don't think that we're -- to give the specific yield guidance, but it's an acceptable yield for us given the project and what we've identified.

Acceptable yield north of ten or acceptable yield --

Well, it's -- not north of ten. It's between nine and 10%.

And what does that assume that you're leasing the rest of the office space for?

It has -- the two floors that we'll actually -- one of the reasons that it's difficult to give this is because there's a lot of factors. It has a reasonably conservative rental assumption for the speculative space, and I think, by the way, those -- if you get into the details of it -- and it is a letter of intent, so I'd be cautious about doing this -- there's some provisions for taking those spaces by Morningstar.

This is John Litt. I wanted to talk about your NOI guidance. In the second quarter of this year, you talked about NOI growth for this year of four to 5%. After the first quarter and the second quarter growth, which was well below that range, you kind of got backed into needing this north of 5% number in the third and the fourth quarters. What was the thought process of not dealing with that NOI issue back then? Did you think you were going to get there or did it just kind of get lost in the shuffle?

No. I do think we did think we'd get there. And I think, quite candidly, the reasons we didn't get there is due to a few things. As Mark has said, and others have said, we do acknowledge that we need to do better with our budgeting and our -- at least our forecasting. That a certain a contributive part of the problem but, also, recognize that last year I think we had the same sort of pattern where I believe, if I'm not mistaken, the first six months was lower than what we ultimately realized in NOI growth for the year. We've never had in ten or 11 years that we have had the Company miss like this, so this is something -- when we go out saying what the number is, this is something we believe we had good reasons to support it. We can see what was materializing. It just didn't work out this way.

A question on when you became aware of this laundry list of issues that the late earnings resulted in this big miss, when did you become aware of most of the issues? Why don't I start with that.

Different items came up at different times. Some of the items, some of transactional things like the skate park deal literally happened, if I remember right, the last week of September. The other items started to come up in the process of the various processes we go through in the closing, so they began coming up in early October and continued right up through the time that we postponed the call, which is why we postponed it because we thought there was too much risk in making a disclosure at that time and we wanted to get it right.

But this was sort of cumulative set of unrelated items. One of the things we have to do is shorten our close process. We have a very lengthy close process. I think it's 21 days, and we ought to get it down to, over time, ten or 15 days or less. That results in the estimates being made later than we'd like them to be, because we don't have the information. It is not ripe yet. It was a series of unrelated items that started in September and came through right up to the last week of October.

I guess the unsettling part here is that this has happened over the last 45 days or so. And as you close out the books on the fourth quarter, I guess the fear is what else is going to percolate up through the closing of the books process that could cause similar results, hopefully not to this magnitude, but other issues that might arise in the fourth quarter, really any quarter. How do you address that and avoid this issue in the future?

Definately, a lot of these things happen to come up during the close process because that's the time when you do make the -- it's the period of time when management has input and the accounting folks make the estimates. Shortening the close process and getting information flow to management and then management to accounting is critical here. And as I said before, John, our systems need to get-- our systems infrastructure have to get in line with our operating businesses. We're just not there. It took longer. But rigor that ended being applied to this over the last few weeks was extremely intensive. And if we felt today or yesterday that there were other things that could pop up, we would have postponed it again. But we are very confident that we have had a rigorous process with management, division leaders, and the CFO and we filed our statements, which says it all.

Can you just discuss for a second the comp profile for senior management and how what's happened with the stock here might impact? You mentioned bonuses in the fourth quarter are part of why the G&A goes up. I'm assuming a lot of that is for the people in the field dealing with individual projects. Is there anything that's FFO-tied or stock performance-tied where that number might --

I'd say that we had -- while the bonuses accrued in the fourth quarter, it as not at the level that -- what management would have hoped or our metrics -- you know -- both the bonus system and the long-term incentive program for management is tied to metrics that are pretty negative this quarter, John. So, I would say -- [multiple speakers] Both FFO and total shareholder return -- heavily into both of our short-term programs and our long-term programs. We'll deal with this here, there's no doubt.

I think MIchael had one last question. Thanks, then. Just in terms of -- can you give us just some broad strokes on proportionate share of your CIP, the 705? Just walk us through some of the larger items of that.

Let me do it -- I can do it at the gross level and then you'll have to [inaudible] the proportionality of it. I just don't it that basis. But, obviously, is item is Meadowlands, that's in there. I think it's about $400 million or so. The -- there at 135. We still have Pittsburgh, which has a piece still under development of 50 million. We talked about the Piers, Block 37, the project in Chicago is just north of 20 million, I believe. Tewkesbury in Boston, we have just over ten. Colonnade, which is scheduled to open shortly, we have a number, I think, that's over -- just over 20 million. [Cady] I think we have a sizeable investment dating back to the land transaction that we had with [inaudible] there. It may be 15 or 20 million, or something like that [inaudible]. You know, the rest of it, the Historic Town Center, we've talked about that project. I don't know if I mentioned it. The Historic Town Center is -- should be 25, 30 million, something like that. And the rest of it, if you go through the 8-Q and look at all the projects we're working on, it's just a combination of a lot of different things. All the anchor plays that we're dealing with on operating centers and every other expansions or redevelopments that I didn't mention, goes into that. [multiple speakers] Let me talk about that pretty quickly. You'll probably have to go back to the transcript, but hopefully that gives you a lot of what's in there.

That gets to about 700 million, and that's a little bit short of the 1.1 billion.

Like I said, if you go through the 8-K and look at all those projects, all those anchor plays and then realize there's a whole bunch of stuff, just much smaller -- a lot smaller stuff happening at each and every single project, every single anchor play that we have that's going on, I mean, there is a lot of stuff out there that totals up to that number. I don't know if that's a big number or not relative to a portfolio the size of ours with 42 properties and a bunch of other ancillary little developments going on, but that's what it is.

Just assuming 20 million average for the rest of the 400, that would be 20 projects which I guess seems a bit high. I'm hoping that you guys will provide a little bit more granularity that we can get our arms around the CIP.

Okay.

That's it. Thanks.

The next question comes from the line of David Ronco, RBC Capital Market.

I'm sitting here with Jay Leupp. I'm wondering whether your fourth quarter guidance includes any additional project writeoff costs and if whether you're in discussion with your auditors to writeoff any additional projects?

Our guidance does include some additional potential abandonments, as a -- just as a general sort of place holder to be consistent with our past. You can address the or.

Our conclusion is that, as of our most recent evaluation of our predevelopment projects,everything else that was remaining was probable, based on the facts and circumstances as we knew them and reviewed them with the auditors as of last week.

We're not going to have a writeoff coming up just because suddenly because we don't feel like developing product. Something will happened. If it's a writeoff, it's because something has happened. We got kicked out of a process or something. So right now, as it stands, we've got 12 projects. They are probably, which is why they are capitalized.

But, as we said, we have a lot of development projects ongoing, and from time-to-time there will be writeoffs. Whether there's one in the fourth quarter, it's predict at this time.

When we thought about the guidance, we've included that and other lumpy items on a probability weighted factor and considered those.

Can you talk about what that might be on a per-share basis?

You're talking about an item where there's no predictability to it. It's all about a first share item -- we've just finished this review. We're talking to our auditors about this all the time. Just finished a very rigorous review of it. There's no per share expectation, but it would be wrong not to think about it over the long-run as occurring periodically.

Thanks.

We have a question from the line of David Fick, Legg Mason. Please go ahead, sir.

You answered my follow-up on the bonus accrual being tied to FFO and total return, but it would seem to me that that would be a pretty significant offset to G& A in the fourth quarter. Are you anticipating the reversal of some of that accrual in your guidance?

As I said before, we're going through the budgeting process right now. When we look at this, we take -- we'll take into account where we expect those metrics to be next year. And until we do that, there's no way to comment on what comp or bonuses are likely to be next year.

I'm talking about fourth quarter.

All right. Fourth quarter does have -- Dave, it does have the adjustment downward for the bonus accrual that normally would have been --

It does. Sorry, Dave. I misunderstood your question.

Is Jim Napoli on this call?

No. He's in Rome.

Can you comment on the specialty leasing thing? You mentioned it, but you didn't really provide any color on it. What is going on with carts and kiosks? We're hearing the opposite from most of your peers, in terms of growth there.

This is Nick McDonough. We had a couple locations where we had a period of time where the licenses were pulled. We were shut down for six or eight weeks. It was a paper issue that we weren't used to dealing with that we literally couldn't operate the cart. That was a sizeable number. And we had a couple of other locations where we just had some lack of focus and the occupancies were lower than what we expected, and we think we've addressed that now.

Do you think that runrate will be restored going forward?

Yes, I do.

What are you saying for the fourth quarter in that number?

I don't remember off the top of my head on what the fourth quarter number is. In our guidance, we factored in -- relative to where we thought we would be through the first nine months and then projected out the rest of the year based on those numbers.

That's not the right question.

For continued weakness in the carts in your comments previously. Okay. Thanks.

Mr. Siegel, I will turn the conference back over to you for your closing remarks.

Thank you all for joining us, and we'll be seeing you and talking to you again next quarter. Thanks.

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