Filed by Pan Pacific Retail Properties, Inc.
Pursuant to Rule 425 under the Securities Act of 1933
Subject Company: Center Trust, Inc. File No. 1-12588
This filing relates to the proposed acquisition ("Acquisition") by Pan
Pacific Retail Properties, Inc. ("Pan Pacific") of Center Trust, Inc. ("Center
Trust") pursuant to the terms of an Agreement and Plan of Merger, dated as of
November 5, 2002 (the "Merger Agreement"), by and among Pan Pacific, MB
Acquisition, Inc. and Center Trust. The Merger Agreement is on file with the
Securities and Exchange Commission as an exhibit to the Current Report on Form
8-K filed by Pan Pacific on November 7, 2001 and is incorporated by reference
into this filing.
The following is a transcript of a presentation made to members of the
financial analyst community by conference call on November 6, 2001 by Stuart
Tanz, President and Chief Executive Officer, Joseph Tyson, Executive Vice
President and Chief Financial Officer and Jeffrey Stauffer, Executive Vice
President and Chief Operating Officer of Pan Pacific, and Edward Fox, Chairman
and Chief Executive Officer of Center Trust.
TRANSCRIPT OF PAN PACIFIC CONFERENCE CALL
Date: November 6, 2002
Time: 1:00 p.m. EST
Host: Carol Merriman
Length of Call: 40:30
OPERATOR: Announcing Carol Merriman.
CAROL MERRIMAN: Welcome to Pan Pacific Retail Properties conference call
announcing its proposed acquisition of Center Trust. Management will provide a
review of the transaction, and then the call will be opened up for your
questions.
Before management begins with their presentation, I first would like to read a
Safe Harbor Statement. Certain matters discussed within this conference call are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Although the Company's beliefs - the expectations
reflected in such forward-looking statements are based on reasonable assumption,
it can give - it can give no assurance that these expectations will be attained.
Factors that could cause actual results to differ materially from expectations
include the potential G&A cost savings from the transaction, future earnings
growth of the combined company, the successful integration of the businesses and
properties of Center Trust and Pan Pacific, and other risks which are detailed
from time to time in reports filed with the Securities and Exchange Commission
including each company's Annual Report on Form 10-K for the year ended December
31 - at this time, I would like to introduce Stuart Tanz, President and Chief
Executive Officer of Pan Pacific.
STUART TANZ, PRESIDENT/CEO, PAN PACIFIC RETAIL PROPERTIES, INC.: Thank you,
Carol, and good day everyone.
With me today are Jeff Stauffer, Pan Pacific's Chief Operating Officer, and Joe
Tyson, our Chief Financial Officer. Also, Ned Fox, Chairman and CEO of Center
Trust, and Stuart Gulland, President and COO of Center Trust, are on the line
from Los Angeles.
We're very pleased to announce that Pan Pacific has entered into a definitive
agreement to acquire Center Trust through a stock-for-stock transaction valued
at approximately 600 million. Each company's Board of Directors has approved the
transaction.
This acquisition accomplishes four important strategic objectives for Pan
Pacific. First, the transaction will significantly increase our presence in
southern California and solidify our leadership position as the largest owner of
shopping centers on the West Coast. Second, the transaction will be immediately
accretive to our earnings. Specifically with this acquisition, we now expect SSR
(ph) per share growth in 2003 to be approximately 10 percent
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as compared to the current seven percent consensus estimate for next year.
Third, the Center Trust assets offer exceptional upside, which we will
capitalize on by applying our proven management and leasing programs. And
fourth, the transaction will enhance our ability to increase shareholder value
by executing our investment strategy of selling non-core assets and redeploying
the capital into grocery-anchored centers in our core markets.
I would like to discuss the first point in more detail, and then ask Joe to
outline the terms of the transaction and address the accretive aspects in more
detail. Jeff will then discuss the transaction's operational and leasing
attributes.
As I mentioned, the transaction will dramatically enhance our southern
California presence. Just as with the Western assets and our one-off (ph)
acquisitions, the Center Trust portfolio totaling 30 properties aggregating 5.1
million square feet fits our criteria of acquiring dominant grocery-anchored
shopping centers located in strong in-fill (ph) markets.
To give you a sense of the strong demographics associated with the Center Trust
portfolio, the trade area population density is approximately 160,000 on
average, which is roughly three times the average population density of the
Western portfolio. And the grocery store sales in the Center Trust portfolio
average a strong $510 a square foot.
The bulk of Center Trust's properties are located in our core markets where we
have operated for many years and have an established infrastructure which will
make for an easy integration of the assets into our portfolio. Furthermore,
Center Trust utilizes the same accounting and operational systems that are
compatible with ours which will facilitate a quick and easy integration of the
portfolio.
Before turning it over to Joe and Jeff, I would like to note that the
transaction is subject to approval by a two-thirds vote by the Center Trust
shareholders. Center Trust's largest shareholder, Prometheus Western Retail, an
affiliate of LF Strategic Realty Investors, as well as Center Trust's senior
management have agreed to vote shares representing approximately 52 percent of
the company's outstanding stock in favor of the transaction. Upon closing,
Prometheus will own approximately eight percent of Pan Pacific's outstanding
stock on a pro forma basis.
Pan Pacific does not require a shareholder vote, as the equity we are issuing
represents less than 20 percent of our shares currently outstanding. And Pan
Pacific will continue to be led by our existing five-member Board, which
includes four independent directors, and Pan Pacific will also continue to be
managed by its existing team.
With that, I'll turn it over to Joe to discuss the details of the transaction.
Joe?
JOSEPH TYSON, EVP/CFO, PAN PACIFIC RETAIL PROPERTIES, INC.: Thanks, Stuart.
The transaction is being structured as a tax-free, stock-for-stock merger in
which Center Trust common shares will be exchanged for newly issued Pan Pacific
common shares based upon a fixed exchange ratio of .218 Pan Pacific share for
each share of Center Trust.
As Stuart indicated, the total value of the transaction is approximately 600
million including transaction expenses. Based upon the .218 exchange ratio, we
will be issuing approximately 6.4 million shares on a fully diluted basis to
Center Trust stockholders, representing a 16 percent pro forma interest in Pan
Pacific.
Utilizing our closing price as of yesterday, this would equate to an implied
equity value of approximately 220 million for Center Trust shares. As part of
the transaction, we would be assuming 136 million of secured debt. The balance
of the transaction totaling 250 million will be financed through a combination
of new Pan Pacific debt of approximately 50 million and roughly 175 million in
non-core sales along with utilizing cash on Center Trust's balance sheet.
The transaction will be leverage neutral, keeping Pan Pacific's debt ratio below
40 percent and interest cover - interest coverage above (ph) three to one.
Although the exchange ratio represents a premium to Center Trust's closing stock
price as of yesterday, it's important to note that it represents the approximate
relationship in net asset value between the two companies.
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We expect the transaction will be accretive to our current consensus FFO
estimate for 2003, which is currently $3.14 a share, equating to a seven percent
growth rate over 2002. With this transaction, we now expect our FFO in 2003 to
be in the 322 to 324 range, representing approximately 10 percent growth.
There are five key assumptions underlying our 2003 estimate. First, the closing
occurs during the first quarter; second, the transaction is leverage neutral, as
I indicated, and utilizes a conservative long-term interest rate of 6.25 percent
on new Pan Pacific debt; third, the Center Trust properties remain at their
current occupancy level - 89 percent level, incorporating only a small amount of
executed leases; fourth, it assumes G&A savings of a conservative 1.5 million
looking at the two companies combined; and fifth, it assumes no external growth
next year beyond this transaction.
Turning to our balance sheet, we will be assuming 136 million of Center Trust
secured debt with this transaction. The weighted average coupon on this debt is
6.3 percent, which is 140 basis points lower than the interest rate on our
existing secured debt. We will be retiring approximately 228 million of existing
Center Trust secured debt as part of this transaction.
We estimate that our pro forma total market cap will be approximately 2.3
billion at March 31 with approximately 910 million of debt outstanding equating
to a project 39 percent debt to total market cap ratio. Included in our debt
will be 374 million of secured debt equating to 16 percent secured debt to total
market cap ratio as compared to our current ratio of 13 percent, and
approximately 71 percent of our net operating income will be unencumbered.
In terms of interest coverage, we expect to maintain our solid 3.1 to one ratio,
and with respect to our dividend payout ratios, as we reported last week, our
FFO payout ratio reached a new low of 64 percent in the third quarter. Assuming
our dividend remained at the same level, the pro forma FFO payout ratio would
drop even lower to around 60 percent.
And lastly, including (ph) in our analysis are legal, advisory, severance, debt
assumption, loan repayment costs, as well as SEC (ph) and other related
transaction costs, which for both - for both companies is approximately $20
million.
With that, I'll turn it over to Jeff.
JEFFREY STAUFFER, EVP/COO, PAN PACIFIC RETAIL PROPERTIES, INC.: Thanks, Joe.
Let me start by echoing Stuart's remarks regarding the southern California focus
of the portfolio. After closing, we will own 33 properties in southern
California totaling 5.4 million square feet which represents a significant
increase in our southern California portfolio and makes our overall geographic
distribution much more balanced. Specifically, at September 30, 37 percent of
our portfolio was concentrated in northern California with only 17 percent
located in southern California. With this transaction, our California portfolio
will be equally diversified with 29 percent located in northern California and
28 percent located in southern California.
In terms of our tenant base, the transaction significantly enhances our
diversification. Upon closing, our tenant base increases by 36 percent from
2,500 tenants to over 3,400 tenants on a pro forma basis. As of September 30,
our largest tenant was Raley's Supermarket, which accounted for 4.6 percent of
our total base rent. After closing, our largest tenant will become Safeway,
accounting for only four percent of pro forma base rent. Raley's will become our
second-largest tenant, dropping from 4.6 percent down to 3.4 percent.
Furthermore, our top 10 tenants account for 24 percent of our total base rent
today, which will drop to 21 percent post-closing.
With respect to occupancy, the Center Trust properties are currently 89 percent
occupied which rises to about 91 percent when you factor in signed leases with
tenants scheduled to take occupancy in 2003. To be conservative, we have assumed
no material lease-up (ph) in 2003. However, our goal is to bring the occupancy
of the Center Trust assets up to the Pan Pacific level as quickly as possible
along with achieving rent increases on re-leasing activity consistent with our
historical performance, all of which could increase the NOI of the Center Trust
properties by approximately six to seven percent.
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Looking at the rollover schedule for the Center Trust properties, there's
roughly 500,000 square feet scheduled to expire, representing about 10 percent
of their portfolio, which is consistent with our current rollover schedule.
We're confident that we will be able to easily absorb the incremental square
footage as part of our normal leasing activity.
In terms of cap ex, we've extensively toured and surveyed each asset in the
Center Trust portfolio and found the properties to be very well maintained. Only
a handful of assets require some of our Three-R (ph) work, which we will
implement shortly after closing. There are two properties currently undergoing
redevelopment plans. The total redevelopment cost is expected to be about $24
million and will be largely completed before we close.
In summary the integration of the Center Trust portfolio should be a very
straightforward process.
And with that, I'll turn it back over to Stuart.
TANZ: Thanks, Jeff.
Now I would like to turn the call over to Ned Fox at Center Trust for his
comments. Ned?
EDWARD FOX, CHAIRMAN & CEO, CENTER TRUST, INC.: Thank you, Stuart.
Let me start by saying that we are very pleased with this transaction and what
it represents going forward for Center Trust shareholders. As those of you that
have Center Trust over the last few years are aware, during 1999 and 2000, the
Board of Directors and management spent a significant amount of time and
resources and energy stabilizing the company's financial position and creating
greater financial flexibility for the company. Having created that flexibility
and stability, during 2001 the Board and management in conjunction with Merrill
Lynch conducted a marketing process and analysis of strategic alternatives
available to our shareholders.
In March of this year after the completion of this review, the Board elected to
pursue a stand-alone business plan focused on the leasing and redevelopment of
the portfolio, as we felt that to be the best method of realizing the maximum
value for our shareholders.
Our focus since March has been on the execution of this business plan and our
process has been positive. We have put in place the key components of each of
our redevelopment projects, made substantial progress with our re-tenanting and
leasing, and completed the disposition of several non-core assets. This has
resulted in the continued improvement of the financial and operational position
of Center Trust, which has in turn created a platform and the opportunity for
the transaction we are discussing today.
As an owner of West coast shopping centers, we have had a longstanding
relationship with Stuart and his strong team. We have always been impressed with
Pan Pacific's operating philosophy, high quality portfolio, and consistence -
consistent strong financial results. We have watched with particular interest
the successful execution of the Western acquisition and the integration of that
portfolio. As a result, when we were recently approached by Pan Pacific, we were
keenly aware of the potential benefit to our shareholders of integrating our
portfolio into theirs.
As we have consistently indicated, Center Trust stock price has not
appropriately reflected the underlying value of the company's assets.
Accordingly, one of our fundamental stated goals was to create the opportunity
for our shareholders to realize that value. We believe this transaction provides
an opportunity for our shareholders to realize that value now.
Accordingly, the Board of Center Trust has unanimously and enthusiastically
embraced this transaction. We view it as an opportunity for our shareholders to
exchange their shares into much larger - into a much larger and much more
diversified company that is investment-grade rated and has one of the lowest and
most conservative debt levels of any shopping center REIT. The combined
portfolios represent an unparalleled shopping center company on the West coast
with numerous opportunities for future growth.
The exchange ratio equates to a substantial premium over the current trading
price of Center Trust stock, and Center Trust shareholders will receive a 73
percent increase in common dividends. All of us at Center Trust have enjoyed
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working with Stuart and his team in putting this transaction together and we are
looking forward to continuing to work closely with Pan Pacific over the next
several months in terms of fully integrating our systems and properties with
theirs. In summary, we are expecting great things to come from this transaction,
and we hope to enjoy the same type of strong results and total return that Pan
Pacific has delivered since its transaction with Western.
As a result of the timing of this transaction, Center Trust will not be hosting
a third quarter earnings call. We will be releasing our third quarter earnings
tomorrow and posting a third quarter supplemental on our Web site at that time.
With that, I'll turn the call back to Stuart.
TANZ: Thanks, Ned.
We appreciate your comments and certainly share in your enthusiasm for the
transaction and have enjoyed working with you, Stuart Gulland, Ed Stokx, and
your entire team.
Before opening up the call for your questions, I would like to add a couple of
additional comments. First, I would like to expand upon Joe's remarks regarding
our strategy of selling non-core assets.
As you may recall, when we announced the Western acquisition, we noted that
there were certain assets, roughly 20 to 25 percent of the total Western
portfolio, that we considered to be non-core and would sell over time. To date,
we've been very successful in selling those assets and redeploying that capital
into our core markets and property type.
Similar to Western, there are certain assets within the Center Trust portfolio
that we view as non-core, most notably Center Trust's two mall properties as
well as a few centers that they own in Arizona. We view this as an important
attribute of the transaction as it will provide the capital to fund our growth
going forward without raising additional equity capital.
Since our IPO over five years ago, we have grown our equity base by more than
four times from roughly 300 million to approximately 1.4 billion with the
completion of this transaction. We have accomplished this growth and have
achieved an investment-grade rating with only one $50 million follow-on stock
offering.
Second, by adding the Center Trust properties to our portfolio, we will have the
opportunity to continue demonstrating the benefits of our focused and
disciplined strategy, the benefits of owning grocery-anchored shopping centers
in strong markets where we've been operating successfully for many years, and
the benefits of our hands-on philosophy of continuously working our properties
and tenant base.
Finally, speaking for the entire Pan Pacific team, as excited and as confident
as we were two years ago with the Western acquisition in how it could transform
our company, we are even more excited and more confident with this transaction.
Pan Pacific will now be the only public shopping center REIT focused exclusively
on the West coast. We firmly believe this transaction will strengthen our strong
platform and leadership position in our core markets and will enhance our
ability to continue generating solid growth, consistently strong financial
results, and increased shareholder value.
With that, we'd be delighted to answer any questions you may have.
OPERATOR: Ladies and gentlemen, if you have a question at this time, please
press the one key on your touch-tone telephone. If your question has been
answered or you wish to remove yourself from the queue, please press the pound
key.
Again, if you have a question, please press the one key. One moment for the
first question, please.
The first question comes from Jeffrey Donnelly (ph) from Wachovia Securities.
TANZ: Good morning, Jeff.
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JEFFREY DONNELLY (ph), WACHOVIA SECURITIES, INC.: Good afternoon - or good
morning. Congratulations, guys. It looks like it's a good deal.
TANZ: Thank you.
DONNELLY (ph): Couple of questions - Stuart or Joe, I was wondering what you
could tell us, perhaps, about either 2002 or 2003 net operating income that
you're expecting to get from the Center Trust portfolio.
TANZ: You know what? I'm going to have Jeff answer that question in terms of NOI
from the properties.
STAUFFER: Well, we looked at whatever they had in place with existing leases for
the properties that we intend on retaining. It's a total of about $44 million
going in NOI. And that is for 2003 based on leases that have been executed and
are in place.
DONNELLY (ph): Is that net of dispositions?
STAUFFER: Yes, that's a net number of dispositions.
DONNELLY (ph): What would that be including the properties that are slated for
sale? Do you have a sense?
STAUFFER: It'd be around $60 million.
DONNELLY (ph): OK. And I guess in that regard, can you tell us what your plans
are around disposing of the two regional malls - I guess timing - and the
Arizona properties as pertains to timing and perhaps how you allocated value to
those properties?
TANZ: Sure. In terms of the malls, you know - great properties. Our plans are -
for Media City Center (ph) is to sell that asset after the merger closes. In
terms of Baldwin Hills (ph), we believe that there's a lot of value that's going
to be created at this shopping center over the next 12 to 24 months. After the
team at Pan Pacific creates - hopefully creates that value, we will (ph) also
considering selling that asset.
As it relates to Arizona, the properties in Arizona are great properties,
primarily grocery-anchored. We believe that we watch that market but over the
last several years going forward we will continue to focus on the strategy we've
always had, which is to stay in our backyard. As we all know, real estate's a
local business. So, we will over the next 12 months - maybe 24 months sell the
Arizona assets, as well, Jeff.
DONNELLY (ph): OK. And just one final question - the majority of the Center
Trust assets, I believe, are third-party managed. When do you anticipate, you
know, potentially bringing that in-house, or do you plan to keep it that way?
TANZ: No, we will bring - we will bring all the assets in terms of managing and
leasing in-house as soon as the transaction closes.
DONNELLY (ph): OK, thanks, guys.
OPERATOR: The next question comes from Steve Saqua (ph) from Merrill Lynch.
TANZ: Good morning, Steve.
STEVE SAQUA (ph), MERRILL LYNCH & CO., INC.: Hi, how are you? A couple questions
- one, could you just give us - I know you mentioned that you thought you'd save
a million-and-a-half dollars in G&A. What do you think your ultimate, I guess,
total G&A will be for `03, given this transaction?
TANZ (?): We're looking in the mid-$12 million range.
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SAQUA (ph): OK. And then, I don't know whether you guys want to answer this or
maybe somebody from Center Trust - could you just tell us what percentage of the
grocer stores are actually owned by Center Trust and what are more, you know,
shadow anchored?
TANZ (?): Jeff, do you want to answer that?
STAUFFER: Yes, I mean the portfolio has - is largely composed of grocery stores
that are owned by Center Trust. I'm trying to think . . .
TYSON: It mirrors - Steve, this is Joe - it mirrors Pan Pacific's portfolio as
far as owned versus non-owned. As far . . .
SAQUA (ph): OK. So you . . .
TYSON: Go ahead.
SAQUA (ph): So you guys control these as opposed to their being shadows.
TYSON (?): Correct. Correct.
SAQUA (ph): OK. That's it. Thanks.
TANZ (?): Great. Thank you, Steve.
OPERATOR: The next question comes from Rich Moore (ph) from McDonald
Investments.
TANZ: Good morning, Rich.
RICH MOORE (ph), MCDONALD INVESTMENTS: Hey, guys. How are you? Congratulations.
TANZ: Thank you.
MOORE (ph): Hey, I've got a number of questions here. I'll run through them real
quick. You can give me quick answers, if you could.
TANZ: Sure.
MOORE (ph): I can get through these.
Is there any collar on the - on the shares?
TANZ: No, there's no collar on the shares, but there is a floor. And that floor
is $25.
MOORE (ph): OK. And breakup fees?
TANZ: Breakup fees are about 7.5 million . . .
UNIDENTIFIED PARTICIPANT: Yes.
TANZ: . . . three - it's - we calculated three to four percent of the equity
value.
MOORE (ph): OK, and - OK, great. Thanks, Joe.
And what's the breakout of grocery-anchored in the Center Trust portfolio?
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UNIDENTIFIED PARTICIPANT: It's about two-thirds or - two-thirds of the portfolio
is anchored by grocery stores.
MOORE (ph): OK. And as far as national - regional, is it similar to you guys?
UNIDENTIFIED PARTICIPANT: Very similar.
MOORE (ph): The split?
UNIDENTIFIED PARTICIPANT: Yes, it's almost identical.
MOORE (ph): OK. Now, did I understand correctly? Stuart, just to make sure I
understand this - does Prometheus get any kind of board seat? I take it no.
TANZ: No, they do not.
MOORE (ph): OK. Any - how about looking at deferred cap ex on these properties?
How do you feel about them?
UNIDENTIFIED PARTICIPANT: There's virtually no deferred cap ex on these
properties. We've identified about five or six properties that we would come in
and do some minor cosmetic enhancements to, but for the most part, the
properties are extremely well maintained.
UNIDENTIFIED PARTICIPANT: Ned, Stuart and his team have done a great job with
these assets over the last several years, Rich, and the assets are in great
shape.
MOORE (ph): OK, OK, fabulous. Are there any Kmarts in that portfolio?
UNIDENTIFIED PARTICIPANT: Yes, there are. There's . . .
UNIDENTIFIED PARTICIPANT: There's one Kmart, Rich.
MOORE (ph): OK. And what are your thoughts on that Kmart?
STAUFFER: I'm sorry. Just to clarify. There is two. There's the one in southern
California; then also, in Phoenix.
MOORE (ph): I'm sorry, Jeff, where was the other one?
STAUFFER: In Phoenix - there's one in Phoenix and one in southern California.
MOORE (ph): And what are your thoughts on those two? I mean how are they
performing and, you know, how long would they last do you think if there's a
moderate amount of Kmart closings?
STAUFFER: Well, first of all, let me - let me rephrase that. The one in Phoenix
was not incorporated into our numbers. That is already closed. It's a vacant
building, so we assigned no income to that building.
MOORE (ph): OK.
STAUFFER: The second one is in-fill (ph) in Los Angeles, which we view as a
great - you know, given the demographics, we don't view it a risk. The rents are
below market.
UNIDENTIFIED PARTICIPANT: The rents are way below market and the sales are in
the top third in terms of what you typically see from Kmart.
MOORE (ph): OK. OK, wonderful. So, yes - so, yes, that's good. Any takers or
anyone looking at the Phoenix location?
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TANZ (?): Well, not at this time, of course, and - oh, excuse me - in terms of
the Kmart in Phoenix?
MOORE (ph): Yes, yes.
TANZ (?): Yes, actually the Kmart in Phoenix, Rich, is actually in great - it's
great real estate in terms of its location and the profile as it relates to the
location. So we're very confident that that property will be sold quite quickly.
MOORE (ph): OK. Oh, I've got you. Yes, absolutely. Are there any - now, are
there any units that Center Trust has
UNIDENTIFIED PARTICIPANT: Yes, there are about -- pardon? Yes, there are about
250,000 converted units.
MOORE (ph): And what of the - what happens to those?
UNIDENTIFIED PARTICIPANT: We'll convert them over into a down reach (ph)
structure.
MOORE (ph): OK. And let's see . . .
TANZ: And those unit -- will share in the benefits of all the shareholders.
MOORE (ph): OK. Absolutely.
OK, and were there other bidders for this or was this pretty much just between
Pan Pacific and Center Trust?
TANZ: Ned, I'm going to refer this question over to Ned.
FOX: OK. We ran an extensive process in 2001. The Board and management and
Merrill Lynch as our advisor looked at our strategic alternatives and ran a
process in 2001. And the result of that was that we concluded that there was not
a market transaction that was attractive to the company and that we would pursue
a business plan of running the company going forward and come up with another
approach of maximizing the shareholder value.
And we engaged on that business plan in 2002. Then about mid-2002, we did
receive interest from several parties in looking at a transaction and were able
to do this transaction with Pan Pacific as part of that, and that - the process
that we ran before allowed us to determine if this was a very attractive
transaction for the company and gave Merrill Lynch the basis on which to do
their fairness opinion (ph).
MOORE (ph): OK. OK. Great. And last thing from me is, Stuart, you were - you
were saying basically that you'd get another three percent growth in FFO per
share. That appears to just simply be coming from cost savings and, you know -
and just, you know, the NOI added to your current NOI base and not from doing
any thing that you guys would traditionally do to assets that you acquire. How
quickly do you think you might lease up from the 89 percent?
TANZ: In terms of leasing up from the 89 percent, you know, we will certainly
hit the ground running when the transaction closes, but given that the quality
of the portfolios really mirror the quality of Pan Pacific, we believe that
we'll be able to ramp that up probably over 12 to 18-month period.
MOORE (ph): OK, great. Thanks, guys. Congratulations again.
TANZ: Thank you, Rich.
OPERATOR: The next question comes from Mark Zezlaw (ph) from REIT Securities
(ph).
TANZ: Good morning, Mark.
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MARK ZEZLAW (ph), REIT SECURITIES (ph): Hey, Stuart. Joe, can you just - you
went through those numbers pretty quickly. The amount of dispositions that
you're planning to raise from this portfolio is - is it 175 million?
TYSON: Yes, Mark, it's about 177 million. And as a quick breakdown, 25 million
of that is already under contract to close by year-end, and those are Pan
Pacific assets. Really the tail end of the Western transaction. The balance of
the 177 really is one asset that is currently under contract that Center Trust
owns that will probably close before our transaction closes along with the
portfolio of properties in Arizona and the one regional mall, Media City (ph).
That makes up the balance of the 177.
ZEZLAW (ph): All right. So, the 25 million that are under contract currently -
that's - those are P&P assets currently.
TYSON: Correct.
ZEZLAW (ph): OK. That's it. Thank you.
TYSON (?): Thank you, Mark.
OPERATOR: The next question comes from Diane Wade (ph) from Clarion CRA (ph).
TANZ: Good morning, Diane.
DIANE WADE (ph), CLARION CRA (ph): Hi, Stuart. Two questions - first of all,
Jeff, can you repeat your comments on the cap ex? I missed that.
And then the second also I may have misunderstood the percentage of
grocery-anchored centers in CTA's (ph) portfolio - if you could repeat that as
well.
STAUFFER: Sure. Cap ex - there's very little cap ex required in the Center Trust
portfolio. We have about four or five shopping centers that we've identified
that have very minor cosmetic improvements. But other than that, it's - you
know, we're very happy with the overall maintenance and quality of the
portfolio.
WADE (ph): OK.
STAUFFER: And with respect to the portion of their portfolio that is anchored by
grocery stores, about 68 percent of their portfolio is anchored by grocery
stores.
TANZ: And Diane, that does mirror the Western acquisition, as well, in terms of
when we bought Western, they had the exact same or very close in terms of the
percentage of grocery-anchored centers.
WADE (ph): OK, and so that's on a GLA (ph) basis or total number of centers
basis?
UNIDENTIFIED PARTICIPANT: Number of centers.
WADE (ph): OK. All right. Thanks a lot.
TANZ: Thank you.
OPERATOR: The next question comes from Harry Schick (ph) from First Manhattan
(ph).
TANZ: Good morning.
HARRY SCHICK (ph), FIRST MANHATTAN (ph): Hi. I really have two questions. One,
since I'm the Center Trust - on the group, my first question is, "What is the
Board's philosophy of relating dividends to funds available for distribution?"
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TANZ: Well, the Board at Pan Pacific looks at the - its dividend policy every
quarter, and among that discussion, we look at many different things in terms of
the dividend.
UNIDENTIFIED PARTICIPANT: As far as we look at, you know, the projected cash
flow, the basis for REIT rules, you know, the - how we abide by REIT rules, and
then the projected next year's NOI. So, we continually analyze it, as Stuart
said, on a quarterly basis.
SCHICK (ph): OK. My other question is, "What proportion of the dividend is
likely to be return of capital this year or capital gain dividend?"
UNIDENTIFIED PARTICIPANT: We can't comment on that right now. We're just in the
process annualize - we look at that on a quarterly basis, also. So right now,
without having the information, I just don't think we should comment on that.
SCHICK (ph): OK. Thank you very much.
TANZ: Thank you very much.
OPERATOR: The next question comes from Tom Lofton (ph) from Wachovia Securities.
TANZ: Good morning, Tom.
TOM LOFTON (ph), WACHOVIA SECURITIES: Good morning. Just a couple different
questions - I may have missed it somewhere, but what is the date that the Center
Trust equity holders have to vote? Is there a drop-dead date, so to speak?
UNIDENTIFIED PARTICIPANT: I couldn't . . .
TANZ: The question again - can you repeat the question? We just had trouble
hearing it. We heard part of it.
LOFTON (ph): Sure. What is the date by which the Center Trust equity holders
have to - have to vote on the transaction?
UNIDENTIFIED PARTICIPANT: Well, it's - there's not a drop-dead date. It's
generally going to be 30 days after the S4 (ph) is approved.
LOFTON (ph): OK. And Stuart, you mentioned in the second quarter call that you
were seeing acquisition cap rates around the nine to nine-and-a-half percent
range. How does this - how does this compare to that range?
TANZ: Well, first of all, I think you've got to look at cap rates as it relates.
They're a lot different in terms of portfolio compared to one-off (ph)
acquisitions. My quotes in the second quarter call really related to one-off
(ph) acquisitions, so a portfolio acquisition is different. Joe, do you want to
comment on the cap rates? Or
TYSON: You know, I think in general, they're pretty much, you know, there's not,
you know, they're slightly north of where Stuart had quoted in the quarterly
conference call, but not that much. You know, we're looking California real
estate right now is in a downward trend as far as cap rates, so it's a very fair
price.
LOFTON (ph): OK. And as far as the - as far as the debt refinancing that's going
to take place, could you give us an idea on the timing of that and on - as far
as the unsecured goes, what the - what the expected term of that debt
refinancing would be?
TYSON: We're in the process of analyzing that right now. Could be - we're, you
know, through our maturity schedule, it could be anywhere from five to 10 years.
LOFTON (ph): OK. And what do you - what do you foresee as far as the timing of
that issuance?
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TYSON: Probably first quarter of next year.
LOFTON (ph): OK. Thank you, guys.
TYSON: Thank you.
OPERATOR: The next question comes from Jeffrey Donnelly (ph) from Wachovia
Securities.
DONNELLY (ph): We're all over today.
Just a couple follow-ups, actually - Jeff, concerning I guess the Center Trust
asset in Bakersfield, I know this is a little specific, but just reading through
their information, it would appear that property is vacant. Is that the case and
if so, how did you guys allocate value to it?
TYSON: Jeff, let me answer that. This is Joe. Actually, there was a property - a
larger property, Rosedale (ph), which was sold during the third quarter and then
there's a smaller property that's only about 14,000 feet where we assigned a
minimal value to it. But it's a very small property.
DONNELLY (ph): OK. And then, Joe, maybe this is also for you. I was curious what
this does for Pan Pacific's overall headcount.
TANZ: Headcount in terms of number of people?
DONNELLY (ph): Personnel. Personnel - yes.
TANZ: Well, that's a question for Jeff from the operational side, and Joe can
talk from the finance side. But in general, as a quick answer, Jeff, it's
probably going to increase our headcount by about eight to - probably eight to
15 depending on what levels of where we add in terms of the levels of the
company. I think as you know, we are fully integrated across the company
including maintenance at our properties, so we will also increase the
maintenance side, as well, which isn't in the number I just gave you.
DONNELLY (ph): OK. And just a final question as a point of clarification on the
177 million of asset sales, are those assets responsible for the differential
you gave us before of the $60 million gross NOI and the $44 million net NOI
you're expecting for next year?
UNIDENTIFIED PARTICIPANT: Yes.
DONNELLY (ph): OK. Thanks.
OPERATOR: There are no further questions. I would now like to turn the call back
over to Stuart Tanz.
TANZ: Great. Well, I wanted to thank everyone for joining us today. As always,
we appreciate your - we appreciate your support.
Joe, Jeff, and I are available to answer any additional questions that you may
have, as is Ned and Stuart. So please feel free to contact any one of us. We
look forward to seeing many of you at the NAREIT (ph) Convention this week here
in San Francisco.
So, again, thank you very much and have a great day, everyone.
END
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