Kite Realty Group Trust (KRG) 2005 Q4 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Kite Realty Group Fourth Quarter 2005 Earnings Conference Call.

At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [OPERATOR INSTRUCTIONS]. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. .Nick Laudido from The Ruth Group. You may begin sir.

Thank you Operator. By now you should have received a copy of the earnings press release. If you have not received a copy, please Guy Gresham at 646/536-7028 and he will fax or email you a copy. A copy of the December 31, 2005 supplemental financial package was made available today on the corporate profile page in the Investor Relations section of the Company’s website at www.kiterealty.com. The filing has also been made available to the SEC in the Company’s most recent 8-K.

The Company’s remarks today will include certain forward-looking statements that are not historical facts and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve known and unknown risks, uncertainties, and other factors which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements, including without limitation; national and local economics; business, real estate and other market conditions; the competitive environment in which the Company operates; financing risks, property management risks, the level and volatility of interest rates; financial stability of tenants; the Company’s ability to maintain its status as agreed for Federal Income Tax purposes; acquisition, disposition, development, and joint venture risks; potential environmental and other liabilities; and other factors affecting the real estate industry in general.

The Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission, which discusses these and other factors that could adversely affect the Company’s results.

Now I would like to turn the call over the President and CEO of Kite Realty Group John Kite.

Thank you for joining us this morning for our fourth quarter year-end conference call. With me today from our Senior Management Team are Chief Operating Offices, Tom McGowan, our Chief Financial Officer, Dan Sink, and our Senior Vice President, Finance and Capital Markets, George McMannis.

During today’s call, we will discuss our fourth quarter and full-year 2005 operating and financial results, our development and acquisition activities, as well as provide FFO guidance for 2006. As always following our remarks we will open the line for questions.

2005 was our first full year as a public Company, and we are extremely proud of our accomplishments. In summary, our FFO of $1.13 per share was on the high side of our most-recently issued guidance of $1.10 to $1.14 per share. We established a goal of $50 million to $75 million in development starts and began 10 development projects in 2005 at a total anticipated cost of $142 million. We established a goal of $80 in acquisitions and acquired 5 high-quality retail assets at a total cost of $111 million, which allowed us to geographically diversify our operating portfolio and reduce our exposure to any single tenant.

We successfully released the 2 boxes formerly occupied by Ultimate Electronics within approximately 3 months after the leases were rejected. We accomplished all of our goals while managing our balance effectively and controlling costs, including with respect to compliance with Sarbanes-Oxley.

Some of the highlights from our strong fourth quarter include funds from operations were $9.9 million, or $0.27 per diluted share. We transitioned 2 projects from the shadow pipeline to the current development pipeline at an estimated total cost of $21 million. We sold a commercial asset for $21.3 million, and we acquired 2 operating retail centers for $43 million.

In the fourth quarter, we experienced tremendous FFO growth of 34% and revenue growth of over 54% year-over-year. Our infrastructure supported this growth, and we are executing on our current development and shadow development pipelines. Our operating metrics, FFO payout ratio, debt-to-enterprise value, and fixed charge coverage are all solid and give us the ability to seize additional opportunities.

The increased capacity from the October 2005 follow-on offering continues to give us additional flexibility to fund our dynamic development pipeline. We have already utilized some of the additional capacity to acquire various parcels of land in Florida and Indiana. At the end of the year, our operating portfolio included 40 retail operating properties total 6.2 million square feet, an increase of nearly 35% over the course of the year. We were able to maintain the year-over-year occupancy rate of our retail operating portfolio while significantly expanding its size.

The quality of our portfolio as measured by its demographic profile continues to be very strong. In November we contributed $14 million, or an 85% interest in a joint venture that acquired Bolton Plaza Shopping Center in the suburb of Jacksonville, Florida. Bolton Plaza is 172,938 square foot community shopping center, which is currently 95% leased. The center is anchored by Wal-Mart whose lease expires in June 2008. If Wal-Mart vacates the center, we will aggressively pursue our redevelopment objectives for the property.

One of our Company’s strategies is to recycle proceeds from the sale of non-core commercial assets, developments, redevelopments, and merchant building activities into retail assets that expand and diversify our portfolio. In the fourth quarter, we sold Mid-America Clinical Laboratories, a single-tenant commercial asset that we acquired and redeveloped in 2001. We redeveloped it at a yield in excess of 10% and sold it at a cash cap rate of approximately 7%, which generated $21.3 million in proceeds including a $7.2 million gain. We then redeployed the capital into the acquisition of Market Street Village, a 149,000 square foot 100% leased community shopping center in the Dallas/Fort Worth area, our fifth retail asset in the market. This transaction allowed us to further diversify our tenant base by replacing a commercial tenant which represented nearly 3% of our annualized based rents to 5 national retail tenants, including Ross, Office Depot, and Joanne Fabrics.

Tom will now provide you with an update on our development activities.

In 2005, we successfully executed on our development strategy. We exceeded our goal of $50 million to $75 million in development starts by adding 10 new projects to the pipeline at a total estimated cost of $142 million. Despite increased construction costs and competition, we continue to see yields that justify our allocating capital to development. We invested approximately $75 million in raw land in 2005, over half of which is included in the $142 million of 2005 starts and are scheduled for delivery in 2006 and throughout 2007.

Remaining land is included in our shadow pipeline along with a number of other projects in various stages of the entitlement process. These projects represent future opportunities in late 2007 and beyond. Of the $75 million invested in raw land in 2005, approximately $47 million was in the State of Florida. Florida is a dynamic and high-growth market where we have existing operating properties and have developed successfully in the past. It is one of the key markets where we will continue to focus our development and acquisition efforts in the future. However, Florida is a difficult market to develop in because of the complicated and lengthy entitlement process. These difficulties create barriers to entry, which we believe translate into higher value creation for experienced and well-capitalized developers. Over time, we expect Florida’s share of NOI in our portfolio to increase.

Our development strategy continues to focus on creating high-quality neighborhood and community shopping centers anchored by nationally-recognized retailers. At the end of the year, we had 14 projects I the development pipeline for a projected total cost of approximately $176 million. The 14 developments are projected to total approximately 1.8 million square feet. The quality of our development portfolio is measured by its demographic profile continues to greatly exceed the national average and compares favorably to the majority of our peers. The estimated 2005 average household income within a 3-mile radius of our 14 development properties is approximately $84,000. We added 2 new projects to the development pipeline in the fourth quarter; Stony Creek Commons Phase II and Bridgewater Marketplace. The total estimated cost of these projects is approximately $21 million. Stony Creek Commons Phase II will be a 49,330 square foot shopping center in Noblesville, Indiana, a northern suburb of Indianapolis. This property is 100% pre-leased to HH Gregg and Office Depot. In addition, we own approximately 5 acres which are available for future expansion.

Bridgewater Marketplace is being developed as a neighborhood shopping center on 12 acres in Wattsfield, Indiana, also a northern suburb of Indianapolis. The first phase of the development will contain approximately 51,000 square feet, including a Walgreen’s, Junior Box, 2 Out-parcels, and small shops. We’ve placed an adjacent 8 acres under contract for the future expansion of the center.

In addition to these 2 projects, we entered into joint ventures in the fourth quarter to develop 2 parcels of raw land which are part of our shadow pipeline.

Dan will now summarize our fourth quarter and year-end financial results.

I would like to refer you to the earnings press release issued last night and our quarterly financial supplemental published on our website for full detail on our financial and reporting results for the fourth quarter and the full year.

For the full year 2005, FFO was $34 million, or $1.13 per diluted share. This is towards the high end of our most recently-issue guidance of $1.10 to $1.14. For the 3 months ended December 31, 2005 funds from operations were $9.9 million, or $0.27 per diluted share. This compares to $8.4 million in the third quarter, an increase of 18%. This is the first quarter we can make a meaningful year-over-year FFO comparison since the fourth quarter of ’04 was our first quarter as a public company. Our FFO is $9.9 million compared year-over-year to FFO of $7.4 million, an increase of 34%. On a per-share basis, FFO for the fourth quarter was level year-over-year primarily due to the diluted effect of the October follow-on offering.

Our same-store cash NOI, which now includes 33 properties, increased 2% year-over-year. This includes an approximately $3,000 decrease relating to Ultimate Electronics.

G&A for the fourth quarter was $1.7 million and for the year was $5.3 million, which is a conservative 5.3% of total revenue. This is on the low end of our previously-provided G&A guidance of $5.3 million to $5.5 million.

Going through our financial metrics, as of December 31, 2005 our fixed charge coverage ratio defined as using EBITDA divided by preferred dividends and interest expense was approximately a healthy 3.3 times. Our debt coverage ratio, defined as EBITDA divided by principal plus interest, was approximately 2.9 times. Our debt-to-market cap was 40% based on a quarter- end stock price of $15.47; 73% of our debt was fixed-rate with a weighted average interest rate of 6.13% and a weighted average maturity of 5.4 years. The weighted average interest rate for the entire portfolio was 6.09%.

Our floating-rate debt was 28%, or $104 million. However, approximately 82% of the floating-rate debt was in constructions loans or in land loans awaiting construction financing. The other variable-rate debt component was approximately 6% of our total debt.

The FFO payout ratio for the fourth quarter was 68% and for the year it was 66%. The AFFO payout ratio for the fourth quarter was approximately 88% and for the year was approximately 83%. We anticipate our AFFO payout ratio to be strong at approximately 70% by the third quarter of ’06.

As of December 31, $92.4 million was outstanding on our 3-year $150 million secure revolving credit facility, leaving $57 million of unused capacity exclusive of the $100 expansion feature in our current credit facility. The applicable rate on the facility continues to be LIBOR plus 135 basis points.

For the full year 2006, we have established FFO guidance in the range of $1.13 to $1.20 per diluted share. It is important to keep in mind, however that a portion of the proceeds from our October equity offering have been deployed in several development projects for delivery in late ’06 and ’07. While this guidance reflects a short-term diluted effect as a result of the equity offering, we remain confident that the proceeds raised in the offering are creating long-term value for our shareholders. Our guidance is based on the following assumptions; variable interest rates are based on the LIBOR forward curve, $45 million of acquisitions of operating properties at a cap rate of 7%, the time of lease-up and delivery of our development pipeline, able occupancy year-over-year, G&A ranging from $5.7 to $5.9 million, and give a relatively limited lease rollover and stable occupancy year-over-year, we would anticipate a same-store NOI of 2006 over 2005 of approximately 2%.

We would also anticipate the construction and service revenue net of tax will range from $1.7 million to $2 million. Due to the size of our Company, we continue to feel a disproportionate from certain events, both positive and negative. For 2006, the items that we think could impact whether we are at the high or the low end of our range include the specific timing of the development deliveries, the timing of our acquisitions, and the potential redevelopment of Glendale Mall, as well as tenant bankruptcies.

John will now provide some closing remarks.

In summary, we are pleased with our performance in the fourth quarter and 2005 as a whole. We will continue to execute on our strategic objectives in 2006 including our emphasis on expansion through development, which we believe has the greatest potential for value creation in the current market environment. Specifically, in 2006 our goal is to initiate $70 million to $80 million in new development projects which we anticipated will be delivered in late 2007 and throughout 2008. We are targeting acquisitions of $45 million of operating retail properties in 2006, and we will continue to focus on the markets in which we have experience. We will monitor our infrastructure and implement our disciplined approach to deploy capital in both selective acquisitions and new developments.

Thanks again for participating in today’s conference call. Operator please open the line for questions.

[OPERATOR INSTRUCTIONS]. Alex Goldfarb, Lehman Brothers.

Good morning; I just wanted to follow up for further clarity on the net construction income; I think you said like $1.7 million to $2 million. Does that include all merchant-build and land gains so the aggregate of all of those items would be in that $1.7 million to $2 million.

Yes Alex, the $1.7 million to $2 million primarily relates to our TRS, the Taxable REIT Subsidiary activity. We also would anticipated having potential out-parcel sale revenue and fee income from our joint venture partners as well as other development fees that could range in another $0.08 to $0.10 of FFO.

Eight to ten cents?

Yes, so what we’re looking at relating to the construction-fee revenue is third-party construction, potential merchant building sales, and service revenue from our advisory business.

Okay, so if I understand correctly it’s the $1.7 million to $2 million in the TRS, plus an additional $0.08 to $0.10 develop parcel and fee income?

Right, that’s correct.

Okay perfect.

Alex one thing to clarify; that $1.7 million to $2 million I provided was also net of tax.

Okay, perfect, perfect, okay; update on Glendale, I see there have been a number of news items regarding Old Navy, Target; if you could just provide us an update.

Alex, as it relates to Glendale, we had spoken on the last call about the fact that we are pursuing a specific plan on Glendale. We have increased our momentum as it relates to pursuing the redevelopment opportunity that we have in front of us. It is our hope that we will move through that process quickly. There are a tremendous amount of obstacles that we will need to overcome to be successful, but we have a very clear path to be successful with this redevelopment.

Okay, and by your comments it sounds like there is a potential for something to happen towards year-end?

That would be our goal.

Okay; my final question just a bit of a bigger picture, you guys have been actively buying both raw land and doing JV development deals, buying stabilized products; if you could just give us a sense in the current environment. Obviously all of these things are difficult to do, but which do you think is easier to do, which is more difficult, and just provide us what you think we’re more like to see this year.

Alex, are you saying which is easier to do or more difficult to do between acquisitions and development?

Well you’ve bought raw land; you’ve also done some deals where you’ve gone in with a developer who already had something locked down but needed a partner, and then you’ve also bought operating centers. The acquisition environment across all of those 3 items is extensive, it’s difficult to do. I’m just wondering from the deals that you guys are seeing if one of those areas seems a bit easier or you think that you guys have a b it more of an advantage?

Well, I think it’s great that we can do all 3 of them, and I think that’s one of the things that we need to make clear is our ability to execute on those various development and acquisition activities you’re referring to. Obviously, from the standpoint of doing an acquisition relative to either a ground-up development, a joint venture development the acquisition isn’t necessarily easier, it’s just faster. And so whenever we can find those opportunities to buy high-quality centers that meet our return parameters, we want to do that, and I think you see we are obviously saying that we project to be doing less of that this year because it has become more difficult to find high-quality centers that meet our objectives.

From there, the development process, you’ve heard us say before we want to be able to see as many development opportunities as we can so we then can vet them and determine which ones we want to do. And that’s why we’re doing both wholly-owned developments and joint ventures. I think Tom can talk to the, how important it is to us that we have both of those.

Alex, from a raw land perspective, it’s an interesting issue and raw land is absolutely a necessary evil. Due to the fact that our current development pipeline is concentrated 30% in the Sate of Florida an dour shadow pipeline 50% in the State of Florida, the requirement to acquire raw land is a necessity due to the long entitlement processes and the complexities of working in that state that requires us to come in, acquire the property and then work through that long process. If we were unable to do that, did not have the capital, we would lose each and every one of these opportunities. So each and every one of these are very important, and as John said from a joint venture perspective we have a great group of people here, we have tremendous reach as a Company, but through our joint venture relationships, we are able to see far more opportunities as a Company, and that’s why that will continue to be one of our key strategies.

Thank you.

Eric Rothman, Wachovia Securities.

Good morning; I just wanted a little bit more follow up on Glendale. I guess, from your comments should we assume that you’re maybe not searching for replacement tenants for Casual Corner and Old Navy at this point.

That would be a fair assumption at this time. Our redevelopment objectives include utilizing that space where we have had a loss of tenancy, so our plan is very clear. We will move forward with very serious discussions with the tenants that we’re focusing on, so your assumption is correct.

Eric, the thing I would add to that is, and we’ve talked about this a little bit before, since we have a specific, we’ve now kind of gone into a rifle approach with a very specific redevelopment plan. We are pursuing that plan and during that time, we are essentially talking to other tenants that could be back-fill opportunities, but that is secondary to the primary redevelopment objective. But we’re still going to continue to have conversations such that if this primary redevelopment does not occur, we have people in the hopper. So I think that’s what we mean by that.

And how much rent did Casual Corner and Old Navy generate if you could remind us?

Old Navy I think Eric was, we were in there for I believe $8.00 a foot and Casual Corner was about, they were on a percentage deal and I think it averaged out to about $75,000 a year.

Okay and I guess the gross for the Old Navy -- how big was their space?

Old Navy space was approximately 25,000.

Okay, so we’re looking at about three-quarters of a cent kind of a loss in top-line revenue from the loss of those guys; is that accurate?

That’s reasonable, and we have factored that in as well as our budgeting process.

Sure, but the fourth quarter would include rent for the whole period for both of those stores?

Yes, that is correct.

What’s the occupancy of Glendale today.

From an occupancy pe4rspective, there’s a potential that it could drop below 80% and we are assuming for right now that it’s at 81%, but we realize that tenancy percentage could drop through the end of the year.

And how much rollover is there during the rest of the year?

For Glendale?

Yes.

For Glendale we’ve got probably 22 month-to-month tenants, which gives us some advantages with what Tom has been discussing. So we’ve got, there’s a fairly good amount of rollover in the interior part of the mall, but as far as the other anchors such as the movie theater and Staples, they’re secured for a longer period of time.

Sure, so if you were moving pieces I guess as you’re trying to do this redevelopment, you’ve just kind of got some big--?

That’s correct; I mean the nice part about the redevelopment objective is that we’re going to maintain the primary components of our tenancy and at this point, then we can really work on the in-fill component which is the largest problem for us as a property.

Sure; changing topics just briefly, the Atlas Supermarket site in I think it’s Noblesville on the 5600 block, have you acquired that?

Yes we have acquired that property. It was a very sought-after piece of real estate. We made a very rapid move along with quite a bit of competition. We actually purchased the property for $2 million, and we are now in the process of working on a development plan.

And I know it’s quite a small site; what’s sort of the, I guess what do you envision at the moment?

We have not come forward with a specific development plan. This is a highly-sensitive site and we are assessing numerous options, but it will likely include retail components and potentially a mixed-use component as well.

so that’s more of an ‘07/’08 or even later.

There is an opportunity that we could push forward with that project in a more rapid fashion; however, from an entitlement perspective there are a few obstacles that we will have to overcome before we can establish a specific start date.

Eric, I mean it’s a relatively small deal, so it’s an exciting deal but it’s relatively small, so the impact either way isn’t major. Tenant interest is very high and now we need to figure out the best way to approach the deal.

Great; and then just lastly with respect to Marsh Supermarkets and their situation, do you anticipate or have you looked into the need to perhaps take a write down at either Naperville or Guist, and if you could update us on the situation at Guist whether or not they’ve taken occupancy or kind of how that’s worked out.

Yes, as far as right now similar with all of our properties we go through an analysis for impairment and currently Marsh is paying rent at both of those locations and is current on the rent. They have not occupied the Guist store to date but they are current on the rent from the rent commencement date.

Is it ambition that they will take occupancy or not?

I think right now, you’re talking in terms of the Guist location?

Yes.

We’re frankly ;pushing pretty hard on our side to find alternative users for that space and as Dan said we don’t know what they’re going to do relative to whether they want to occupy the space. But what we do know is that we want it occupied, so since they’re current on their rent, we’re going to continue trying to find other people in the meantime. The shell is built out so it’s really a matter of TI, and in fact in their particular case of that lease, they’re responsible, that’s their cost. So we’re in a nice position where we have not expended that capital for the TI, but the shell has been built, they’re paying rent, and obviously with the overall situation with the Company, we’re sensitive to the fact that we may, it may be a space that we need to fill, and being it’s only 20,000 square feet, it’s a relatively small space in a very good location, and we feel very good about that.

So we’re obviously monitoring the overall situation with them, which we’re very well aware of and we’re taking the appropriate actions.

And then the other tenants at the center, have they, is the rest of the center filled out?

I think the entire center is 84% leased. We’re continuing to lease it up.

Okay, so that’s 84% including Marsh?

Yes, that is correct, and it’s a high-growth area, and the center is doing very well, so that is the positive side.

And again, the center is, I think it’s only a little over 60,000 square feet Eric, the total center; for organic growth, very small.

Thank you very much.

Ken Avalos, Raymond James.

Hey guys; any changes to your tenant watch list sequentially or throughout the year, any particular tenants moving on or off?

I think obviously March Supermarkets is clearly high on the list from the recent events that we’ve discussed. And as always we’re watching and thinking through them. Circuit City obviously has been on our watch list and has been performing much better over the last 2 quarters, so we feel good about that. But we still are monitoring them. And then from there, I think it’s really spread throughout, we don’t view any one single major tenant as a problem at this point.

Great; how are the side-shop tenants doing from your perspective?

I think from our perspective the small-shop tenants are doing well. Again, when you look at the lease-ups that we have there’s a lot of lease-up to be done in the small shops so we’re aggressively pursuing them. But the deal flow remains high and you’re always going to have a few small-shop tenants have struggles, but fortunately there’s no major exposure to small-shop tenants for us.

Thanks guys; that’s it.

Dave Fick, Stifel Nicolaus.

Good morning; I wasn’t around for this so I hope you can refresh me. What was your original guidance for ’05?

Original guidance before the equity offering initially went out as $1.15 to $1.25.

Okay; your $176 million pipeline, can you just sort of detail what net affected portion of that is yours after considering JV interest?

From a development pipeline standpoint, we do have several joint ventures, the largest of those being Astero Down Commons in Naples, Florida. That was a tremendous opportunity for us for the joint venture partner throughout the property in a semi-entitled basis. So that was a tremendous opportunity for us. I’m looking to see if there are others. Mayersville would be another property that would be considered on the joint venture side; that is a project out in the Pacific Northwest. Once again, it was a developer that’s very active in that market, brought us a tremendous opportunity.

So from a joint venture standpoint on the development pipeline, those are really the key ones. Others included in that would be Beacon Hill and then in the future we will continue to add additional joint venture relationships that we will likely talk about in the next call.

Dave it’s about $60 million, a little over $60 million of the $176 million.

Okay; when you consider, I know every deal is different and every market is going to have a slightly different answer, but in aggregate it’s looking like you’re building, am I right, at about $98 a foot? And if that’s correct, what are your pro forma net rents and current stabilized deal targets on average when you’re entering into new development?

From a cost perspective, a lot of these costs are tied back to the specific center. The economies of scale are incredible the larger the center. If you have a larger center in the 200,000 to 300,000 range, you can pick up $20 to $30 a square foot. If you look at total project cost, a lot of our total project costs are in the $210 to $215 square foot perspective. From a market standpoint, the variances are also very dramatic. If Florida where we’ve had situations where we have to fill through a borrow-fit type scenario, that’s a situation that drives costs tremendously as well. It’s very difficult to pinpoint from market-to-market those costs.

Okay, well I guess you’ve said you have 1.8 million square feet for a total development cost of $176 million, but the math there, what am I missing?

Dave what you’re missing there is that is the total GLA including the shadow anchors that would acquire their property. Like let me give you an example; at Tarpon Springs, Super Target has acquired their parcel; therefore, they are included in the total GLA as a shadow linker but not as part of the owned GLA.

Okay, that explains it; it seemed very low. How about the question on pro forma net rents for in-line space and stabilized NOI targets?

I think the small shops are generally in the 20 range; as you know Dave, sometimes that’s 21; sometimes that’s 27, but generally in the 20s. And then on the anchor tenants, it’s generally between 10 and 14. And then your question on, you also had a question on I think on returns; I think, and we’ve talked about this quite a bit, that in general, obviously returns have compressed and we look on a go-forward basis to be conservative. We’re thinking our returns are slightly above 9 on a cash return-on-cost basis.

Okay, you mentioned in your explanation for the wide guidance range Glendale; is that because of taking space out of service? I assume that there’s not a lot of upside that you would assume this year so it’s a matter of timing as to perhaps to the downside. Is that the answer?

Dave that’s correct; I think the upside if we complete the plan that we’re discussing would probably be implemented in ’07. when you look at ’06, we’re looking at it form the perspective as once we go through and if we can execute on this plan, there’s a lot of variables that could come into play regarding the tenants that are there today when we’re going under construction. So I would say in ’06 it’s more on a down side and if we get this done from a guidance perspective, it would then be perceived as increased value.

Exactly, so to the extent you have success there, you probably have lower earnings this year.

I would agree with that. Depending on what we can negotiate and how we can work through the process on not hindering the business of the current tenants.

And I think we factored that into the range.

And what was your rent spread this quarter?

The rent spreads we had, we’ve been pretty consistent as being over 7% each quarter, but again those renewals, for the full year we’ve signed 22 renewals and we’ve been fairly consistent that those rent spreads on a cash basis have been 7%. That also does not include options which options are typically to COP 3% roughly.

Okay; and then other property revenue was up pretty substantially quarter-over-quarter. What was that?

Let me walk through that; the quarter-over-quarter, and primarily what has related, we try to be descriptive and we probably need to do a little better job of describing the sale of a Walgreen’s and how we handle build-to-suits. What’s in that property-related revenue for this quarter is we have percentage rents about $801,000; 100% on out-parcel sales about $630,000; a JV out-parcel sale before minority interest and tax $267,000; and the net gain from the sale of a build-to-suit activity of $1.2 million after minority interest.

So when you walk through all that, that pretty much adds up; quarter-over-quarter if you pull out the Cornelia sale of $1.2 million, you’re pretty flat.

Okay great, thanks; and then lastly what happened to the cold?

I don’t think we can comment on that Dave.

Okay thanks.

Rich Moore, KeyBanc Capital markets.

Hi good morning guys; going back to Dave’s question for a second, I mean when I look at the footnote on page 13, maybe I’m a little bit confused here but it looks like the Walgreen’s sale is in the construction and service-fee revenue; Dan is that right?

Yes, what Rich, and again when we’re walking through this apologize, what we tried to disclose there and what we’re trying to walk through is there’s 2 components to that. We had some construction and service fee revenue that is deferred until the time of the sale that is going through the construction and service fee revenue line items. We also have the net profit of $1.2 million that’s going through other property revenue. So if you roll all that up, the net effect of the Walgreen’s sale to the FFO per share after tax and after minority interest is about $750,000.

Okay, I got you. And then just while we’re on that line item, it seems that if you pull out the $5.4 million of revenue and the $4.1 million of expense that you mentioned in that footnote, you end up with a sort of flat, actually down margin for the construction business. Is that right?

Well, it’s hard to just pull that out and say that it’s flat because that is part of the business. When you look at it over the year and determine where we were when you add in the $1.3 million from the sale of Walgreen’s you had about $3 million. So net of that for the year, you’re at about $1.7 before tax, which I think is consistent; we’re planning on even increasing that year-over-year.

Okay, so you still feel comfortable I guess guys about the margin for that business?

Absolutely; we are, a lot of the projects that we’re doing now, we don’t go out and hard bid projects unless we’re fairly comfortable. Most of the work that we do on those is negotiated work, work on our joint ventures, and/or construction management where there’s no risk.

Okay, very good; and then when I look at the pipeline, it seems like you have about $70 million more to fund and another $80 million that you want to star, and then $45 million of acquisitions. I mean, I look at the balance sheet; what did you guys model, or how did you think about I guess paying for all of that?

Right, as we do on most of the projects, we will take down land with a line of credit but the objective is when lease-up comes through we will move that to construction financing. As we plan the year and look at our capital plan we feel very comfortable with the amount, with where our leverage will be and where our capacity will be as we go through this year based on our current plan.

Okay so Dan, suffice it to say you didn’t model equity in for this year?

We did not model equity in for this year.

Okay, okay; and then also looking at the pipeline, it looked like 2 of the properties, 2 of the development properties, Tarpon and Naperville slipped a quarter. Am I reading that right from the last supplemental? Maybe I didn’t get it quite right.

Rich, from Tarpon’s perspective you’re absolutely correct. Following the hurricanes, we had to secure permit through Water Management and we were pushed off an agenda 2 consecutive months just due to the tremendous flow of applications. So we did absolutely get pushed back. We are now in a position that we were at the core for final permitting and should be ready to go here within the next 30 days.

As it relates to Naperville, similar situation; we did get pushed back about 45 days on Naperville due to the fact that we got pushed off an agenda from an entitlement standpoint. However, those are really the only setbacks that tied to the projects from a construction delivery standpoint and from a general development perspective; everything stayed on line. It was purely tied to the entitlement process.

Okay, okay great; and then the reason -- I guess my last question -- the reason for the higher G&A, which isn’t that much higher I guess, but what, I guess as going on there?

And Rich, on the last call I know I was clear in mentioning I still felt that we were going to be within the guidance range of 5.3 to 5.5; the biggest push on that is when you get into the Sarbanes-Oxley, the testing and the walk-throughs are the most intensive part of that process, and even though we were on budget, or maybe 6% over budget, which we were very happy with, it still is an issue of jest getting through the process and making sure that intensive part is completed in a timely manner. And that’s where a lot of the expense flows through in the fourth quarter, and it’s hard to judge that to accrue on a quarterly basis.

And then the 10% roughly increase for next year is, what is that from basically?

I mean, our thought on that as we continue to grow, and we want to have the capacity to add a couple people; we have got people, additions that as we continue to grow we will look to increase our team here so we can take it to the next level.

And Rich I’d point out that even with that 10% increase that we’re projecting 6%, that would still keep us based on our projections a little bit over 5% of total revenue. So I would counter you and say that that’s one of our strengths, that we manage costs extremely well, and we’re going to continue to do that even throughout that much growth. And I think that as Dan said, we’re really looking hard at what the next step is for us in terms of people, and likely to be looking to potentially have development people in specific areas that we’ve talked about in the past. And that would also be part of that thinking.

And again, G&A to revenue of just over 5%, I mean that compares very favorably.

That’s a great point John; thanks guys.

Paul Adornato, Harris Nesbitt.

Thanks good morning; just a couple of quick questions. You mentioned fourth quarter same-store NOI growth number of about 2%; I was wondering what that would have been ex-Ultimate Electronics.

I think it would have been in the neighborhood of about 5% to 6%; it adds about $300,000 because of our size. That’s a pretty, that number moves around.

And so why is the same-store projection going forward still in the 2% range?

I mean the biggest part of that is if you look at our lease rollover, you walk through that we only have 84 leases rolling 2006 and of those 84 leases right now we have visibility on 44 of them that we feel that we’re going to renew and typically those small shops renew at a 3% growth rate. If you look at the annualized base rent that’s being generated by those 84 leases and you put a 3% growth factor on that, it just doesn’t move the needle that much; it’s like $70,000 to $80,000. but if you factor in a lot of that same-store will be, we transitioned a development property to the operating portfolio and we get additional lease-up on that after it comes into the operating portfolio, that’s where you get a little bit of your push.

Okay, okay, and finally given your development exposure you have exposure to probably more new retail concepts or even test concepts. I was wondering if you could talk about that a little bit; what is your exposure to newer retail concepts, and in general as the property owner, what additional risks there might be owning a new retail concept.

Paul actually if you look at our development, our current development pipeline and then what we know in terms of our large shadow pipeline, the majority of what we have both in the current and the shadow, the majority of that are big-box oriented, and frankly the majority of those are going to be very similar to deals that we have done in the past that really don’t have much exposure to kind of the newer concepts that you’re referring to.

On the drawing board in terms of what’s happening in ’06 and ’07, I don’t see us doing a major lifestyle center for example in ’06 or ’07; that would be probably beyond that in Delray Beach, which would be beyond ’07. And when you get into that kind of center, you are going to have a few new or unique concepts because of the nature of it. But in the power centers that are really on our agenda for ’06 and ’07, it’s the traditional targets, Bed, Bath & Beyond, Staples, those kinds of tenants that we don’t feel are any major kind of exposure.

Okay great; thank you.

Jeff Donnelly, Wachovia Securities.

Good morning guys; actually I just had a couple of follow-ups. On Glendale, could you guys share with folks maybe what kinds of terms you’re underwriting on that redevelopment and where your costs are?

We have not shared those with anyone at this point. From a cost perspective, it could be a project that could range somewhere between $18 million and $20 million. It’s just too early at this point to talk about potential returns. There are just so many variables that we’re going to have to deal with. But the numbers that I’m talking about, $18 million to $20 million would be new invested dollars as part of the redevelopment.

Suffice to say Jeff, we’re obviously doing the analysis to make sure the returns that we would generate by the redevelopment in excess of what we think we could get by holding it.

Right I guess that was my next question because you could argue that holding probably is subject to some value or income deterioration; I guess another way of asking do you think the marginal dollar going in is an accretive proposition to the Company?

Absolutely.

Okay, it’s not purely like defensive if you will.

Definitely not defensive and it will give us a long-term NOI that is in excess of where we are operating right now, and if you look at the numbers and you go through the various comparisons of what we could and could not do with the property, this is absolutely the most positive approach that we can take with the assets.

Is there a chance that this maybe doesn’t have a retail use, or is it more of a mixed use project in the plan that you’ve conceived?

In the plan that we’re pursuing, it would be 100% retail. There is an opportunity on maybe one of the smaller spaces to go with an alternative use, but I think this is going to end up being a very straightforward center that falls in line with our core assets.

Okay, and I guess are there dates associated with maybe some of these key hurdles that we can all think about I guess to make sure this is moving down the pipeline?

Are you speaking in terms of Glendale specifically?

Yes, just Glendale specifically.

I would say from a key hurdle perspective, and I’d prefer to not get into too many specifics because of all the issues that we need to address as a Company to be successful with this redevelopment, but it is our hope by June that we’ll be able to be far more specific in terms of exactly who we are dealing with and the way in which we’ll hopefully deliver the property.

And then just 2 last questions; one on Glendale; any co-tendency issues with the departure of Old Navy or Casual Corner that triggers renovation rights, rent abatement rights, or anything like that just because of lower occupancy or the loss of those guys?

There would be one tenant that would be affected by that, and that is it.

Okay, but nothing meaningful I guess.

I don’t think there would be anything meaningful that wouldn’t be addressed as part of our redevelopment plan.

And then last question is I guess for John; so much attention is paid to the rising costs of development inputs, steel, concrete, land; have you seen any plateau to any of those costs or do they continue to increase?

I think we can talk about this a length, but in general we’ve been talking about increasing costs for at least the last 3 quarters. And we’ve been very aggressively working to mitigate it through the fact that we do have our own construction group. So there has been some plateau in general, but you can’t ever say that you know that it’s over. And I think that we’re just managing our developments now to the extent that we’re underwriting them with very conservative approaches to costs, which is why you see us saying what we’ve said relative to returns and relative to our kind of risk management business. I think not a lot of the development companies talk a lot about their risk management, but we have an extensive process that we go through to really look at risk-adjusted returns, and that’s a big part of it Jeff, is how underwriting is.

So I would say for my opinion we realize in the balance of our ’06 development and our ’07 projects that we have a good handle on those costs and we have underwritten them appropriately.

And one other point just to be a little more specific; there are stabilizations in many of the commodities, steel and others, but then as soon as you get comfortable with some of those key items, then other things will pop up, PVC, engineered fill just to the fact that there is a run on that in Florida in terms of finding areas that are located from a borrow-pit perspective. So you hate to say that we’re 100% through because I do not feel like we are. Other items are continuing to pop up as others stabilize, but John is right. If you look at the call last time, we hit it head-on and we’re going to keep hitting it head-on because we understand the effects, we understand the labor components having been in construction as long as we have, we understand how that works. And we just need to continue to battle and make good decision and address is head-on.

With that said, the spreads are still tremendous Jeff, I mean these are tremendous spreads from cost to value but we still feel great about the business.

Okay thanks guys.

[OPERATOR INSTRUCTIONS]. Phil Wilhem, Stark Investments.

I was just wondering if you could provide any guidance or information with respect to your expectations for 2007. Obviously, everyone is focused on ’06, but I think you guys are really well positioned for ’07 and I know you can’t be terribly specific, but I was wondering whether there was any type of guidance you could provide.

Well, we can’t be specific in providing guidance from an FFO standpoint, but I think we can be specific in saying that we believe 2007 is a very important year and that the majority of what we’re involved I thinking about every day is 2007. As you can see from the development pipeline, the majority of 2006 is funded and we are moving forward with the balance of ’06 and finishing out the lease-up of the projects, and as Tom said we’re delivering the majority of what’s left in ’06 on time and on budget.

So 2007 obviously it’s not difficult to look at what we’ve projected our ’06 starts to be and what we obviously have left to finish in ’06 from the current pipeline and to start looking at that and saying there could be very good opportunity for growth in ’07.

Okay thank you.

Mr. Kite I show no further questions in queue.

Thank you; I’d just again like to thank everyone for being on the call and we are very excited about the balance of the year in 2006.

This concludes today’s conference. Thank you for your participation.