Kite Realty Group Trust (KRG) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2008 Kite Realty Group Trust earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (OPERATOR INSTRUCTIONS) As a reminder, this conference call is being recorded for replay purposes.

I will now turn the call over to Adam Chavers, Director of Investor Relations. Please proceed.

Thank you, Operator. By now you should have received a copy of the earnings press release. If you have not received a copy, please call Kim Holland at 317-578-5151 and she will fax or e-mail you a copy. Our June 30th, 2008 supplemental financial package was made available yesterday on the Corporate profile page in the Investor Relations section of the Company's website at kitereality.com. A filing has also been made available with the SEC in the Company's most recent form 8-k.

The Company's remarks today will contain 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. Such 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 a REIT for Federal income tax purposes, acquisitions, dispositions, development and joint venture risks, potential environmental and other liability and other factors effecting 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 effect the Company's results.

On the call today from the Company are John Kite, Tom McGowan, and Dan Sink. Now I would like to turn the call over to John Kite.

Thanks, Adam. And good morning and thank you all for joining us for our second-quarter conference call. Since our last call, we have made progress on important strategic financing and leasing initiatives which are designed to increase liquidity, execute on our development pipeline, and strengthen our operating portfolio. We are pursuing a capital strategy with the twin goals of managing debt and increasing available capital for future opportunities. While we are continuing to evaluate potential joint ventures and funds with institutional investors, we recently took steps to increase our liquidity by agreeing to a $60 million three-year unsecured term loan arranged by Keybanc Capital Markets. Our initial draw of $30 million has allowed us to pay down a portion of our unsecured credit facilities.

We remain focused on our balance sheet and debt maturities. As of 2007, we are aggressively engaged in refinancing our upcoming debt maturities. Utilizing our long-standing relationships with local and national lenders, we are confident that we will be successful. We are carefully monitoring retail activity and a potential impact on our operating portfolio.

But while some tenant defaults and closures may be inevitable, we are focused on turning those challenges into opportunities by backfilling with high-quality tenants. For example, we mentioned on the last call that Circuit City closed its location at Sunland Towne Centre in El Paso, Texas. We have already signed a lease with Bed Bath & Beyond for the majority of the space and will convert the remaining 7,000 square feet into attractive end-cap small shop space. We are also in negotiations with a national retailer for the other junior box vacancy at this center. While these kinds of tenant closures may present challenges in the short-term, we believe these challenges will ultimately leave us with a stronger tenant base and more valuable assets.

Despite the volatility that we have experienced as a result of these recent junior box vacancies, our same property lease percentage held strong at approximately 94% and our same property NOI lightly increased. Excluding the junior box vacancies, our same property NOI would have increased 90 basis points for the quarter and 130 basis points for the first half of the year. Again, we believe these short-term blips in our metrics will be more than offset by the rise in tenant quality and leasing momentum that we are achieving over the longer term.

In this kind of environment it is particularly important to focus on recruiting and maintaining a diverse roster of quality tenants. During the second quarter we executed 21 leases and renewals at attractive rates. For previously occupied space the leases represented a 22% cash increase over the previous rent. For the first generation space our average rental rate was approximately 79% above the portfolio average. Our leasing team is focused and highly motivated to continue this positive momentum. We are currently negotiating nearly 50 additional leases and dozens of LOIs.

I mentioned our diverse roster of quality tenants. Diversity and quality are core components of our leasing strategy. Our focus on leasing to strong credit tenants remain one of our strengths, and we believe that it is important that no single tenant constitutes more than 3.4% of our base rent and that our top 25 tenants comprise less than 40% of our annualized base rent. The quality and draw of our anchor tenants greatly contributes to our ability to lease and backfill vacated space.

As we have said in the past, we remain committed to managing the risk in our development business. We continue to maintain high levels of preleasing in our current development pipeline and all of our anchor tenants are in place. The presence of retailers like Target, Publix, Ross, Whole Foods and Kohl's, just to name a few, is critical as we work to fill the remaining small shop, junior box and restaurant spaces. While the economic environment remains difficult, we are very encouraged by our leasing and financing initiatives in the second quarter, and we believe that our strategies put us on the right path for long-term success. Now I would like to turn it over to Tom.

Thank you, John. In the second quarter, we continued to make progress on the projects in our development and redevelopment pipelines. The seven projects in our current development pipeline are 78% preleased, but only 20% occupied, which represent future NOI growth. The majority of our risk in the pipeline continues to be limited to construction execution and the timing of deliveries.

We had a couple of changes to the development pipeline during the second quarter. First, we moved Phase 1 of South Elgin Commons into the current development pipeline. Phase 1 will consistent of a 45,000 square foot LA Fitness, which is estimated to have a total project cost of $9.2 million. We delivered their pad in June and anticipate that the project will open in the second quarter of 2009. South Elgin Commons is shadow anchored by Super Target and we expect to move the reminder of the project into the current development pipeline and commence construction only after additional junior box leases are signed.

We moved our 54th and College project out of the current development pipeline and into the operating portfolio during the second quarter. The Fresh Market has opened and commenced paying rent. This was a successful low-risk project for us and a great match between tenant and location.

Finally, we moved Bolton Plaza into the redevelopment pipeline. As anticipated, Wal-Mart moved out of the center at the natural expiration of its lease and relocated into a larger format store. We are currently pursuing a redevelopment plan. Bolton Plaza will be another example of our strategy of repositioning an asset and improving its value.

We are pleased that our complex redevelopment strategy for Glendale Town Center has proven to be successful. Target opened in late July and, overall, the project is 88% preleased. Construction recently concluded on the building to the north of Macy's, and major tenants including Famous Footwear and the Indiana University Medical Group have opened for business. Our redevelopment strategy has captured the true value of this asset by leveraging its infill location and demographics.

Another development property with a great deal of activity is Eddy Street Commons at the University of Notre Dame. Since the last call, we closed our deal with the University and held a groundbreaking ceremony in early June. Site work is well under way and we are scheduled to open the first phase of the project, which is 61% preleased, in the fall of 2009. Residential sales will begin later this month and we have an executed letter of intent to construct several housing units for the University. Eddy Street is a high quality project that has generated significant excitement.

With respect to the visible shadow pipeline, we continue to make meaningful progress on Parkside Town Commons near Raleigh, North Carolina and Four Corner Square near Seattle, Washington. We recently signed a lease with Publix at Delray Beach Marketplace in Delray Beach, Florida, which will join Frank Theaters as the two anchors occupying approximately 120,000 square feet.

In summary, although retailer activity has slowed on an industry-wide basis, we are very pleased with our leasing and the current development pipeline and encouraged by the leasing progress we have made in the visible shadow pipeline. I will now turn the call over for Dan to summarize our financial results.

Good morning. For the three months into June 30th, funds from operations were $0.31 per diluted share and $0.62 per diluted share for the six months ended June 30th. Our other property-related revenue for the quarter includes net gains on land sales of $2.2 million and lease termination fees of approximately $300,000. A portion of the lease term fee relates to the Barnes and Noble space at Plaza at [Teeder Hill]. The lease was set to expire in late 2008 and we negotiated an early termination. We are currently finalizing an LOI with a high-end regional grocer for the space.

The construction service fee net margin in the quarter was approximately $1.3 million or 18% before tax. For the six months, the net margin was $1.8 million or approximately 17% before tax. G&A expense for the second quarter was approximately $1.3 million or 3.6% of total revenue. G&A declined in the second quarter from lower legal, professional compensation and other expenses. We anticipate G&A expense for the year to be at the lower end of our previously provided guidance of $6.5 to $6.7 million.

Our financial metrics continue to be in line with our expectations. Our fixed charge coverage ratio was approximately 2.6 times. Our floating rate debt was 32% of our total debt and approximately 15% of the total debt was in floating rate property-specific construction loans and our AFFO payout ratio for the quarter was 79%.

As John mentioned, we entered into an unsecured term loan agreement arranged by Keybanc Capital Markets. This loan is priced at LIBOR plus 265 basis points and matures in July of 2011. $30 million of the loan has been funded and we received commitments on an additional $25 million, which should fund prior to August 31st. We are in negotiations with a lender for the remaining $5 million. We are evaluating the timing and terms of an interest rate hedge to fix the interest rate for the term of this loan.

As of the end of June, we had approximately $43 million of cash, and cash and credit line availability. After funding the term loan and the planned transfer of targeted development projects into property joint ventures, we anticipate having between $75 million and $100 million cash and credit line availability. We are also evaluating sale of an unencumbered operating retail asset and a commercial asset that would generate approximately $25 million to $30 million of additional liquidity as well as reduce leverage.

We wanted to take this opportunity to provide some additional color on the low maturities over the next 12 months. Today we have approximately $190 million of 2009 consolidated debt maturities, the majority of which are in construction loans. We have extension options on $75 million. We are negotiating construction loan extensions and/or mini perms for $57 million and there are fourth quarter maturities of $49 million that will be addressed throughout 2009. Finally, we are in the process of converting the final $9 million to a construction loan. We have revised our earnings and FFO guidance for the full year of 2008 to a range of $1.25 to $1.30 per diluted share. This change reflects the higher interest rate on the new term loan, inclusive of the anticipated interest rate hedge and the potential disruptions in the timing of transaction related income due to the current market conditions.

Thank you for participating in today's conference call. Operator, please open up the line for questions.

(OPERATOR INSTRUCTIONS) Your first question will be from the line of Simone Boland of Goldman Sachs. Please proceed.

Good morning, guys. I am on with Tom and Jay as well.

Good morning.

Just a question about your JV fund. You know you had talked -- narrated with us about potentially looking at foreign capital. What do you think the institutional investors are looking for still on the return side? Do you think they are waiting for a movement in cap rates or do you think the concern is more with the slowing consumer?

Well, I think, we have been talking to a lot of institutional investors, and as you said. I recently made a trip to the Middle East and met with a lot of interesting funds, sovereign wealth and private funds, so there, is in my view, a lot of capital that is queueing up. And I think that capital is, obviously trying, to determine at what point the right entry is. I am not sure it is focused on what's going on with the consumer, as much as it is where they will see the market settling out. I think you have a situation where there's, again, there continues to be very low volume of transactions to really get a sense of where cap rates are, but the transactions that are occurring are still occurring in the sixes. So from an IRR perspective, people are going to have to get comfortable with where they end up there. But definitely, I think, my view on the situation is most people seem to be thinking that an entry point in 2009 is going to be a very attractive entry point.

Okay. And then with regard to paying down the line beyond, I guess, kind of the $60 million you are raising right now. Does that mean further asset sales out into '09? Or how does the JV fund play into that? Or can you give us a sense of further debt repayment down the line?

Right now as far as the JV ideas that we have, both joint ventures and/or funds that we are considering, We are not -- that really doesn't play into what we are looking at other than, as Dan said - and I will let Dan comment on this too - other than the fact that we have additional liquidity beyond that. Dan, you want to follow up to than?

I think the one thing we are focused on as far as the -- couple development projects that I mentioned, is moving those assets into a joint venture, property specific joint venture where we would take somewhere between 10% to 20%. And the primary objective there is to -- They are unencumbered development projects to get a portion of the capital back where we will then utilize to pay down the line. I think why that is critical for us, it is a very tax efficient way for us to continue to have liquidity without creating any -- We can retain majority of the money under the REIT structure. You need to watch the return-to-capital provisions, et cetera. I think that is the most efficient way for us to get that done to retain liquidity, as well as reduce the future funding obligations on some of those developments projects.

I think when you look at asset sales, we have talked about the medical office asset that we are considering selling, as well as we have an operating retail asset that is unencumbered that we can sell and also it's unencumbered that would help A - reduce debt; and B - give us some additional liquidity.

Thank you for the color. One last question on the Bed Bath & Beyond lease. When does that commence?

It should -- we are in the process now of working construction on the space. I think we are looking at it in the first half of '09.

Okay. Could you then give us a sense of the rent on that relative to where Circuit City was?

Between the Bed Bath rent and the shop rent that we are going to be receiving on the 7,000 feet, we are about even. There wasn't a lot of increase.

Slightly above, I think. Just barely.

Thank you very much.

Thanks.

Your next question is from the line of Michael Bilerman of Citigroup. Please proceed.

Good morning.

Good morning, Michael.

Good morning.

On the joint venture. That is primarily on the visible shadow pipeline that will be trying to take the risk off of trying to fund the extra $200 million for those projects?

Well I think -- "joint venture" is getting thrown around in a ubiquitous way. Bottom line is we are analyzing various capital alternatives in the form of joint ventures and we already have one, obviously, joint venture arrangement with Prudential which we still have obvious capacity in for the visible shadow pipeline projects. We also have other institutional investors who are approaching us for, not only programmatic, but property level joint ventures in the development pipeline.

And then, what Dan was talking about, was the idea of what many people have done, obviously, is the contribution of existing assets into a joint venture to go forward with additional deals. The thing about that, Michael, is that particular avenue we want to be very careful, because, basically it is fungible, you are raising capital and we want to make sure we understand what the cost of that capital is and that we are putting in the assets that we want to put in. That takes time.

And then beyond that, at another level for future opportunities, we think that the storm hasn't shaken out yet, and we think that 2009 you will see more things come available, and we are talking about making sure that we have adequate capital to take advantage of that as well. So that's where the idea of a potential either new partnership or fund or an arrangement like that would come into play and that's what I was referring to when I was talking about the capital that is queueing up. You really have multiple things going on, but the good thing is we are still getting a lot of inquiries into our deals to see if we will be willing to partner with people.

And then just going over -- Dan, you talked about having $75 million in liquidity post doing the term loan. What's the excess? You have $30 million available now, plus another $60 million. What takes you from $90 down to $75?

The acquisition of the Holly Springs parcel would be the primary factor that would bring that down. And I think when I am going through the -- to get to $75 to $90, we're currently at $42, we have the funds coming in. We also -- we are also factoring in some additional development spend that we have finishing out some of the redevelopment projects, et cetera. I think when you look at where we are at today at $42, we get the term loan in place. We've got -- in our capital plan, we've got several options to keep the liquidity at that level. That's our objective is to stay in the $75 million to $100 million range.

To follow up on that, Michael, as Dan said the $20-odd million in the new project, that project is already slated to be a joint venture project, and we are well down the road in discussions on a joint venture there. So that's how you get the number back up into that $100 million range that Dan was talking about. We fully intend on doing that and it is likely that that would ultimately be a merchant build type development as well.

In the $25 to $35 million you referenced, that is from the sale of Spring Mill Medical and one operating property?

That's correct.

And then on Spring Mill - you did reduce the guidance partially reflecting the higher cost of the term loan, but can you talk a little bit about what the expectations were for merchant build profits? I had thought it was about $.04. Have you just removed that from guidance at this point?

Go ahead.

From a guidance perspective and one thing we wanted to do in this environment -- Spring Mill Medical has a -- currently has a secured loan in place. We went through and analyzed the different options that we had as we looked at the year from a guidance perspective to make sure that we were conservative in our guidance. We are still moving forward on Spring Mill, but I think it is important -- that it is not a matter -- it's the timing of it more than whether we are going to sell it or not. We think it is a prudent capital decision to sell the medical office uses and to use that capital redeploy into retail projects. So I think it is more of a timing perspective. When we originally did guidance in January of 2008, I think the cap rates and those kind of things were perceived to be lower than they are today and we are out marketing the asset and we just want to be conservative in how that is going to come back in.

The bottom line with that is, Michael, we don't want to be in a position to get squeezed at the end of the year on that deal, and so we want to be very cautious as to the timing. So that we are not pushed into making a deal to make it happen in the year. That doesn't make sense for us. We want to maximize the profit. It is a great asset. We have a lot of interest in it. But we don't want anybody thinking we have to do it this year.

You have effectively removed it from part -- at least part of that.

Effectively from a timing standpoint, yes.

And then on out-lot and land sales. Where has -- you have gotten about $5 million year-to-date. What sort of -- what is imbedded in guidance for the rest of the year?

You know, we -- and you are going back historically from the date of the -- when we went public in 2004 we have -- We have consistently sold out lots and we anticipate that market has still been there, and we anticipate still proceeding forward on a couple of additional out-lots throughout the year. We also have a couple of land parcels that we have held that we are looking to potentially sell and reduce our land held for development as we proceed forward to put that land into more productive use. So those are a couple of things that we are looking at now.

How much do you actually -- I mean, you have gotten $5 million to date. Is another $3 million to $4 million in the back half of the year?

I think again -- we have the bucket of capital. We have the Spring Mill Medical. Some land sales we can have flexibility on whether it happens this year or next year and I think that is going to depend on how Spring Mill Medical comes out and what the options are and how we proceed forward for some of the land held for development. I think, if you look at this quarter versus next, I would potentially say the $5 million we had this quarter, for the first half we would look to potentially duplicate that in the second half, and that's why we came at the range of $1.25 and $1.30.

Between all the different buckets? So another $5 million between selling Spring Mill and other land parcels.

We are looking at that -- it's fungible, Michael.

That's what I'm saying. As a bucket?

We're looking at it as a bucket. We need to put some water in that bucket.

Last question. On Parkside. The cost went to $148 million from $134 million, but the estimated GLA stayed the same?

Michael, this is Tom. The reason that went up $14 million - on the south portion of that parcel, what we ended up doing is instead of doing a ground lease with a large box, we are going to develop about 80,000 square feet of build-to-suit junior box and small shop space. When you looked at the total GLA, that was already in that number. We have just changed the capital structure in terms of the way we are moving forward with the deal.

How much of that GLA will you own now?

Of that new space, of that GLA, we will own 100% of that new 80,000 square feet.

Of the total -- of the 1-5? How much is owned versus -- ?

I believe it is about 700,000 to 800,000 square feet.

And your yield hasn't -- your yield expectations haven't changed?

Michael, that did not effect the yield. It was just a recalibration of the site plan and the project is still in the visible shadow pipeline so that plan basically stays fluid until it moves to the development pipeline.

And remember that we reflect some costs in site work and improvements for non-owned anchor and will get reimbursed for that. The cost doesn't always get matched up with the square footage.

And you already have some preleasing on these products? Right?

Yes, we do. As soon as we get to a point that we are comfortable with that level, we will be in a position to push forward. I would say on Parkside, this is an opportunity to potentially start this year, but it may fall into the first or second quarter of 2009?

Okay. Thank you.

Thanks.

Your next question will be from the line of David Fick of Stifel Nicolaus. Please proceed.

A clarification on that last question. You have no preleasing at this point on Holly Springs?

This is Tom. In terms of Holly Springs, we do not have any executed leases, that's correct.

You are generally building now to about an 8% stabilized yield?

We are typically developing somewhere between 8% and 8.5% yield and obviously those range up and down.

When you say "stabilize yield," David, that 8% to 8.5% is an initial return on cost that opening of stabilization. That is not a return on investment. We have to be clear that we do not pro forma out-partial sales into those yields like I think is done in some other places. That is just a cash return on cost.

We get that. Can you just walk us through how that type of yield profile works in a development JV? It would seem to me that anybody that is either doing a JV or investing in a fund for development is going to want substantially higher ROE than for stable assets. And given that you've got an 8 yield and current long-term mortgage rates now or high 6, low 7, how do you get to a high teens ROE for your outside investor while keeping enough upside for the risk adjusted return that makes sense for the REIT, especially given the leasing risk?

Sure. First of all, for example on the Holly Springs project which we are talk about, the yield that we are talking about there on a return on cost basis is close to 9%. Just under 9%. At this point it's kind of 8.75% and 8.80% range. And the idea for that deal is also to be a merchant build deal. The timeline of the horizon of the IRR is not very long.

We are looking at if you do that deal the right way and you hold the yield and you can maintain cap rates between 6.5% and 7% -- actually even if you run it at 7% or 7.25%. If you hold the assets and you get the rents, you can get in the teens based on that timeline. If you hold the asset, obviously, for ten years, you are going to bring down that IRR. So it requires the market to be there for the merchant build obviously, but based on that particular deal, coming online in late '10, we think that is a very legitimate kind of return threshold, and then you would obviously look to sell the asset probably in '11. So you really have a short time horizon, David.

Can you really get the out-partial realization done quickly enough to turn it around for a sale within a year of grand opening?

Yeah, again it obviously comes down to execution. But in the case of this deal, I mean, we are already negotiating -- I should say we are already sending out proposals and have requested proposals for six or seven of the out-lots already. And, remember, we are not talking about high-end restaurants here. We are talking about kind of that sit-down casual that is picking up business off the high end. As you know there has been a trade-down there. So the Lone Stars of the world, the O'Charley's of the world, Appleby's -- they've had their struggles but now they're getting a pick up in the trade-down.

So, I think it's very possible. It all depends on demand. In that particular case, we have a very high level of comfort with the anchor that we think is the best anchor in the country. So, you can look at it a lot of different ways, but there is enough room in the spread here that the IRRs are still strong.

Would you be pari passu with your outside investigators and would you have to guarantee things like development costs?

The particular deal we are looking at right now on -- the investor that is interested, one of the institutional investors, it would not be pari passu, it would be more of an 80/20 transaction. We would be getting fees also. Unlikely that we would be required to guarantee cost in that particular case, but we are still talking in discussions and haven't closed on that yet.

Okay. And Delray, you got the Publix deal signed. Congratulations. When do you start? When do you deliver?

Tom.

David, Tom again. As it ties back to Delray, you are correct. We have fully executed anchor leases with the two primary groups, Publix and Frank Theaters, which is obviously the key for us to our ability to push forward. It is our intent and expectation to start that project this year and then we would push forward likely with openings in 2010.

Okay. Jacksonville redevelopment. You got the Wal-Mart to deal with there. I know that is part of plan. Any idea on timing and what might happen with it?

From a timing standpoint, we are looking at several options. Both seem to be very viable at this standpoint. So, from a timing standpoint, it would hopefully be in a position we'd be able to push this project forward sometime next year. It will really tie back to our negotiations with the various tenants that we are working with at this point.

Okay. My last question. I missed the first five minutes, so you may have addressed it. Your tenant reimbursements were down. What was that about?

The biggest thing on the tenant reimbursements, quarter over quarter, relate to snow removal. Snow removal was roughly $400,000 in the first quarter. And then in addition to that, you have got the tax reimbursement, a successful reassessment at Market Street Village in Texas, which I've tried to note on page 12 of the supplemental that we have basically had a repeal of taxes of $345,000, of which $308,000 was reimbursed to tenants. So those two items will drive down the reimbursement.

I do have one follow-up question. Given that you are doing a certain amount of speculative development for strategic reasons here, as sort of a combination of certain things you were already working on. Would you do any more projects like a Holly Springs deal without signed anchors?

Well, as you know, David, in the development business, every deal is unique. In general, the market that we are in, we are obviously not very interested in taking down land unless we have a strategy that is going to be executed quickly. So I guess the answer to that is the market has changed dramatically. Our focus is on not projects like Holly Springs other -- Holly Springs is going to be a project we are going to be very focused on. And while we bring in anything new from there, it's going to be smaller projects.

So we are actually focused more on the kind of cookie-cutter deals that are straightforward. The larger, complex deals we are not focused on. So I think the answer is, that is probably the last of the large deals that we will look at for a while. But as the market begins to unwind, and you see things really kind of hit the wall next year, which is what we think will happen, then we might be able to step in and take advantage of broken deals, not deals that are our ground-up deals but deals that are broken and can really take advantage of the pricing. That is the other thing about the Holly transaction is the pricing was sub-$200,000 an acre, so it gave us the confidence on the land. The answer is, no, we are not actively seeking large transactions like that right now.

So you are implying that a democratic administration would be good to create more opportunity sets for you?

Can you say that again for me, please?

You are implying that a democratic administration would create more stress and more stress is good for your future opportunity set?

Well, we are thinking about putting out a commercial that we can put alongside Paris's commercial. But I think the bottom line is, yeah, we're going to go through a process next year of realization in commercial real estate financing, and, you know -- I hate to use words like this, but we think there will be some capitulation towards the end of the year as a lot of these interest-only loans begin to have no home. And we want to have capital to take advantage of it. That is where we are focused on our business strategy.

We agree with your assessment of the future. Thank you.

Thanks.

Your next question will be from the line of Philip Martin of Cantor Fitzgerald. Please proceed.

Good morning. Many of my questions have been answered. But, first of all, Tom, on the development pipeline - 78% preleased, 20% occupied. Can you give us some more on timing of that 20 -- that 70% preleased ,in terms of occupancy takeover? How that runs out?

Sure. From an occupancy standpoint, if you take a look at our development pipeline - we have Bay Port, Beacon, Spring Mill and Gateway shopping center projects that are very, very close to stabilization and a position that are on queue to roll to the operating portfolio. And then if you take a look at projects that will come in on the queue like you talked about, Cobblestone would be one that will start to occur in the first quarter, second quarter, third quarter, and we will have very significant lease-up because of the preleasing and the quality of the real estate. If you look at it, that is the one project from a queue standpoint that will be come on a little bit later than the balance.

As you can see from our redevelopment projects, those are moving along fairly well. Rivers Edge and Bolton are ones that will likely not occur or start until 2009.

Okay. Okay. That helps. And then in terms -- Given the economic environment, how is the viability of your shadow pipeline? I mean where is that sitting? How comfortable and confident are you today in that shadow pipeline. And, again, I know the market can be totally different in a year, but as it sits today, how confident are you on the viability of that shadow pipeline?

Again to kind of start off on it in general, we have focused a lot of our leasing efforts in the visible shadow pipeline because the current pipeline is highly leased.

Yes.

So we are aggressively going after it and when look at it, as Tom said, property by property, we are really beginning to make progress now. And a lot of that has to do with where these tenant openings are going to occur, because now we are obviously talking about delivering these visible shadow pipeline projects in kind of the '10 range. So, for a retailer who's looking at what is happening in the world, he is very concerned about 2009, obviously. But that retailer, obviously, also has to continue to do business and take advantage of market share.

So really we are set up pretty well, Philip, in the visible pipeline in terms of what retailers want to talk about. They much more would rather talk to us about '10 deals an '09 deals and we are fortunate because our '09 openings are almost 80% leased. So, we feel good about it.

Perfect. Making sure there. And then, Dan, just -- I know you've talked a lot about this, but I want to make sure I have it correct here. But from kind of a sources and uses -- the line -- you are going to be roughly at about $70, $75 million and then there's some asset sales in there that will add to cash of about $20?

Right now we are saying asset sales that we are projecting -- and, again, these are (inaudible) that we are projecting out, we don't have signed contracts, but we feel as we've marketed it -- we can generate additional liquidity of about $25 to $30 million.

That is over what time frame, through '09 or year end?

I would say between year-end and the first quarter. Between now and the first half of '09. Not through the end of '09.

As Dan said, the objective is to continue to do things through the capital standpoint that gives us that range. That give us that $75 to $100 million of liquidity. That's why we will seek out these other capital alternatives, the joint ventures, the funds, the things we talked about.

Okay. In terms of -- I guess -- after the -- well, I can deal with that off line actually. And then in terms of available secured debt capacity that you have right now, what could you take that too at this point?

I think -- let me make sure I am answering your question. On the secured debt side, I think we -- that is something we are looking at and we are going to be in conversations with. As these construction loans mature, as I mentioned, we are talking to both the commercial banks and we are going to be having conversations with the insurance companies on taking some of those construction loans and moving them to more -- more along of a mini perm or a secured loan.

So when you look at those two perspectives, that is going to be our objective, because as we talked about, and as we have done in the past, we typically we take down projects off the line of credit, we'll then convert it to a construction, complete the project and move to secured financing. As you know, the CMBS market is -- there is not a lot of bids being done out there, but there are insurance companies and banks that are willing to keep quality assets on their balance sheets at this point. Those are a lot of our objectives as it relates to the construction loans and the secured debt?

Gotcha. Now in terms of uses. You certainly have your debt maturities, and I guess looking through '09 -- debt maturities through '09 are right in that $240 million total, based on your supplemental. You have got development needs through '09. I know you have it laid out, but where is your development --? What kind of cash do you need for the redevelopment and shadow pipelines through '09?

I think if you look at the completing of the current development pipeline -- we have got basically $160 million without the redevelopment projects, the total estimated cost, of which we have funded about 66% of that.

Yes. So just go off of those numbers and assume that that's -- ?

Exactly. That is going to be a good guide because we have -- our objective is to get these projects going and complete them in the current pipeline and the spend is about $60 million left on those projects. And the spend on the visible shadow pipeline as we move Delray and some of those other projects into the current pipeline, we will have some more visibility on exactly -- the construction loans and the equity and those types of items. So, I think a good metric to go from is that the current pipeline, the visible shadow pipeline -- and we also acquired Holly Springs, but as John and I have talked about, our objective there is for us not to fund 100% of that, but more along the lines of 10% to 20%.

Exactly. That will -- okay. Perfect. All right. Thank you.

That's good.

Your next question will be the line of Jeff Donnelly of Wachovia Securities.

Good morning, guys.

Good morning.

John, maybe a bit of an open-ended question, but I think on your last call you had talked about having something of a 90-day plan heading into ICSC's spring convention with a series of objectives. How have you progressed there, and what points remain at the top of your list?

Well, first of all, we have a meeting on that next week to summarize the progress we have made, and we have made good progress as evidenced by the amount of leasing we did in July. I think in July alone we did 100,000 square feet, somewhere in that range. So we are -- we are doing well, Jeff. We are probably -- we are in one of those situation where, as I said, a lot of it has to do with the delivery time lines of what we are leasing. So you've got the combination of what we are doing between the operating portfolio and the development portfolio.

I think that the market continues to definitely be slower. People are much more cautious and conservative in their deal making. What I would wish could get done in 90 days maybe takes longer than 90 days. The bottom line is you have to keep the pressure on and the pressure is clearly on here to execute that. And also, as we kind of talked about, it is not just -- we really want people to understand that they can do well financially by getting these deals done, so we've created a compensation structure for that as well.

So things are moving forward, I think you can see that by the leasing activity we had in the quarter, by the anchor deals that we did for Publix and Bed Bath & Beyond and L.A. People are making deals, there is no question. It's just that on the margin you have the right real estate, and I think one of the advantages that we have when you look at our portfolio and you know our portfolio very well, it is all very high-quality real estate. If you have secondary, older assets, it is going to be a tougher grind.

Jeff, just one more thing to follow up on the 90 day initiative. One of the keys, of course, was the visible shadow pipeline. I had mentioned earlier that we are going to be in a position to be able to start Delray this year. So that was one of the key points that we wanted to push forward as a Company, as well as making progress on Parkside and in addition to that, making sure we are in a position to start Maple Valley as well. On those key three initiatives, we had a pretty nice push.

Actually, Tom, I am not -- on Eddy Street, seems like your exposure was cut because you are laying off some of the apartment components, I guess, to another party. Is that actually put in place or are you guys technically on the hook for those units or that component of the project, be they under your TIFF or arrangements at the University?

Just from a clarification, we took our total project cost on Eddy Street from $70 million to $35 million and that was done simply as a clarification, that was exactly how the deal structure was done with our partner on the apartments. Our exposure truly is laid off on the apartments and that will be funded by that group. Then we will be the beneficiary of the air rights component of that transaction.

Great. I guess -- just last question or maybe a series of questions, Dan, on the construction loan maturities, just to clarify. I think you mentioned $75 million worth of loan with extensions. Are you able to identify which projects those are attributable to? And maybe some other details, such as how long the extension options are for and hurdles you might have, for instance, around leasing in order to achieve those extensions or is it just a functional cost on the line -- or on those loans?

I think the biggest driver of those -- of the extension options relate to debt coverage ratios. And I think, if you -- when you go through and you look at the various construction loans, we have got a couple that we have extension options for a year and we are going back to try to get another 12 months. So we are constantly in negotiations with the bank. And I think one of our objectives right now, Jeff, is to go in and not just try to push for a year with extension options for another 12 months, but try to do a three-year mini perm or do something in that nature to push out the maturities and term it out for a bit. That's our objectives as we go into this as far as the specific loans. Some of the larger projects we are looking at, like a (inaudible) are included in those -- in that $75 million.

Those loans, Jeff, as the year evolves here, those -- the ones that he mentioned are pretty -- they are in the 90% lease range. So we are going to be also analyzing the permanent market versus kind of the mini perm market, and at the end of the day we are going to take advantage of the best rate opportunity that we have over a like term. So if we can get a five year permanent loan versus a three or four year mini perm and what the swap market is versus what the long-term interest rate market is, we are also going to be looking at that too. So it's a combination of really looking at what capital is out there and how we marry it up.

I guess last question or last question or two on that is - for the construction loans that you are in, I guess, negotiations on, the $57 million and those with extensions, is there a chance here where if you didn't have that extension or maybe you don't comply with terms of the extension that would you have to come out of pocket to pay down those loans? Or you may have difficulty pulling out proceeds and if you had to recast some of the construction loans?

Jeff, we feel pretty confident about our negotiations. I hate to use the word "never" because this market is crazy right now, but we -- a lot -- the majority of these lenders are lenders we worked with for 20 years. And we have good relationships and these projects are projects that aren't spec. They are projects with good anchors, are well leased, and their type of project the banks want on their books. They aren't over-levered and they have a good sponsor behind them. With the banks moving towards quality and looking for what type of assets to hold and what types of assets to move forward and push off their balance sheet, I think we are going to be -- from the quality side, we will benefit from that. So I -- can I sit here and say "do I have comfort that that is not going to happen right now?" Am I confident? Yes. But I don't think I want to say the word "never" right now.

The nice thing about that, Jeff, is that's why we are generating liquidity. The bottom line is in a market like this, you have to expect the unexpected. We will have a proper amount of liquidity available to us to deal with whatever happens. That is our objective right and that is what we have been working through. As Dan said, these are great projects, well anchored, well located, good relationships. But if something crazy happens, we will be prepared to deal with that.

Great, thanks, guys.

Thanks.

(OPERATOR INSTRUCTIONS) Your next question is from the line of Rich Moore of RBC Capital Markets. Please proceed.

Hi, good morning, guys.

Good morning.

Hi, how are you. On -- you know on this whole liquidity thing, am I kind of understanding that you think the -- obviously the work that Dan is doing and the potential joint ventures should be sufficient? Or do you think would you'd ramp up maybe some more dispositions of core assets that don't have the kind of growth that you would like to have? Or is it sufficient, just, what you guys have outlined so far?

I think, Rich, the nice thing about what we are doing right now is we are looking at the whole picture, and frankly, capital is fungible and we want to make sure we have it from multiple buckets, as Dan likes to say. We think that the plan we have in front of us is adequate, but like the question that Jeff just posed is a good question because maybe you spend capital in places you didn't think you were going to so you have to prepare for that. So the -- the process we are going through is to make sure that we have enough capital available to us to have that $75 million today $100 million cushion that Dan was referring to. So that's why you look at the alternatives and the asset sales that we are talking about, are things that we have been talking about for a while that make sense. I mean you are talking about a merchant build medical office building. We are looking at a couple maybe nonstrategic retail assets that don't have a lot of growth in our view. So that makes sense to us, and in the end of the day, we do think the plan that Dan outlined is adequate.

Okay. All right, very good. Thanks, John. How much small shop space is there on Delray?

Delray has about 140,000 square feet of small shop space, but some of that will be broken into larger components, maybe the 10,000 to 15,000 square foot pieces. We have gotten fairly comfortable with that percentage based upon where we are, number one. And then number two, the drivers of the two primary anchors being Publix and the Theater because you obviously have the service component to follow on, you have the restaurants and others that follow the second. So it is a percentage that we have determined to be manageable based upon its location.

As well, Rich, some of the restaurant deals that we will be doing will be actual end cap restaurant deals that will be contained in that square footage. So it is actually a mixture, as Tom said, of all those things, and we are already well on way in our preleasing efforts as well.

You were saying about 60%, I think, right? Somewhere in that range?

Well, one way to look at it is -- in terms of where we are leasing, we have about 120,000 square feet of anchor leases in place.

If you look then at where we are with the restaurants, like John talked about, and the small shops, we are starting to approach about 50% in terms of where we are from a commitment perspective. And with the thought and goal of the Company to commence this project this year, and knowing it is not going to deliver until probably likely the second quarter of 2010, that gives us adequate time to get that percentage up to a point of where it needs to be.

One thing we do, Rich, on our Florida deals, particularly, is that when we are in the leasing process and you come into the summer months, and the off-season months, we are careful to leave ourselves room to commence more leasing in the -- kind of in the season, because you have a better option. You have a better kind of just feeling in the market in terms of what people can pay in rent. So that's something that people can sometimes forget is the season actually plays into it in Florida.

Okay. Right. Now, as you guys look at that and look at Florida in particular, I mean are some of these tenants dropping out as time goes by? Obviously the big concern with community center tenants has been new developments and Florida is a tougher area, as geographies go. Are you seeing some of these fall out as well?

We looked hard at Florida and we compare Florida to our total portfolio. We look at it small shops, we look at it anchors, we look at the rents, we look at the turnover, and we continue -- again, anecdotal is one thing, but data is the other. The data is basically showing us that the impacts we are having in Florida is really not materially different than the impacts in the other markets that we are in. Now obviously, again, I mean something I just said a second ago was pointing into this. Not only is Florida just going through a total resizing of its residential market, you are in the summer months, and we have been talking about that a lot with the tenants. We are in months that are difficult for tenants regardless of the environment. So it's kind of a double whammy.

As far as the tenants dropping out relative to Delray, it all has to do with who we are marketing it too. The tenants that have dropped out are the lifestyle tenants. And that's not something that is just specific to Delray Beach, or specific to Florida, or specific to the southeast. That is the whole country. The lifestyle -- The smaller lifestyle shopping centers, if they are continuing to try to do those with those high-end tenants it's just very, very difficult to get any acceleration, so we are very aware of that and we have really moved the marketing pitch on this particular deal to more reflect who we think are doing deals right now.

Okay. All right, good. Thanks. And then staying on the tenants for a second. Seems like TIs were up for retail. Are you guys having to put more TIs in, maybe offer more concessions in this kind of environment?

In this particular quarter and for the six months we haven't had a significant increase, but as we are retenanting such as the Bed Bath place at Sunland, because we are dividing that into Bed Bath and 7,000 square feet of small shops, that will be -- many people would put that in a redevelopment, but we left that in because we're really retenanting a box. So we are doing a lot of work on the facade and the various parts of the structure and breaking the box up. So it is going to cost a little bit more, but overall, I think when you look at from concessions and those type of things, I think if you have the right real estate, I think it is more of a timing issue and getting -- it's taking a lot of time to get the leases signed.

All right, thanks, Dan, I got you. On Bay Port and Gateway. Both of those were up, Bay Port was just a tiny bit, but is that a construction cost thing? Or what's going on there?

Rich, this is Tom. On Bay Port it went up about 300,000 square feet. And you had just mentioned about TI, we did get a little bit of creep on TI as it ties back specifically to the small shops at Bay Port. It is a situation where we have a great anchor in Super Target and we are doing well in terms of the three boxes being leased and we're trying to close that out. If we find a good small shop user and feel they are of quality, we could put a little more TI there.

As it ties back to Gateway. Gateway went up $3.7 million. The reason that Gateway went up that figure was we added a Rite Aid build-to-suit on what previously going to be a ground lease out-lot and no costs tied to that, in terms of the total project.

Those are the two specific reasons on those. And I think I mentioned previously why the Parkside number that went up. It really tied back to the fact we were not doing a ground lease there and were doing build-to-suits tied back to about 85,000 square feet of space.

Good, gotcha, great. Dan, last thing on accounts payable. Those jumped -- anything in particular or is that sort of a timing thing?

That's a timing thing. One thing on accounts payable that makes it a little -- probably a little heavier on ours than others is we also have construction payables from a third-party perspective. And when you're being a construction manager or a general contractor, those payables -- if you hold those over a month end or a quarter end, it's going to be a large timing difference and more than anything else, that is what it will be.

Very good. Thank you, guys.

Thank you.

Thanks.

There are no more questions at this time. I will turn the call back over to Mr. John Kite, our President and CEO for closing remarks.

Well, again, thank you for joining us for the call. We look forward to talking to everybody next quarter. Have a good day.

Thank you for your participation in today's conference. This concludes our presentation and you may now disconnect. Have a great day.