Kite Realty Group Trust (KRG) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the fourth quarter 2008 Kite Realty Group Trust earnings conference call. My name is Emis and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We'll facilitate a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Adam Chavers, Director of Investor Relations. Please proceed, sir.

Thank you. 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 December 31, 2008 supplemental financial package was made available yesterday on the corporate profile page in the Investor Relations section of the Company's website. The filing has also been made with the SEC in the Company's most recent Form 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. 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 affecting the real estate industry in general. The Company refers to you 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.

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

Thanks, Adam. And good afternoon and thank you for joining us for our fourth quarter and year end conference call. Our FFO was $0.24 for the fourth quarter and $1.17 per diluted share for the year. Excluding the impact of Circuit City, we would have beaten current annual consensus estimates by a penny. Obviously, these are tough economic times. We all understand the challenges of this economy and none of us know how long this will last. In light of this uncertainty, we continue to be focused on our strategy to weather the storm. No matter how long it takes, and position ourselves to take advantage of the future recovery. This strategy consists of three main objectives. First, maintaining a healthy cushion of liquidity. Second, focusing on occupancy through leasing and tenant retention. And third, significantly limiting our development spend.

The cornerstone of our strategy as we mentioned throughout the year is capital preservation. Despite the extremely challenging environment, we ended the year with $90 million of cash and available credit. Due in part to the success of our 2008 capital sourcing, and our focus on continued capital preservation, we anticipate that we will maintain strong liquidity levels throughout 2009. We have $108 million of debt maturing in 2009, which consists of eight loans with an average balance of $13.5 million. Only two of the maturing loans are CMBS loans and in fact we have only $50 million of total CMBS debt expiring over the next three years. The balance of our maturing debt over the next two years is construction related loans held on bank balance sheets.

While the capital markets obviously remain challenging, it's been our recent experience that lenders are willing to make loans on the kind of assets and in the amounts that we are looking for. Given our strong relationship with local, regional and national lenders, we are confident in our ability to refinance and extend the remaining 2009 indebtedness. Like everyone else in the retail sector, diminished consumer spending is stressing our business. While we are feeling the impact in same-store results and general occupancy, we are comforted by the fact that we have Class A, well positioned assets with limited rollover in 2009. In addition, over 40% of our properties have grocery stores as an anchor, and our remaining centers are generally anchored by tenants like Target and Wal-Mart and value retailers such as Bed Bath and Beyond, TJ Max and Pet Smart.

We've always taken a proactive and aggressive approach to tenant management and are working with tenants on rent relief if it is being prudent. As a reminder, our average lease term is 7 years and we expect our tenants to meet their contractual obligations. However, after vigorous evaluation of their current economic situation, we may grant temporary deferrals with valuable lease concessions back to the landlord. This group of tenants currently represents only 1% of our portfolio. Also, we anticipate recapturing the three Circuit City spaces in late March. We are aggressively engaged in re-leasing these locations and have received interest from high quality tenants whose operations would enhance our centers. Our second objective is to focus on our operations including maximizing efficiencies, aggressively leasing and working with tenants to maintain occupancy levels. Tom will discuss these efforts in more detail in a few minutes.

The third aspect of our strategy is approaching our development business in a prudent manner. The current pipeline consists of only three projects, Eddy Street Commons at the University of Notre Dame, South Elgin and Cobblestone Plaza. All three of these projects are significantly pre-leased and under construction, utilizing fully committed construction loans. We remain aggressively engaged in pre-leasing the projects in our visible shadow pipeline. As we discussed in the past, we take a very conservative approach to funding vertical construction and will not begin that construction without high levels of pre-leasing and third-party financing in place.

We have stress tested the assumptions underlining our 2009 performance and have guided to an FFO range of $0.83 to $0.97 per diluted share. And Dan will discuss this in greater detail later.

Finally, as noted in the press release, the dividend for the first quarter has been established at [$15.25], approximately a 26% reduction from the fourth quarter. Together with the Board we will continue to evaluate the Company's distribution policy on a quarterly basis.

Now I'd like to turn it over to Tom.

Thank you. I'd like to follow up on John's comments regarding our development, and operational activities. We have three projects remaining in our current development pipeline. All three are being built using fully committed construction loans. Of the $90 million in total project costs, approximately $40.5 million remains to be spent and the projects are approximately 73% pre-leased. Year-over-year, we've reduced the size of the current development pipeline by approximately 40% and transitioned eight projects into the operating portfolio. The largest project in our current development pipeline is Eddy Street Commons at the University of Notre Dame. We closed on the construction loan for Eddy Street Commons in the fourth quarter and are on track to deliver the initial phase of the project in the fall of 2009. It's currently 60% pre-leased and given the unique nature of this project, there's active interest for the remaining retail and office spaces.

The visible shadow pipeline consists of six projects. We have commitments from all the anchors in each of the six projects. And continue to work diligently on the remainder of the lease-up. As John mentioned, we will not move forward with vertical construction on any of the projects until we have secured appropriate pre-leasing levels and third-party financing. The core part of our strategy is to maximize efficiencies throughout our operational platform, while focusing on enhancing our leasing capabilities. We are evaluating all of our internal processes to streamline lease negotiations, tenant build-outs and ultimately rent commencement. We recently upgraded our software systems to better coordinate these tasks and are already seeing increased efficiencies.

Again, our goal is to align all of our business units to better support our leasing efforts and maximize opportunities in this highly competitive environment. Since less than 5% of our leases expire in 2009, we are confident in meeting our leasing goals. We actively manage our G&A expenses and have always run a lean operation. We reduce our gross G&A by nearly $4 million in 2008 and continue to aggressively work to reduce costs. At the same time, we will strategically redeploy our resources to support and improve our leasing department.

We continue to reach out to retailers and strengthen our relationships. What we're finding, both from big box and small shop retailers, is that they remain focused on capital preservation and are being very deliberate about their expansion plans. Today, retailers are only interested in the A sites and attractive backfill opportunities. We welcome their flight to quality because we're confident that our properties are very competitive in their individual markets.

Cedar Hill Plaza near Dallas is a good example of the dynamics that we're seeing. We quickly signed a lease with a specialty grocer, Sprouts Farmer Markets, in December to backfill the Barnes & Noble space and have a high quality tenants interested in junior box space recently vacated by Linens 'n Things. The reality of this market is that certain tenants will go out of business. However, we believe that the strength of our assets and the quality of our tenant portfolio both act to minimize that risk.

Since our IPO in 2004, we have primarily been known as a development Company. While we believe that development is a strength of ours, it's easy to overlook that we've been in this business for decades and have experience managing operating assets in both good times and bad. We've historically built value through ground-up development and acquisitions. We've also created value by efficiently managing and aggressively leasing our operating portfolio. For example, last year alone we decreased operating expenses at the property level over $1 million, which reduced our tenant's operating cost and our cost of vacancy. We strongly believe that this skill set, combined with the fundamental quality of our real estate, and our tenant base, will allow us to manage through what will certainly be another difficult year for the economy.

Dan will now summarize our operating results for the quarter.

Good afternoon. As John mentioned, the FFO for the quarter was $0.24 and $1.17 per diluted share for the year. Excluding the one-time charges related to the Circuit City liquidation our FFO would have been $0.27 and $1.20 respectively. Excluding the Circuit City, the results for the year were at the midpoint of our revised 2008 full year guidance range of $1.18 to $1.22. I want to address a couple of items on the income statement for Q4 2008 compared to Q3 2008. Minimum rent decreased by approximately $1.5 million. The decrease resulted primarily from non-cash straight line and market rent write-offs related to Circuit City of approximately $1 million in Q4, and market rent income adjustment in Q3 of approximately $315,000. Real estate taxes and tenant reimbursements decreased approximately $1.2 million and $900,000, primarily due to the successful tax appeals at several properties. Construction service fee revenue included the proceeds from the sale of Spring Mill II of $10.6 million the cost of construction services includes $9.4 million for a net gain before tax of $1.2 million. Finally, as we anticipated on last quarter's call, our property related revenue decreased quarter-over-quarter due to lower transactional volume.

In the fourth quarter we successfully recycled two of our operating assets, Silver Glen Crossing and Spring Mill Medical. We sold Silver Glen for a 71/2 cap rate on current NOI and a generated loss of 2.1 million net of limited partner interest. We sold Spring Mill for an 8.1 cap rate and generated a $1.2 million gain net of partner interest. From this recycling activity, we generated approximately $24 million of net cash to pay down the line of credit and reduce debt. Same-store NOI for the quarter decreased 1.2% primarily due to a 200 basis point drop in occupancy but was flat for the full year.

As a reminder, we have an annual same-store NOI base of approximately $60 million so $600,000 reduces same store by 1%. So we have relatively small numbers, significantly impacting the results of this metric. By December 31st, we had executed on all the loan commitments that we had outlined on the last call, thereby reducing our maturities through 2009 from $230 million to $108 million. You can find a complete list of these refinancing activities in our press release.

Also, on page 17 of the supplemental we provided additional detail on our eight remaining 2009 maturities that total $108 million. Recently, we received a bank commitment for a three year loan on East Gate Pavilion and our unincumbered pool. We are pursuing this loan in order to provide additional flexibility on our two CMBS loans that mature in the second half of 2009 if needed. We provided our 2009 earnings guidance of $0.83 to $0.97 in last night's press release. We provided various assumptions underlying the guidance including a decrease in same-store NOI ranging from 2% to 4%. Transactional income range from $0.05 to $0.15 per diluted share. Construction and service margin before tax of 1.5 to $3 million. Interest rates constant with the forward curve fr one month LIBOR and the ten year treasury and finally the diluted affect of our October 2008 equity offering.

Thanks for participating in today's conference call and we would like to open up the call for questions.

(Operator Instructions). Your first question comes from the line of Sloan Bohlen with Goldman Sachs. Please proceed.

Good afternoon, guys. First question for Tom and maybe Dan. Just with regard to the shadow pipeline. Could you guys give us an expectation of what you're looking for in terms of CapEx for that pipeline over the course of the next year? I know you're going to be careful in doing starts, but just wanted to get an idea of how much capital you're going to look to deploy?

Yes, this is Dan. As far as the spend that we anticipate on the visible pipeline, I think right now as John mentioned, our primary objective is to work on the lease-up and the third-party financing. So our spend is going to be relegated to the interest carry on those particular parcels, as well as we move closer to starting construction, which we may be potentially looking at in the fourth quarter of this year, that's when some additional spend will occur. So all in all, we're looking to definitely have clear direction on the leasing front and the financing front prior to spending dollars other than the required dollars for interest carry.

This is Tom. The nice part about the pipeline at this point is the properties are fully entitled so that spend is really behind us at this point until we reach those metrics that Dan just talked about.

Okay. I mean, are there certain projects in that pipeline that are -- obviously some are closer than others, but some of your competitors have gone through write-downs over the past quarter and basically taken their licks on a couple of the projects they decided to cancel. Are there certain projects in that pipeline that you would look to do that in the near-term or how should we think about that?

This is John. No, that's kind of a completely different situation. What we're doing here is kind of a self-imposed raising of the bar in terms of the pre-leasing slump. So it's a little different with us. If you go through the visible pipeline, you'll see that we have anchor commitments which we've made clear. We have anchor tenant commitments for all those projects. It's just that we are going to be very cautious around breaking ground on any of these until we're significantly leased beyond the anchors as well. So this is really a situation where if we wanted to, we could move forward. We don't want to in this environment without getting much further down the road on the small shops and the other junior box tenants beyond the anchors. So these are all projects that are moving forward and I think that's why Dan said it's possible towards the end of the year that you would see us spend some money. But we're talking about very minimal spend here as it relates to total size of these projects. Because it's likely that if we positioned to start these, there would be a minimal amount of spend in the fourth quarter and then construction loans would close more likely into the first quarter of the next year. So it really is not -- I think, it's apples and oranges as to what you are talking about.

Okay. Kind of switching gears, John, I was wondering if maybe you could elaborate a little bit on the comment that you made about granting some tenants temporary deferrals, wonder if you could give us a sense of what kind of scope those deferrals could be or what shape they would take and whether that's included in your guidance for this year.

Yes. First of all, we're not talking about rent abatement, we're talking about rent deferral. That's a big I think misconception in the marketplace that we would be abating rent. And as I think I may have mentioned, we're talking about a very small grouping of our tenants, at this point around 1% of our tenants in our portfolio would even have any sort of rent deferral that we granted. And what we're trying to say is anything that we do, we're going to get back. And by the way, the other important thing here is if we do agree to any kind of rent deferral with a tenant, we typically get very, very favorable terms relative to how we would amend the lease as it relates to option periods, as it relates to our right to terminate, our right to relocate. So I think, again, it's obviously a big thing that the industry's talking about but quite frankly, what you're finding is when enough people read articles out there, everybody decides that they should call up and ask for rent abatement and I was trying to make it clear, we have contractual of obligations that on average are seven years long. The high majority of our tenants are credit tenants. Ultimately, we're going to win. It just comes down to we want to be sensitive to the environment and that's what we're talking about. It's not really out of desperation, it's out of us wanting to work with our customers.

Okay. And then the last question, just on the transactional revenue embedded in the guidance for this year, can you talk about why the decision to sell now versus I think you guys kind of backed off given the volatility in the market last year and maybe what kind of changes in prices of those sales you've seen over the last six months.

Are you referring to the sales we did at the end of the year?

No, just in terms of the partial sales that you talked about last year.

Going forward?

Yes, going forward.

The $0.05 to $0.15 that we put into our guidance is -- when he we look at the land parcels and out lots and things in front of our centers, I think there's still activity on those. So we really reduced the transactional volume but we wanted to be clear, we still think, that's been part of our business since we've been public that there will be some of that still going on but the amount of it for 2009 is obviously less.

What we're really talking about is residual land parcels that we don't want to retain, for one thing, because they're residual to the property. And two, these would be larger parcels. And then two, these would be larger parcels, the out lot parcels that Dan was talking about is vis-a-vis tenant demand and/or user demand because in the environment we're in today, many of the out lot users would prefer to buy than lease. So we're in a situation where we're going to choose in a few instances to sell direct to the users and then we'll choose in a few instances to sell the ground leases, that's going to be less than what it's been in the past and we mentioned that last year. There will still be the occasional sale of a ground lease but remember, we're talking about significantly bringing that down from where it was in the past because obviously we're cautious around that, the capital markets.

Okay. All right. Thank you, guys.

Thanks.

Your next question comes from the line of Michael Bilerman with Citi. Please proceed.

Hi, it's Quentin here, I'm with Michael. First question is just on the current development pipeline. I was wondering if you could, on those projects, whether you could give us some kind of development yield expectation and whether that's changed over the last sort of three to six months?

Yes, this is Tom. From a development yield standpoint, we've maintained our consistent range on these projects, in particular on the development pipeline, which is, you heard earlier, only contains three projects with only $40 million yet to complete. So the range is basically ran running between 8 and 9% and that has been steady for the Company for a period of time and we expect those to stay within the band.

And that's a stabilized development yield. Has that stabilization period extended out?

No, we typically draw our stabilization period based upon a percentage leased and typically that would occur in a two-year period from a stabilization standpoint.

Okay. And just in terms of the visible shadow pipeline, I know you've spoken about obviously reducing your development spend and you also mentioned appropriate pre-leasing. I'm just what kind of percentage pre-leasing level that would be on average and how that relates relative to how you would have commenced the development maybe 12 months ago?

Quentin, it's John. What we're really saying there is each deal is -- we look at each deal independently and historically, developers have tended to be comfortable when they have their anchor tenants in place. And then some very minor amount of leasing on the remaining space. So I think what we're saying is we are intensifying the leasing on the remaining small shop space and/or some remaining box spaces. I'm hesitant to give you numbers because it has a lot to do with each individual deal and we're saying that in each of these, we want to make sure that there's enough leasing done in the small shops that we can open and cash flow. So that might be 60%. That might be 50. Just depends on the deal, depends on the capital structure of the deal too. But generally speaking, this is all internal that we've raised the bar. Ultimately, as far as third-party construction lending goes, that's very focused on projected DCRs and things like that.

Okay. And just on your construction line coming due this year, I think you mentioned you're comfortable with the line ratio you could achieve there. Just wondering what those lines of ratios would be and what kind of cap rates that they would be based on?

I think when you're looking at, as far as the $108 million that's maturing, when you look through those -- and again, that's -- a lot of that, Quentin, when the banks are looking at it, it's not so much a loan to value ratio but a debt service coverage, I think it's almost -- the debt service coverage is the first metric, then they back into the loan the value once they see you can hit a 1.2, 1.25 times. So I think everybody's uncomfortable to say here's what the cap rate is in the market. We've had a lot of appraisals done on construction loans that we've been -- and three to five year loans that we've been entering into. We've sold two properties. But we're more focused to be sure that when we enter into these loans it's not -- that the debt service coverage is at least 1.2 to 1.25 times. On these properties we're pretty comfortable with where that falls in and that's why we say that we have comfort around being able to extend or refinance the remaining 2009 maturities.

All right. Thank you very much.

Thank you.

Your next question comes from the line of Mark Lapchinsk with BMO Capital Markets. Please proceed.

Hi, good afternoon. I was wondering, the deferrals you were talking about before, are they in any particular market, weight anywhere in your portfolio.

I'm sorry, were you breaking up a little bit. You said is there any particular market in terms of where the deferrals are being given?

Well, are they weighted in any particular market in your portfolio?

No. I mean, generally speaking, of the few that we've given, I think in each of the markets we're operating, I think we've given a couple. So it's really kind of spread across the portfolio and quite frankly, it's not even concentrated in one particular type of retailer and again, this is a decision that we're making on someone that we view as a survivor and we want to help them be a survivor. There certainly have been requests made to us that we've turned down, a great majority more we obviously turn down and once we kind of give people the -- kind of the test they have to go through in terms of what they need to give us, right there that stops some of the conversations. Like I said, a lot of people are just asking to ask. For the ones that are legitimate, we will obviously discuss it.

Thank you.

Your next question comes from the line of Nate Isbee with Stifel Nicolaus. Please proceed.

Hi, it's actually Dave Fick here with Nate.

Hey, Dave.

A number of questions. Why would you even put out there a number without Circuit City? That's a normal course of business, bankruptcy, you're going to have more of that size and scope in the next year or two. Why is that relevant?

You're talking about why we put out what the FFO number would have been?

Yes.

It's relevant because it happened after the end of the year. So it was an unexpected event as it related to the end of the year and the guidance we had already given, that's why we believe it's relevant.

Okay. Thank you.

Sure.

The same-store NOI guidance, can you walk us through some of the assumptions on the underlying occupancy and rent rollover numbers?

I think when you look at the same-store, obviously we -- for the year, we were flat. For the previous quarter we were 1.2% down and I think when you look at what we're anticipating with the Circuit City being vacant for the majority of the year, we've got good activity but obviously if they vacate in March, it's going to take us a while to get us a lease signed and tenant ready, space ready for the next tenant so that is a factor in part of the negative same-store would be the timing and the effect of the Circuit City liquidation. In addition, as we went -- as we had gone through our budgeting process, we wanted to stress test some of the lease-up we anticipated on some properties and make sure that we had a range that we were comfortable with as we looked out through this year and that's what got us to the 2 to 4%.

Okay. When you talk about the spend on your predevelopment projects, obviously that's a cash number but you've got some load on carry, you've got $90 million sitting out there, not doing anything. At what point would you make a decision to pull the plug and simply liquidate for land value and sort of how do you evaluate that in the context of your current commitment of staffing in this area? What is your G&A load that's capitalized?

Well, Dave, as it relates to how do we look at it on a going forward basis, I mean, obviously, as I said, we have commitments for anchor tenants. We're in the pre-leasing of the shops and the ancillary boxes. We're in an extremely challenging environment. So obviously, we have to work harder to get to a place that we would have been earlier. As it relates to how do we value this and how do we determine whether or not this is something that we would sell for land value, I mean, there's just so much that goes into that and right now we're nowhere near that feeling because we're still making progress in what is probably the worst retail environment in 70 years. So I feel like we're making real good progress. I feel okay about it. We're going to analyze that as we move through the year. As it relates to staffing, as you know, like many companies that do what we do, we've had to make tough decisions and we've made those tough decisions and you can see that in our overall corporate overhead reduction. You can see it in our G&A reduction. That's something that we're going to have to continue to deal with. We moved in front of it. I mean, if you look back to the way we were talking a year ago at this same time, we were making it very clear that the environment was turning negative and we would react to that and we did react to that which is why you see a fairly clean earnings report that we just put out relative to what else is going on in the world. So we'll continue to review that, Dave. It's tough to say how you make that decision right now in February.

I hear that, John and I don't mean to be argumentative but all of these projects have been out there for quite some time on a pre-leasing basis. The environment is only getting worse from a leasing perspective. I'm just wondering how you could be seeing progress on pre-leasing at a time when tenants are running the other direction and not making new commitments. You're delaying by a period of months I assume on average at least six months now the move forward. You've got the associated soft cost carry with that and the whole presumption is that you're going to get leasing done on an incremental basis at a time that people aren't leasing.

I guess, again, all I can do is come back and tell you how we're doing on the -- as it relates to here versus the whole world. Yes, it's a difficult environment. We're reviewing it kind of every day. Two of the projects in this pipeline have an opportunity to start at the end of the year. If we -- as a matter of fact, in our capital plan, even with the strong amount of liquidity that we're projecting at the end of the year, we have associated capital going into these beyond just the carry costs so we believe that that may happen at the end of the year. But again, I think when we talk about this again in the next quarter and the following quarter, we'll continue to update you as to the progress we're making but we feel like that these things are going to happen and we feel like the strength of the anchor tenants who have committed and quite frankly are pushing us to get the co-tenancy in place, that gives us comfort that these things make sense.

Okay. Thank you.

Thanks.

Your next question comes from the line of RJ Milligan with Raymond James. Please proceed.

Good afternoon, guys.

Good afternoon.

Just -- the majority of my questions have been asked and answered. With regards to your Circuit City progress, you guys mentioned that you've got a couple good leads there. Just curious, who is looking or what types of retailers are looking for big box spaces at the moment?

This is Tom. We have three locations that we're working on right now. Coral Springs, Daytona and then a location in Hearst, Texas. We don't think it's appropriate to give any specific names because we're obviously in the heat of the battle, looking to attract people and there's competition everywhere, as you know. But we are -- we're in a good situation in terms of the real estate. There's certain sectors that in particular we're chasing and we hope to make good progress here in very short time.

Okay. Thanks, guys.

Thanks.

(Operator Instructions). Your next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hi, good afternoon, guys.

Hi, Rich.

Question for you on the developments, the current pipeline. The six or seven boxes that you guys identified as anchors, I mean, are those pretty much set in stone? Is everything going okay with all of those so that they can't really back out or probably won't back out?

Rich, this is Tom. I think as you know, nothing's set in stone until they actually open the store. So it would be a little presumptuous for us to say they're set in stone. However, we do have executed documents with them. We are working very closely with their predevelopment teams on layout, et cetera. As John mentioned, they are pushing us and we're just being tough at this point in terms of setting that preleasing level, making sure the capital from a construction loan standpoint's there. So the bottom line is yes, we do have very, very strong anchor tenants and I think back to Dave's question earlier that John responded, that's why we have the confidence that we're going to be successful because the names behind each of these projects are very strong and are groups that can draw the balance of the leasing.

Rich, it's John. I think you're also asking about the current pipeline, right?

Right, yes.

And as it relates to the current pipeline, obviously we're under construction, all the anchors are executed leases. Each one of these projects is a little different. The environment that we're in has some of these have obviously been -- the timing has been delayed so that brings into play how each one of these individual leases is affected by timing. But we can tell you as we sit here right now, all the anchor leases are executed, everything is the same as it relates to that and there is probably one or two situations where the delivery timing is off so we'll have to be discussing that with those guys as it relates to when their opening would occur and whenever you have that situation, sometimes that's going to move the needle around but at this point we feel okay about it.

Okay. Thank you, John. Is there any break on development costs? With all this going on in the economy, are development costs getting any better?

Well, if you take a look at construction costs indexes, which we obviously look at quite frequently, just to give you an example, kind of over the last 60 days you've seen some nice drops in lumber and steel. You've seen labor stay relatively steady. I think everything is looking in a positive direction as it relates to cost, the fact that labor's stable. You're going to always have your inflationary impacts but we like where we are much better than we were a year ago.

I assume the oil-based stuff is cheaper too.

That is correct.

Good. Thank you. I'm guessing that the dividend will be paid in cash; is that right?

That's correct.

And what percent or what was taxable net income, Dan, for the last year or what roughly is the new $0.60 dividend as a percentage of taxable income?

Last year, we had projected last year about 45 to 50% return of capital and then when it got to the end of the year with some of the transactions that occurred it adjusted the return of capital to a little higher number in 2008 which was as we reported. I think if you look at 2009 and you look at what our taxable income projections are, I would say that it would range in the dividends of $0.25 to $0.30 would be enough for us to cover our taxable income projections. What I'm saying is based on the dividend of $0.61 to where we are at taxable income of $0.30, you've got room in that regard to meet the REIT test.

Okay. Good. How about asset sales, is that -- obviously you guys have done some. Are there more planned? Is this a thought there a thought that this is a good time to be doing that or not so great?

When you look at what we had done at the end of the year, Rich, I'd say November and December were pretty awful times to be selling and we were able to do two very effective and two very attractive sales as relates to cap rates. I think when you see -- certainly when the stock is trading at a level that's so crazy low like all the REIT stocks are right now, when you look at cost of capital, it's got to be something you look at. However, the environment is such that sales are few and far between and we're even moving more into a period where cap rates are just very, very difficult to even put a handle on and, frankly, as you know, cap rates at the extreme are really driven by availability of capital, not cost of capital. So right now, we're in the extreme negative, much like when we were in the extreme positive, cap rates on both ends of that cycle don't make sense. So what I'm trying to tell you is but for the fact we find another two opportunities like we did at the end of the year, it will be tough. But we're going to look at it because if we can recycle capital that way, it's a much more cheaper way to do it.

Okay. Yes, I got you. By the same token, obviously buyer's got to find capital. What are you guys seeing on the debt front? Are you sensing that it's getting a little better or it's about the same as it was or getting worse or what would you think?

I think, look, we've been very successful in our ability to both refinance and place new debt on projects. And as you can see, we did a great deal of that in a difficult period of time. However, we are fortunate that the types of debt that we have, both the quality of the assets and the size of the assets are what remain attractive to debt providers. So that's a way of saying we think it's generally the same. It's probably worse for the larger loans and it's probably worse as it relates to CMBS, which is why it's so important for us to reemphasize for a Company with over $300 million of fixed rate debt to have only $50 million of CMBS debt rolling over in the next three years is very attractive. So I think we feel very comfortable in our sweet spot but that is somewhat of a niche as it relates to the rest of the capital markets.

Okay. I got you. And then -- thank you, John. And then last thing, on Circuit City, Dan, does the loss of rent begin in second quarter? Do you get anything in the first quarter or did the bankruptcy preclude you from getting anything?

As of right now, Rich, they are still occupying the space and paying rent and we're anticipating that to occur through March. So it would be the majority of the effects of the liquidation would occur in second quarter and beyond until we get the spaces leased.

Okay. Great, thank you, guys.

Thanks.

Your next question comes from the line of Alex Barron with Agency Trading Group. Please proceed.

Thank you. I guess you briefly answered one of the questions I wanted to ask on your assumptions on occupancy. Excluding Circuit City, what kind of assumptions are you making for the rest of the portfolio of what might happen in '09?

I think the assumptions are embedded in our same-store guidance of negative 2 to negative 4%, so I think when you look back through that, I think from a run rate perspective and through the end of the year, we would anticipate being somewhere between 89 and 91%.

Okay. Got it. My other question is just more generally, you talked a little bit about rent relief and having some sort of a test. Can you just talk about sort of the thought process and what the test involves when people come and ask you for rent relief.

The obvious thing here is that you look at the tenant's health ratio. So basically one of the many things we look at is what their health ratio is as it relates to our operating expenses, their sales to our operating expenses. That's one of the things that we look at. The other things we look at is we determine how important the use is in that particular location, we look at their history of their sales reports. We look at tax returns. We look at the individuals guaranteeing the leases. We look at everything. So as it relates from the mom and pops, all the way to the nationals, we go through a very stringent process because once we begin to defer rent we look at ourselves as a lender and we treat it that way.

Okay. Thank you.

Your next question comes from the line of Stephanie Krewson with Janney Montgomery Scott. Please proceed.

Hey, guys.

Hey, Stephanie.

Three questions. I've got some small ones but I'll save them for offline and spare the listening public. Regarding your shadow pipeline, how long can you sit on that stuff before you have to do anything? In other words, this a time when you have to do something to keep your variances current? Like pour a foundation or something? I mean -- ?

Stephanie, this is Tom. In terms of permitting, what we have the ability to do, similar to most projects, is you can extend permitting. As it ties back to land use, which is the most important component for us, that is set. The only place that you have issues is on building permits and those can typically be worked through with the cities, counties, et cetera but the bottom line, what we're interested in in terms of the value of the property is its actual land use and that is set definitively.

The other thing is that as it relates to how long, I mean, again I want to emphasize for everyone that these are decisions that we're making to be prudent. If we wanted to start construction, we have enough anchor commitments in, say, at least three of these deals that we would be under construction right now. As it relates to, for example, Delray Beach, we have both anchor tenants with executed leases so the question of why are we not moving forward, the reason we're not moving forward is because we're being extremely prudent with capital and the effect of waiting another year, six months, 12 months, is de minimus on our overall returns. It's a situation that we want to.

That's helpful. I don't think anyone asked this. Forgive me if it's a repeat. I did have to step out for a minute. What were the exit cap rates on the Silver Glenn Crossing and Spring Mill Medical buildings?

This is Dan. The Silver Glenn Crossing was a 7.5 cap on the current NOI. The Spring Mill Medical was an 8.1 cap.

Who were the buyers?

The medical deal was a REIT. And the shopping center was a private real estate Company that was affiliated with the anchor tenant.

Third question. Can you provide the average occupancy for your redevelopment projects?

I don't have -- we don't have that right in front of us, Stephanie. Can we get you that afterwards?

Sure, sure. And that's it from me. Thanks.

Thanks, Stephanie.

(Operator Instructions). Your next question comes from the line of Ed [Sarbell] with [RENS] Group. Please proceed.

Thank you. I just had a question regarding in the Circuit City and Linens 'n Things replacement, do you expect those leases, if you replace them, to be roll-downs or at less than the rates that Circuit City and Linens 'n Things were paying?

Ed, it's John. I think Dan and I would both like to talk about this and actually as it relates to Circuit City, historically the Circuit City and Best Buy and the electronics guys have been the higher rent payors and we actually took a very conservative route in terms of how we treated the FAS and I would like Dan to address that.

Ed, on one of the spaces with Circuit City, we acquired it and the rent was roughly $16 the reason we had a write-off in this quarter is we made a decision to write the rent down to just about $11 which -- in that perspective, do we think we're going to get the $16 rent that was in place? No, we do not. But we accounted for that so if we sign a new tenant to anywhere around $11 the net impact to our FFO will be negligible, if any. So when we acquire a center we try to go through that analysis. Now, are we -- as far as how we're going to do on the Circuit Cities and the rent, I think a lot of it is going to be related to what type of tenant improvements we put in. It might be premature to give you an answer on what's the net effect of rent going to be once we complete the negotiations with these tenants.

The probabilities are that it will be lower, not higher?

I would say, yes, Ed. In this market, I would -- it would be remiss for us to say we think we can get higher rents than we had previously on those boxes.

A lot will depend, Ed, on the timing. I mean, obviously if we come right out of the box and re-lease two of them quickly, maybe that puts us in a position, the third one we might wait a little longer because in the end of the day, the roll-downs on these rents are driven by how quickly you want to respond. Because this is a buyer's market in the sense that the tenants have leverage. It will depend on the timing as well. I would suggest that it would be a roll-down because they're electronics guy, basically.

What about Linens 'n Things? That empty space?

I think that's probably a push. We already re-leased the former Barnes & Noble in there, with a grocery store. So we brought in a grocery component so I think that enhances the value of that center, it's a strong center to start with. So that one's probably more of a push and it probably comes down to the TIs, Ed.

Okay. And just kind of a general question. This may be hard to answer. But if you were just looking back a year, what would be the difference in the asking rent that you might undertake for both of those situations? In other words, how much would rents potentially have dropped over the past year?

Well, I mean, --

Same space, rather than, when the seven-year terms are up and you re-lease those?

Kind of tough to say and in fact, you would probably have to go back longer than a year because we've been talking about this environment for over a year. So I think, Ed, that's tough to say. Generally speaking, I would say we constantly talk about, when we execute a new lease, we are very careful to take the higher rent that could be available to us because of this very reason. So if you look across the board at our anchor rents and you look in our supplemental at our anchor rents, you'll see they're reasonably priced. So it's tough to say. Two years ago, would there have been more of a frenzy around available space? No question about it. Could you have looked to push the rents up even higher? Sure you could. What it's turned out to be is a mistake to the extent people did that. As Dan said, we tried to be conservative around that.

Well, thank you.

Thank you, Ed.

Your next question comes from the line of Stephanie with Janney Montgomery Scott. Please proceed.

Thanks, quick follow-up. How is Office Depot doing?

How is Office Depot doing?

Yes.

You know, Stephanie, from our perspective they're doing fine in terms of the stores we have. However, we're really cautious around making statements around individual tenants, as you can imagine. Puts us in an awkward position. Let's just say that all of our big box tenants we are looking at them, stress testing them, thinking about who other opportunities -- who the other players would be, but as it relates to us, they're current on their rent and that's kind of how we look at it.

One more quick question for Dan, just to qualify or clarify something he said earlier. Your guidance for '09 is based on what occupancy at year-end, Dan?

We have it ranging. Right now we have it ranging between 89% and 91% is where we've got -- that's kind of the range we use to stress test our guidance range.

Okay. Thanks very much.

Thank you.

I'll now turn the call over to Mr. John Kite for closing remarks.

Thank you for taking the time to join us and look forward to speaking next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.