Kite Realty Group Trust (KRG) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen, and welcome to the first quarter 2009 Kite Realty Group Trust earnings conference call. My name is Dan and I will be your coordinator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference. (Operator Instructions). This conference is being recorded for replay purposes. I would now like to turn the call over to your host for today's call, Mr. Adam Chavers, Director of Investor Relations. Please proceed.

Thank you, Dan. 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 March 31st, 2009 supplemental financial package was made available yesterday on the corporate profile in the Investor Relations at the Company's website, kiterealty.com. The filing has also been made with the SEC on 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 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; acquisition, disposition, development, and joint venture risks; potential environment and other liability; and other factors affecting the real estate industry in general. The Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission, which discusses these and other factors that could adversely affect the Company's results.

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

Thanks, Adam. I would like to discuss our first quarter operating results, our continued success with refinancing and extending our debt maturities, our leasing initiatives, and our plan to significantly reduce our future development spend.

FFO for the first quarter was $0.20 per share, and our operating portfolio was approximately 91% leased as of the end of the quarter. Although these results were down year-over-year, they were in line with our expectations and we're beginning to see signs of stabilization in our operating portfolio.

We continue to make significant progress refinancing and extending maturing debt. As a reminder, we entered the fourth quarter of 2008 with approximately $230 million of debt maturing through 2009. Since that time, we have refinanced and extended the vast majority of that debt, and as of today we have only $39 million remaining in 2009 debt maturities. This is accounting for loans closed and commitments received subsequent to the quarter end. This reflects the strength of our properties as well as the longstanding relationships we have in the credit markets. I would also to note that we have only $50 million of CMBS debt maturing through 2011 and that our line of credit can be extended to February of 2012. This gives us additional comfort that we will continue to be successful in refinancing our remaining maturities.

Leasing continues to be a central focus of our organization. We are beginning to see improvement in demand for well located anchored real estate. We recaptured our three Circuit City locations in late March and are already seeing strong activity. We have letters of intend on two of the three locations with national retailers and have several tenants showing interest in a third location. In addition to the Circuit City boxes, we also have executed letters of intend on two other vacant junior boxes in the operating portfolio. The potential leases would represent an increase in our leasing percentage of over 200 basis points. We remain intensely focus on executing our leasing strategy in the upcoming quarters and will continue to press forward aggressively.

As I mentioned on the last call, mitigating development spend is a primary focus of the Company in this environment. We have three projects under construction and a majority of the costs have been incurred. The remaining amounts to be spent are covered by existing construction loans. Our visible development pipeline remains in the preleasing stage. Since we have not begun vertical construction on any of these projects, we have the flexibility to modify the development scope or to develop the projects and phases. Additionally, we are fortunate that many of our projects are attractive to end users of land sales or ground leases. Both options would significantly reduce our vertical construction costs. Accordingly, we have initiated a plan to lower the total estimated cost in the pipeline by approximately $100 million.

As a result, our estimated project costs is now approximately $184 million. $105 million that we have invested in these projects would support a very conservative loan to cost ratio of approximately 55%. We believe this mitigates our need for any additional equity capital on these projects. However, these costs modifications do not change our stance. Construction starts remain subject to appropriate preleasing levels and our ability to secure third party construction financing.

We are actively engaged in reducing our capital needs and ultimately deleveraging our balance sheet. To that end, we are monitoring all available capital sources, including land sales, operating property sales, joint ventures, dividend reductions, and other capital market opportunities. For example, we are under contract for a land sale of approximately $10 million to an existing tenant that is scheduled to close prior to the end of the third quarter. We are also in active discussions on additional sales totaling in excess of $50 million. With that, I would like to turn it over to Tom.

This morning I would like to update you on the operations of our Company, including the progress of our development and redevelopment projects. The total project costs of our current development pipeline was static quarter-over-quarter at $91 million. In keeping with our capital preservation strategy, no new projects have been added to the current development pipeline since the second quarter of last year. In fact, this pipeline is half the size it was a year ago, as we finish construction on a number of properties and transition them to the operating portfolio. The majority of the costs incurred during the second quarter was attributable to Eddy Street Commons at Notre Dame. This project is now 64% preleased and we are on scheduled to have 90,000 square of retail and 82,000 square feet of office available for occupancy by September 1st of this year. The apartment developer is also on pace to deliver the initial phase of the 266 apartments. To mitigate risks, the apartments were structured as an [air right to] lease.

Our redevelopment pipeline now stands at $11.9 million, which is spread over six projects. Galleria Plaza in Dallas, Texas and Coral Springs Plaza in Coral Springs, Florida were added to this this pipeline as of the end of the quarter. The anchor tenant vacancies present us with the opportunity to enhance these assets through redevelopment and ensure their long-term stability.

We continue to work diligently on the preleasing of our visible shadow pipeline. As we have consistently maintained we will not move forward with vertical construction on any of the projects until we have secured appropriate preleasing levels and third party financing. The total cost within the visible shadow pipeline has been reduced by approximately $109 million as part of our capital preservation initiative. This 37% reduction in project costs is being accomplished in part by transferring the required capital spend associated with vertical construction to our end users. Our strategy will be implemented on four of our six projects, Maple Valley, Broadstone Station, South Elgin Commons, and New Hill Place.

While maintaining our original development plans, we are marking land parcels for sale which total more than $50 million to identified end users. At Delray Marketplace, we reduced project costs by 10% through the modification of the site plan to effectively eliminate our exposure to all residential components and structured parking. Our share of the total cost of at Parkside Town Center was adjusted to accurately reflect the reduction in ownership interests once the project commences construction.

Leasing activity totaled 39,000 square feet for the quarter, and our cash leasing spreads were positive with a 4.6% increase in rental rates for new leases and a 2.2% increase for renewals. Indicative of the improving demand for quality real estate, we are currently negotiating leases with 26 retailers for over 100,000 square feet. We expect a substantial increase in leasing production for the remainder of the year based upon current deal flow.

In an effort to further enhance our leasing infrastructure, we hired Bud Moll in April to serve as our Executive Vice President of Leasing. As the new leader of our leasing department, Bud brings in excess of 25 years of sales and management experience to our Company. Bud has successful careers with IBM, Pyramid Companies and most recently as a partner at Poag & McEwen. Bud's addition is the first step in the ongoing transformation of our leasing department into one of the most productive sales teams in our sector.

Turning to the operating metrics, same-store NOI for the quarter was down 2.5%, primarily attributable to the previously announced vacancies which we have made significant progress on in the last quarter. The same-store decrease was within our guidance range of negative 2% to 4%. Our lease percentage increased 80 basis points while minimum rent decreased approximately $278,000. In the current environment, it is critical to maintain occupancy to generate traffic and activity in our centers. As we have mentioned before, we have a small number of tenants that we have granted rent deferrals to, which equates to less than 0.5% of annualized base rent. At this time, I will turn it over to Dan to discuss operating results.

Good morning. I will summarize a few financial details for the quarter. FFO for the quarter was $0.20, representing a 35% decrease compared to $0.31 in 2008. This decrease is due primarily to a planned reduction in the volume in NOI from land sales and the diluted effects of our October 2008 equity offering.

Turning to some specific items on the income statement, our fixed charge coverage was approximately 2.2 times. Our construction and service fee margin before tax was approximately $540,000. Our NOI to revenue margin decreased in Q1 due to a $500,000 increase in our bad debt provision and $550,000 of snow removal cost in excess of our budget, a portion of which is nonrecoverable. And our year-over-year G&A expense was down $366,000 or 21%, primarily reflecting reductions in staff and public company costs.

On the balance sheet, our remaining debt maturities for 2009 have been reduced to approximately $39.2 million as we received lender commitments to extend or refinance Fishers Station and Cobblestone Plaza. In addition, we recently placed debt on Eastgate Pavilion for $15 million. We also plan to use the proceeds to pay down the line and provide additional capacity for any near-term maturities. As evidenced by our recent success, we are confident that we can refinance our remaining 2009 to 2010 debt maturities.

To finalize two loan extensions during the quarter, we utilized a portion of our liquidity to pay down the land loan at Parkside and the vacant land component at Beacon Hill. At the end of the quarter, we had $40 million of credit line capacity and approximately $10 million in cash. We intend to increase our capacity and generate cash by selling raw land parcels, out lots, and selected operating assets. As Tom mentioned, we are anticipating additional leasing activity which will ultimately result in increased availability on our line.

Consistent with our internal practice, we monitor and evaluate our assets for impairment on at least a quarterly basis. Our most recent review -- after our most recent review, we did not incur any impairments for the quarter. We continue to scrutinize this area for both operating properties and development assets. Finally, we trimmed the top end of our 2009 FFO guidance by $0.04, primarily due to anticipated reduction volume in transactional income and contraction revenue. Our full year 2009 guidance is now $0.83 to $0.93.

Thank you for participating on today's call, and operator, please open the line for questions.

(Operator Instructions). Your first question comes from Quentin Velleley from Citi. Please proceed.

Good morning, guys. I'm here with Michael Bilerman. John, you mentioned that you have a preference to start trying to delever the balance sheet. I am wondering if you can just comment a little bit further on what the quantum of assets sales might be? And where do you have some longer term leverage target or whether this is just a work in progress?

Sure, Quentin. I think as it relates to the amount that is we are looking at in term of asset sales and other opportunities, we did mention that we are in negotiations in various stages to sell approximately $50 million of land to various users, and that would also include some of the outlet sales that we project as well.

That's just one component of what we are talking about and the idea behind the reduction in potential development spend obviously is a major deleveraging for us, because we are looking to take on quite a bit less debt than we would have otherwise done if we fully developed those in terms of building the boxes as opposed to selling or ground leasing to the major anchors. So that is also a big initiative for us, and as it relates to asset sales, remember that at the end of year we were able to sell two assets at -- one at a 7.5% cap, one at an 8%. If those opportunities present themselves, we would look at that too. And as it relates to going forward -- and leverage is a little tougher question, because we are looking at our balance sheet as it relates to the portions that we can control. Obviously the enterprise value with the multiple associated with that is not under our control.

So debt to gross assets is something we look at. We have historically been in the high 50s there, low 60% range. Do we think going forward the environment will be at lower leverage levels than that? It probably will. So we are focused to get that down. But I am hesitant to give you a number because we are just in the beginning phases of where that will go.

Okay. That's great. And just as you pull back on the scale shadow pipeline, how have your return expectations changed for those projects?

We are again early in that process and it doesn't appear that the return expectations should materially change. It depends on what we end up doing in terms of the ground leasing versus the selling, because obviously that is going to impact -- the selling brings down the asset, and depending on our cost of capital, that can actually increase the return. So we are still going through that, but generally speaking, the fully built out returns are essentially staying where they have been between that 8% and 9% range, and now we will go through each project and see how is it impacted. We certainly don't think it will bring them down.

Okay. And last question, just in terms of the two lines where you had to chip in a little bit of capital, as you look at some of your other mortgage rate financings in the future, are there many you think you might have to put capital into to refinance?

This is Dan. I think we look at it on a global basis as we try to manage the capital overall. But I think when you look at the two particular projects -- and as I tried to point out on Parkside, as well as Beacon Hill, those both were land components. So as you look at that, we had to put in some additional capital from a loan to cost perspective on the land pieces of those assets.

When you look at the remaining 2009 to 2010 maturities, I think from a global perspective when we debt coverage service using a reasonable interest rate and amortization period, I think the operating asset for two years -- it is a blended about 1.25 to 1.3 times debt coverage service. So when you look at that from a big picture,, we are going to have some assets we have to put equity in, yes, but when you look at it globally, our assets are still in the realm of being able to put debt on them such that we did in this quarter recently with Eastgate Pavilion.

Just to add to that a little bit, Quentin. I think it's interesting to note, as Dan said, that the last two deals we did looked relatively heavy in the equity contribution. But if you go back the past since the fourth quarter we have been involved in $290 million of financing on both refinancing and new construction loans and the amount of equity contribution has been around 10%. We have done very well as it relates to controlling the amount of equity that we've had to put in, mainly because we started at reasonable leverage levels as these debts were coming due. So going forward, there's no reason to believe that it should be significantly more than that, and I think we are in a very good position to close out the remaining debt without having to put much equity in.

Okay. Thank you.

Your next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.

Hi, good morning. It's Jehan. I'm here with Jay as well. Just a couple of questions, first on leasing. I am just looking for additional thoughts maybe on your strategy in terms of occupancy versus rent. Do you feel that there's enough demand out there for you maybe not to give up that much on the rate side? Or is the focus still very much on maintaining a certain lease rate and then on that end perhaps even pulling in a bit more on the temporary tenant side over the next couple of quarters?

This is John and both Tom and I will respond. Briefly, we have been pretty clear that our strategy has been to be aggressive as it relates to keeping tenants in the shopping centers. And obviously when you see the results you can see that we have, that affects us a little bit in rent. But our occupancy is holding in probably a little better than we probably had anticipated in the first quarter. So, yes, I mean in an environment like this, you're very engaged in keeping your centers full and doing what you need to do. That said, that momentum -- it's very much a momentum gain because it appears to be stabilizing and firming somewhat. So hopefully we have moved through not all of it, but a large portion of that period where we have to be very focused on making the best deal we can make as opposed to growing rents. Tom, you want to -- ?

Sure. One of your questions tied back to temporary leasing, and without question we are working hard on that and have a new initiative we are pursuing to make sure we maximize that number. As it relates to the occupancy issue, we are working very hard and have a philosophy as Jon said to keep the tenants in place. And at that point we can be creative. If there's a decrease in rent, we can always look at objectives tied back to percentage rent and try to make that up on the backside. So we are being creative, but ultimately we do believe we need to maintain that occupancy for the health of the overall center.

That's helpful. Looking out into 2010, I know we are still halfway through 2009, but in terms of lease rolls, it looks like you have got 14 of your anchor leases rolling. How far along have you got on these discussions and any color on what spreads are looking like so far?

We obviously track this very closely, and so far we have been doing very well as it relates to each of those tenants you mentioned. There will be pressure as it relates to rent spreads as you can imagine in this environment. But we continue to use some of the initiatives that we talked about that if we have to take a step back, hopefully we have initiative to make that back as it ties back to the percentage rents. So things are proceeding fairly well there.

Thanks. Lastly, really quickly, you mentioned rent to lease is pretty minimal. I think you said less than 0.5% of total base rent. Just curious -- for the tenants that you have actually granted relief to, have you tracked performance since then? Are they doing better today? Are you less concerned about them? Or would they still fall in your watch list as you look out into the next couple of quarters?

Well, first thing to start off, you are accurately stated that it is less than 0.5%, which is something we are very comfortable with. I will also say as we track this, which we do very, very closely we have seen that taper off just a bit over the last 45 days. So one of the key initiatives and one of the requirements of these deferrals is the fact we have to monitor them very, very closely. We are starting to see positive results from these initiatives, because ultimately our goal is to create the health of the tenant and make them a long-term survivor.

One thing I'd add to that is one thing we have mentioned before is -- as things improve in the -- look, a lot of this is a macro economic issue. And obviously today you see that the job loss report was significantly below what it was in January, probably 30% below. So clearly the acceleration downward -- as that slows, we are in a better position as it relates to what do we do with these particular deals, because now we have some leverage as it relates to relocating tenants, as it relates to their option periods, and as Tom said getting percentage rent. So in a way we have buffered anything that can happen now, but we probably have accelerated the upside when the market turns better for us in the future.

Great. Thanks a lot.

Your next question comes from the line of Jeff Donnelly from Wachovia. Please proceed.

Good morning guys.

Hey, Jeff.

I apologize if I missed this in the comments or earlier questions -- a few earnings calls going on. But for those four projects in the shadow pipeline where you've made a strategy change, what impact do you think that will have on [stabilized yields]? Do you think you can earn out of those projects?

We talked about it, Jeff, but bottom line is we are early in the process of analyzing the impact. But in one regard, we think that, depending on whether they're land sales or ground leases -- in the land sales, again depending on the prices that we get, that may actually enhance our returns because of cost of capital as it relates to expending capital on vertical construction. And in ground leases we think again it may enhance, although at this point we don't have exact numbers on each deal because we are in various stages of discussing that with the tenants. But it doesn't appear it would be any sort of negative impact.

Okay. This one's for Dan. On Cobblestone, the construction on there matures this summer, and overall percentage leases just shy of 80%. Do you have the ability to extend that loan and if not, what are your plans for it when that comes due?

We don't have, there's not an extension option. This is Dan. There's not an extension option on the loan, but we have a commitment from Wells on the loan extension and we're finalizing the discussions with them. But we feel like it is going be extended. I mean that is -- one of the priorities that we had obviously was to get that loan extended to drive down our maturities for this year to a little under $40 million. So we are in negotiations with them. We don't have anything finalized yet, but we feel good about getting that extended.

Do you mind reminding us -- what are the restricted covenants on your credit facility?

We do disclose that in the Q as far as the covenants. We don't get into specifics about what the numbers are, but the covenants in particular -- we have leverage covenant debt to gross assets is up to 65%, you can [receive] 65% up to two quarters. We have a fixed charge covenant which is not to go below 1.5 times. And as far as -- those are the two covenants that we are focusing on now. The other covenants as far as the equity in the Company and/or resource debt versus total debt that we are having -- we are really watching those and having success on these loan extensions, basically taking a portion of the resource debt and limiting the recourse to the LP to more like 25% versus a full 100% on the construction loan. So when you get into that, we are managing those -- I think the two covenants I mentioned in the beginning are the ones that of the six or seven covenants that we have, the ones we are monitoring.

To be clear, Jeff, we are in compliance with those covenants and are comfortable with them throughout the year.

That was my next question. And actually John, for you, I am curious, considering the leasing front, maybe you can talk a little bit about it -- is you did a good job talking about the anchor side of the equation, Are there any cotenancy issues at those properties where there are some anchor vacancies out there?

At this point, we only have one property in all of our power centers where there has been a cotenancy, and that cotenancy was a percentage rent clause. And since then we filled -- we are under construction on a grocery store that will help that issue. So really, at this point it doesn't appear to be a material concern. It is always a concern, but we don't see anything materially that concerns us there. But we don't want to have any vacant boxes. That's why we talked about the progress we have made there -- even beyond the Circuit City we are making progress on two of three or four other vacant boxes. So it is a concern, but doesn't appear to be material right now, Jeff.

Are there any vacancies of junior boxes or big boxes on the unowned portion of your centers?

Vacancies on the unowned portion --

Jeff, this is Tom. We do not believe that we have any at this point fortunately on the unowned.

And then I guess last question, and it is open ended. John, last year you had a good plan heading into ICSC of what you wanted to accomplish the next 90 to 100 days coming out of ICSC. I think it was buttoning up your leasing pipeline and the developments as best way possible. Do you have a particular focus this year for your folks and where they shall be allocating their resources or time?

We do and we can obviously -- as Tom said, we are in the process of -- what you have heard me say before, Jeff, I think we are a leasing, we have to be a leasing company first and everything else comes after that. So as it relates to ICSC, you have heard a lot of people talking about ICSC and will it be a letdown, et cetera. I mean we are approaching it like we always do, and in fact as you know we ramped that up last year. But the intensity around this is even more important. And one thing that is good about the lower attendance or the projected lower attendance is the discussions we'll be having will be real. I mean we will be in deal-making mode with tenants that want to do deals as opposed to wasting our time with too many extraneous meetings. In terms of objectives, the same-store operating portfolio, we want to increase the leasing there. We have extreme focus around the box vacancy, as you can imagine. And we're making good progress, but LOIs aren't executed leases. So I don't know if Tom wants to add to at that.

The only thing to add, Jeff. Jon mentioned the words productivity. One initiative we have as part of our new team -- when people come in at ICSC, let's not have them come in to talk, let's have them come in to negotiate and have letters of intent they have with them with clear objectives of what will be accomplished at each meeting. We are far more focused with the same intensity we had last year.

That's great. Thank you.

Thanks a lot.

Your next question comes from Rich Moore from RBC Capital Markets. Please proceed.

Good morning, guys.

Hi, Rich.

When you look at guidance, you gave the slightly reduced guidance -- does that include the same sort of basic inputs you had before the down 2 to 4% NOI, $0.05 to $0.15 in transactions?

Except for the transactions, Rich, that would be lower.

I think when you look at the guidance -- this is Dan. When you look at the guidance, the two particular line items in this environment are the transactional income and construction service fee revenue margin. Those are two items that as far as meeting the upper end of the guidance, we felt it would be prudent to bring that piece of it down.

Okay. Great. And then on occupancy, Tom, what are you thinking for the end of the year?

This is John. The same -- we gave you the 89% to 91%, and considering we are around 91% right now, and that takes Circuit City into consideration, I think we are still going to keep the 89% to 91%.

But one thing, Rich, we did talk about is we are seeing an increase in production. So, we are going fight this all the way through the end of the year.

Okay. Excellent. We can hit the upper end of the range.

It is possible, Rich. But although we are seeing definite signs of encouragement, it is early. So we have to maintain some conservative posture there.

Okay. Great. And then Dan, recoveries seem to be weaker than usual. I mean it was a continuation I guess of the fourth quarter a bit, but anything special going on with recoveries?

No, Rich -- one thing I will point toward is on page 12 of our supplemental, we tried to break out what portion of those expenses are recoverable. I know on the financial statement page that you're looking at to drive that number. It includes some bad debt provisions, any ground lease rent payments, legal expenses, and those kind of things. So if you drop back to the page 12 our recoveries went from 64% to 69% when you pull out the bad debt provision that we mentioned in the script of about $500,000. So overall, we had another successful real estate tax appeal on a couple of properties. We had -- this quarter, we were affected by significant snow in the Midwest area which was about $550,000. And a portion of that is nonrecoverable. So we are making headway there -- as we got a tickup from the end of the year. But I wanted to point you to that page and make sure that you saw how we were disclosing that from a breaking it out perspective.

Good. I did see that, Dan, thank you. And then as you guys get these loans -- as you're extending these loans or getting new loans, is, and I know you talked about the mini perm concept, is that still what you are thinking and are most of these you think going to be variable rate in nature?

Rich, it is John and I will have Dan finish this up, but remember that what we are talking about here on -- you have to separate out what type of loans we are dealing with. The construction loans that are maturing where the projects aren't fully stabilized are very different than maturing CMBS loans. So as it relates to these mini perms, the construction loans maturing, that's in our view the best form of debt to place on it because it gives us a lot of flexibility in refinancing it two or three years later in a permanent market. So, just from a macro level, that is what we are doing. But Dan can give you the detail of that.

I think Rich also gives us some flexibility such as on Eastgate Pavilion. That loan was LIBOR plus 295 and we locked up the rate at just under 5%. It's like 4.84% with the hedge. One thing we can do with that is if, as John mentioned, over the next two years, two to three years plus we have an option on that loan -- if things improve dramatically we can shift that hedge to another piece of debt in our portfolio and go longer term on that asset. So what we're doing right now is trying to maintain our flexibility. We are trying to lock these loans for three years, plus one or two year extensions with banks that we have relationships with. As we see opportunities, we obviously aren't in game of three to four year real estate debt. We would rather be more in the seven to ten year. That's our objective. It is just not a significant amount of opportunity right now.

Okay. All right. Thanks, Dan. And then on the asset sale front you guys were talking about, did you actually have anything actively marketing.

What I was saying, Rich, is that actually we have one asset under contract which is supposed to close by July which is $10 million, and that is to a tenant. So that's a piece of ground to a tenant. And then beyond that, we have a significant amount of land we are talking about that is -- could be potentially sold to end users, tenants obviously. So, we are actively working on that, and that is how -- that's where we came up with that number of approximately $50 million.

We also have a couple of assets that are operating asset that is are like single tenant type properties, where tenants would like to expand. In fact there's one specifically we are negotiating with a national tenant they would like to expand. We are talking about actually selling it to them opposed to -- it'd be complicated to lease it. It is a significant amount of money we are talking about.

So the answer is yes, we have multiple things that we are working on. Obviously they take time, but we wanted to give people the visibility on the amount of capital that could be generated there.

Okay. And those operating assets are above the $50 million, John?

The one particular one is, yes.

Okay. And then the last thing, guys, on Broadstone Station, I happen to notice that the total cost of the project went down as well as the cost that you have incurred to date has gone down. And I am guessing you may have sold something there or just curious what that is?

We did have a sale in this quarter that generated a very little modest amount of gain. It was a like a 14-acre parcel. And a portion of that, Rich in addition we moved basically from cost incurred to an item we are planning on selling to an investor versus selling to an end user. So that's why the cost incurred -- two pieces. Number one we sold the parcel and number two we have another amount of acreage that we are looking to potentially jettison to an investor.

Rich, that sale that we had was not to a retailer. That was a residential piece of ground.

Okay. All right. Very good. Thank you, guys.

Thanks.

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

So Indy cars at Vegas this year?

That has been cut out of the budget, David. Sorry.

I guess it is reality. Now that you are essentially out of the development game for now, you still feel comfortable that your planned projects will go to fruition and not have impairments? I assume you assess that fairly regularly and that you still feel comfortable saying that. What kind of progress are you seeing toward getting these things moving at some point?

Well, David. This is John. Obviously, the what we are doing and Dan did make that pretty clear that we are very engaged in that process and reviewing these every quarter. So that process will go on as it relates to having impairment reviews. But the real strategic shift is that we are trying to make it clear that we have the ability in many of these major anchor situations to do land sales opposed to leases and some of the junior box situations. So, we are still making progress. I will let Tom cover that with you. But it doesn't change the idea that we think these are all good developments, but it does change the idea we are trying to minimize as much as possible the capital that we would put in. Go ahead, Tom.

So David, as it ties back to the actual development, we are utilizing the same development plan. That's important to focus on the same plan, the strategy in terms of how we're dealing with the vertical construction based upon the sale of the property. So we are making progress as it relates to each one of these. An example of that would be Delray. We are completely down to small shop leasing and are going to continue to be conservative as it relates to not starting until we get the proper percentage. In this tough environment, has it taken longer? Absolutely yes, but we are still slugging away and still plan to execute on these deals.

For example, when do you think you might get there based on you're seeing with the specialty [tax] at this point?

We had originally hoped to get the fall of this year. I think it is difficult. We are still pushing to do that, but I think spring of next year is probably a more realistic target for us, Dave.

Okay. And then my last question is another sort of high level. Given that you're faced with -- I guess everybody is using the words unprecedented circumstances, what do you see as the longer view of getting back to a growth in earnings?

Well, obviously we are very focused on controlling and containing capital. So as you do that, it impacts your ability to grow earnings. And I think deleveraging -- I also believe deleveraging is important, but that will also impact our ability to grow earnings.

The one thing I think we have working in our favor, Dave -- as long as the majority of these projects we have out there can come to fruition in some form, then we have that ability to grow NOI already and we have already invested in that as you know. So, but does that make it further out? Yes, that makes it further out on the spectrum, and I think our focus also needs to be the same-store numbers we mentioned. We have to improve those numbers and we are extremely focused on doing that. So long winded answer of saying yes, earnings is out in the future, but it is still there for us.

Okay. I will see you guys at ICSC. We will wave as we go by because we don't have anything to talk about and you are not chatting now.

That's fine. We have some sandwiches if you need them.

Okay. Thank you.

See you, buddy.

Your next question comes from the line of Dan [Donelan] from Janney. Please proceed.

Yes. You guys mentioned the $10 million land sale gain you expect to occur in the third quarter or excuse me, land sale -- what type of gain do you expect on that?

We have got that as part of the $0.05 to $0.15 guidance range. Anything we would produce on that is already baked into the guidance.

Perfect. South Elgin and Cobblestone -- are they already paying rent or when do you expect them to start paying rent.

On South Elgin, yes, that tenant did open. So that one's in good shape. And the second one on Cobblestone, we had the first tenant, first wave of tenants opening at the beginning of this month, so that will slowly begin to trickle in.

The LOI for the Circuit City spaces, the rent on that -- I think your average rent was $15.77 -- do you expect that to be slightly lower, maybe comment on that?

We expect it to be lower, obviously. Remember as it relates to that, we also in the fourth quarter from a FAS 141 perspective took that into consideration, and so bottom line is we believe they will be below the rents that were in there before on average. And -- but the improvement that we're getting in the quality of tenants on the two we are negotiating with is significant. So we think it is a very worthwhile exercise.

Okay. That's it for me.

Thanks, Dan.

Your next question comes from the line of William [Spinner] from Raymond James. Please proceed.

I read you comments about the dividend. I wish maybe you could discuss it a little more. Maybe how much you might have to cut the dividend if that is what is being contemplated? And what factors -- the leasing, refinancing, what other factors will come into play there?

Well, I think as it relates to the dividend. This is obviously a board decision, and frankly the reason that the Board felt it was appropriate to push that decision back further into the quarter was to give us more visibility on the quarter and the cash flows of the quarter. And frankly we -- they thought that made a lot of sense to review the dividend when we had more information available to us. So really I wouldn't read anything into it other than that just to have more visibility around that issue. Obviously since we are a smaller company, transactional income can play into a lot and I think that just gave -- the Board felt that they needed that comfort around that to make that decision.

Thanks.

Sure.

(Operator Instructions). Your next question comes from the line of Nathan Isbee from Stifel Nicholas. Please proceed.

The negative 2% to negative 4% same store NOI guidance, how much of that decline would you say you're attributing to national retailer bankruptcies that have not been announced yet?

That's tough, because if they haven't been announced yet, we don't know, Nate.

Well, I understand but I assume when you're creating your projections you have your own watch list and you do build in.

I mean, in seriousness, when we looked at it at the beginning of the year, we clearly assumed that there would be more impact from the national box retailers in same-store NOI. Now, we can't, we are not in a position here today to say who we think that is or when we think that is, but that's why the range is fairly broad and the impact you get from the big boxes is so much more -- it moves the needle so much more than the small shop spaces do. So yes, we see it out there, Nate, and that's why we haven't changed the guidance as it relates to same-store. But look as we move through the year, you've heard me say before the further we get through this year, the better we will feel and understand how that is going to play out. And if things continue to stabilize, we will feel better about that probably later in the year.

Okay. I understand. I was just trying to get a sense if you look at your top 25 tenants, if one or two of those happen to file this year, you are not looking at a significant worse same store NOI than you have projected.

I think as you look at it, Nate, we get hit on both positives and negatives when it comes to same-store because we are smaller. Things move the needle. So if we do have a large tenant go out, I think it is going to impact us. Now the unfortunate thing on same-store is that we can't pro forma in leases that are signed for the boxes that are vacant, such as we put Sprouts into Cedar Hill Plaza to backfill Barnes and Noble. Sprouts, we are building out the space. We are still getting hit for that even though it is going to be a positive in our future growth. So I think as we get these Circuit Cities, as we make progress on these letters of intent and get these boxes backfilled, it is going be a short term blip. But if you look out over a period of time, the quicker we can get these boxes backfilled the more positive outlook we will be able to portray on same-store.

Other thing, Nate, is that's a good opportunity for everybody to kind of look at our tenants -- and when you look at our top 25 list and you look at the exposure we have on a base rent perspective that's why we work so hard to keep that down. And clearly we feel pretty decent about that, but things that happen that we aren't expecting, that's something we always have to be thinking about and why we stress test these numbers.

Okay. Yes, and fair enough. One final question -- I might have missed this earlier. How many total vacant boxes do you have and do you have any -- beyond the one you just mentioned, any other letters of intent signed?

If you look at the vacant boxes, I think one of the key things is what vacant boxes do we not have any -- very little activity on. If you go if you look at that, we have vacant boxes that were discussions in LOI that we have activity on. We probably have four we don't have any activity significant activity or say we have a signed LOI or a live tenant. That's -- when you looking under that scenario -- those are ones that is we have our leasing group looking at to really get some action on those, get a tenant in there for the vibrancy of the center.

Okay. Thank you.

Thanks.

At this time there are no further questions in queue. I would now like to turn the call back over to Mr. Kite for closing remarks.

I would like to thank everyone for being on the call today. Look forward to talking to you next quarter. Thank you.

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