Kite Realty Group Trust (KRG) 2009 Q2 法說會逐字稿

Good day ladies and gentleman and welcome to the second quarter 2009 Kite Reality Group Trust earnings conference call. My name is Tom and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be conducting a question and answer session towards the end of this conference. (Operator Instructions) As a reminder this conference is being recorded for replay purposes.

I would now like to turn the presentation over to Adam Chavers, Director of Investor Relations, please proceed.

Thanks Tom, by now you should have received a copy of the earnings Press Release. If you have not receive a copy please call Kim Holland at 317-578, 5151 and she will fax or e-mail you a copy. Our June 30, 2009 supplemental financial package was made available yesterday in the corporate profile page in the investor relations section of the companies website. The filing has also been made with the SEC and the companies most recent form 8-K.

The companies 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 companies ability to maintain its status as a (inaudible) for any 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 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 companies results. On the call today from the Company are John Kite, Tom McGowan, and Dan Sink.

Now, I'll turn the call over to John Kite. John?

Thanks, Adam. And good afternoon, everyone and thank you for joining us today. As anticipated 2009 is proving to be a challenging year for our industry, but despite this environment results for the quarter were within our expectations. FFO as reported for the quarter was $0.15 per share and was in line with consensus estimates. The mid point of our revised guidance is also consistent with analysts' expectations. We continue to be realistic about the tough decisions that must be made and have been clear about our strategy and directives. Balance Sheet strength and leasing productivity have been and will continue to be the two most significant areas of focus for our Company. Today I'd like to briefly review our strategy on these two fronts as well as the progress we've made.

During the Summer of 2008 we began to aggressively increase our liquidity and strengthen in our Balance Sheet. We closed a $55 million unsecured term loan in August of 2008, raised $48 million of net proceeds from an equity offering in October, and finished the year by selling two non-core operating assets that netted the company nearly $24 million. Our equity issuance in May of 2009 produced $88 million in net proceeds and in conjunction, we reduced our annualized dividend pay out by approximately $17 million compared to the calendar year 2008. And most recently, we sold two ground lease parcels during the second quarter, which generated nearly $11 million in cash for the company. Our proactive approach enabled us to finish the Second Quarter of 2009 with approximately $115 million of cash and available credit. This level of liquidity compares favorably to our peers and is a great asset to have as we continue to navigate the property level debt markets. However, we also benefit from an average balance of only $13 million on our remaining 2009 and 2010 maturities as well as the knowledge that a large majority of our refinance discussions are with banking relationships that we've cultivated over 20 years of being in this business. It's important to note that only two of our maturities through 2010 are securitized.

As I mentioned, leasing will continue to be the keystone of our success. Tom will speak next in greater detail about our progress but I want to highlight a few things as well. Our 265,000 square feet of leasing for the quarter is the second highest level of square footage production and the highest level of total lease deals since our IPO five years ago and we ended the quarter at 91.1% leased, up 30 basis points from the previous quarter. Tenant relationships are absolutely critical in this turbulent environment, and I think the Second Quarter we showed how strong our relationships are. We developed about half of our portfolio, much of it since 2003, and as a result our properties are relatively new and have little in the way of deferred maintenance that can hinder a lease negotiation or make it prohibitively expensive. This is reflected in the small amount of TI and CapEx that you'll see that we expended in the quarter. Also, we selected a large portion of our tenancy through the development process and through the leasing process as opposed to through acquisitions. We crafted a diverse tenant base where no one tenant contributes more than 3.3% of base rent and our top 25 tenants represent only 40% of our annualized base rent. In fact if you examine our list of top 25 tenants, you'll see that our base is strong and diverse, with retailers such as Public, Pet Smart, Lowe's, Best Buy and TJ Maxx. As I previously mentioned one of our primary goals is to build the best-in-class leasing organization. We've made progress to that end, and Bud Moll and his team are aggressively targeting tenants that will add value to our portfolio going forward.

I'd like to finish up today with a few thoughts of our overall health. There's a couple metrics that we track closely and I think are important for you to consider when assessing our strength in health. We're currently paying a fully funded approximately 8% dividend yield with an AFFO pay out ratio that's currently 55%. We've made progress on reducing our debt level, our net debt to gross real estate assets, was 53% at the end of June, and a 900 basis point decrease from nine months ago. More importantly, our fixed charge coverage remains strong. For the quarter it was approximately 2.3 times. The $57 million of cash we have on our Balance Sheet represents over 25% of our equity market cap, and our undepreciated book valued at approximately $8 a share is nearly two and a half times our current stock price. So, given these positive metrics, we're optimistic about the future of our company and we look forward to moving forward with our investors and analysts in the future. So, with that I'd like to turn it over to Tom.

Thank you. We continue to execute on our strategy of transforming our leasing department into one of the strongest teams in the shopping center business. Understanding that our efforts are vital to our mission, we are focused on continuing to make the necessary long term investment in this group. As discussed in the last call, I noted that we expected a substantial increase in our leasing production for the remainder of the year. Our production increased significantly quarter-over-quarter to 265,000 square feet. The volume of new leases and renewals increased from 17 to 46 quarter-over-quarter. The 50 basis point increase in retail lease percentage for the quarter is a clear sign that our portfolio is positioned for ongoing gains throughout the balance of the year. Spreads on new leases remain positive at 7%; however, we're still experiencing a soft renewal market. Although renewal spreads faded in the second quarter, we executed on our strategy to protect the occupancy of key assets and minimize the outlay of capital during these challenging times. In fact we committed only $16,000 in tenant improvement allowance for 109,000 square feet of renewals.

This heightened emphasis on leasing production is a permanent component of our overall strategy, not just a reaction to current market conditions. To illustrate, in addition to the leases we've already signed in the third quarter, we're currently negotiating 23 new leases and renewals for another 160,000 square feet of productivity. We also have recently added two experienced members to our leasing team and will continue to take advantage of the considerable talent currently available in the market. Our leasing processes have been improved as well during this down cycle and our assessment of each tenants credit has become more stringent. The transition to MRI, our accounting and lease flow system, is complete which provides realtime data on our key metrics. This will substantially improved the time it takes for a deal to be presented, reviewed, modified and ultimately approved or denied.

Turning to same-store NOI, we recorded a 3.4% drop for the quarter compared to second quarter 2008. The majority of the reduction and minimum rent is attributed to the Circuit City bankruptcy and the loss of Linens 'N' Things in Texas. For the first half of the year, same-store NOI was down 3% compared to 2008 and we anticipate finishing the year within our guidance range of negative 2% to negative 4%. Our operating retail portfolio is 90.7% leased. We have an opportunity to impact this number through leasing activity on our junior anchor vacancies. The four vacant boxes in our operating portfolio contain approximately 127,000 square feet and represent a potential increase in lease percentage of over 250 basis points. Discussions on all four vacancies are encouraging and remain in various stages of tenant negotiations. I'd also like to point out that we leased our last remaining junior anchor vacancy at Sunland Towne Centre and this property is now 96% leased.

Regarding the development pipeline, we transitioned the first phase of South Elgin Commons to the operating portfolio at 100% leased. Only two projects remain in the pipeline with a total cost of $82 million. At the end of the quarter, $62 million or 76% of the total costs of being incurred leaving only $20 million to fund through our existing construction loans. Tenants began to occupy Cobblestone Plaza in May 2009. This extremely well located asset in Southeast Florida suffered a loss in lease percentage due to the termination by Whole Foods. Our efforts to find a replacement anchor have been productive thus far and we're negotiating LOI's with multiple retailers to replace the anchor tenant. Eddy Street Commons at Notre Dame remains on schedule with initial occupancy occurring in September.

We continue to focus on the disposition of land holdings. We recently closed on approximately 11 million of land sales which was the first step towards our target of 50 million in the next three years. Dan will now summarize our remaining operating results.

Good afternoon. I'll summarize a few financial details for the quarter. FFO was $0.15 for the quarter and this compares to $0.31 for Q2 2008. This decrease is due primarily to the diluting effects of the October 2008 and the May 2009 equity offerings. A reduction in the volume of NOI from land sales and reduced volume of construction and service fee revenue. I'd like to spend a minute our reported FFO per share for this quarter. This quarter we calculated FFO per share based on the year-to-date results which caused a rounding difference for the current quarter. In this quarter there's a difference in the way FFO per share rounds for the second quarter and for the first half. Our FFO per share for the first half is $0.35 per diluted share to accurately reflect year-to-date earnings, which results in our reported $0.15 per share for the second quarter. The second quarter on a standalone basis would be a penny higher than the $0.15 we reported.

Turning to some specific items in the income statement, our fixed charge coverage is approximately 2.3 times as calculated from page 12 of our supplemental. Construction and service fee margin before tax for the three and six months ended June 30 was approximately 745,000 and $1.3 million respectively and was in line with our expectations. Our NOI to revenue margin increased 3% from Q1 to Q2 due primarily to a $530,000 decrease in bad debt provision and a $967,000 decrease in snow removal costs, a portion of which is non-recoverable. The overall bad debt provision across the portfolio calculated against (inaudible) rent and recoveries for the first half of the year was approximately 2.2% and comparable amounts for 2008 were approximately 0.7%. Our outlook for the rest of 2009 is currently estimated to be approximately 1.5%.

Our G&A expense increased 204,000 primarily reflecting the timing of public company costs. However, we are still comfortable with our guidance range of $5.7 million to $6.1 million. Other proper related revenue includes approximately $1 million from the sale of two land parcels and $438,000 related to a one-time non-cash reversal of a liability for which we are no longer obligated. On the Balance Sheet as of today our remaining debt maturities for 2009 had been reduced approximately $28 million. We plan to pay off the two loans remaining with available cash on our balance sheet and contribute those properties into the line and credit unincumbered collateral pool. The contribution of the properties to the line will preserve or increase our overall cash and available credit. We have now turned our attention to the loans expiring in 2010 as each loan is currently held on the balance (inaudible) of relationship lender. Accordingly we have no maturing CMBS loans in 2010.

Subsequent to the quarter end, we extended the maturity date of the $8.2 million loan on Bridge Water Market Place, from June of 2010 to June of 2013, with approximately $1.2 million of additional equity. The remaining $82 million of 2010 maturities consist of five loans, and as John mentioned, this size of loan works for a number of national, regional and local balance sheet lenders. At the end of the quarter we had approximately $115 million in cash and available credit. We will continue to focus on increasing our liquidity and generating cash by selling raw land parcels, out lots and selected operating assets.

Consistent with our internal practice, we monitor and value weight our assets for impairment on at least a quarterly basis. After our most recent review none of our properties required impairment charges as of June 30. We continue to scrutinize this area for both operating properties and development assets. We are revising our earnings and FFO guidance for the year to a range of $0.57 to $0.61 per diluted share. This revision is primarily attributable to delays in tenant rent commencement or development properties, the retention of cash balances generated by our May equity offering and an increase in Real Estate taxes on some of our operating properties. The revised guidance also reflects reduced expectations for land sales for the remainder of 2009. Thanks for participating in today's call and operator please open up the line for questions.

(Operator Instructions) Your first question comes from Michael Bilerman with Citigroup. Please, proceed.

Good afternoon, guys. (Inaudible) and Greg Switzer are here as well.

Hello, Michael.

I think John, you talked a little bit about the substantial leasing activity done the largest quarter and since you went public, and how your leased percentage had gone up 30 basis points sequentially. Can you talk a little bit about economic occupancy today relative to that leased rate, and when you expect the income from that leasing activity to take hold? And then talk a little bit about -- I think Dan, you mentioned about 250 basis points of potential vacancy of four junior anchors and the expectations of when those could come on line?

Was that one question, Michael?

Are we only allowed one?

No, I was just trying to make my way through it. Well, let's start with the economic versus leased. I mean I think that's probably around 200 basis points. As it relates to the timing of when these leases that we signed in the quarter will generate income, I think that was your question?

Yes.

I mean it's going to vary because some of them obviously were renewals which would be fairly immediate and some of them were new leases and with the typical buildout of a new lease, you're talking about at least a couple quarters before you would begin to see anything, so probably the new lease transactions are really at this level of the game, late -- we might get some rent this year and most of it would be next year is my guess there, and I'm trying to, the third question was about the boxes?

Well, its just -- so that 200 basis point spread between economic and leased, that is historically wide effectively as you sit today?

I think effectively that we've seen that number be between 100 and 200 basis points. I don't know if Dan wants to chime in on that but I think that's what I think it's been historically.

Yes, thats -- Michael we've got in particular in that difference between leased and occupied we really only have one vacant box paying rent at this time and the rest of it is -- some of them are in transition to where we're just finalizing buildout for them to take occupancy and once they take occupancy, obviously straight line rent starts as soon as they take possession of the space, so I think the key thing on there is we've got a couple of timing items for the majority that we only have one dark box paying rent currently.

And then there was the -- I think you talked about four junior anchor boxes which would add about 250 basis points to occupancy.

Right.

(Inaudible) where you are in those and what your expectation is?

Hello, this is Tom. Just from a timing perspective, all of these deals are in different time stages of the evolution of ultimately getting them done. On several, really the key for us is getting committee approvals, and from a rent perspective, we'll start seeing the effects of that in 2010 but the key for us is to get these deals done this year to then allow us to generate that income in 2010.

But just a little bit anecdotally, clearly the activity level that we have on boxes has significantly picked up quarter-over-quarter. Now, that activity level obviously doesn't always turn out to be an executed lease, but the more activity we have the better, so it really -- in the last quarter, we have really -- obviously part of it is because we've stepped up our efforts, we've done what we told you we've done within the leasing department, but also I think the tenants in general are frankly -- are going to be aggressive looking for deals right now because the window of opportunity for them to get good deals probably is beginning to close a little, so I think part of its we're out there doing a good job and part of it is the tenants are realizing, in my view, that if they're going to try to position themselves well and they're a good quality company, now is probably a good time to make a deal.

If you think about -- clearly, I think Dan -- you talked about how the equity raise from a half year basis versus a quarter basis impacted your per share number and obviously that's impacting a little bit the full year number rather than a sort of core run rate with the equity offering fully baked in. I guess if you think about a lot of the initiatives that you have on the leasing front and stuff you're having on the balance sheet side, where do we get -- where are we a couple years out in terms of what you think the core earnings power of the company is, assuming this level of equity within the company, that there's no additional common equity raises, effectively, where does it go assuming things play out the way you want them to?

Well a couple years from now assuming that the trend continues to stabilize, which it feels as though is happening, we still are only 91% occupied and you see our same-store occupancy is around 90% -- a little over around 90. So, we have plenty of room to grow just NOI through that process. I think we peaked at 95% range, so just in the getting to where we were we'll grow NOI. We also obviously have the two developments coming online which we talked about which is Cobblestone and we're very confident that we are getting a good solid replacement anchor and that is very good real estate, and we think that will help us in terms of growing NOI on that property and then obviously the Eddy Street Commons at Notre Dame is progressing well and we think that will generate solid NOI for us. Those two projects really -- obviously are really generating no NOI today, so you add those two together with what we already have in the operating portfolio and then what we can develop in the pipeline -- in the shadow pipeline, I think there's tremendous opportunity to grow the core NOI without adding tremendous debt levels from where we're at today. Now, Dan and I have spent a lot of time on our forecast from 2009-2012 and we're forecasting strong liquidity all the way through 2012. Obviously as we move through that and want to grow the business, we will be looking to partner with people as well. I mean one thing for sure we want to do is protect our capital base. We realize we have issued a great deal of shares in order to insure the long term stability of the company, so, going forward we're going to be -- whats the word? We're going to be very picky with where we put our capital but I think we already are seeing, Michael -- you're seeing deals in the marketplace and we are clearly being approached and we're talking to people about where we're going to be in the future and certainly, joint ventures will be a part of that.

I think Greg had a quick question.

Sure.

Just one on the development pipeline. You've talked about the plans to achieve the spending on the shadow pipeline. Perhaps you could provide an update?

I think we're where we were last quarter (inaudible) and that we -- and Tom can expand on this, but we have the six properties in the shadow pipeline and what we did is we looked at every property and based on what we think we can sell in terms of land to anchor tenants and ground leasing that we can do, we think we reduced the spend by approximately $100 million and so that hasn't changed but I'll let Tom expand on where we -- .

Yes, (inaudible) basically what we did is we laid out four projects, Maple Valley, Broadstones, South Elgin and New Hill, as the projects that we would really concentrate on in terms of taking the spend away from vertical construction and then pass that on to the end-user or retailer, so that strategy is still in place. We're focusing on the same four projects and now we're simply in the implementation side of this to execute.

Alright, thanks.

Thank you.

Your next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed.

Yes, hi. Jordan Sadler is on with me as well. With regards to the Whole Foods lease at Cobblestone, are there any potential co-tenancy issues with any of the other tenants that have signed leases or anything?

No.

Okay, and can you talk about where your expected development yields might fall today for those two projects given that the leasing velocity is a little bit slower than you had anticipated?

Yes. We expect the returns to be in the same range that we've always discussed and that's basically 8% to 9% and we're confident of those ranges at this point.

Okay. And with regards to the shadow pipeline, what type of funding or outlay might be required through the balance of '09 and 2010 as you look at it right now?

Right now, we're really just looking at interest carry. And Dan I don't think --

Yes, it's primarily we don't have any commitments that we have to go vertical by any specific time, we're working with the two tenants that we have on Del Ray from a timing perspective, but I think if you look at it, it's really carry costs because all the permit, we tried to change the name of this, we've now gone from dismal pipeline to shadow pipeline, so we can't hear any more jokes about visible pipeline. So, in doing that the shadow pipeline, we laid out that there's no vertical construction, entitlements are in place, so I think it's a matter at this point of completing the leasing and the financing and as far as using our cash and available credit, a lot of these projects have the equity already in place, so we're going to be really focused on getting construction loans before we would start some of those visible pipeline projects, assuming that as Tom mentioned, we need the capital for purposes of not being able to sell it to the end-users or execute on that plan.

The point that I think, Dan - is important that Dan made there is if you look at the costs incurred on the supplemental page on the shadow pipeline, you'll see on the consolidated properties, it's $83 million against $156 million of projected costs, so what we're pointing out there is the idea of needing additional equity capital, it's just not highly likely, so we're really focused on getting the projects to a very high level of pre-leasing where we would be comfortable and a third party construction lender would be comfortable to begin construction so the process, it's just the same, it's just taking longer.

Okay. And then moving over to your balance sheet, what's the most restrictive covenant on your credit facility and term loan? Which measure is that?

Yes, this is Dan. I'd say the most restricted covenant as you look at it debt to total asset value, and the debt to total asset value, that is important at the equity raise to get that completed. We can't exceed 70% but we can exceed 65% for two quarters, and we're within -- both for the term loan and line of credit we're in compliance with our covenants at the end of the quarter but we're constantly watching that particular covenant and backfilling some of the empty boxes and those kinds of things will also definitely help from an asset value perspective and managing debt for the long term which as John mentioned we've got a capital plan as we talked about with the investors and during our equity raise that goes throughout 2012, so we're really keeping track of that and keeping a scorecard between now and then and making sure we execute on the plan that we have in front of us.

Okay. And then as it relates to your mortgage debt, what do lenders want in consideration for the extensions or renewals that you're executing?

I think the biggest thing is it's a negotiation and a lot of times, it's good to have these relationships and being able to get through the extension process and trying to get three to four to five year loans with options to renew. I'd say right now to give you a realtime example, one of the assets -- one of the CMBS loans we just completed, the appraisal process and it's a new lender and it's 70% LTV, so I think we analyze that in comparison to on that particular asset what we can do on our line of credit and the line of credit is an eight cap at 65% LTV, or based on the NOI in place today. So -- and walking through that with the lenders it's all a process of I think right now, the key thing for banks are getting pay downs and being a public company and being able to offer a pay down or a deposit puts us in such an advantage compared to the private real estate market that frankly, it's very difficult to do either of those. When you're a private guy rolling from one project to the next so I think that gives us a big advantage with both the national, regional and local lenders that we have available capital where we can put a deposit in their bank of $250,000 in a money-market account or do those kinds of things to get extensions.

Todd, it's John. The other thing I would tell you is that if you go back to Q3 of '08, we had over $200 million of debt maturities from that point through '09 and you look to where we are today with around $30 million, we've obviously been very successful, but we've also tracked the equity and some of the deals are bigger than others but in general we've been putting in 10% to 15% pay downs which is less than what people thought it would be, so I think that will probably continue and we should, that's why we mentioned that we feel very confident all the way through 2012, that we have very adequate liquidity.

Right. Are the lenders asking for recourse at all?

Some deals have recourse, some are partial recourse. It depends if it's a construction loan.

Yes, I think it rages typically -- Todd, this is Dan, from -- it can range from 25% recourse to 50% recourse and I think the key thing about managing that from a covenant perspective is when you have construction loans that are 100% recourse rolling to completion, a lot of times that 100% construction loan you can negotiate that down to 50% or 25% at completion, so, when you weigh those together, we're reducing our exposure on the construction loans at the same time we potentially might be having to put a little bit of recourse on some of the rolling mortgage debt.

Okay. Alright, thank you.

Thanks.

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

Hello, good afternoon guys.

Hello, Rich.

The line of credit, Dan, is the capacity still $200 million? Because I know that's -- or I think it is anyway, tied to the value of the unincumbered pool?

That's correct. It is the capacity can go up to $200 million but it's -- right now, Rich, we have the ability to put some additional assets in to increase the capacity. Right now our borrowing capability is about $140 million so that's how we get to the cash and available credit and the reason we did that, we looked at our unincumbered pool, for instance East Gate Pavilion where we put $15.4 million of debt on it, we wanted to take that particular asset, unencumber it out of the line of credit and put project specific financing on it. One of the reasons we did that is to enable us and give us room under the line of credit to use our cash balances, pay any CMBS loans off, and put those assets now that would be unincumbered in the line of credit which gets you to the same position from a liquidity perspective. So, I think our whole goal here under that is we are not at the $200 million, but we view that as an opportunity to be able to utilize that cash and the available credit if need be on some of these expiring debts.

Okay, so when you put these two assets that expire here soon, the debt expires (inaudible) soon, into the line -- onto the line, you actually also increase the capacity right?

Correct, right.

Yes, so that's why I tried to mention that in my script and I'm glad you asked if I wasn't clear but if we have -- for instance, if we use our cash and pay off one of the CMBS loans expiring in the third and fourth quarter of this year, we can put that asset into the line then an increase our availability under the line which in theory then, your cash and available credit has not been adjusted at all even though you've used part of your cash to expire a piece of debt. So, we're unable, that's our available credit under the line.

Okay, very good, I've got you.

Also Rich remember that being that it's a pool and technically not a secured line we can move these in and out, so this enables us to put the assets in there, create the additional availability. Obviously we're not using all of our availability and we're not projecting that we would be anywhere near that, so it also gives us the ability to pull them out and have them be unincumbered NOI if we so choose and or if we want to pull them out and we see the fixed rate market improve significantly, we'll pull them out and put long term fixed rate debt on them. And that's the real objective is to kind of ride through this period and get into next year and see how the debt markets are and obviously, they've slightly improved gradually month by month and then we can take these out and go, you know, seven or 10 year debt which is really what we want to do. And when you look at our maturities, 13, 14, and 15, we have very, very little in the way of maturities. So, we're really setting ourselves up to have a real strong kind of position as it relates to the next five or six years and we can stagger the debt and make these numbers kind of smaller per year rather than having one large year.

Uh-huh, okay, good, got you, thank you, John. And then you guys have a small loan on -- and I think it's called the center? And I thought I saw a note in it, maybe your could explain it in the supplemental. Yes, go ahead.

Yes, basically, Dan and I can both talk about it but from a deal standpoint, I'll talk about the deal. It's a shopping center in northern Indianapolis in Caramel. We own 60% of the shopping center. This is one of the original properties that we had going way back and we had a 40% partner in it whose actually managing and leasing the property, so we actually, we own 60% but they're managing and leasing the property. The debt was coming due. It's a situation where you have a partnership and you kind of have to agree on what's going to happen and the bottom line is we ended up stepping up at the end and lending the partnership the money and we're getting a 12% interest rate and so that over the next six months then we will -- that will get repaid and actually it goes from 12% to 15% after the first 30 days and frankly with as much cash as we have right now, not earning a return, it was a very safe thing for us to do and we're getting a good yield.

And you may want to look for more of those deals, thats pretty good.

We will.

Yes, okay, good, thank you. I got you. And then in the same vein, John, maybe you could offer to us your thoughts on the TALF program and as you guys look at that, what it could mean to you guys if anything and just basically what you think about that program?

Well, I mean, I think we're -- obviously we're staying in front of it, we're aware of it, we are talking to people about it but candidly, I think particularly size adjusted I just don't see it making sense for us. I think there is some grand ambitions with the TALF program but when you look at how difficult it is to put it together, how much time it takes, I think you have to really need it to use it, and we just don't really need it. So, I think it's one of these situations where hopefully it will get a little bit better over time, but the idea of having a government plan replace the CMBS market, I just don't think that's a good long term strategy, so we're going to monitor it, Rich. If it gets better and we could use it for a couple of these CMBS deals we would but right now it's just a little clunky.

Okay, very good. That's great color. Thanks, and then on the small shop space, or the shop space as you guys noted in your supplemental, we've kind of been tracking what happens quarter to quarter and it seems to be sort of -- just actually it seemed to stabilize a bit this quarter but we always talk about the anchors but have you got thoughts on what's going on with the small shop space in your portfolio?

Yes, I think I'll let Tom expand too but I think it's been pretty resilient. If you look at across-the-board our occupancy in the small shops both in our power centers and in our grocery anchored centers have been stable and the reason I guess we talk about anchors so much is because they move the needle on their own but frankly the small shops are very important, so I'd guess we're a little bit pleasantly surprised but cautious. We had slight decreases in our small shop occupancy in Indiana and Florida and we had an increase in Texas. So, those are the three biggest markets, but generally speaking, the other thing that's interesting is that the power center small shops are performing lock step with the grocery anchored small shops, so, despite the popular belief that grocery anchored centers are going to outperform power centers in this environment, it's really not happening, as it relates to small shops.

So, Rich the only other thing to add is we are a little bit concerned about rent deferrals early on but if you look at our numbers our rent deferrals have really stayed pretty steady on the small shop side and if you look at it as total it's still less than one half of 1% and the small shops was clearly an area that we had concern. So, so we feel fairly encouraged where we are today and then also encouraged about the amount of productivity that's going on from a leasing standpoint with the shops as well.

Okay, do you think you can push those levels higher over the next couple quarters?

Yes.

The levels of occupancy I mean?

Yes, again, as Tom referred to in his script, I mean moving the needle in occupancy comes from the boxes because it's such a big percentage, but in terms of can we make progress, yes, I think the one thing about the small shops is -- I mean, you certainly have to expect there continue to be weakness there. But I think that the longer it goes, the more we move through this kind of economic reality, the more people are adjusting their business plans to survive and one of the things we spent a lot of time on is, and Tom said this, rent relief issue really kind of brings it to the forefront in terms of how we need to get more involved with their small shop tenants, help them with their businesses. We have a marketing team that helps market their -- a lot of these guys, their mom and pop's, so we try to help them market their businesses, we try to help them understand who their customer is, so I think there's some opportunity there, Rich but it's probably a little slower.

Okay, very good and then last thing I had, Dan, on G&A, what do you think for the rest of the year? Any changes from what we've seen?

No. If you look at the run rate of where we are today for a six-month basis and you annualize it, it puts us at the bottom end of our guidance range of 5.7 to 6.1. So, I think there's some timing things with Sarbanes Oxley costs and other public company costs that pick up here at the end of the year a little bit as we come towards the audit, so I think our guidance range of where we put it that we're still comfortable with that.

Okay, alright, great. Thank you guys.

Thanks.

(Operator Instructions) Your next question comes from Jeff Donnelly with Wells Fargo.

Good afternoon guys.

Hello.

Boy, Sarbanes Oxley there's something we haven't heard from in a while.

Yes.

Actually, John just a moment ago you made a comment you felt power centers aren't at a disadvantage for small shops versus grocery anchored. How do you think about the competitive landscape for junior boxes? Do you think grocery anchored properties have an and there because there's a grocer on site or is it important to those retailers or is it -- its not that cut and dry?

Well, I think whenever you can add a grocery store to a larger shopping center it's good because it generates daily visits and that's what we've done in many of our centers, as a matter of fact in Cedar Hill in Texas where we've lost a couple of boxes we've replaced one with Sprouts which is a high end regional grocer and we've done it in Traders Point in Indianapolis. We have multiple places we've done it but I don't see that there's a disadvantage, I mean right now the numbers are basically the same and they are generally the same occupancy as it relates to small shops. But the advantage that the power center has over the grocery anchored center is that if you lose a box you still have multiple other boxes, you still have anchors drawing traffic. If you lose a grocery store you've lost it and you don't have an anchor drawing traffic for your small shops and it's very important that you back fill that space, that one single space, so as you've heard me say this before, Jeff, there isn't one perfect format and I don't think we would ever be 100% into either category. I think they balance each other well. I think they are both value oriented in what they sell to. I mean, grocery stores depending on what they are generally value players and the boxes that we deal with are generally value players, so in this environment and the way it's going to be for the next 10 years I think we're in the right space.

Thanks and I'm curious, where are market rents that you've been signing of late versus say the $10 anchor rents and $18 shop rents that are expiring in 2009 and 2010?

Well the box leases, again, a lot depends on how much TI you give, Jeff, but I'd tell you our experience in general is between down 10% to 25% depending on TI's, depending on the particular shopping center. That's kind of been our experience.

Does that hold true for the shop space as well?

No. Shop space -- and I think you can see it in the leasing is a little tighter. Tom do you want to expand on shop space?

Yes, I definitely -- Jeff, feel like it's much tighter on the small shop side. The box side is obviously feeling pressure of supply and demand where the small shop is in a little better position from that perspective, so, I think we'll continue to see that trend at least for the near term.

And then -- and I'm curious I'm not sure if this is for John or Tom, but of late you guys have been marketing some land or some projects in the development pipeline as you're looking to monetize. I guess I'm curious since there is such a need for that more broadly in the industry for the developers to monetize some of the development projects who out there is buying them and how are they getting financed? Are they being bought in all cash, all equity by folks?

Well we can't give you our secret on that one, but there are people, Jeff, that -- look as it relates to tenants, the large anchor format tenants want to own their real estate, so the Wal-Mart's, the Target's, the Costco's, those type of players, they want to own their real estate and frankly it's simply a cost of capital issue. Obviously that doesn't happen as much on the junior box side although they do own real estate and then theres also -- we're also beginning to see, I would say beginning to see, investors move into land again and that's very early, but I think it is happening, where you see -- we saw land prices run up and when anyone can see value I think they want to take it. Tom, do you want to -- ?

Yes, I mean the only other one to add to it is sometimes you'll see developers come in kind of on a build to suite perspective and represent a tenant, so those are the type of people we'll talk to as well, we also have unapproved land that ties to multi-family components and seeing quite a bit of interest on that side, so we're going to talk to all of the ones we just mentioned each and every one but realistically, the most logical buyer is going to be that end-user retailer.

And I guess maybe this is for you, Tom, as well, and I apologize I got on a little late so I might have missed this. But can you give us some more color on where you're at with repositioning Coral Springs and Galleria and I guess maybe the next steps I guess to get those assets on the right path? I'm just trying to think about the investment need and the returns from this juncture.

Yes, I mean from a Coral Springs perspective, the key obviously is to get that box dealt with and at this point, we feel like that process is moving along very well. We're in deep, deep negotiations with the tenant and working on the physical side of that deal right now in terms of making sure that the numbers work. The other one being Galleria is a same situation. We have to address the anchor position and that is a deal that we feel like for the most part is completed at this point. Once we get that anchor in, then that property will clearly be stabilized.

The thing to add to that, Jeff, in terms of Galleria is that Galleria -- the reason Galleria is a redevelopment property is because it's a situation where we have -- we're not sure exactly where we're going to go with that property in terms of will it be a simple backfill of the box or will it be a full redevelopment tear down, bring in two tenants instead of one tenant and that's kind of how we judge what ends up in a redevelopment versus what doesn't, and just wanted to make that clear.

But I would say if you take a look at the six redevelopment projects, we have very, very strong interest on four of those deals right now that we're working on and have a little bit of work to do on two of them.

Okay, great. And just actually one last question for Dan is, I'm curious, have you seen any discernible shifts in the secured mortgage underwriting on retail assets saying Q2 versus Q1? If not so much things like LTV or debt service coverage maybe by willingness to lend in certain property types of Markets?

Well, I don't -- we're in constant contact with the lenders and I think there hasn't been anything that's been a paradigm shift from Q1 to Q2. I think it's all focus of cash flow, Jeff, still. Nobody can really get their arms around cap rates and those kind of things yet. I know there's been some big trades that have been talked about but you know the big trades are not what the bankers are looking at. They are more looking at asset by asset deals so I would say there's nothing that's been a big paradigm shift other than we're just trying to stay in front of them.

Okay, that's helpful. Thanks.

Thanks.

(Operator Instructions) Your next question comes from Nathan Isbee with Stifel Nicolaus.

Hello, good afternoon.

Hello, Nate.

John, just circling back to your prepared remarks you had mentioned -- pointed out the relatively new age of your portfolio as a benefit and I guess I can appreciate that you did the leasing on the stuff you developed and that it's better than assets leased by others acquired -- that you acquired. However, we are hearing (inaudible) conflicting statements from some of your peers this quarter that the newer properties are underperforming. You've made some leasing progress so obviously, it's working and you're having success or maybe you can comment on why you think this doesn't present the higher risk for your portfolio.

Well, I think first of all, the numbers are the numbers and anecdotally whether you say new is better or old is better you can track the numbers and I think they are fairly equivalent in terms of what's been happening in the peer group relative to same-store NOI and in fact we out performed some people that are older portfolios in terms of increasing our occupancy. But as it relates to the differences, I think first of all you have to take in context what's new, what's old. I think if you have a portfolio that is dominated by 20 plus year old centers, you can obviously say that because they are 20 years old, the rents are below market and the demographics are more mature. But having mature demographics doesn't necessarily make them the right ones first of all, and then relative to the rent it kind of all depends on when the rents were reset, so I think the point I'm making about new assets is and we don't get a lot of credit for this but you track our CapEx, Nate, and our CapEx is tremendously below the peer group as it relates to what we spend in Capital Expenditures on the asset and typically what we spend in TIs and Commissions. So, as it relates to same-store NOI and as you know I've said often that , that metric does not take into consideration the capital you spend to get it, so, we always have to continue to point out that if you purely only follow same-store NOI you're missing the picture because in a sense you might be buying deals or buying rents. So, I guess my view is having newer is better because the retailers are going to be attracted to the newer assets and the relocation game that's being played right now, if you're a retailer you're going to look to relocate right now and you're going to look to relocate in the newer center that has the better facade, that has the better parking lot, that has the better visibility, that doesn't have potholes in the middle of the parking lot. So, --

And has Kite on the Pielon.

I'm sorry?

That had Kite on the Pielon.

Yes, that's what I'm trying to getting at.

Okay, and I guess, so just as a follow-up do you Dan have you seen any significant shift in bad debt expense this quarter?

Yes, I think on bad debt expense and I covered that a little bit on the call -- on the prepared remarks, our bad debt expense, we hit bad debt expense pretty hard in Q4 of '08 and Q1 of '09, I mean to the extent of in excess of 3% of our (inaudible) rent recoveries. I think this quarter the percentage of bad debt throughout the remainder of the year we're projecting for the -- for it to be about 1.5%. On the next two quarters and for the year that would put us at about in the range of 1.8 to 2, so I think it's pretty consistent I think it's come down a little bit, but we're -- obviously our antennas are up and we're watching it very close and we spend a lot of time going through monthly meetings with seven people in a committee meeting going through and making sure we've got our arms around each one of the tenants and then we -- at quarter end we sit down and even scrub it even further. So, I think it's one of those things that year-over-year obviously I think for everybody in the sector it has increased but I think we're pretty aggressive in getting to it in the fourth quarter of '08.

Okay. That's helpful, thank you.

Thanks.

This concludes the question and answer session for today's conference. I would now like to turn the call back over to John Kite for closing remarks.

I just want to thank everyone for joining us and 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. Have a great day.