Kite Realty Group Trust (KRG) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 20 11 Kite Realty Group Trust earnings conference call. My name is Ed, and I will be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

At this time I would like to turn the call over to Mr. Dan Sink, Chief Financial Officer. Please proceed, sir.

Thank you. If you have not received a copy of our earnings press release, please call Kim Holland at 317-578-5151, and she will fax or e-mail you a copy. Our third-quarter supplemental financial package was made available yesterday on the Company's website at kiterealty.com. The filing was also made with the SEC in the Company's most recent Form 8-K.

The Company's remarks today will include 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 the historical results or from any results expressed or implied by such forward-looking statements. The Company refers you to the documents filed by the Company from time to time with the SEC, which discusses these and other factors that could adversely affect the Company's results.

On the call with me today from the Company are Chief Executive Officer John Kite and Chief Operating Officer, Tom McGowan. I would now like to turn the call over to John.

Good morning and thank you for joining us today. FFO for the quarter was $0.11 per share, which met consensus estimates. Our retail portfolio is over 93% leased while our occupancy is a part of my late 240 basis points less, which will allow for continued NOI growth in future quarters. We had another quarter of positive NOI growth has recently signed tenants continue to take occupancy in our portfolio. Our same property NOI was up 5% over the prior year, and the leased percentage improved 80 basis points. This is the third consecutive quarter of strong NOI growth, and we are working hard to maintain the current pace.

The improved occupancy and growing NOI will provide us with stable cash flow to execute our business plan. We continue to focus on delivering the incremental cash NOI growth that we originally disclosed earlier in the year. These numbers are important as the majority of our related debt has been incurred, but the cash NOI from sign leases will continue to be recognized over the next several quarters.

The amount of incremental annualized cash NOI growth yet to be recognized as of September 30 from the South Elgin, Cobblestone, Oleander and Rivers Edge projects is now approximately $6.7 million. The remaining cost to complete these projects is expected to be $17 million. And the additional incremental cash NOI from newly executed leases in the operating portfolio over 5000 square feet is now $1.2 million for the cost to complete of $1 million.

Now I will provide an update on our projects that are in various stages of development or redevelopment. Cobblestone Plaza, our Whole Foods anchored center in the Fort Lauderdale area, is now over 95% leased or committed. The property will transition to the operating portfolio in the fourth quarter, and Whole Foods plans to open in the first quarter of 2012.

At Rivers Edge in Indianapolis, Nordstrom Rack and The Container Store had very strong openings. In fact, The Container Store is performing in the top four or five stores in the country on a daily basis. The center is now 100% leased or committed with buybuy Baby planning to open this month, while Arhaus Furniture and BGI Fitness will open in the middle of next year. The shopping center has been extremely well received and is already one of the busiest shopping destinations in the city.

At Oleander Point in Wilmington, North Carolina, the center is now 86% leased, and our aggressive redevelopment efforts remain on schedule. Whole Foods plans to open in the second quarter of 2012.

Delray Marketplace in Delray Beach, Florida is now 66% leased or committed, and the Company is holding an official groundbreaking the first week of December. We received a $62 million construction loan commitment on this project, and we anticipate closing on the loan shortly. The 258,000 square feet shopping center is scheduled to open just before Thanksgiving of next year.

Finally, our South Elgin, Illinois property in Chicago, which is 100% leased, became fully operational at the end of the quarter as Toys "R" Us, Babies "R" Us and Ross opened to join LA Fitness.

Turning to operations, for the eight consecutive quarter, we generated positive cash rent spreads within an aggregate spread for Q3 of 10.8%. On a year-to-date basis, we have aggregate positive cash rent spreads of 6.3%, reflecting new and renewal spreads of 8.9% and 2.6% respectively.

As I previously mentioned, our same property NOI increased 5% over the year. In addition, total revenue from property operations increased 8.4% over the same period.

Our continued focus on leasing our portfolio to high credit tenants is now beginning to be reflected in NOI growth, and we are generating well in excess of 90% of our FFO from contractual rental revenue. Our portfolio has held up well through the economic turmoil with NOI being generated from our grocery anchored and power centers with multiple anchor tenants that have strong balance sheets. We have developed about 50% of the properties in our portfolio, and all of our properties are located in strong demographic submarkets with average household incomes in both a three and five mile radius approaching $90,000.

We are focused on continuing to add properties that will enhance our current portfolio. The quality of the redevelopment and development projects that are in process is a reflection of this strategy. The completion of these projects in growth markets will provide even more evidence of the value in our portfolio as a whole. For example, Delray Marketplace and Cobblestone Plaza, both located in attractive areas in southeast Florida, will represent in excess of 10% of our consolidated NOI upon their completion. These centers are anchored by Publix and Whole Foods and also include high quality shop tenants. We believe they would likely trade in the low mid to 6 cap range based on location of the real estate and the current market for Class A assets.

Our plan is to complete other projects such as New Hill Place in North Carolina and simultaneously look to recycle several assets. The disposition assets will be identified by the location of the property given our growth plans in specific markets, our ability to raise rents, and the quality of the anchor tenants. We started this initiative with the sale of the limited-service hotel at Eddy Street Commons this week.

We have also identified Gateway Shopping Center near Seattle as a potential sale candidate. The asset is currently on the market.

Turning to the balance sheet, we just exercised our one-year extension option on the Gateway Marysville property, the last of our 2011 debt maturities, and we believe our 2012 maturities are very manageable. Upon closing of the Delray construction loan and the Eastgate Pavilion refinancing prior to the year-end, we will have $55 million maturing in 2012 on three properties. Our maturities in 2013 and 2014 are $90 million and $49 million respectively with the majority of these loans residing on the balance sheets of our relationship banks.

Including our recent activities, we have extended our average maturities from 3.3 years to 4.1 years, and we were able to secure very favorable 10-year CMBS debt in the third quarter.

We will look to make further progress on terming out debt and reducing our variable-rate exposure by securing long-term properties specific debt on our recently completed projects. Our debt to EBITDA ratio has improved by 80 basis points over the prior year and should continue to improve as the tenants with executed leases take occupancy.

In 2011's earnings guidance, we narrowed our full-year range from $0.40 to $0.45 per share to a new range of $0.42 to $0.44 per share. Our earnings guidance and forecasted results continue to be on target based on the initial guidance that we presented.

Finally, I am very proud of the entire team here. Our operating performance for the quarter has been strong. It is clear that our intense focus on leasing to best-in-class retailers and officially operating in our high quality, well-located assets is paying off.

Operator, this concludes the remarks. Please open for questions.

(Operator Instructions). Todd Thomas, KeyBanc.

I'm along with Jordan Sadler as well. Can you guys shed some light on this sequential decline in shop tenant occupancy in the quarter? Was it anything in particular?

Yes, it was actually fairly specific and related to Daytona at International Speedway Square. We had an Old Navy or we have an Old Navy that we downsized, so it went from 25,000 square feet to 16,000 square feet. That created a new 9000 square feet shop space because our shops are defined as below 10,000 feet. So, frankly, it was almost totally relative to that issue that we just created new shop space that we did not have. And really it is upside because the rents are going to be higher on the balance of the shop space or should be.

So it really is not an indication of a trend in anything, and I think it is something that is good to point out because at our size that will happen. And you shift spaces around from anchors that become shops or whatever, it will have an impact. So really nothing for us to be real concerned about.

That is helpful. That aside, how would you characterize the shop demand today? Based on what you are seeing, would you expect to see that pick up and begin to increase again going forward?

I think the shop demand, as you can see from our -- what we have done over the last year, we have had good results. We have been very focused on the shop side of the business. It is always a challenge in shops because it is the smaller tenants that get impacted more by probably the macro economic environment. But right now we have been talking about this quite a bit, we see the momentum continuing. We are out there every day leasing. We are leasing to national tenants. We are leasing to regionals, to locals. So if Tom wants to add something, I think we are in good shape, and I think we are doing a very good job.

The only thing I would add is, just on the national side, we are really dealing with the national corporate stores, as well as the national franchise stores. We have seen a nice tick just in terms of the number of those franchisees out there, which obviously is a nice boost. But, as John said, we are going to have to drive hard, continue to push, and I think we will continue to see progress.

Okay. And then at Delray, you made some progress there in the quarter leasing. I was just wondering with regard to the space that's left to lease, what kind of space that is typically, and then when would you expect to see the bulk of that lease-up? You have an open date preliminarily scheduled a year from now. When would the project tend to be stabilized?

Well, the type of space, obviously the shopping center has two major anchors, and I think most people have this perception that beyond the two major anchors it is all very small spaces. Again, the way you -- the way we look at shop space may be different than the way some others look at shop space. But for us shop space is anything below 10,000 feet.

So we have a lot of spaces in there that could be 5000 feet or 6500 square feet that are not 1200 square foot spaces. So the balance of the development is bringing in, as we have today, very, very successful retailers like Joseph Bank and people like that regardless of their square footage. So we are very -- what is the word -- we are excited about the momentum that has been generated. And in terms of -- Tom, why don't you follow up with where we think we will be within a year.

Yes, one thing about the space itself, the leasing team has done a great job equally dispersing the space amongst the center. We are not heavy on one section or the other. So we've worked very hard on that.

From a leasing standpoint, it is 66% today; we hope to be pushing over 70% in the fourth quarter. Then, as we start foundations in mid-December and really start to go vertical in January, that is going to give us a very nice push. I mean people -- prospective tenants love to see, love to see the progress and the amount of work going on site. So we will continue quarter by quarter to push, but our internal goal is to try to get this as close to 90% as possible prior to opening.

Okay. And then just quickly, lastly, I saw yesterday that Cardinal Fitness clubs were closing a handful of Indianapolis locations. I think I saw just one center of yours; it looked like maybe an 8000 square foot space. I was just wondering if you could give us a quick rundown of your exposure?

That is our only Cardinal Fitness, and it's not something that was a big surprise to us. That category itself, and I will talk about the big picture, the category itself is dominated now by a couple of the large players. So the smaller players are always going to be challenge, but this particular unit or this particular retailer had a strategy from a pricing perspective that just did not work. So my view on that is that it was really subject to -- it was really more of a micro situation with them than the whole industry.

And we had recapture rights on this space, and our team has been working with them for quite some time. And I think if you asked our leasing team, they would say they look at this as an opportunity to enhance the center by bringing in a new tenant.

Paul Adornato, BMO Capital Markets.

I was wondering if you could talk a little bit about the presence of other developers, other competitive developers, in your markets, and also what is the availability of development capital for smaller developers?

I mean I think in the markets that we are we always have competition. On the development side, that competition has significantly dwindled from three or four years ago. So now when we look at our development projects, it, frankly, is a lot less about our concern over other competition out-positioning us than it is our own execution of our leasing.

So I think that that has changed dramatically, and it is to our benefit because, frankly, the availability of capital for development is very difficult for the smaller developer. I'm not going to say it is nonexistent, but it is very difficult. So it certainly positions guys like us and other larger players who have access to capital to take advantage of opportunities. And, as more and more supply dwindles, which as you well know happens every day, that is what is enabling us to push rents. At the end of the day, this all comes back to that. So I think the equalization of cost and rents is getting better, and the fact that we have very little competition, and in my personal opinion, I really don't foresee the private, speculative retail developer coming back for quite a while. So I think the dynamics are good for us in terms of growing rents.

And so given these more positive dynamics, what is your sense about moving ahead on some new announcements, some new developments within your shadow pipeline?

Well, as we pointed out, I mean we have made a lot of progress in the leasing and what we call our in-process. As you see, we are now transitioning these properties fully leased into the operating portfolio. So the future development projects, which we point out in our supplemental pretty clearly, are also making extremely good progress. So we believe that over the next three years we will be able to execute on that entire future development pipeline.

So that means that each year we will start one or two of these new projects, and as we are doing that, we are transitioning the other ones into the operating portfolio, which is a good reference for everyone to look at is that now our CIP is around down to maybe 11% or 12% of our total balance sheet, and our goal is to get it below 10%. So we have made a heck of a lot of progress there. So I think, again, it is all about our very, very laser focus on executing our leasing efforts in these projects such that when we start them, we are highly leased and we are not playing catchup.

Okay.

The only thing to add to that, just to be a little more specific in terms of what John was saying on the starts and are we willing or comfortable to do that, I mean we have very specific internal goals that, just to give an example, that on Four Corners Square, we have a firm goal inside our office to start that in the fourth quarter of this year.

In addition to that, New Hill Place in Holly Springs, North Carolina, we are also pushing the team very, very hard to look towards a first-quarter start of next year. So we are not bashful in terms of what we are trying to do, what we are trying to accomplish and how hard we are pushing the team to reach these goals.

Carol Kemple, Hilliard Lyons.

Can you talk a little bit about the hotel sale and your profits, if there are any, on that?

Yes, as we said, it literally just closed, I think, yesterday. And, at this point, we are -- with our deal with the buyer, we are not disclosing the numbers at this point on the sale. But, suffice to say, it was profitable, a very high IRR back to us, and we are very happy with it, and we are going to recycle the capital back into core operations. So it was a strong deal for us.

Will you disclose that number later for modeling purposes?

I think it will be findable vis-a-vis the accounting later. But we have to work through the fact that we want to honor our agreements with buyers. So it will be findable.

And then back to your future developments and redevelopment pipeline, can we look at that and go from here and assume most of those projects will be done in 18 months, 24 months? What is the best way to look at that?

Well, I think the best way to look at it is what I said and what Tom said is that we are going to be conservative in our approach to the construction starts based on our pre-leasing efforts. But, if you look at the future pipeline and you see each project in itself, you have got to realize that we are getting down to a small amount of ground-up deals. And basically, as Tom said, Four Corners Square we anticipate starting yet this year. New Hill Place we anticipate starting next spring. And those are, frankly, two of the biggest ones. And Parkside is a joint venture. We own 40% currently. When it goes vertical, we will own 20%.

So while it is a big project from a capital perspective, it is not a big future spend for us. So we really are getting these down to pretty minimal. So, again, that is why I said I think over the next three years, there is no question that we should be open -- these things should be open. So that is kind of how we are looking at it.

Rich Moore, RBC Capital Markets.

Not to keep beating on the future redevelopments, but I'm curious as well. I look at some of the numbers, and I see for example that New Hill Place went up in terms of spend to date about $500,000 in the quarter, whereas some of the other ones were much smaller, maybe with just capitalized interest, that kind of thing. I'm wondering on each one, I mean what is it? Is it leasing that you are waiting for? Is it like, for instance, what on New Hill were you doing that you spent an extra $0.5 million? Is there some specific activity going on at those at this point?

Basically you are always incurring costs on these as we move through them. But the real thing here is, as you know, we have talked about this a lot over the last two, three years. We are going to maintain a very, very disciplined focus on when we are willing to go vertical. And, again, that focus is really -- or that discipline is self-imposed. As we pointed out on the last call, New Hill, we signed 100,000 square feet of box leases. The project is already over 50% pre-leased. So this is really us creating an environment that we want to lease all that we possibly can before we reach that point like we believe we have in Delray where the actual physical construction will finish out the leasing.

So from my perspective that -- Tom can comment on the actual specifics on how we look at the differences, but you have got to remember that we are going to be very disciplined before we go vertical.

Yes, John is correct. As it relates to specific spend, one of the things that we have to do and John mentioned that we have four executed very strong national anchors that are in place, that one of the keys to this project is that we have to complete another very strong national anchor deal, and as part of that, you go through a very intense technical review. And we are in the process of preparing drawings and preparing the necessary data to complete that to allow us to start in the spring. So we are very deep into this project, but spend is a necessary evil as we move toward a potential start in the spring.

I don't think it is very evil.

Okay. Thank you, guys. I mean, as you think about like the redevelopments, for example, the smaller ones, I mean what are you waiting for there, for instance? Like CVS, it sounds like it is just CVS.

No, actually on that one, CVS is the former -- is the current tenant that is moving out. And so the redevelopment there is replacing them. So, on the smaller ones, it is all about repositioning the center. We are actively working on a new site plan, a new development.

So the redevelopments are really repositioning, re-anchoring, much like what we are doing at Oleander in Wilmington where you terminated what we view as a weak anchor and bring in a really strong anchor, and then you spend capital on the shopping center to increase the rents.

So I think the smaller ones are much more, frankly, a lot less complicated, but, again, it is the same general theory that why would we spent a bunch of money to renovate a center and then go try to find the anchor? What we want to do is we want to bring the anchor in and then renovate the center. So that is what we are doing there.

Okay. I got you. Good. Thanks, John. And then, Dan, what are you hearing from lenders today? It sounds like you guys are making good progress at getting construction loans, which not too long ago were absolutely impossible to get. I'm wondering just in general what your lenders are saying to you?

I think we have had some good success specifically on Delray and getting the commitments. And, as John mentioned, we are hoping to close on that shortly.

I think the primary focus is, as they are looking, they are focused on the lease-up and the pre-leasing percentages. And I think, as we move forward on the near-term future pipeline at Four Corners, Maple Valley and Holly Springs, I think that is going to be the focus. We have been talking to banks on those two projects as well. And, as we continue to lease and meet our internal leasing goals, I think that is also going to correspond with what the bank is looking for as well.

So I think -- we have done a lot of projects through the years. There has never been a project we have not completed. So we have got a very good story when we go in to talk to the banks. Even though these are large projects, we have done a lot more complicated things in our history. So I think it is important when we sit down with them and go through it that we can execute on these large developments, and we have got capital in and the construction loan is just mainly -- just finalizing the piece of the puzzle.

Jeffrey Donnelly, Wells Fargo.

As it relates to an earlier question, I think it was about shop space leasing where you mentioned downsizing was the culprit there, how pervasive do you think that -- I guess I will call it prototype downsizing trend -- could be in your portfolio over the next two to three years whether it is Best Buy, Staples or some other GAAP concept? So do you think it's going to be pretty limited?

For us it's certainly looks like it is going to be limited. We have really only had one or two instances so far. I think I said this on the last call. There are so many users out there now who have gotten much more flexible on their square footage requirements. I mean we are working on multiple deals right now where XYZ retailer's prototype is 22,000 feet, but yet we are going to do an 18,000 square feet deal. So that is probably one of the real positives of the great recession is everybody got more realistic on where they can do business and how they can do business.

So I'm not -- from our perspective, we don't view this as a massive issue, and again, maybe our size helps us a little bit. We don't have so many of those. But, at the end of the day, I am telling you there is real demand for any well-located space that has been given back.

And just to follow-up and this is maybe more of a housekeeping question because it could just be a timing issue. But the TIA expenditures year-to-date for the retail assets is up significantly year over year, but the actual lease executions for retail leasing is down almost in the opposite direction. Is that just really a timing issue between when you are signing leases and when you are spending the money, or is there something going on maybe with the ramp of specific projects? Maybe that aside, if you could just talk a little bit about the trend you have seen and the need to provide concessions.

I think the biggest thing on that is timing. I think there is a fairly large gap between the signing of a lease, and you know, we present numbers based off lease signing, not least occupied. So there is a gap between the signing of the lease and when we get permits, etc., to get the tenant in and start working on the space. So I think that is primarily what you are seeing.

From a big picture perspective, we don't see a material change in what tenants are asking for from a TIA perspective. Again, that is very property specific. Obviously in new developments we are spending a lot more capital, and when we are renewing tenants, we spend very, very, very minimal capital. So I think the trend continues. It is always a push-pull between landlord and retailer in the capital and the rent. And so far, we are doing pretty good there.

Actually one last question. I'm curious is that a year or two ago nobody, yourselves included, really wanted to go out and touch whether it was a busted development deal or call it a poorly leased development deal that might have been completed. But just given that there seems to be a little bit more momentum going on with shop space leasing and anchors certainly are active and you are talking about financing markets have loosened up a little bit, do you think you would go back and revisit some of those opportunities that are out there, or is that just still too early to maybe try and be that person who steps in opportunistically on some properties that have a lot of hair on them?

I mean I think it is definitely an environment now where if we get presented an opportunity that we like the real estate, we would absolutely look at that. I think that is part of the reason we pointed out that as we look out over the next year, that we are going to be recycling some capital, recycling some assets, and that will enable us with our current major disconnect between the stock price and what we believe our value is, we need to look at things like that to create opportunities.

So that is part of why we are doing that is because we are seeing unique opportunities. People are coming to us with deals, and we want to be able to take advantage of it to the extent that we like the real estate. And I would say the chances of that happening in 2012 are much better than they were in 2010 and 2011. Because ultimately slowly but surely, these deals will seek a rebalancing, and when they find that and if we are in the right place at the right time, we will take advantage of it. In our development expertise, everybody says they have it, but it is not as easy as it looks, and I think we want to -- we know we can apply it and get a good margin. So yes definitely we are going to be trying to find those.

And I think Oleander Point is a great example where we found an opportunity and quickly executed. I think when we purchased or bought out our partner at the center, I think you will hear good things from us in terms of how we are going to turn that around in the future. So, as John said, it plays to our platform.

Andrew DiZio, Janney Capital Markets.

Just on the topic of small sources of capital, I'm curious what you guys are seeing as far as interest goes in buying some of your outlot parcels that have been out there for a little while?

The outlot parcels in terms of selling to users is still strong. I would say the investment side of it has also picked up quite a bit because of where alternative interest rates are. So we have, frankly, been a lot more focused on growing our reoccurring rental revenue than we have on transactional revenue. As you can see, I mean we are down to basically nothing in transactional revenue. I think for now that is where we are going to be. If things come up and opportunities come up that we cannot turn down an opportunity to sell something at a very, very aggressive number, we will do it in the outlot side. But right now we have got rent bumps in those ground leases. NOI is growing on the regular leases. So I think for right now we will focus on that.

And so it is fair to say then the outlots, you think there is more long-term value there than if you sold them and put that capital back into some other part of your business?

Well, I think that is what we are doing. That is how we make the decision is, if we think that the rent growth would exceed that, then that is where we think about it. But, as those cap rates drop and they are dropping I think precipitously, we will not run away from that either.

I mean to the extent -- and I think you will -- I would think in 2012, there might be one or two things that happen on the outlot side. I guess I'm just trying to say versus where we were in 2005, 2006, we are nowhere close to that in terms of transactional revenue.

Andrew, one thing to add to that, like when we are beginning a development like New Hill, we will have several outlots, and sometimes the outlot users will want to buy versus lease. So we will have some of those scenarios where we will be working through a sale of the outlot to the ultimate user versus what our typical scenario has been is to ground lease it and then after the stream of revenue comes in and to sell it to an investment user. And then you are picking up a little more additional capital on the sale by selling the stream of cash flow.

So, as these developments start up, we will have five, six, seven outlots that will be in front of the development that could, in fact, be sold to the end-user.

Thanks, I appreciate that. And then just one other question, I'm curious and I don't know if you would have an answer to this, but it sounds like in recent quarters we have heard more from you and your public peers talking about the national small shop tenant. I'm just curious if you have seen any preference in those national small shop tenants to look to locate in centers with, I guess, you can call them professional owners? Because we have not been hearing as much from the private guys that we talked to at one or two centers. If your access to capital or that sort of thing and ability to complete TIA draws national tenants over private centers?

Sure. I mean I think it is a natural survival of the fittest thing that's going to continue to occur. What I have focused on is, and we have talked before, that I would say there was a period of time in that boom 2003 to 2006 period, where way too much unanchored retail was built, and that unanchored retail was a problem when the market got soft. So that is probably what people are referring to is that more and more those will get weaker and weaker. Now some of them are well located pieces of real estate and will be fine, but a lot of them are not.

And I think also obviously when we work with a tenant and we have the ability to invest in the space to the extent that we are going to get a good return, that in itself may create an advantage over stressed landlords, and there's a lot of those. So yes, I think it is a combination of all those things.

But, at the end of the day, the reason that our performance this quarter was so strong on an operating basis was that we have good real estate and that we are very focused on filling spaces fast. So those all play in.

And then I would say the last one is co-tenancy. Our portfolio has the co-tenancy to attract tenants like this.

Quentin Velleley, Citi.

I'm on with Michael Bilerman as well. Just in terms of going back to the shop space, which is 80% leased, I'm just wondering if you can comment on where the actual occupied and rent paying percentage is, and how that has trended over previous quarters and how you are expecting that to trend in coming quarters?

When we look at the spread between occupied and unoccupied, the majority of that spread is going to be in the anchor tenants. There is some spread in the small shop tenants, but because we don't sit on those as long -- in other words, we turn them around much quicker because the buildouts are faster -- we don't have in front of us the actual number. But off the top of the head, it's got to be well over 80% of that is anchor-related.

And then what was your second part of that?

No, that is pretty much it. So basically the rent paying amount is pretty close to what the lease rate is anyway?

Just in terms of you mentioned in your prepared remarks just some of the asset sales that you are looking at, I'm just wondering if you can comment on the potential size of asset sales over the next one to two years and where cap rates may or may not be just given that could be potentially quite dilutive to earnings?

Yes, I mean, again, what we are saying is that we are reviewing the portfolio right now. We identified obviously initially some things that were simple like the Eddy Street hotel, which is a non-core asset. And then from there, we are looking at markets that, again, that is why the asset in Seattle is on the market.

No one thing that I would caution you on is, yes, we are currently looking at that from a capital recycling perspective, but it does not necessarily mean that we will not redeploy the capital into other income-producing assets that we can grow better. Now there may be -- obviously there is a lag with that typically. So that lag could create something. But bottom line we don't have a list sitting here in front of us that says it is these six properties or anything of that nature.

But clearly we believe that we have the opportunity to recycle some assets, and let's say, it is two or three assets from here next year. We are not exactly sure of the timing and when and what quarter. And then we would obviously -- we have places to redeploy that capital that could be very, very accretive and certainly extremely NAV accretive, which is really, Quentin, where we are with the disconnects in value, we are very focused on NAV. So I'm going to tell you everything we are going to do is going to be NAV accretive.

(Operator Instructions). Nathan Isbee, Stifel Nicolaus.

Dan, just going back to the guidance for 2011, your original guidance of $40 million to $45 million had assumed flat to 1.5% same-store growth. You are now tracking at 3%. Can you just talk about that, and why guidance has tightened rather than maybe raised this year?

I think, again, if you look at those numbers, I think on a quarterly basis 1% or so is $150,000. So I mean when you look at our same-store and it being greater than we originally guided and obviously that is -- sleep we have worked hard to get that number to where it is. And I think when you run that through and you look at the numbers and you analyze it, a 1% increase or decrease is pretty sensitive. So I think that is why you saw us tighten up the bottom end because obviously we don't feel like the $40 million, $41 million is in play. I think in essence that is what we are looking at. We try to -- we had a couple of transactional items, $0.01 to $0.03, that we had in the original guidance. I think the outlots sales and the contractual revenue is really on plan. So hopefully that answers your question. I think more or less it is just the size of the Company and the impact that has on earnings.

Right. Also, knowing that we locked into that term debt, we probably did not originally plan on that for a quarter. So I think there is some of that there, too.

And then just one quick follow-up. Going back to Jeff's question about the downsizing of the footprint, can you just talk about the deal in Daytona with the Old Navy, and was that a mid-lease deal, or was that end of lease, and what did you get on the new rate from Old Navy?

I think generally it was a push. What happened there is is they were coming up on a natural expiration, and they were -- we were well aware that Old Navy was not doing 25,000 square foot deals anymore. I think the real takeaway here is that they kept the store and invested new money in the store because a lot of these they just closed.

So, in terms of the rent, particularly I think the rent was down slightly between the Old Navy -- I'm sorry, the new deal and the former deal, but we are projecting a significant increase on the balance of this space, which we are already negotiating two leases.

So we look at it in total. It will be better. But, again, pretty small -- really the impact is not so much on NOI as it is on a metric of whether our shops are 80% leased or 80.1%. The impact really was not a NOI impact. It was a percentage leased impact.

And we fought real hard to make sure we got the proper frontage. That is what it really comes down to, and we ended up with a leasable space. So it turned out okay.

All right. What type of users do you think are going to end up there?

We have got -- as I said, we have got two people interested in the space. One is a soft goods, pretty nice soft goods retailer. And the other is more of a hard retailer, so to speak. So we are going to do the best deal. We are going to do what is the best deal.

We have no further questions at this time.

Okay. Again, thank you all for joining us, and we look forward to talking to you next quarter, and have a great holiday season. Thank you.

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