NNN REIT Inc (NNN) 2008 Q4 法說會逐字稿

完整原文

使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主

  • Operator

  • Greetings and welcome to the National Retail Properties Inc.

  • fourth quarter 2008 earnings conference call.

  • At this time all participants are in a listen-only mode.

  • A brief question and answer session will follow the formal presentation.

  • (Operator Instructions) As a reminder this conference is being recorded.

  • It is now my pleasure to introduce your host, Craig Macnab, Chief Executive Officer for National Retail Properties Inc.

  • Thank you.

  • Sir, you may begin.

  • Craig Macnab - CEO

  • Thank you, Ryan and good afternoon and welcome to our 2008 year end earnings release call.

  • On this call with me is Kevin Habicht our Chief Financial Officer who will review details of our fourth quarter year end financial results, plus provide details about our revised guidance following my opening comments.

  • National Retail Properties had a record year in 2008 and we are pleased with this performance, clearly we are operating in a different economic environment this year but we've worked hard to ensure that we have a strong balance sheet with very manageable debt maturities plus we have plenty of unused capacity on our credit facility.

  • As of the end of the year our portfolio is 96.7% leased with very limited leases coming due in this calendar year.

  • We currently own 1,005 properties leased to over 200 different national or regional tenants in 44 states.

  • These tenants operate in over 30 different segments of the retail industry which provides us with very broad diversification.

  • Finally, on average these tenants are contractually obligated to pay us rent for the next 13 years.

  • As a landlord to retailers we are clearly seeing stress in our portfolio.

  • In terms of where it's going, I wish that I had a better idea of the depth or duration of the recession and when consumers will reopen their pocketbooks.

  • As our press release suggested we are cautious about the outlook and we are projecting a challenging 2009 but our investment plan reflects that conservatism.

  • Over the last four years we have acquired over 350 convenience stores and this category has become our single largest line of trade representing just over 25% of our annualized rent.

  • We are very pleased that the convenience store industry had a strong 2008 in the face of a very difficult retail environment.

  • One of our two largest tenants, Sussa has prereleased earnings guidance and it appears that their financial performance was strong in 2008.

  • Also this morning The Pantry, which is our largest individual tenant, announced solidly profitable first quarter results with extremely good cash generation.

  • The performance of our two largest tenants, highlights the defensive attribute of the convenience store industry.

  • We continue to like the real estate attributes of convenience stores which is situated on busy streets at signalized intersections with excellent ingress, egress and versability.

  • Also the investment per property is modest which contributes to very broad geographic and tenant diversification within the C store category.

  • In terms of our acquisition activity, in the fourth quarter we acquired $33 million of properties for our investment portfolio, and average cap rate of 9.55%.

  • In calendar 2008 our team did a superb job acquired 109 properties for $355 million at an average cap rate of right around 9%.

  • By the way, our acquisition in the fourth quarter was less than half the volume in the third quarter which again was considerably less than the volume in the first and second quarter's.

  • This trend of declining acquisition activity will continue in the next couple of quarters.

  • Our capital recycling program in 2008 was most successful as we sold a large number of properties in the first half of the year at cap rates that today seem a distant memory.

  • Specifically we sold from both the investment portfolio and our taxable REIT subsidiary, a total of $214 million of properties at an average cap rate of right around 6.9%.

  • We are extremely pleased that our inhouse team of industry leading experts completed these sales on a timely basis at very attractive cap rates.

  • For 2009 our strategy at NNN is very simple.

  • Number one, maximize the value of our existing assets, our team is focused on releasing space and renewing any leases.

  • At this stage of the economic cycle our occupancy at 96.7% is solid.

  • However, it is our view that this will deteriorate.

  • For example we currently have four Circuit Cities plus one large Value City property that we need to release in a marketplace where there are not many large box retailers opening new locations unless the rent at that location offers a so-called deal.

  • There will be other properties and tenants that we will need to deal with in 2009.

  • On the acquisition side we are being extremely selective for all the obvious reasons.

  • By the way, in our judgment there continues to be a gap in price expectation between buyers and sellers which will only resolve itself with the passage of time.

  • In addition before committing capital we would like to have further clarity on where our weighted-average cost of capital will settle in.

  • Then thirdly, we are carefully managing our expenses.

  • We already made progress at reducing our expenses this year as earlier this month we went through a reduction in force.

  • We are projecting that this year our G&A will be right around $22 million which is a measurable decrease from the $24.9 million of G&A in 2008.

  • With that I will hand over to Kevin.

  • Kevin Habicht - CFO

  • Thanks, Craig.

  • I need to start off buy saying we on this call we will make certain statements that may be considered to be forward-looking statements under Federal Securities law.

  • The Company's actual future results may differ significantly from the matters discussed in these forward-looking statements and we may not release revisions to the forward-looking statements to reflect changes after the statements were made.

  • Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the Company's filings with the SEC and in this morning's press release.

  • With that, as indicated in the press release, we reported fourth quarter 2008 FFO results totaling $37.9 million, or $0.49 per share representing an 8.9% increase from $0.45 per share in the fourth quarter of '07.

  • For the year 2008 we reported record FFO of $1.99 which represents a 6.4% over 2007s $1.87 per share.

  • We are pleased with these results which were in line with our projections and Street estimates.

  • Our balance sheets is in very good shape with no material debt maturities until September, 2011 and with $374 million available on our $400 million credit facility.

  • Let me just quickly go through a few details on the fourth quarter then some comments on our '09 guidance and then we will take questions.

  • Looking at the income statement total revenues for the fourth quarter increased to $57.2 million as primarily driven by additional rent from new, net new investments made over the last year.

  • Acquisitions in the core portfolio, as Craig mentioned totaled $33 million in the fourth quarter and $355 million for all of 2008.

  • Occupancy at year end was 96.7%.

  • That's down 20 basis points from the immediately prior quarter.

  • On page five of the press release includes some item regarding additional disclosure regarding contingent percentage rents, straight line rents, capital lease, earned income for your information and we've included some additional disclosure that will assist in calculating an AFFO type number and as can be seen our AFFO metric frequently equals or exceeds our reported FFO numbers.

  • Just moving down the income statement, interest and other income from real estate in the revenue section decreased to $683,000 in the fourth quarter.

  • That's largely due to lower outstanding receivable balances, particularly lower structured mez loans, at the end of the fourth quarter we had only $4.7 million outstanding in structured mezzanine loans.

  • Other mortgage and notes receivables decreased to $55.8 million.

  • G&A expense was $6 million, $6.0 million for the fourth quarter.

  • That's flat with prior year amounts.

  • For the year we ended up at $24.9 million of G&A which is a 5.6% increase over 2007 G&A.

  • If you look at G&A as a percent of total revenues less property expenses that came to 11.5% for 2008 versus 13.6% for 2007.

  • So we continue to leverage operational efficiencies.

  • For 2009 as Craig indicated we see G&A coming in at $22 million which is an 11.6% decrease from 2008.

  • Property expenses net of tenant reimbursements were $799,000 in the fourth quarter.

  • It's down slightly from prior year and prior quarter amounts.

  • Moving down the interest and other income line item that declined to $701,000 in the fourth quarter due to much lower-cash balances compared to the fourth quarter of '07 as well as lower interest rates.

  • Interest expense in the fourth quarter decreased slightly to $13.7 million from prior year amounts and compares with $14.8 million in the immediately preceding third quarter of 2008.

  • That decrease primarily is due to the October 1, '08i equity proceeds of $76 million.

  • At the end of the quarter we had $26 million or 2% of our total liabilities were floating rate.

  • As Craig mentioned during the fourth quarter we reported the sale of two properties from our core investment portfolio which are reflected in the investment portfolio disc ops on page seven.

  • These sales generated net proceeds of $3.3 million and produced an $800,000 gain, that gain not included in our FFO results.

  • Disc ops inventory property as we sold one land parcel property from our taxable sub of net proceeds of $600,000 dollars at virtually break even, $1,000 gain.

  • If you look at the total TRF inventories, down more than half since year end 2007 from $249 million to $101 million at the end of 2008.

  • And as Craig alluded to if you step back and you look at our total Company acquisitions both for the REIT and the TRF in round numbers we invested $385 million in new properties in 2008 and we sold $214 million of properties and consistent with our prior years, dispositions have funded a large part of our acquisitions, actually 55% of our acquisitions were funded with dispositions in 2008.

  • Again, where that disposition platform and activity has been an important part of our operations and we think among the best in the country for this asset type.

  • Moving to the balance sheet, we finished the year with total liabilities of $1.106 billion which is down $63 million from prior quarter total liabilities.

  • And down slightly from year end 2007.

  • We have only $26 million of secured debt, 98% of our assets are unencumbered.

  • On October 1, 2008, as you're probably aware we closed on a 3.450 million common share equity offering which generated $76 million in net proceeds.

  • Also notably during the fourth quarter we bought back $25 million face amount of our 3.95% convertible notes that have a September 2011 put date which is our next material maturity.

  • We originally issued 172.5 million of these notes in 2006 and the balance at year end with this buy back was 149.5 million.

  • We have been buying these notes at a discount with an average price of around 77 to yield 14.2% and as indicated in the press release this purchase, repurchase produced a $5.464 million gain in the fourth quarter.

  • At year end '08 total debt to total assets was 39.5% on a gross book basis excluding accumulated depreciation.

  • And that 39.5 is down from 42% in the prior quarter and down from 42.5% at the end of '07.

  • As I indicated we have no material debt maturity until September 2011 and only $26.5 million outstanding currently on our $400 million bank line.

  • Obviously the value of maintaining balance sheet flexibility is obviously more apparent in times like these and we believe we are in very good position.

  • Interest coverage for the fourth quarter is 3.4 times for the fourth quarter and 3.5 for the year.

  • Fixed charge 3.0 for the quarter and 3.1 for the year.

  • Moving on to 2009, as the press release indicated we lowered our 2009 FFO per share guidance to $1.78 to $1.88 per share primarily to account for our cautious economic outlook with significantly less acquisitions and more potential vacancies.

  • This guidance excludes the forthcoming convertible debt non-cash accounting change that makes this guidance comparable to our 2008 results that we just reported.

  • The $0.10 share reduction in our '09 guidance can really summarize in three areas.

  • First and foremost, we have reduced our acquisition guidance from $200 million for the year.

  • And that was penciled in at $50 million per quarter.

  • To $60 million for the year, with most of that penciled in for mid to late fourth quarter.

  • This equates to rental revenue reduction of approximately $7.3 million partially offset by lower interest expense of about $1.3 million.

  • That's the first piece of it.

  • Second, we anticipate G&A being $700,000 lower and coming in at $22 million for the year as we mentioned.

  • And, third, we assumed an additional 150 basis points increase in vacancy and that reduces rent by about $3 million based on the $219 million of annual base rent that we had in place at the end of December 2008.

  • At this point we don't have any details to provide you to support this assumption but the macro environment we believe is sufficiently poor that it seems prudent to assume some additional potential vacancy.

  • As we noted on last quarters call in 2009 we will adopt new required accounting treatment for the interest expense on our convertible debt which will add approximately $6 million of non-cash interest expense in 2009.

  • And that $6 million equates to about $0.08 per share.

  • As I mentioned previously the 2009 guidance that we quoted excludes this forthcoming accounting change so that again the 2008 reported results of $1.99 and the 2009 guidance of $1.78 to $1.88 is on an apples-to-apples basis.

  • Also note that once we do start reporting under this new rule in 2009, our 2008 historical numbers will also be adjusted to take into account this new non-cash accounting treatment.

  • And we estimate that impact on 2008 to be about $0.07 of additional interest expense.

  • Obviously as the economic and capital market uncertainty seem to abound the visibility on the guidance is more clouded than we've historically had but we are confident we can endure the economic storms and importantly believe that our dividend is secure.

  • 2008 marked the 19th consecutive year that our dividend increase went from $1.40 to $1.48 and our dividend pay out is the lowest in our Company's history at 74.4%.

  • The number of companies cut dividends NNN is one of only 170 public companies REIT or otherwise that has increased its annual dividend for 19 consecutive years.

  • This coupled with our solid balance sheet, low debt maturities and little lease expiration should help us we believe considerably ride out the economic turmoil.

  • So with that, Craig?

  • Craig Macnab - CEO

  • We would like to take any questions, please.

  • Operator

  • (Operator Instructions) Our first question comes from the line of Michael Berman, Citigroup.

  • Unidentified Participant - Analyst

  • It's (inaudible) with Michael.

  • Can you guys (inaudible) on the impairment you took during the quarter?

  • Kevin Habicht - CFO

  • Yes, we took impairment during the fourth quarter totaling, 1.563 million, showing up in disc ops investment portfolio.

  • It was on a property that we planned to sell.

  • It was an old property and so we've decided not to sell -- not to release it and just to go ahead and sell it and we actually have it under contract.

  • Unidentified Participant - Analyst

  • On you undergoing any entry tests in the inventory portfolio at the moment?

  • Kevin Habicht - CFO

  • We go through an impairment test every quarter and we obviously didn't have any more to report than that.

  • Unidentified Participant - Analyst

  • You moved around $25 million or so back into the REIT.

  • Can you talk about that decision and how much more you would consider moving back from the TRF into the REIT?

  • Craig Macnab - CEO

  • Right now I don't think we plan on moving any more.

  • But at the last year we talked about our inventory portfolio and that there were a number of properties in there that we would like to sell if we could.

  • The market is suboptimal.

  • These are properties which we are happy to hold and in the inventory portfolio we are a holder of them.

  • The actual number is really closer to about $30 million for what it's worth.

  • Unidentified Participant - Analyst

  • Okay.

  • Do you have any change on any specific tenant or sector that you are particularly concerned about at the moment.

  • You talked about your C stores and your comfort with that industry, perhaps touching on some of the bigger industry's like the autos, books, restaurants, drug stores?

  • Craig Macnab - CEO

  • Everyday it seems we come to work, particularly you guys living up there in the northeast, Manhattan and media has negative press release.

  • Today the auto sales for January are particularly dismal.

  • And with the consumer staying at home and not visiting retail stores a lot of those businesses when you cut through it have a very high fixed cost based and we are worried about every single at the tenant in our universe.

  • What's slightly different this go around is that it extends both to smaller companies as well as to the bigger public companies.

  • Let's be honest who would have thought two, three years ago that Circuit City would be liquidating.

  • And so it's cross the board.

  • There's stress in every single retailer.

  • The topline is down and there are higher fixed cost businesses.

  • Having said that our portfolio is relatively in good shape vis-a-vis the retail industry.

  • We don't have much exposure if any to the high-end expensive merchandise.

  • A lot of our product offering in our tenants is value oriented which is where you want to be in this environment.

  • Unidentified Participant - Analyst

  • Do you check any forward looking metrics besides looking at the financials and focusing on press reports to sort of gauge on where you could potentially see problems ahead of time?

  • Craig Macnab - CEO

  • The best way that we find to do that is our regular interaction with our tenants.

  • And as a Company over the last several years we've done a very, very good job of staying in touch with our tenants, just for what it's worth yesterday we had Chief Financial Officer of a tenant in our offices going through their business.

  • And in that particular case the stores are doing fine and they are paying rent satisfactorily.

  • But I can tell you their sales aren't blowing through the topline.

  • We are paying attention to it as much as we possibly can.

  • In that area we are doing a very good job.

  • Unidentified Participant - Analyst

  • Okay.

  • Thank you.

  • Operator

  • Our next question comes from the line of Dustin Pizzo with Banc of America, Merrill Lynch.

  • Dustin Pizzo - Analyst

  • Good afternoon, guys.

  • Craig, how much of the reduction in your acquisition guidance is simply related to do understandably being cautious on deploying any capital today versus the fact that as you guys have done using your capital to go out and potentially continue to repurchase those converts at double-digit yields is, one, I mean not only a better use of that capital from a better yield perspective but also helps remove a potential overhang on the shares.

  • Is that something we could continue to see you do or are you really just sitting back here and holding on to every dollar that you can?

  • Craig Macnab - CEO

  • Dustin, firstly, congratulations on your new position.

  • But we are a conservative group of folks here.

  • We've been bearish on the outlook for the last couple of years.

  • It's not just good luck that we get to where we are with a strong balance sheet.

  • We work very hard at it.

  • So, but we know that we have a near term debt maturity with those convertible bonds coming due in 2011.

  • We've been selective on pricing.

  • The best time to buy those is when there's fear in the market and we've executed pretty well where the bonds are currently trading at and there's very, very little activity in them.

  • I think in the last ten days or so I think $60,000 of bonds have traded but we don't like the prices which they currently trade.

  • If there's some movement on that we will probably take a look at them.

  • It's our nearest term debt maturity.

  • It's clearly a very accretive opportunity.

  • I think our guidance doesn't really reflect that if it happens but we are just, we need to see the market clearly hit a level that we can make reasonable forecasts on before we deploy any capital.

  • Dustin Pizzo - Analyst

  • Okay.

  • Fair enough.

  • Then last quarter just looking at the guidance you guys were baking in I think had you said 250 basis points of occupancy lost in the portfolio.

  • So is the 150, Kevin, thank you mentioned today, are we looking at 400 all in or is it--?.

  • Kevin Habicht - CFO

  • Yes, that's on top, that's additional vacancy which I say I think about that in economic turns which based on our $200 million plus of base rent in place is a $3 million kind of economic hit.

  • So.

  • Dustin Pizzo - Analyst

  • Okay.

  • And have you seen any, I mean given where the portfolio ended at the end of the year have you seen any of them in the first month here or is that just something that you are based on looking at these financials and meeting with people that you are expecting to--?

  • Craig Macnab - CEO

  • Just at the margin we have experienced it.

  • We had Uni-Mart was a hit to us in 2008 and three additional Uni-Marts came back to us in January.

  • We can see somebody moments ago asked a question about forward-looking data.

  • Our forward-looking data is pretty good and pretty accurate.

  • We can see where there's problems coming down the pike.

  • That number is happening.

  • Dustin Pizzo - Analyst

  • Okay.

  • And then I may have just missed in the opening comments but what's the EBITDA to rent coverage for the portfolio today?

  • Kevin Habicht - CFO

  • Yes, this is maybe, and I can talk maybe more at length about this but some of our tenants we have calculated rent coverages and we look at that, a good portion of our tenants are national fear tenants, the Best Buy, CVS, Barnes & Noble we are focused purely at the corporate level because they are not giving our store level P&L data to anyone.

  • But for an example which you can kind of track our largest tenants, Pantry and Sussa for example but Pantry just put out numbers and if you look at their rent coverages we mark that at about a 3.4 kind of rent coverage.

  • And a 2.0 fixed charge coverage.

  • Frankly I think fixed charge is more relevant than rent in some respects but again this is a long discussion about how we mitigate risk and how we underwrite and rent coverage is a good metric, it's a -- but it's only a piece and not the biggest piece in our minds of underwriting risk and evaluating tenants and potential investments.

  • So I don't have a number to tell you for the portfolio.

  • We don't do that like I say, a number of our tenants don't even provide that kind of data.

  • On the smaller second tier tenants, obviously you get more data and are able to grind through that, that piece of the risk analysis.

  • Dustin Pizzo - Analyst

  • Thank you.

  • Operator

  • Our next question comes from the line of David Fick with Stifel Nicolaus.

  • David Fick - Analyst

  • Hi.

  • Can you guys address -- you're talked a lot about your tenants and in general terms where your concerns are but can you specifically address the C store performance over the last quarter as you are able to divine it from your tenants?

  • Craig Macnab - CEO

  • In the industry benefited from declining oil prices and so gasoline margins were very high.

  • And the operators prospered from that and had very, very strong results.

  • So the convenience store sector which was our single biggest category simply on a trailing twelve-month basis performed extremely well where retail in the aggregate had a weak year.

  • David Fick - Analyst

  • Okay.

  • Your dividend obviously this is the quarter of dividend adjustments even for some of the industry bellwethers whether it's an alternative form of payment or cut in cash.

  • And you're clearly signaling here thank you don't expect to be going down that route.

  • I'm wondering given that there are some others that have very strong cash flow and balance sheet made a different decision that that might be something that you would even consider reviewing or is it part of your franchise and you are going to maintain that increased track record no matter what?

  • Craig Macnab - CEO

  • David, it's a topical question for sure and we have a Board meeting here in a couple of weeks and I'm sure we will be talking about it so I don't want to get too far ahead of myself.

  • But I think certainly sitting here in this building here before getting the input of our Board of Directors I will tell you that we think that over the long-term one of the reasons investors purchase REIT stocks is because, is total return oriented and they pay a great deal of attention to the income that they get from the dividend and I think we have got to be very thoughtful about flying in the face of that.

  • We are in the position where one, our balance sheet is good, two, we have very modest near term maturities and, three, we have access to capital and, oh, by the way, our dividend coverage is very strong against AFFO.

  • So I think you're--.

  • David Fick - Analyst

  • Oh, Craig, just to challenge you one more time on that.

  • Some of the REITS that we talk to who have all of the same characteristics are saying, look I cannot assume that my line of credit coming due in 2011 or even 2012 will be renewable then I will have to pay it off in cash.

  • I must run my business that conservatively.

  • You're a conservative Company.

  • You've always been conservative in how you structure yourself.

  • Why shouldn't we all be thinking in those terms given the extraordinary times?

  • Craig Macnab - CEO

  • I must say when you look at the price action of the stocks of regional banks, et cetera, you have to ask yourself, are any of them going to be in business, and again today some of them getting pounded.

  • So we do have a bank facility needs to be renewed in the next 12, 13, 14 months.

  • And we will have some real time data to help us make that decision.

  • As you're suggesting we are being realistic that the pricing on the bank facility is going to change, probably the terms and conditions are going to change as well and it's inevitable that a couple of smaller bank participants are going to drop out.

  • So we are going to have less access to it for sure.

  • I think -- we will see whether we are just looking at the eye of the storm now or how long it's going to last.

  • But David, I think in the near term I think that payment of cash dividends is very important to NNN shareholders and our board will also weigh in on that, so.

  • David Fick - Analyst

  • Obviously and we agree with that in terms of your stated thesis and the industry's attractiveness to investors.

  • I'm just wondering if perhaps you need to start reflecting a bit more realistic view of the capital markets willingness to provide capital to REITS going forward at least for the next couple of years.

  • Craig Macnab - CEO

  • We will take your input into the decision as well.

  • David Fick - Analyst

  • Thank you.

  • Operator

  • Our next question comes from the line of Sabina Bhatia with Bhatia Capital.

  • Sabina Bhatia - Analyst

  • Hi, guys, just as a follow-up to the previous question your line of credit that comes due May 2010 I understand it's more than a year from now.

  • I also understand you don't have much outstanding on that.

  • But from what I hear from following other REITS it is taking a while nowadays to negotiate things with banks.

  • One of the REITS told me it took them six months.

  • I mean, do you guys have a time frame in mind as to what you want to do or you just have other things on your priority list?

  • If you can just give us some color on that?

  • Craig Macnab - CEO

  • Sabina, it's an important question and it is certainly something we are very focused on.

  • We do have a time line in place.

  • We are not going to talk about it on this call.

  • But historically we have renewed our line of credit several months if not well in advance of when it comes due.

  • So we will be working on it during the course of, it's certainly a key objective of Kevin and myself for calendar 2009.

  • Sabina Bhatia - Analyst

  • Right, it would be nice to have that liquidity even though you guys haven't used as much as many others have.

  • Okay.

  • Thank you.

  • Craig Macnab - CEO

  • Thank you, ma'am.

  • Operator

  • (Operator Instructions) Our next question comes from the line of Philip Martin with Cantor Fitzgerald.

  • Philip Martin - Analyst

  • Good afternoon Craig and Kevin.

  • Maybe you can talk a little bit about the retailers in the portfolio for a moment.

  • Are you hearing any of the retailers talking about, maybe retailers that have locations in your portfolio already looking to take advantage of any potential vacancy that you may see here in 2009 because they like your locations better than existing locations elsewhere and their respective markets?

  • And I guess retailers looking to take advantage of some of the retail vacancies in order to improve existing locations, et cetera.

  • Craig Macnab - CEO

  • Philip there's a lot of GLA on the market whether it's coming out of Linens 'n Things, Circuit City, Mervyn's, whatever and for retailers that are looking to expand.

  • And the good news is some of the several of them are whether it's Dick's, Ross Dress for Less, et cetera, they are clearly evaluating all their options.

  • What's changed in the last couple of months is that these types of tenants, the decisions are really getting made closer to the corner office by the CFO, the CEO.

  • Obviously they have a real estate committee involved but the key decision makers at these retailers is they are looking to open new locations in our experience they are only looking at these if there is a so-called deal available.

  • As a landlord we have very little pricing leverage right now, if any and you need to have an A plus location if you plan to re-lease it.

  • And you are going to struggle to get the existing rent.

  • Let me just add one other thing slightly related to that.

  • We don't have a lot of lease renewals coming up in calendar 2009.

  • It's just right around 20 of them.

  • But our team has done a very good job on renewing these early and that is going quite well.

  • There will be, pick a number, four or five of those that we expect will not get renewed by the way, so.

  • Philip Martin - Analyst

  • As you look at those leases that you expect to potentially not get renewed and that's obviously being reflected in your vacancy or occupancy guidance going forward, the locations you expect to have trouble renewing, the location quality, I mean are these C locations, are they a mixed bag of A,B and some C.

  • or?

  • Craig Macnab - CEO

  • It's, I mean it's a small number of properties so I could talk to them.

  • One of them is a very, very small tenant not enough to move the needle either way.

  • One of them is a tenant who is interested in renewing but once they are in introduction we think the market rent is higher than what clearly what they are offering and we are going to take it back and release it.

  • We are prepared to have a couple of months of vacancy and in some of the others we are dealing.

  • Philip Martin - Analyst

  • So in that market that you just spoke of, you feel that there is sufficient demand for that location.

  • It may take a few months but there is retailer demand at the rent that you believe to be market?

  • Craig Macnab - CEO

  • Philip, we do and that location is clearly a strong location.

  • It's a tenant who over the duration of that lease, 15 years their financial performance deteriorated.

  • It's a small public company today.

  • It was a bigger public company.

  • And we hope we can get an upgrade all the way around in terms of rent and in credit.

  • It will take us some months.

  • We need to get closer to the Christmas season for a tenant to step up.

  • Philip Martin - Analyst

  • Okay.

  • Okay.

  • Kevin Habicht - CFO

  • Just to clarify in total, I mean it's 20 properties but it's 0.9% of our base rent.

  • But expiring in 2009.

  • Philip Martin - Analyst

  • Okay.

  • So.

  • Kevin Habicht - CFO

  • A small number.

  • Philip Martin - Analyst

  • And the vacancy, Kevin, that you are forecasting here in guidance, is that primarily related to renewals as opposed to retailers shutting down?

  • Kevin Habicht - CFO

  • It's a combination of both.

  • It's probably more new vacancy rather than lack of renewal but it's a combination.

  • Philip Martin - Analyst

  • Okay.

  • Okay.

  • And Kevin one other thing here on the asset sales, 6.9% cap rates, how is that trending, I mean certainly you made mention of the disconnect between buyers and sellers out there and that gap that remains.

  • And having said that you are selling properties at 6.9 cap rates.

  • I know it's a specific type of a property and a specific type of a buyer but where do you see that cap rate going and what's your estimate on volume?

  • I may have missed that in some of the opening remarks but what's the estimate and asset sales volume for '09?

  • Craig Macnab - CEO

  • Let me just talk a little bit to the cap rates.

  • I think our disposition volume in the full cost is 40 million, $50 odd million.

  • I mean it's a small number.

  • But we don't have to sell any of that and if we can't get the pricing we want, we are not going to do it.

  • By the way you can go to our website and you can see what we are looking to sell.

  • But we, there are -- the overall transaction volume is way down because to the extent a buyer is looking to get any debt it's almost impossible to find, number one.

  • Number two, the terms of the debt including amortization of principal are very, very onerous.

  • So transaction volume is way down which effectively means that the supply of product on the market is considerably higher today than it was in the past and cap rates are up.

  • That 690 number I have no idea what it would be but pick a number, 100 basis points higher today.

  • Philip Martin - Analyst

  • Okay.

  • Thank you again.

  • Operator

  • Seeing as there are no further questions I'd like to turn the call back to management for any concluding remarks.

  • Craig Macnab - CEO

  • Thanks very much.

  • We appreciate all of you listening and encourage you to call Kevin and myself with any follow-up questions.

  • Thanks very much.

  • We will be talking to you all shortly.

  • Good afternoon.

  • Operator

  • Ladies and gentlemen, this concludes today's teleconference.

  • Thank you for your participation.