Regency Centers Corp (REG) 2010 Q2 法說會逐字稿

Good morning my name is Jennifer and I'll be your conference facilitator today. At this time Regency Centers' second quarter between earnings conference call. As a reminder this call is being record and all lines have been place on pollute to prevents any background noise. After the speakers' remarks there will be a question-and-answer period to ask a question during the (Operator Instructions). I would now like to turn the conference over to Lisa Palmer, Senior Vice President Capital Markets. Please go ahead, ma'am.

Thank you, Jennifer. Good morning everyone. On the call this morning are Hap Stein chairman and CEO, Brian Smith, President and COO who is battling a little bit of a cold so please excuse a few coughs, Bruce Johnson, CFO, Chris Leavitt, Senior Vice President and treasurer. Before we start I would like to address forward looking statements that may be addressed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in these forward-looking statements.

Please refer to the documents filed by Regency Centers Corporation with the SEC. Specifically the most recent reports on Form 10-K and 10-Q which identify important risk factors that could cause actual results to differ from those contained in these forward-looking statements. Bruce.

Thank you, Lisa, and good morning. Recurring FFO per share for the second quarter was $0.59. This was above our guidance due to better than expected operating fundamentals. As of June 30th, the portfolio was nearly 93% leased on the same property basis. During the quarter Regency completed the sale of $150 million up 6% ten year senior under secured notes. As you may recall, we applied a forward starting swap to this offering. The rate locked on the forward starting swap was higher than current rates and as a result the effective interest rate on the $150 million is 7.67%.

In June Regency closed on approximately $200 million of ten year mortgages in the GRI partnership at a rate of 5.8%. This refinancing along with the equity contributions allowed the partnership to eliminate all debt returning in 2010 and reduce total debt by 25%. The health of our tenants is improving and the run rate for bad debt expenses going forward should be in the range of 1% to 1.5% of total revenues. Reduced by the collections of prior reserved amounts.

Bad debt expense for the quarter was significantly lower than the prior periods due to collections of previously reserved receivables. As a result of the rebound in the portfolio during the first half of the year 2010 recurring FFO per share is now expected to be in the range of $2.30 to $2.40. We have also raised guidance for same property growth, rental rate growth and occupancy. The revised guidance maintains a high level of expected move outs and includes the projected impact from a potential blockbuster chapter 11 filing. Brian.

Thank you, Bruce and good morning. On the first quarter call we noted that the economy is making steady strides towards recovery. Retailers were building on the momentum of late 2009 and were clearly back on offense. We know that this is translating into positive results for our portfolio, increased leasing volume and better than expected net operating income. Despite the slowing economic growth and choppy retail sales vibrant demand for space has continued over the past three months and we've experienced improvements in nearly every metric that we use to measure the health of our portfolio.

Net absorption was positive for the first time since the third quarter of 2007 and move outs were at the lowest level since that time. The leasing activity in particular is an affirmation of the upward trend. During the second quarter we signed a total 426 leases for nearly 1.5 million square feet of which approximately 460,000 square feet were new leases. Importantly, new leasing in the operating portfolio is particularly robust at levels 60% above the same quarter 2009 and representing the best back to back quarters in new leasing we've had in nearly three years. Furthermore, we leased four big box vacancies totaling 156,000 square feet.

New leasing activity on a year-to-date basis is even more notable. We signed 853,000 square feet in the operating portfolio which is 70% higher than the first half of 2009 and over 30% more than the average square feet executed between 2006 and 2009. Renewals were also quite strong. In fact, there's been only one quarter in the last ten with higher levels of renewals. Rent relief requests are less than half the prior quarters amount and are substantially lower than last year. Although rent growth was essentially flat for the quarter and rents remain below peak average rental rates executed on shop leases are up by nearly 8% since hitting bottom in late 2009 and have trended upward for the past three quarters.

Many markets including the pacific northwest, coastal California, Atlanta, the Carolinas, DC area, St. Louis, Colorado and Texas are performing well ahead of forecasts. Positive trends unfolded in the development portfolio as well. For the second consecutive quarter development yields remain virtually flat and 2010 in place NOI from developments is projected to increase by more than $8 million compared to 2009. Our three most recent gross (inaudible) construction starts are performing extremely well with projected returns in excess of under written amounts. We've mentioned Seminole Shops and Market at Colonnade on prior calls and both continue to experience excellent demands with side shop space.

Our third start, Village at Lee Airport located in Annapolis, Maryland is currently 94% leased and committed and should be 100% pre leased at construction completion. As we stated, one of our key initiatives is to harvest the additional NOI from our properties in development and leasing is ahead of plan for the year. We are very close to executing a lease with a large national retailer at our Indio development for a build-out of approximately 50,000 square feet of space. Walmart commenced construction at Applegate in California's central valley driving a surge in lease activity and during the second quarter we executed multiple leases at this location with four more in negotiation.

Additionally, in our Golden Hills development, which is also in California, we finalized an agreement with Walmart to purchase a parcel of land for its grocery store concept. While this is certainly welcome news the prevailing winds remains in our faces in California's Inland Empire and Central Valley and in Las Vegas. Fortunately, these more challenging markets represent less than 5% of projected 2010 NOI.

Let me now turn to new investments. In spite of huge demand and additional cap rate compression on institutional quality assets, which brings back not so fond memories of the market peak, and tepid interest in B & C centers, during the quarter we continued our strategy for selling lower tiered assets and re-investing that capital into A quality centers. We sold one property from our GRI partnership where there was apprehension about future NOI. We are working on several attractive developments and opportunistic acquisitions that meet our investment criteria and we anticipate coming to fruition in the not too distant future. A few involved distressed sellers and banks.

The pipeline for promising internal re-developments is also growing. We currently have three such projects in process, 14 projects identified for future re-development and several others in the early stage which are expected to generate a combined double-digit return on invested capital. Finally we are also moving forward on our strategic goal of converting land held into cash for developments. Over the last 12 months we sold, begun development or had significant progress on approximately $31 million of land held.

In summary we've made steady improvements over the last three month. While the economy is still a long way from a full recovery operating conditions are dramatically different from a year ago and so far this year have continued to get better. We are hopeful that these economic trends will persist, which will translate into positive results for our portfolio in the long run. Hap.

Thanks, Ryan. To begin with what I would like to do is under score the progress Regency made during the second quarter so far this year. The advancements are noteworthy in light of the head winds of the sluggish economy. Operating portfolio fundamentals showed improvement by almost all measures. The 460,000 square feet of new leases signed combined with the lowest level of move outs in more than two and a half years resulted in positive absorption for the first time since the third quarter of 2007.

Additionally, there's been an encouraging pickup in leasing activity and developments. The three most recent grocery anchor shopping center developments and re-developments are really performing well. These are poster children for the types of projects we will undertake going forward. While the opportunity set of value added and distressed properties remains limited we're optimistic that the development and re-development capabilities anchor relationships and market presence combined will result in future value added opportunities that will manufacture high quality centers and attractive returns on invested capital.

Despite a large amount of capital chasing quality core shopping centers and divergent cap rates and demand for centers with risk to future NOI we are still able to make some headway recycling capital. Additional core acquisitions will be constrained by the amount of property we decide to sell, unless we can find compelling anomalies in off market transactions, or enhanced returns to co-investment structures. This makes sense to us in the current market for core acquisitions. It sure feels like it could be overheated. We continue to make strides further enhancing the balance sheet by successfully accessing both the public debt market and mortgage market.

The direct result of improved fundamentals in both the operating and development portfolios is that recurring (inaudible) per share for the second quarter and the forecast for the remainder of the year are meaningfully above the original plan and the revised guidance that we provided you last quarter. However we need to view these results in the following context. Same property NOI growth was positive for this quarter but the results in the prior comparison period were certainly not up to Regency's standards. Pressure on rent still exists in some markets and we are preparing for additional move outs and tenant failures. With unemployment hovering close to 10% recovery is slow and fragile.

After taking all of this into account I firmly believe that we are headed in the right course and we have the necessary ingredients, good properties, sound balance sheet, and a talented and focused management team with value added capabilities. When I consider the accomplishments that we've made on every key front and what is still a tough environment I'm heartened. And with a worried eye towards the fragile economy and financial markets I'm confident that we will continue to make progress towards strategic goals of sustaining long-term growth, in recurring earnings, and net asset value in excess of 5% and generating total share holder return in excess of 10%. While fully restoring Regency's position in the forefront of the industry. Now I welcome your questions. +++ q-and-a.

Thank you. (Operator instructions) Our first question will come from Michael Mueller with JP Morgan.

Yes. Hi. A couple of things. First of all in terms of the leasing spreads are there certain either markets or certain times of leases that are driving the improvement relative to what you expected at the beginning of the year?

You know, as with all (inaudible) spreads it depends on where they're happening and the side of leases. Where we really saw the pop this quarter would have been from our larger leases. If you look at the leases in excess of 15,000 square feet, the average rent growth was 22%. We had some real strong large lease -- or leases signed in northern California with real positive rent growth, but that's really what's accounting for this quarter.

Okay. And in terms of sales can you talk a little bit about for the tenants that are reporting sales how they're comping this quarter say compared to a quarter or two ago particularly focusing on the smaller tenants.

I haven't got overall comp's for the entire portfolio but I think one thing that's instructive is if you look at the one center where you would expect the comp's to be the most difficult and the growth and sales to be the most difficult, that would be Highland Village, because it is so discretionary, and that one we have two thirds of our tenants this year reported improved sales and the overall increase of sales year-to-date is up 4%. So I think if that is happening there, you can certainly expect that to happen in our centers where the sales are more non discretionary.

Mike, for the most part the predominant tenants -- group of tenants that report sales is our super markets and they reported basically in arrears on and annual basis so unlike the malls there are not a lot of tenants that we get monthly sales reports on.

Okay. And I forget. Was there a question limit? Is it one or two?

We welcome you to come back into the queue.

Got. Its. Thanks.

Thanks, Mike.

We'll take our next question from Rich Moore with RBC Capital Markets.

Yes. Hi. Good morning, guys. You know, when we look at this notion of retailers that have not been able to find the amount of space they're looking for for new store openings for the next couple of years, first of all, are you seeing that continue? I mean is that still a dynamic for the retailers?

It is. Particularly the larger retailers where it's hard for them to find second generation space and looking to grow their footprint in new markets. They are continuing to tell us they're having a tough -- you know, the supply of new is almost nonexistent so they are having trouble.

Okay. So when -- sorry. So when run up against renewals, are the renewals pretty much at the here to for agreed on contractual rate or are you seeing them able to bargain and threaten to move and that gained of thing?

It depends on the center, but by and large we're seeing them renewing at the contractual rents. You know, there is a lot of talk about them moving but first of all it's expensive with what they find, and second of all there is just too much uncertainty as to what's going to happen to the sales and the traffic that's generated at a new center. These guys have made it through two tough years. They've learned how to operate within it and the last thing they want to do is mess with that and like I said it's expensive so by and large we're seeing renewals where they are supposed to be.

Okay. So last thing on that then are you actively trying to recapture space so that you can bring in other tenants, move guys around that kind ever thing so you can bring in these tenants that are looking for space they can't find?

We are. And one of the things you'll notice is that this quarter our average lease term is down a little bit and that's being driven largely -- the biggest contributor to that is the fact that we are planning so many re-developments where we do not want to tie up the space where we can expand anchors or bring in larger tenants.

Great. Thank you guys.

Thanks Rich.

We'll move next to Citigroups Quentin [Valelly].

Good morning. I am here with Michael Bilerman. I know you've mentioned before a 95% occupancy target for both the stabilized portfolio and the development properties. With the improved occupancy that you are seeing and better leasing I'm just curious with that target should we expect that's getting closer or are you still quite hesitant as to when that's going to occur?

Well, as you noticed, this is the first quarter that we had positive absorption in about two years so I think that's a very encouraging sign. We had a significant amount of leasing activity. And I would expect that we will be able to achieve that objective and, hopefully, within a couple years the operating portfolio maybe within three years on the developments, but, Quentin, I think you've got to be, as I said earlier, in this economy you've got to be weary about economic conditions and as long as the economy remains where it is I think that we can accomplish those objectives within a two to three year period.

Okay. And then just, secondly, maybe for Bruce. I know that you are factoring in the impact of some blockbuster vacancy in the guidance. Just wondering if you could maybe quantify what that impact is, whether it's -- I assume it's only $0.02 or $0.02 for this year.

What we're talking about right now, as I indicated in my comments, is we basically have 29 locations that would be part of a chapter 11 is what our assumptions are. Again, that's a potential. We're monitoring very closely we're trying to gets on the creditors committee so we're very involved. We think it's wise to at least anticipate something that could happen there.

And keep in mind that a chapter 11 or even a chapter seven if it happens now the impact of 2010 is certainly a lot less than it would be in 2011 because of just the amount of time that's left in the year versus what would be a full year impact.

Lisa, Bruce, this is Michael. Just one clarification question and the detail on page four in terms of the same store NOI break out the three different categories, year-to-date, year-to-date without termination and then year-to-date without termination and doubtful accounts is helpful comparing that to your guidance on page 40 which is just same store NOI. Is there any way that you have that guidance so that it marries up with each of the individual same store numbers that you report just so that we can keep everything apples to apples and really understand the impact of various items?

It's not something that we've provided in the past. Let talk about it Michael.

We'll talk about that. That's a fair question.

Okay. Thank you.

Thanks.

We'll move onto Christine McElroy with UBS.

Hi. Good morning. Bruce, sorry if you mentioned this already, but did you say how much you're going to be reserving for bad debt going forward say over the next couple quarters since it appears that you're actually collecting more than you thought?

Yes. What we try to is give an answer of what we expect the run rate to be between 1% and 1.5% and that would be offset by collections that we received.

So for the -- for the rest of the year what are you sort of looking at?

I would use the mid point of that.

Okay. And you've talked about potentially returning to some sustainable level of new development by 2012 and having made progress on leasing of your current in place pipeline. I would imagine that internally you're starting to think about new future projects, especially as retailers have started coming to you. How should we think about the next few years from a development spending stand point and what would a re-ramping of this business require from a staffing and G&A perspective?

Christy, it wouldn't require anything in terms of staffing. We took big hits toward development program last year and we are fully staffed to do the volume of new developments that we think we can do. We are working on them. It's going to take us a few years to get up to be the stabilized level we think we can get to. We want to get to the $150 million to $200 million a year when it's appropriate and that's going to be gradual increase. We are working on several right now that we hope to bring to fruition but it probably won't happen -- it'll probably be a linear increase between now and say 2012 or so.

Okay.

Christy, key focuses are going to be harvesting value added opportunities within the existing portfolio from re-development standpoint, harvesting opportunities from land that we already own and making good progress on that as Brian mentioned. There will be, although a lot of problem loans are being kicked down the road by the banks there will be some distressed opportunities. And as Brian noted we started three new developments within the last year that are performing --- shopping centers that are performing exceptionally well.

So it's fair so that you still have that core infrastructure within your company with the capabilities to sort of re-ramp up.

We definitely have it and until -- right now we're spending most of the time on these re-developments we've been telling you about which is -- provides some great incremental returns but at the same time we are moving those projects through the pipeline to get started which takes years often.

Thank you.

Thanks, Christy.

Our next question comes from Jeffrey Donnelly with Wells Fargo.

Good morning folks. What are you seeing in shop space leasing trends specifically in the markets more impacted by housing like in Florida, Arizona, California? Have you seen a stabilization in the move outs of those tenants and what's the outlook like for any pickup on leasings?

No. I moon, Jeff, where we have those tough markets they remain difficult. We've got some improvement particularly in the development pipeline for the projects in those markets and that's coming really from some transformational events like we mentioned in prepared remarks you've got Atwater where you have a target and you have some other tenants that we had a home depot that never opened. Once we got Walmart under construction there that's generating a lot of excitement because of the anticipated increase in foot traffic will happen there.

Same thing is going on down in the desert. But where you've got properties like Nocatee here in Jacksonville where you've got a public grocery center that's supposed to be the only shopping center for a planned urban development and they didn't build any homes it's just going to be a while before those things can come around.

And sequentially it looks like your stabilized development yield slips slightly by the completion yield rose a little bit. I know those moves are small but does that tell us that maybe you're a little more loose, if you will, on leasing terms to get projects leased out but it's making your stabilize (inaudible)?

What it tells you is we are leasing -- remember, the completion return is a specific date three years out after completion. And the stabilized return can be years out. So that's a lot further, and I guess maybe even a lot more less reliable forecast because it's further out in the future, what it's telling you is we're leasing out the space quicker than we expected and I think that basically, although the rents in a lot of those cases are less than we originally underwrote, they are pretty consistent with what our projections were.

Yes. And it's just such a difficult metric because it's very sensitive to what happens in that month of stabilization as we're annualizing the income. We had a couple big movements during the quarter in the completion yield which may or may not impact the stabilized yield. In some cases for example Highland Village we were supposed to -- we had planned on providing some rents reductions to the tune of about $1.5 million this year that would take effect before the stabilization date, which just happened, and we haven't done those as quickly as we thought they were going to take so you saw a big boost to the completion yield, but that's really just an issue of timing and it won't impact the overall stabilized yield.

So to be clear you're not increasing your concessions to increase that leasing velocity?

No.

Okay. Thanks.

Thanks, Jeff.

We'll move onto Jim Sullivan with Cowen and Company.

Good morning. I wanted to follow up on a question that Michael Billerman had earlier regarding the same store NOI guidance that's contained on page 40. So should we understand it this way, and I don't want to put words in your mouth here, but the same store revision that we have here presumably it reflects in part what happened in the second quarter as well as what the forecast is going forward and how the rent growth number has changed, but it does include the positive impact of the collections in the second quarter, but you want us to guide -- you're guiding us on the bad debt reserve line to that kind of 1.25% of revenue line item. Is that right?

That is correct.

Okay, so when we look at --- sorry.

Just really quickly, Jim, I think it's -- just remind everyone that guidance has always included termination of fees and bad debt expense. It's not a change just for this quarter.

No. I understand that. The point I think is that the collection number is not something -- collections for amounts previously reserved typically is not something that you build into that guidance, right?

Yes.

And so when it occurs, it would have the impact on a perspective basis of raising the full year number?

That's correct.

Is that fair? Okay.

Yes.

Okay. And in that respect -- sorry go ahead.

And also just -- I think it's important to know to the extent that we do collect previously reserved receivables I think that's a positive sign of better operating fundamentals because the health of the tenants is improving. So not to discount it as what it's really providing to the company.

No. I'm just trying to gets a handle on how it impact the comparison in terms of the NOI. So that the -- and in this respect, in the quarter the favorable bad debt numbers were both in the consolidated and the non consolidated portfolio so I am curious was this one tenant who happened to be in the in both portfolios or was it several tenants across all the portfolios?

No. It's more tenants across the portfolio.

Okay. So it's something that there's a good change we'll see more of in the second half do you think?

I'm not sure you would see it at this level. Part of it was related to reconciliation billings.

Okay. Okay. Good. Thank you.

Thanks, Jim.

We will hear next from Jay Habermann of Goldman Sachs.

Thank you. Good morning everyone. Brian, question on the leasing front. If you look at your sort of new leases versus the rates on expiring, I guess I'm looking at the next couple of years, I'm just wondering that given the negative impact you expect just based on that $19 rent versus the $22, $23 expiring rate, are you finding that you're actually able to capture some of that back as you look out the out years? Because I look at 2015 and the average base rent for expiring up about a dollar versus where it was at Q4 of last year.

Well, I think that's kind of how we look at it on small shop leases we think that we're probably still exposed to a little bit of roll down and on the larger leases we think that we are significant, even though there are fewer in the percentage of the deals we do, they make big impacts when they happen and we think that we're somewhere 13%, 15% below market on those. So that's why your seeing -- especially as you get towards the end of the year we know we're working on some larger deals, could they happen in the forth quarter, they might, they also might push into first quarter of next year. So that's why you have a little bit of a strode there. But overall we think there is some pressure on the small shops that we hope to offset with the larger ones.

And I guess just given the recent changes that you talked about in terms of the more recent rent growth are you seeing that affect in any way the roll downs you expect over the next couple of years. I mean has that modestly improved?

I'm sorry. I didn't catch that. Will you say that again, Jim.

As you think about the changes you identified in terms of the increase in market rents over the last six to 12 month or so has that in any way changed the rent spread that you expect over the next year or so in.

Yes. You know, that goes -- it's all part of the equation we look at. Yes.

Okay. Thank you.

And another point that I think is worth noting is the contractual rent steps that we get the benefit of that typically add about 1% or so to NOI growth and we've been able to get the benefit of most of it.

Ask (Operator Instructions). We'll hear next from Ian Wiseman of ISI Group.

Yes. Good mornings. Just following up on Christy's question with respect to ramping up your development strategy. Your past development cycle you guys were very focused on housing driven markets and when you think about new markets going forward or your strategy going forward how has that changed and where can we expect you focusing for new product?

Well, we're not going to be focusing on this again, Ian. If you look at the three that we've done I think that is described in the initial comments as sort of a poster child for how we're going to be doing them. We're going to be doing them primarily (inaudible) but that doesn't mean we wouldn't take good opportunities that were community centers if they were structured property. They are not going to be based on the (inaudible) new housing. All three of those are in infill markets.

We have a market dominant grocer we have a limited amount of shop space and all of those are out performing, we mentioned Annapolis is probably going to open up 100% pre lease and the other two Colonnade and then Neptune, we've got more demand for the space we've got. So I think that's what you're going to see. Anything that we would do that's based on housing in a growth market we would phase the structure such that we will build only what is immediately absorbable by the housing that's there and if there happens to some phasing opportunities then so be it but we are not going to count on it.

Once again a notable percentage of our so called value added program will be re-developments within the existing portfolio. Which are also (inaudible).

Right. You talked about retailers getting excited and coming to you about new opportunities. Are there certain markets that they are targeting today?

Well, it's the obvious ones where you have particularly high (inaudible) you have coastal California is very strong right now, the Pacific Northwest, we've got the DC area, the Carolinas. Really I would say it's across the map except for the areas right now where you have fundamentals that remain weak. Arizona for sure, particularly in the big box side. You have 300 vacant boxes in Phoenix, Las Vegas, parts of Florida. Even in Chicago, which we're doing very well you're seeing Ross for example move into that market in a big way because they are able to take advantage of the fact that there is 200 vacant boxes up there. So it's almost more where we don't want to be.

And also what is encouraging to me, and once again within the context of a very fragile economy, what is encouraging to me is not -- I mean you kind of would expect the retailers to want to be in great locations. Fortunately, we have a number of great locations and we're seeing significant demand for that but even, and as Brian mentioned, some of our projects in the inland empire activity in some of the green or brown areas where retrospect maybe we shouldn't have developed we're seeing activity. Obviously, the activity and the interest is at rental rates well below original underwriting, but it's in line with what our current projections are. So we're encouraged by that level of activity even in some of the areas where it's real important that we get some momentum going in the right direction and we are seeing that.

And finally I know there is a lot of excitement out there (inaudible) retailers, seem like the economy was improving at a faster clip. I think a lot has changed over the last, I'll call it, six or eight weeks or so. Have you seen any change in sentiment from retailers rethinking there growth plans at this point?

We haven't seen any of the national retailers, I think the best example of what's going on out there is Panera Bread is on record saying the class of 2009 was one of its most profitable groups of stores. The rents have come down, they've learned how to operate in it and the more sophisticated retailers are fine with that. I think across the country for the small shops it's been choppier over the last 60 days and the momentum is still good. There's still a lot of activity.

Obviously our numbers show a lot of leasing. I would say there is some increased hesitancy. I mentioned before about the short-term leases or the shorter term leases. Part of that also is a little bit of the retailer. It's mostly because of the re-developments and the fact that we're managing our rental declines that our shorter terms but it's also you've got a bit of the retailers saying I want to cap my exposure a little bit and you see regency doing the same thing with kind of a show me attitude.

The best example of that is we have a -- up in the DC area we've got a bridal store that want -- it's a well known operator but wanted to relocate into our center, didn't have very good credit, she wanted to kind of keep her lease short to see how things would go. We wanted to keep it short. Put her in there at $15 she did so well that we've renewed her now at $25. So you do see some of that hesitancy going on until they're sure the sales are there.

Thank you very much.

(Operator Instructions). We'll move on to Nathan Isbee with Stifel Nicolaus .

Thanks. Given that you have raised guidance twice this year and liquidity continues to improve, is it too early to start thinking about a possible dividend increase?

Yes.

So you will not be recommending to the board to increase it just yet?

Absolutely not. You know, at this point in time, Nate, I would also say that I think that our net payout ratio in the quarter we're based upon the midpoint of the guidance we've given is in the -- just below 80%, 75% to 80% and we would like to move that payout ratio down lower.

Okay. Thanks.

Our next question comes interest Chris Lucas of Robert W. Baird.

Good morning everyone. Brian, could you just maybe talk a little bit more about the small shop space and really are there any pockets of strength in terms of markets or regions that your seeing and is that market coming back in any meaningful way at this point?

Yes. I mean I think it's come back pretty strong already. Again, if you look at the kind of leasing we've been doing its predominantly -- I think it's 96% of the transaction we've done have been with the small shop tenants and we've had the best back to back leasing quarters in almost three years. What you're also finding is that they are better operators, very few of the leases we do require financing now, which is a big change.

We just talked to our senior officers about it across the country and financing just doesn't seem to be an issue. So we're getting a lot of activity with them. I think there our receivables or recoveries are better. I would say that market right now is a lot better than it was say a year, year and a half ago.

We've got to be heartened by the amount of not just activity but the progress we're making almost 900,000 square feet of new leases. New leases in the first half of the year is really significant but having said that given the fragile nature of the economy that we're in, you have to be -- one has to be worried right now. So we've got those kind of two contrasting feelings right now but the leasing progress that we're making including with our local leases is very positive. Very positive improvement.

Okay. And then, Hap, you talked about maybe some concern about the market over heating on the acquisitions front. Are you seeing much in the way of increased flow, and certainly on the broker versus the un-marketed deals, is there a pickup there?

There is, but having said that, there's not a significant pickup in the amount of product, but it's still not the amount of product on the market several years ago.

Okay. And who's sort of competing on deals at this point with you?

Well, there's.

The types of buyers out there.

There are pension funds, advisors and REITs one in particular.

Thanks a lot.

(Operator Instructions). We'll pause for a moment. With no further questions I'll turn the conference back over to Mr. Hap Stein for any closing remarks.

We thank you for your time, for your participation, your interest and we wish that you all have a great week and great weekend. Thanks.

And, again that does concludes our conference. Thank you all for your participation.