Rithm Property Trust Inc (RPT) 2008 Q2 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Properties Trust second quarter 2008 earnings conference call. At this time all participants are in a listen only mode and a brief question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press star-zero on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Dawn Hendershot, director of Investor Relations for Ramco-Gershenson Properties Trust. Thank you. Ms. Hendershot, you may now begin.

Good morning and thank you for joining us for Ramco-Gershenson Properties Trust second quarter conference call. I am hopeful that everyone received their press release and supplemental financial package, which are available on our website at www.rgpt.com.

At this time management would like to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Ramco-Gershenson believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ from expectations are detailed in the press release and from time to time in the company's filings with the SEC.

Additionally we want to let everyone know that the information and statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.

Also the contents of the call are the property of the company and any replay or transmission of the call may be done only with the consent of Ramco-Gershenson Properties Trust.

I would now like to introduce Dennis Gershenson, president and chief executive officer, Richard Smith, chief financial officer, Thomas Litzler, executive vice president of development and Michael Sullivan, senior vice president of asset management.

And at this time I'd like to turn the call over to Dennis for his opening remarks.

Good morning and thank you for joining us. First, it's always a pleasure to be able to announce that we have met or exceeded first call estimates. More importantly however, it is my mission this morning to reinforce the fact that we are comfortable with the trade areas of our shopping centers, which are primarily in in-fill locations with above average population and income statistics.

To demonstrate that we are confident of the ability, stability and future growth prospects of our core assets as seen in our leasing and operating statistics, that we are proud of the success we're achieving and our announced redevelopments and that we are optimistic about the progress that we're making with our new developments.

My confidence in Ramco's management team to move ahead with our 2008 business plan is not a denial of at best an unsettled economy, which has resulted in a challenging leasing environment and a debt and equity market that limits our choices to raise capital. However, we have been in this business long enough to know that these times will pass and that the companies with quality assets and excellent sites are well positioned to weather this period.

Let me briefly give you an update on the progress we have made on our redevelopment and development pipelines. During the first quarter of 2008 we have 11 shopping centers with significant value-add potential under redevelopment. As of the end of the second quarter we are increasing that number to 13 centers. Understand that at each of these assets we have either signed a lease with a new identified anchor or we are finalizing lease negotiations with the key retailer.

During the second quarter we signed four anchor leases, which includes Beall's Department Store in 62,000 square feet at Rivertowne Square in Deerfield Beach Florida, Hobby Lobby in 50,000 square feet at the Clinton Valley Shopping Center in Sterling Heights, Michigan, Burlington Coat in 71,000 square feet at our West Allis center in Milwaukee, Wisconsin and Plum Market in 37,000 square feet at the Old Orchard Center in West Bloomfield, Michigan.

Thus in the last 90 days we have leased over 220,000 square feet of new anchor space for our existing centers. This number, when added to the two anchor leases signed in the first quarter of 2008 brings our total new anchor tenancies for our redevelopment projects to 295,000 square feet.

These retailers will come online throughout 2009 as we complete our redevelopments. The sheer number of value-add redevelopments underway will be a significant catalyst for FFO growth in 2009 and 2010. If we take the new income generated from just these six anchor tenant transactions and subtract therefrom the rentals paid by tenants who previously occupied space demolished to make way for our new anchors, we will achieve a net minimum rent increase of $1.2 million.

In addition to these superior results, we expect that the 13 value-add redevelopments presently underway will produce an overall average return of 13% -- 13% return on cost net of all prior rents for displaced tenants.

Further, it's interesting to note that not only do these redevelopments and the anchors we have attracted validate the desirability of our trade areas and our shopping center locations specifically, but in these times of lower retail sales expectations, when smaller format retailers are having difficulty maintaining their occupancy, we're demolishing 62,900 square feet of small space to make way for larger destination-oriented formats. In essence, we're taking potentially more volatile, small tenant space and replacing it with stable, credit-worthy users while not sacrificing income, but instead achieving a superior return on cost.

One of the best examples of this transition is at our Rivertowne Center in Deerfield Beach, Florida. We are replacing an Office Depot and 19,225 square feet of ancillary retail space with the 62,000 square foot Beall's Department Store. We will also benefit from the relocation of several of the more desirable, small retailers who were displaced by the new Beall's store to existing vacancies in the center.

Even in these more challenging times our anchor lease accomplishments in the first six months of 2008 and especially in this second quarter sets the stage for earnings growth over the next 24 months.

The ability to identify opportunities to add value to our existing portfolio over and over again at times even when the centers are 100% leased speaks to who we are. That is, a company with the experience to continually improve the value and market position of its existing centers, the expertise to find additional value in acquired assets that was not recognized or executed by the previous owner and a management team with a track record of achieving double-digit returns on over 50 redevelopments since going public in 1996.

The bulk of our development pipeline consists of four projects. Our Northpointe site in Jackson, Michigan, is in the early stages of the entitlement process which we expect to complete by mid-2009. Presently we are in discussions with a number of anchors for this project. The land for the Jackson development is under option and the property will not be acquired until we have secured sufficient numbers of anchor retailers who will make this project viable.

At our Gateway Commons development, previously known as Lakeland Two in Lakeland, Florida, we have commenced the municipal approval process. We are experiencing significant anchor tenant interest in this new project because it sits adjacent to our 300,000 square foot Shoppes of Lakeland Center, which we redeveloped in 2005.

We began assembling land for Gateway Commons because of the retail interest we could not accommodate in our existing Shoppes of Lakeland Center. At this time we are negotiating a letter of intent, an LOI, with a 65,000 square foot national retailer selling both hard and soft goods. We have LOIs under negotiation with two 30,000 square foot national soft good retailers. We are working on an LOI with an 80-- to 90,000 square foot popularly priced department store and we are negotiating agreements with an office supply superstore and a national pet supply retailer. We are also working with three restaurant users for our outlots.

The anchor in this project exceeds our ability to accommodate the retailers who wish to locate here. It will take approximately eight months to complete the entitlement process at which time we expect to have signed the majority, if not all of the anchors to leases or purchase agreements.

At our Hartland, Michigan, development we have sold 20.8 acres to Meyer for 192,000 square foot department superstore, which we announced in the first quarter. During the second quarter, we signed a purchase agreement with Menards for 16.8 acres to build a 162,000 square foot home improvement superstore. We expect to close on the sale in January of 2009 when the approval process for their building is complete.

A letter of intent is out for signature for a 30,000 square foot national hardwoods retailer and letters of intent are being negotiated with a 15,000 square foot national specialty retailer and a 30,000 square foot regional sporting goods user.

We have a signed purchase agreement with Flagstar Bank for our first outlot and a signed land lease for an adjacent outlot parcel with a Dell Taco restaurant. We are negotiating a purchase agreement with a tire operation for another outlot and at our first small tenant retail building, which will open in the second quarter of 2009, we have signed LOIs for 9,000 square foot of the 12,000 square foot to be built at rental rates between $25 and $30 per square foot.

Our Aquia development continues to generate strong interest. We have completed the first phase of the project, which includes the construction of a 100,000 square foot office building. At present the office building is 80% leased. We recently expect to complete the balance of the leasing of this building by year end.

To date, including a proportionate share of our cost basis in the original center, we have spent $18.7 million on the office building. We expect to spend approximately $2.6 million to complete the office leasing and tenant improvements. We will allocate to this building an additional $3.7 million for a share of the infrastructure for the balance of the mixed-use project, all of these expenses combined to produce an unlevered return on cost of 8.3%.

Retail interest in the project has gained momentum since we announced the signing of the Regal Cinema lease in the first quarter. It is our intent to proceed with the development in phases. Our plans for the immediate future entail only undertaking some site balancing. We would expect to commence vertical construction on additional elements of this project as the demand across a variety of categories dictates.

We continue to believe in this site and its strategic location at a prime interchange for I-95, 35 miles south of Washington, D.C., and five miles from the Marine Corps base at Quantico.

Our asset management group has been diligent in its efforts to lease up vacant space while working with a number of our smaller retailers who have experienced sales difficulties yet have demonstrated that they have a viable retail concept and are capable of navigating through these difficult times to calmer waters with a little help from the landlord.

Although our cooperation with these tenants has taken a modest toll on same-center statistics, they are to be distinguished from those retailers who were too thinly capitalized or promoted a marginal concept that could not survive in an economic downturn. This latter group of tenants have already been terminated or we are in the process of removing them from our assets. They will obviously have an impact on our bad debt numbers for the year.

However, as of this date we believe that the worst of these issues is now behind us. Mr. Michael Sullivan, our vice president of Asset Management, is with us this morning to address any of your questions on receivable trends following our prepared remarks.

Relative to our same-center analysis, please note that our variable cost recovery ratio continues to be very strong. Also, even with an increase in our bad debt expenses, our same-center net operating income is basically flat, indicating that we are holding our own in these times.

The leasing statistics for the quarter show a continuation of strong tenant renewals. New minimum rents for tenants under 20,000 square feet that extended their leases at expiration increased by 10% for the quarter and 12% for the first six months.

You will note that we opened 21 new retailers in the quarter at an average rental of $15.18. What this number fails to show is that two of the 21 spaces are for retail uses that exceed 10,000 square feet, which of course commands lower rental rates. Excluding these two uses, the quarter average would be $17.93 or 8.7% above our portfolio average.

Last quarter I reported on new leases signed during the first three months. This statistic is not the number in our supplement, which represents new tenancies that opened during that period. In the second quarter we signed 17 new leases, bringing our first six months' total to 37, which compares favorably to 35 new leases signed in the same period in 2007. Also, we have 46 new leases and 36 renewals in the pipeline which are presently being negotiated.

Speaking of our leasing activity, I would like to update you on the status of our Linens 'n Things stores. We have seven Linens locations, four are part of off-balance sheet joint ventures and three are wholly owned. We've been informed that five stores will close. Of that number, three of off-balance sheet and two are wholly owned.

Although there is a process in bankruptcy where Linens could sell their leases in our center, we are taking a proactive approach and our marketing six of the seven stores. We have included the six locations in our marketing efforts in order to be well ahead of the curve if we receive notice that this additional store will be closed as well.

We are not working on replacing Linens in their seventh location, which is in a wholly owned center, because their sales are significantly above Linens average sales volumes and we fully expect that this lease will be affirmed.

To date, we have solid national retail tenant interest in four of the six locations. The four prospects include two off-balance sheet centers and the two wholly owned assets.

At this point I would like to spend a minute on our capital plan. In the fourth quarter of 2007 we discussed with you our desire to place a number of our existing shopping centers and pending developments in off-balance sheet joint ventures. During the process of working with a number of interested parties we discovered that a lack of a vibrant shopping center sales market created confusion as to an appropriate CAP rate leading our potential partners to take an overly conservative view of what they should pay for our centers.

This coupled with a hesitancy of potential development partners to commit their capital until a significant amount of our retail space was preleased, caused us to re-evaluate our approach. Instead of a portfolio joint venture, we opted to pursue a course of action where we would accomplish our ultimate, capital raising objectives through a series of one-off transactions.

Thus we contributed our Mission Bay Shopping Center to our ING joint venture in the first quarter and sold our Highland Square Center in Tennessee in Q2. We will be contributing our Plaza at Delray asset to our [Heightman] joint venture within the next two weeks and we should be able to secure financing for the first phase office building at our Aquia development before the end of the third quarter.

Each of these steps when combined produce gross proceeds of over $171 million. This generates sufficient capital to allow us to pursue and complete our 2008 business plan, which is on track to meet this year's stated financial goals.

Based on what we will accomplish in 2008, specifically in the area of asset redevelopment and the progress we're making on our development pipeline, we feel confident that our growth projections through 2009 and 2010 remain on track.

In regards to the security of our dividend, I am pleased to report that at quarter end our FFO payout ratio was 75.1% compared to 76.9% in 2007. And our FAD ratio was 78.8% compared to 82.3% in 2007. Thus we remain confident that we will be able to maintain healthy ratios in FFO and FAD throughout the balance of this year.

Given our current stock price of $21.20, which produces a dividend yield of 8.7%, the security of our dividend as well as a compelling business strategy, we believe that Ramco-Gershenson is an outstanding investment opportunity.

I would now like to turn this call over to Rich Smith who will provide details for our financial statements.

Thank you Dennis and good morning everyone. For the quarter our diluted FFO per share was $0.62, which exceeded first call estimates by $0.01. This represented a 3.3% increase from the $0.60 reported in 2007.

On a gross basis, our diluted FFO increased $300,000. We went from $12.9 million in 2007 to $13.2 million in 2008.

Some significant changes quarter to quarter include reductions in property level income and expenses due mostly from the effects of contributing assets to off-balance sheet joint ventures and from taking income off-line for redevelopment. These reductions were offset by bringing River City back on balance sheet.

The change also included an increase in our fee income resulting from increased development, leasing and management fees. The increase in fees were offset by decreases in acquisition fees.

The increase in our G&A expense was the result of an increase in payroll and fringes, the final settlement of an arbitration claim discussed at the year-end conference call and higher bank fees. For the year we expect our G&A to be between $16.5 million and $17 million.

Our interest expense decreased $1.850 million over the same period last year. $1.130 million of the decrease was due to increased borrowings but at a lower average interest rate. $380,000 pertained to an increase in capitalized interest on development and redevelopment projects and a $248,000 decrease in debt service amortization.

For the six months' ended June 30, our diluted FFO per share decreased 2.4% or $0.03. We went from $1.26 in 2007 to $1.23 in 2008. On a gross basis our diluted FFO decreased $800,000. We went from $27.2 million in 2007 to $26.4 million in 2008.

For the six months' ended significant changes included reductions in property level income and expenses, mostly due to contributing assets to off-balance sheet joint ventures and from taking income offline for redevelopments. And again, these reductions were offset by bringing River City on balance sheet.

The changes also included a decrease in our fee income resulting from a reduction in acquisition and development fees, offset by increases in leasing and management fees.

The decrease in our Other income related to mostly lower interest income and the increase in our Other operating expenses related to increases in legal and reserves for bad debt in connection with the anticipated [caution] issues including Linens 'n Things.

Our interest expense decreased $3.9 million over the same period last year. $1.842 million of the decrease was due to increased borrowings again at a lower average interest rate. $744,000 related to an increase in capitalized interest on development and development projects, $363,000 to a decrease in loan amortization costs and $116,000 to a reduction in unfavorable amortization of the fair market value of debt taken off balance sheet.

For the balance of 2008 we have four loans maturing, all of which are manageable. We have secured financing to replace our $43 million mortgage at the Plaza Delray Shopping Center and anticipate closing the loan in early August. The five-year loan will be for $48 million at an interest rate of 6% and our payments for the first year will be interest only.

We anticipate exercising our right to extend our $150 million revolver under the same terms and conditions before it matures in December.

And the collateral for our $40 million secured term loan, which matures in November, includes Northwest Crossing, Taylor Square and Ridgeview Crossing. We anticipate using Ridgeview to support our unsecured facilities and are currently in the market for permanent debt for Northwest and Taylor's, both of which include leases on recently developed Super Wal-Marts.

And lastly, on our $8.5 million construction loan on Beacon Square matures in November, we'll either use it to support our credit facilities or put permanent debt on the centers.

Our total debt at quarter end was $691 million at an average rate of 5.5% and an average term remaining at about 4.8 years. 75.4% of our debt was fixed at an average rate of 6% and 24.6% of our debt was floating with an average rate of 3.9%.

Availability at quarter end on our credit facility was $36 million. Our EBITDA interest rate coverage for the six months was 2.2 times and our fixed charge coverage of approximately 2 times.

Our current developments and redevelopments will cover multiple years. These projects along with our planned 2008 acquisitions are projected to cost $533 million. Since we plan on developing the majority of the projects off balance sheet, our shared -- our capital acquired after anticipated project-level financing is expected to be approximately $98 million.

Of the $98 million we have at the second quarter spent $44 million leaving approximately $54 million to be spent over the next couple of years.

For the balance of 2008, we expect our capital requirements to be only $25.1 million.

Our capital needs are expected to be met with the net proceeds generated from the contribution of the Plaza at Delray Shopping Center to a joint venture, which is expected generated -- expected to generate $22 million in net proceeds and by utilizing our line of credit availability.

In the future we're confident that we'll be able to fund our future growth by retaining cash from operations, continue to sell or contribute assets to joint ventures, by refinancing assets as which have been expanded or renovated in prior periods and by drawing on our credit facilities.

And lastly, our guidance remains unchanged. We expect our diluted FFO per share to be between $2.47 and $2.53.

Jack, will you open up the call for questions please?

Thank you. We will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS) One moment please while we poll for questions.

Thank you. Our first question is coming from Nathan Isbee of Stifel Nicolaus.

Hi, good morning.

Good morning, Nate.

It seems to be a recurring theme so far in the shopping center space that leasing demand is strong while the small shop closures are increasing. If you can give just a little sense of what you see in the second half of the year specifically on the shop closure space, any -- what percentage of your small shop space which you consider to be in trouble right now?

Nate, this is Mike Sullivan. We really see the closure issue due to either abandonments or bankruptcy to be tapering off, particularly in the small shop, i.e., local. There is strong demand for the space, especially in Florida. We're seeing of our small shop yield in the pipeline, fully half of them are in Florida and an increasing percentage of them are for national retailers.

We've gotten a little more aggressive in our collection protocol and we're being a little more selective in our financial approval protocol so we're moving forward, making sure that we're getting a better grade of small shop tenants.

Okay thank you. And Dennis, you had mentioned before about trying to help out some of the smaller tenants who are in trouble but you thought have a better long-term shot of making it. Can you just quantify about how many tenants, how much space is this involving, what types of steps you're taking to assist them?

The actual number per say, we could probably attempt to get you at a later date, but what we're really doing is -- each tenant that begins to fall behind, and we're attacking that almost immediately following the first 30 days that they're behind in their rent, we will send some of our asset management people in to take a look at the store, to interact with the merchants and to decide whether or not we can see them as a viable retailer.

If we can then we sit down with them and work with them on number one, a payment plan on the amount of money that they owe us, and even the potential of deferring some of their minimum rent to a later time in their lease term. There is no forgiveness of rent as part of our negotiations but just a postponement or an amortization of the amount that they owe us over the balance of the term.

We understand that if we're good partners, that goes a long way not only in promoting a real team between ourselves and our tenants but more importantly if you would just (inaudible)-fully let these people go, by the time you find a new tenant, negotiate a new lease, pay to put them in and then actually get them in and operating, you lose significantly more than working with them.

Right. And about how many tenants is that?

As Dennis said, we can get that information --

Okay.

I don't have that really at my fingertips but we can get that information back to you pretty quickly.

Okay great. And could you just speak a little bit about the credit for the Menards home improvement store that signed at Hartlands?

It's a privately held company and it's a sale. We're selling them the (inaudible).

Right. I understand that but just to give us a little sense of how big they are, what their profile is relative to a Home Depot or a Lowe's.

The stores are larger and they're 162,000 square feet. They're based more towards the handyman and the professional tradesman versus sophisticated home owners.

Okay, all right. Thank you.

(OPERATOR INSTRUCTIONS) Our next question coming from Philip Martin of Cantor Fitzgerald.

Good morning everybody. A couple of questions here, the first one, Rich, if you could just break down of this $171 million of potential proceeds from asset sales and refinancings that Dennis mentioned, can you break that down for us in terms of that $171 million, what comes from -- what approximately would come from Delray versus the Aquia financing?

Well, rather than try and break that number out before we close on the transaction, let me say this. We're going to -- or we did raise from the sale of Highlands approximately $10 million. We raised from the contribution of Mission Bay approximately $71 million or $75 million. We expect to raise in financing at the first phase of Aquia approximately $15 million.

Okay.

That's enough information to allow you to add and subtract.

Okay. That's perfect. And in terms of the leases that were renewed in the second quarter, can you break that down in terms of what approximately -- the leases, Florida versus Michigan? Was it 50/50 or what was kind of the mix?

No. As a matter of fact on lease renewals we had approximately ten leases renew in Florida and only a couple of leases renew in Michigan. Interestingly enough, because it all averages out, in our Florida renewals of small tenants, the new rental rates were up over 17% and the Michigan renewal rates were up approximately 12%.

Okay.

But again, Michigan -- and the thing you should know about Michigan and the reason that Michigan's number is so very low is that the vast majority of leases in the Michigan centers really came from a philosophy that we instituted way back when we first began developing centers, which was that we like all leases to expire January 31 and so the preponderance of Michigan leases really expired in the first quarter.

That philosophy changed just because of the weight of getting so many leases done in the fourth quarter of a prior year so we began spreading those expirations out over a greater period of time.

Okay so that leads to my next question. On the remainder of the year the majority of the leases up for renewal are going to be largely outside of Michigan.

That's correct.

Okay. Now in terms of negotiating leverage with these tenants, given the economic environment, the uncertainty that we all hear about every day, what's happening in terms of terms? Are you -- are tenants that you're renewing here coming on for shorter terms in terms of number of years? Are you giving any concessions if any? Could you just give us some background on --?

No. On renewals, for all intents and purposes these are always with retailers who continue to do well. Obviously when we commence the renewal process we look at their sales volumes and how they've been doing and so that's why we've been able to achieve reasonable increases because they aren't going anywhere.

There are always those individual tenants who are on the margin that you decide for a variety of reasons you want to keep who -- the increases may be modest or you may keep them at the same rental rate, but if we do that, it's our decision to lease to them for a shorter period of time, so that we might give a tenant who is struggling some but believes that they can make it and their lease is up, we may give them a one-year renewal or we may give them a three-year renewal.

Okay.

But just if I can follow that up with a general statement, one, we're very pleased and hopefully you're all excited about the number of leases with the big box users that we have executed in the first two quarters. It's no mystery however, and especially in the development deals, that these retailers feel that they have the upper hand and what they're doing is attempting to negotiate either lower minimum rental rates or maybe an increase in allowance or both.

Okay. So from a negotiating leverage standpoint you still feel more or less in control and you're not seeing a significant loss of negotiating leverage versus a year ago.

No we are not.

Okay. Next, Rich if you can -- and I know you talked a bit about this in there prepared remarks, but in terms of the $129 million in debt maturities through 2009, and that excludes your [lines], could you just go through some of those numbers once again in terms of, of that $129 million, what's been dealt with or --?

(Inaudible) has been dealt with. We took a $43 million loan, turned it to a $48 million loan.

Okay.

We got roughly 6% for a five-year deal, one year interest only. You talked about [the line], we also have the $40 million term loan that covered Taylors, Ridgeview and Northwest Crossing. And again I talked about taking Ridgeview and putting that in the line or supporting line and we're out in the market place right now on the other two for same-loan loans on those. We won't cross them.

Just so you know, those -- both of those centers are anchored by Super Wal-Marts who are our tenants with relatively new leases. The leases are not five years old.

Okay.

The other one this year is Beacon Square. It's a small project, $8.5 million construction loan and we talked about just putting that in our revolver supporting the revolver.

Next year we have coming due, we have Spring Meadows and West Oaks One, two great projects. We're probably 50% levered on those assets and the other one is Gaines, which is still under a construction loan, again a Myers anchored center, be a an easy center in my mind to refinance.

So not a lot of refinancing to do and I think that it's all very manageable to do.

And Spring Meadows and West Oaks Two are both at interest rates well in the 7% category.

Okay. So it sounds like the risk is very manageable here and you've dealt with the majority.

Again, Philip, all of the assets that Rich mentioned are certainly not -- and reasonable people can disagree -- but I would believe that the leverage on any one of those individual assets is between 45% and 50%.

Okay and that's even on kind of a mark to market, which is a loose term these days, but 40% to 45%. Okay.

Yes.

And lastly, just following up on one of Nate's questions, I'd be interested to in just finding out the number of tenants that are 30 days late versus a year ago, just to gauge kind of where your portfolio and your tenant base is versus a year ago or two years ago. That would be helpful.

Michael will follow up with both of you.

Okay, perfect. Thank you very much.

Thank you. Our next question is coming from Rich Moore of RBC Capital Markets.

Hello, good morning guys.

Hi Rich.

Is there -- developments, as you guys pointed out, are the tougher side of things and I think everyone is seeing that same sort of dynamic. And Dennis, you went through a bunch of tenants that you're adding, sort of the anchor tenants in developments. Are you seeing any fallout on the flip side because that seems to be where both anchor and small shop space, fallout is occurring. Are you guys seeing any of that in these developments?

I'll have Tom amplify my comments in a minute. We're not really -- we're not seeing fallout. What's interesting about both our Hartland development and especially our Lakeland development is we have enough interest from enough retailers that we can't accommodate them all.

As I said in my earlier comment, they are driving tougher deals but the people that we're working with are very familiar, one with the retailers we're working with in Michigan are presently in the metropolitan Detroit area and know very well how well they're doing here and they find that location attractive.

And in Florida we've been working with these retailers for some time because they had wanted to get into our Shoppes of Lakeland space, which we were unable to do, and as I said, we have at least two of those retailers that we're continuing to talk to that we will not be able to accommodate in the development.

So even if you lost somebody, you'd probably just have enough interest to find a replacement.

Yes. At this juncture we're much more focused not on loss but on who has the better economics for us. Tom, do you want to add anything?

Just to add to what Dennis had to say, there does seem to be gaps in some of the categories. There does seem to be multiple parties interested particularly in Lakeland and the demand is strong in Hartland as well.

Okay, very good. And then Hartland's cost went up. Is that right? Did I get that correct? Do I (inaudible) supplemental?

Rich, this is Tom. Let me clarify that. That's really a matter more of clarity and timing than anything else and it's a good segue to your last question to look at creativity here.

The Menards deal -- Menards wanted a deal where we took care of the site work and we took care of the special assessments so it was really a gross deal so we have obtained the gross deal with them where we will do their site work, parking lot, (inaudible) and what have you. And we are just now getting those costs and when we get those costs in line, we will be able to move the contingency from the base pro forma back into that so we'll get a pick up there.

In addition to that, we're picking up the special assessment costs for Menards and we budgeted for that all in year one. That'll be paid for over 20 years and our development fee actually is going up because of increased work we're doing there for them. So there will be a lift for that once we get the numbers in and kind of clarify the timing.

Okay, so no growth coming in general construction costs. That's not part of the problem.

Well, it started going up but we've budgeted for that and managed for that and we have contingencies.

Just to amplify Tom's statement, we now have a firm bid for the site work. That firm bid for the site work, it is part of the increase that you have seen in the numbers that were published in the supplement. What we did not do is we did not, now that we have the site work numbers in and they're firm bids, we have not decreased the contingency, which we probably should have decreased, and the contingency for the site work alone is $1.5 million.

So one could argue that we easily could have taken a significant amount out of the site work number and then as Tom has said, we have taken the 20-year payment on the Menards special assessment district and treated it as a cost in year one and then lastly some -- what we like to think is modest increases in the site work, but the site work is now a fixed number.

Okay, very good. Thanks guys. And then on out-parcel sales, any reason to think those might pick up? You've got -- it's early in the developments for these various developments you have but is there any reason to think we might see more out-parcel sales over the near term here?

Over the near term, I'm not exactly sure that we have any out-parcel sales because in the developments, you need a lot of infrastructure and the roadwork in before you're actually going to close with some of the outlot users.

What we are experiencing and what we may talk about in the third quarter is we are achieving some very significant land rents on a number of our outlots, some of which had users, restaurant users, etcetera, on them that became somewhat problematic and have left and we will more than double the rental, the land rent that they were paying.

We're not building any of their buildings for them and as a matter of fact, I'm a bit surprised by how healthy the land rents are that we're achieving.

Okay. Good, thanks Dennis and then the two joint ventures that we're always talking about, the one joint venture for Aquia and then the one joint venture for maybe $160-- to $170 million of property, didn't hear much about those. Is there anything go on there? You sold the one asset to Heightman and --

Again, maybe I didn't clarify it well enough. Rather than the one big joint venture, what we did was we did the ING, we're doing the Heightman and the financings. Now, do we have other assets that we would like to contribute to a joint venture? We do. It would be of a much more modest scale, because if you remember, we talked about, it's something in the vicinity of $240-- to $260 million total. Of that total we're dealing with $171 million as of this date.

The most significant difference is in Aquia and in our Lakeland project. In our numbers as far as sources and uses, we're not -- although it may happen sooner, we're not even counting on getting money in on those two until either the first quarter or the second quarter of 2009.

And yet we have a comfort level based upon our line of credit and the things we still have in the pipeline that there is more than enough money to finish strongly in 2008 and then when we finish 2009 as far as debt availability, it should be significant.

Okay, so there is -- there's no reason to think we're going to have a new joint venture partner and do another big slug of assets, is that right?

Well, we do have a portfolio of assets that we are talking to some people about that weigh in somewhere around $100 million. And if we can make an intelligent deal for ourselves, then we'll move on that.

Again, part of the problem with that is there are not enough shopping centers that are being sold for any of these potential partners to really have a very significant comfort level that 6.5%, 6.25%, 6.75% or even a 7% CAP rate doesn't make them look a little foolish.

That seems to be a recurring theme. And then on Aquia, there were three interested external parties on the last conference call. Those three parties are still there or --?

They are still there. Again, as I hoped to have addressed in my formal remarks, they want to see more leasing over and above the first office building in addition to the movie theater before they'll be comfortable in committing some very significant dollars to this project.

What we're working -- interestingly enough, as recently as this week we were down at a conference in the Washington, D.C., area. We now -- not an insignificant amount of hotel interest, we've got interest from a number of health clubs to continue to round out this mixed-use idea in addition to the retail tenants that we're working with.

So the basic design of the center remains the same but we may have some interesting variations on the theme that should be very financially lucrative for us. And of course the location absolutely can't be duplicated.

Okay, so then we shouldn't look for one of these partners to step in before first quarter next year, maybe --?

We are actually showing in our sources and uses internally that we wouldn't have our partner online until the second quarter of '09. But again, we continue to push and if we get significant enough tenant commitments then that -- we could move that up.

Okay, very good. Thanks guys.

Thank you. Our next question is coming from Jeff Dansay of Kotler Capital Mgmt.

Hello, good morning.

Good morning. How are you?

I'm doing well. I had a couple of questions on the Aquia. In your prepared remarks I believe you said you were looking at an 8.3. Was that an IRR number that you gave?

No. It's a first year cash on cash number against cost and those costs included not only the cost to build the building and completely tenant the building but also included a proportionate share of our original basis in the original shopping center as well as a proportionate share for the infrastructure for the balance of the development.

Okay.

For the office building.

Okay so when you say first year, do you mean first stabilized year?

Yes.

Okay and in the supplement, the 8.9 that I'm looking at, stabilized return on cost?

That's for the overall project.

That's the overall project. The 8.3 was specifically for the office building?"

Yes.

Oh I see. Okay. Thanks. And also just looking at the timing of cash flows on that project, those would be things that got shifted out a bit, do you have any more detail? Obviously at this point in the call you've talked a lot about (inaudible) but do you have any more detail about what you expect to see in different phases, just any more detail on it would be helpful.

This is Tom Litzler. As Dennis said in his question and answer just then, it is going to be phased based upon demand.

Right.

We have strong interest from office players. We have got strong interest from the hotels. We also have some multifamily apartment developers that we're talking very seriously to so it's really going to be a function of being prudent and doing this in a timely fashion when we make the right deal.

Okay so in these estimated cash flows for 2009, 2010, 2011, how exactly are you allocating -- how do you determine how to allocate those dollars, just estimated by year or are you just sort of giving a rough guess of --?

It's a rough, maybe an educated guess or a rough guess of how we think it's going to play out. The objective could change depending on someone stepping up sooner or later on some portion of the project.

Okay. Obviously --

That's cost, right?

The cost.

And the cash flows will follow the cost.

Sure. Obviously they look like they're pretty detailed so I assume that you must have a base case that you're estimating right now in terms of the timing?

A pretty detailed model and cash flow model on the project, but again --

It's still very variable.

It's subject to change.

I think really both to give the investor a comfort level and to hopefully attempt to explain how we're approaching this project. When we put those original numbers together and we may have modified them slightly, probably in the third or maybe even the fourth quarter, we'll have a better idea of how we might vary those expenses as far as pushing them forward or moving them back as this various tenant interest matures.

But we will not go ahead and just start building the shopping center because it also involves other elements in the hope that by the time we put it up, we can find some tenants for it.

Okay. I understand that. And then in the redevelopment projects, there were a couple of -- Troy marketplace and Collins Point Plaza. I was just wondering what's sort of going on with those two if there's anything. It looked like it shifted again some of your costs out maybe from 2008 to 2009, so I was wondering if there's anything.

In the Troy marketplace the LA Fitness is open. We have a deal to build an outlot building, which we partially preleased which we'll build next year so that's that cost. In the case of Collins Point, it's subdividing a vacant grocery store, which we've got three users for, which probably most of those costs will be next year.

Okay. Okay, great. Thanks a lot.

You bet.

Thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Well as always we thank you all for your interest. Hopefully you can see from the information that we've provided here as well as what we expect to accomplish both in the third and fourth quarter. We are positioning ourselves for oversized growth in FFO in 2009 and well into 2010 and I stand by my comments that I made in earlier quarters that you are going to see some very significant growth from us in earnings as we go forward later this year and into next year.

Thank you again for your attention.

This does conclude today's teleconference. Thank you for your participation. You may now disconnect your lines.