Site Centers Corp (SITC) 2002 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Developers Diversified Realty second quarter earnings release conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time.

If anyone should require assistance during the conference, please press star, then zero, on your touch-tone telephone.

As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Ms. Michelle Mayhew of Developers Diversified Realty. Ms. Mayhew, you may begin your conference.

Thank you, Jeremy and good afternoon, ladies and gentlemen. Thank you for joining our second-quarter earnings conference call. I'm Michelle Mayhew, director of investor relations with DDR. With me in Cleveland are Scott Wolstein,DDR's chairman and chief executive officer, David Jacobstein, president and chief operating officer, Bill Schafer, senior vice president and chief financial officer, and Dan Hurwitz, executive vice president responsible for leasing and development.

We'll start with a brief recap of our second-quarter earnings release, which was issued this morning, then comment on significant events and ongoing activities.

Following these comments, we will open the lines to receive your questions.

Before we begin, I need to alert you that certain of our statements today may be forward-looking. For example, statements that are not historical in nature or that concern future earnings results or estimates or that reflect expectations or beliefs are forward-looking statements. Although we believe that such statements are based upon reasonable assumptions, you should understand that those statements are subject to risks and uncertainties and that actual results may differ materially from the forward-looking statements.

Additional information about such factors and uncertainties that could cause actual results to differ may be found in management's discussion and analysis portion of our Form 10-K for the year ended December 31st, 2001, and filed with the Securities and Exchange Commission.

At this time, I'd like to introduce Scott Wolstein, our chairman and CEO.

Good morning, everybody, and welcome to our conference call.

We are obviously very pleased to announce this quarter's financial results, which exceeded consensus estimates by 2 cents, but we're actually even more pleased that we're able to achieve this at the same time dramatically improving the balance sheet and the quality of our earnings.

Incidentally, this earnings of this quarter compared to last quarter would have been 9 cents higher per share, but for the dilution from additional share issuance that has occurred during the time period since the second quarter of last year.

While our portfolio rents continue to increase as they've done every year, our dividend pay-out has been steadily declining, dropping to 61% at the end of the second quarter, its lowest point ever. Our estimated retained capital for this year will exceed $45 million.

Most importantly, our coverage ratios have continued to dramatically improve. Although we typically report ratios on a year-to-date basis, based on the three months ended June 30, 2002, compared to the three months ended June 30, 2001, the results are even more dramatic.

Interest coverage of 3.84 times improved by nearly 23% over last year's 3.13 times. Debt service coverage of 3.51 times improved by nearly 20% from last year's 2.93 times. And fixed charge coverage of 2.2 times improved by 15% over last year's 1.93 times.

So it's very important to our company that we continue grow our earnings, but at the same time increase the quality of those earnings.

Also, as a result of property transactions completed to date this year, on a net basis, we have converted approximately $166 million in assets from joint ventures to fully - wholly-owned consolidated ownership in DDR, which further enhances the quality of those earnings.

Lastly, I'd like to talk a little bit about a property acquisition we made that was announced this morning. We're pleased to announce that we acquired five properties in major metro markets from Lehman Brothers, which is recently foreclosed on this portfolio. Two of the properties are in Dallas, Texas, one in Wichita, Kansas, Columbia, South Carolina, and Birmingham, Alabama.

We felt this was a compelling investment opportunity to buy five under-managed assets from a portfolio situation. The assets are each located proximate to the dominant regional mall in each market, and these assets have historically been dominant in their respective sub-markets.

With proper management and using DDR's relationships with tenants, we believe these assets can regain their preeminent position in their respective markets. We have already solicited tenant interest in several assets and we are confident in our ability to increase returns dramatically over the entry cap rate.

At this time, I would like to turn the floor over to Bill Schafer, who will speak more specifically about our financial results.

Thank you, Scott.

For the second quarter of 2002, DDR reported FFO of 62 cents per share, a 5.1% increase over the same period in 2001.

Total FFO for the second quarter was 41.2 million compared to 33.2 million for the second quarter of 2001.

The increase in per-share FFO is principally attributed to an increase in NOI from core portfolio properties of approximately 500,000. For purposes of same-store NOI calculation, core portfolio NOI excludes the impact of lease termination revenues, bad debt expense, and straight-line rents.

The acquisition of three shopping centers contributed approximately 2.5 million of additional NOI, and also contributing to the increase of FFO was approximately 4.7 million relating to sales of recently-developed assets owned by various joint ventures and an additional 1.3 million of income from the company's investment in a joint venture that acquired the designation rights from Service Merchandise.

These increases were offset by a decrease of approximately 1.1 million in lease termination and other income.

Moreover, as Scott previously indicated, the company is focused on improving the strength of its balance sheet and has issued approximately 170 million of common equity, including the exercise of stock options, since December of 2001.

The dilution impact associated with the common equity issuance before reinvestment is approximately 8 cents per share for the quarter. In addition, another penny of dilution is related to common stock equivalents.

For the six months ended June 30, 2002, the company's debt to market capitalization ratio was 40.1%, which favorably compares to 47.5% at June 30, 2001, and as Scott mentioned, the company's fixed charge coverage, debt service coverage, and interest coverage ratios have improved dramatically over the last year.

In addition, the company's conservative common share dividend pay-out ratio improved to 61% for the six months ended June 30, 2002, compared to 63% in June 30, 2001.

During the second quarter, the company agreed to Cella asset located in Orlando, Florida for approximately 7.3 million, which represents a cap rate on in-place income of approximately 6-and-a-half percent. These proceeds will be reinvested in assets that are expected to produce a much greater return. The effect of this transaction, however, resulted in a onetime impairment charge of approximately 4.7 million. This charge was offset by approximately 1.2 million of gains from the sales of shopping centers located in Huntsville, Alabama and Cape Coral, Florida.

Next, Dan Hurwitz will give us an update on leasing and development.

Thanks, Bill. In the face of recent economic volatility, tenant demand for space within the portfolio has remained fairly consistent. Aside from the typical summer slowdown within the retail community, tenants with established 2003 open to buys remain active and aggressive in achieving their store goals. During the second quarter, the company executed 73 new leases aggregating 601,000 square feet and 120 renewals totaling 493,000 square feet. In aggregate, DDR leased 1.1 million square feet during the second quarter, which is 13% more than square footage than was leased in the second quarter of 2001. Rents on new leases increased by 22.3% over previous rents, and rents on renewals increased by 9.1%.

On a blended basis, for all leases signed in the second quarter, rents increased by 12.1%, which is 40 basis points higher than the weighted average rental increase reported for the second quarter of 2001.

As of June 30th, 2002, the portfolio was 95.1% leased, which is down 40 basis points from the prior quarter and down 60 basis points from the prior year, primarily resulting from 256,000 square feet of vacant Kmart space which was rejected at quarter end.

Excluding the impact of the Kmart locations, the portfolio would have been 96.1% leased, indicating that occupancy within the remaining portfolio has grown consistently within our budget expectations.

Based on tenants in place and paying rent, occupancy for the core portfolio was 93.5%. Excluding the impact of the vacant Kmart locations, the portfolio would have been 94.5%, which is comparable to the first quarter of 2002.

In regard to Kmart, DDR currently has 19 Kmart store locations remaining, each of which pays DDR an average of approximately $3 per square foot in base rent. As previously discussed, the lease of our Simpsonville, South Carolina location, which represents approximately $430,000 in annual base revenue, was not rejected and was included in the Kimco designation rights package for a proposed Kohl's store. Three leases, representing approximately 500,000 in annual revenues were rejected by the bankruptcy court at the end of June. We have gone to lease with Marquis theater for the Tiffin, Ohio location and are actively marketing the additional Kmart locations.

I would also like to update the status of the Service Merchandise transaction.

To date, we are pleased with the releasing effort. We have either closed the sale or lease transaction or executed binding agreements on nearly 80 locations representing approximately 3.1 million square feet of retail space and nearly $140 million in sale proceeds and lease revenue valuations.

Major tenants include Best Buy, bed, bath and beyond, Circuit City, Dick's sporting goods, pets mart, TJX, Value City furniture, and designer shoe warehouse.

In addition, there is approximately $50 million of lease revenue valuation attribute able to existing subtenants already in place and we are actively negotiating numerous additional deals with tenants such as Dollar Tree, Petco, Ross, Gart Sports, Modell's, Staples, et cetera.

A detailed summary of the joint venture, including its capital structure, fee schedule, and promote thresholds is included in the joint venture section of our supplemental.

Moving on to development, DDR's development projects are continuing on target without any material changes to funding requirements, leasing commitments, or completion dates. At [inaudible] Harbor, located in Long Beach, California broke ground in May with phase I, representing 344,000 square feet and a 65% pre-leased. Tenants include Crown Theaters, Game Works, Carnival Club, Gladstone's, Prego, California Pizza Kitchen, P.F. Chang's, National Sports Grill, Islands Burgers, and Bubba Gump's. We expect the first tenant openings to occur in late 2003.

Projected tenant openings at our City Place development in Long Beach are ahead of schedule. Nordstrom and [inaudible] are expected to open next month. Wal-Mart and Sav-On Drug are expected to open in October and Albertson's is expected to open in November. An additional 55,000 square feet of small shop space will also open by year end.

At our could not rapids, Minnesota development, Best Buy opened in June and a 133,000 square foot full-line series store, along with a freestanding Hallmark store, will open in August. Famous Footwear, Dress Barn, Sportsman's Warehouse and Wilson's Leather are expected to open in October and November.

In the second phase of the development, known as the Central Quad, we expect Outlawed tenants to open in September, Ultra-cosmetics, Claire's, Lane Bryant, Sprint and several other tenants are expected to open in October and November.

In addition to the above, our development pipeline remains very active with highly desirable locations under contract in markets where pre-leasing thresholds are realistically attainable.

In regard to expansions and redevelopments, Developers Diversified has commenced construction on a new construction project in Canton, Ohio, which includes a 27,500 square foot expansion to an existing Kohl's store and development of an additional 7,000 square feet of small shop space. The Kohl's expansion is expected to open - to be open and operating in time for the Christmas season.

Construction has also commenced in Birmingham, Alabama, where DDR negotiated a lease termination to recapture the Wal-Mart box and re-tenant with Lowe's home improvement. Lowe's will replace Wal-Mart at a slightly higher rent, and perform the building improvement at its cost.

In addition, DDR will construct 45,000 square feet of additional retail space for a new Ross dress for less and Petco, which are expected to open in the first half of 2003. Lowe's is expected to be open during the fourth quarter of this year.

At this point, I'd like to turn it over to David Jacobstein.

Thanks, Dan. Since we reported earnings last, DDR has completed several property transactions. In June, the company sold its interest in a former best products site in Eatontown, New Jersey and two shopping centers located in Hagerstown, Maryland and Salem, New Hampshire. Hagerstown and Salem were developed under the company's retail value investment program with Prudential Retail Investors and our affiliate, Coventry Real Estate Partners. The properties were held in a taxable subsidiary that is used for the company's merchant building development program. These three sales generated gains of approximately $4.7 million of which DDR's share of Coventry's promoted interest represented approximately $2.3 million. DDR also sold two small shopping centers totaling $9.5 million in April.

In June, DDR purchased its joint venture partner's 50% interest in a Canton, Ohio shopping center, and as Dan mentioned, we have broken ground on an expansion project at that asset.

In July, the company also purchased its partner's interest in shopping centers located in plainville, Connecticut and San Antonio, Texas. These properties have been developed under the retail value investment program and based on favorable pricing and long-term investment value, DDR chose to add these centers to its operating portfolio.

I can also report that management is working closely with the company's auditors, outside legal counsel, and board in reviewing the company's policies and procedures regarding a broad range of issues falling under the rubric of corporate governance. The purpose of our review is to be sure that the company complies where with recent regulations and standards proposed or promulgated by the New York Stock Exchange, the Securities and Exchange Commission, the Congress, and various governing bodies of the accounting profession.

Management is also working closely with the company's auditors and board of directors in reviewing the manner in which the company accounts for stock options, and will be prepared to address this issue in one of our conference calls later this year.

At this point, for closing comments, I would like to turn it over to Scott Wolstein.

Thank you, David.

In conclusion, I would like to add that with respect to earnings guidance for the remainder of 2002, we are reconfirming our previous guidance of $2.50 per share, which is in line with consensus estimates. Our $2.50 per share estimate which we have reiterated on the last few conference calls includes assumptions regarding certain acquisitions and asset sales, including gains. The income generated from Service Merchandise and other transactions is accounted for in our estimate.

On a quarterly basis, however, we think analysts' earnings consensus for the third quarter is probably approximately 2 cents too high, due to the deferral in the closing of certain acquisitions that had been budgeted to close earlier in the year, and the acceleration of some of the dispositions from the Service Merchandise portfolio into the second quarter.

At this point, we would like to open the phone lines to answer your questions.

Jeremy, are you there?

Hello?

Must be a technical 00:19:17 problem.

Thank you. If you have a question, please press 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Our first question comes from Matt Ostrower of Morgan Stanley.

Good afternoon. Just a couple of questions. One, on the RVIP sales part of the development program there, are there some standard assumptions we should make? I'm just thinking about what other companies do with their for-sale development pipelines. There tend to be some generic assumptions about the project will finish around this time, and then we should assume a sale a certain amount of time after that. Are you guys comfortable making those kinds of assumptions about your RVIP program?

Matt, you know, certainly with respect to the development joint ventures that were done in the RVIP program, it was always contemplated they'd be sold immediately upon stabilization either to third parties or to be acquired by us or by PRU, so I think that is a valid assumption.

Okay.

I would tell you that we are sort of running out of deals that were in that joint venture development program in RVIP but there is one very large transaction that is in the market right now for sale that very likely will sell during the balance of this year in which the gain would be fairly significant.

Can you give a sense for what kind of per-share impact you're talking about there? I guess we can just look at your disclosure for that. It assumes some kind of a spread on the sale.

Yeah. I wouldn't want to be too specific but I would say it would be in the range of 2 to 4 cents.

Okay. And now that you - you guys have done a great job improving the balance sheet, and I've asked this question before, but I'll just ask it again.

You know, what's your - what's your hope here and what's your plan for the next year? Assuming your stock sort of stays, you know, at the kind of valuation it is today, are you still hoping to incrementally improve the balance sheet here? When do you get to a fixed charge coverage where we should just sort of make the assumption that leverage stays pretty neutral going forward?

Well, that's a good question. You know, we - the way we calculate fixed charge coverage, Matt, you know, we're in excess of 2 to 1 right now, which we think is a comfortable level. The rating agencies, or specifically S and P, looks at it a little differently and they include capitalized interest in their calculation, which - and by using capitalized interest in the fixed charge coverage calculation, we're still a little bit below the 2 to 1. So there is room for some continued improvement to get to the 2 to 1 coverage, including capitalized interest. Now, that can happen one of two ways. It can happen by, you know, bringing development properties on-line and reducing the amount of capitalized interest as a percentage because we brought on additional income, or it can happen, you know, by further de-leveraging. But in any case, you know, we're talking about marginal improvements at this point. I think we're pretty comfortable with where the balance sheet is today, for our business, keeping in mind that we believe the quality of the income within our portfolio - meaning the credit quality of the tenants and the lease terms - is probably the best in the shopping center industry.

Okay. And then has anything change - I guess my question would be: Has anything changed, in terms of the way you view the acquisition environment? You know, we keep hearing that it's very difficult out there, that cap rights have generally been gone down. You guys have managed to close what looked like some pretty attractive transactions. Are you expecting that same sort of pace going forward or should we be assuming that things do sort of slow down on that front?

I would not anticipate things to slow down on that front. We are very active in the acquisition market. I would say that cap rates have definitely come down on fully stabilized trophy core properties, but frankly we have greater interest in properties who are weak and add value like the portfolio we acquired this morning, and we see a high volume of value-added opportunities where significant expertise is required to create that value, and that's really where we have our greatest focus going forward.

Do your estimates in your mind, the guidance that you're giving, does it depend on closing more acquisitions this year?

That's a very good question. There is one or two acquisitions, but it's not a material number.

Okay. Thanks very much.

Our next question comes from James Sullivan of Prudential Securities.

Thank you. A couple of questions. And I apologize if I'm going over stuff that you maybe mentioned in your comments. I got on the call a little bit late.

Dan did talk about the releasing of this space, the Kmart box in Tiffin. And I don't - did you specify the comparative rents on that site, the new lease versus the old lease?

I did not. The new lease is approximately $5 above the old lease on a per square feet basis.

And what's that, about 60,000 square feet?

Yes.

Okay.

There's actually going to be some additional retail that abuts the new theater development, and that's pro forma'd at significantly above that.

Okay.

In fairness, Jim, there is significant capital improvement dollars that have to go in to achieve that rental.

Okay. Good. Secondly, in terms of the joint venture activity, as you work your way through the joint venture with Pru and sell off assets or acquire assets, obviously you have the Service Merchandise joint venture which looks like it may be generating good returns for a while going forward here, but are there any other plans to introduce, as it were, replacement joint venture activity or with new joint ventures to replace the Pru activity?

Yes, Jim. We intend to continue to access institutional capital to joint venture and develop joint ventures as we have in the past, and we have additional - one additional transaction that's very imminent in the pipeline that will be under construction this year.

Should we expect that that would be, say, comparable in size to the Pru value joint venture?

In the aggregate, yes.

Okay. Thirdly, regarding new development activity, and particularly the lifestyle centers, I know there's good disclosure in the supplemental here, but I wonder if you could give us an up date on the littleton site and specifically talk to Gap's attitude. I know that Gap has - as I understand it, has decided not to commit to any new developments but they have already committed to that one. If you could give us your sense as to how that - how that center is - how that project is coming along compared to your prior lifestyle centers, and what you understand Gap's position to be. And also, kind of an adjunct to that, what kind of productivity are we seeing from Gap - are you seeing from Gap in these projects?

Jim, that asset is performing comparable to our other lifestyle centers, in deer park, and particularly Leawood, Kansas, which is the more stabilized of them all, since it's the oldest.

The Gap stores, in particular, have told us - and I'm sure they've told other developers - that they expected to announce an open to buy for 2003 this month. "This month" being July.

To date, we have not gotten that. We've had some conversation with them, and they're telling us that they think they'll be back in the expansion mode by late 2004, but again, we have not received information from them as to what their appetite might be going forward.

So as of now, whether it be Gap or even Old Navy stores, with one exception in our portfolio, which was a location that they coveted for many, many years and they - they broke all the rules to get it, there are no new deals that we're talking to the Gap about.

But in terms of the specific project you asked about, Jim, the Gap concepts are already open and operating within that shopping center. That shopping center is operating on a stabilized basis substantially fully leased, but for an out parcel that we're going to probably build additional retail in lieu of a restaurant, which would be pre-leased, but the Gap issues, as far as we know, they're performing, you know, in line at littleton as they are in our other projects.

And if we go to the rest of the portfolio, Jim which you mentioned, the Gap clearly has struggled. They are - have had comp store sales decreases throughout the portfolio. However, interestingly enough, they still outperform particularly the Old Navy division, their closest rival, on a per square foot basis by nearly double so - and many of our assets where they're doing 5 and $600 a foot, they're still doing $400 a foot in sales respect or 450. In some cases we had them doing a thousand dollars a foot where they're now doing $800 a foot. And their next closest rival would be doing well at 250 or $300 a foot.

Okay. Final question from me regarding same-store NOI growth, and thank you for disclosing it this time in the release. Going forward, do you have any sense for whether that, you know, 14, 1-and-a-half kind of level is what you - is a fair estimate to use for internal growth or do you think that might be a little bit light?

Well, we certainly think it's on the lighter side, based on the economic conditions in which we've been operating this year. You know, we certainly - you know, we've said in the past that we expected NOI growth to be in line with base rental growth, which has traditionally been in the 2 to 4% range and I think that that's reasonable to assume in the future.

Okay. Very good. Thank you.

Our next question comes from Rich Moore of McDonald Investments.

Hi, guys. How are you.

As far as the guidance goes, Scott, how much from Service Merchandise are you - are you think is in there?

For the balance of this year?

Yeah. For the - yeah. Right.

Currently, in our budget, it's less than 2 cents.

Okay. That's for the second half of the year?

Yes.

Okay. And could you explain to me a little bit - I'm a little confused. When I look at the joint venture schedule, why does, in the first quarter, very little of the - of the gain on sale in the joint venture flow through to FFO on the - on the income statement, on the FFO income statement, and in the second quarter you have so much more as a percentage coming through?

It's the nature of the assets. Basically, what we had in the - in the first quarter were we sold some of the assets in the original Hallmark portfolio that we had been operating for a long period of time. We acquired those assets and operated them through a joint venture. The ones that we recorded this year - or this quarter in the gains were basically associated with the recently developed through the merchant building, you know, that were always anticipated to be sold and that's why we held them in the taxable REIT subsidiary and so forth.

Okay. So the same thing, Bill, would apply for the plainville and San Antonio assets that you just sold?

That's correct, except that when we buy them, we can't recognize the gain, so, you know, had we sold them to third parties, that gain would have been recognized as merchant building income, but since we were the acquiring entity, we don't - we don't recognize any gain.

Okay. That's good to hear. I was actually wondering about that. Thank you.

So for purposes of the joint venture line in the - in the third quarter, we should see the contribution, the FFO contribution, down from the second quarter level?

Well, as we earlier indicated, there is another asset that could be sold in the third or fourth quarter this year that would be a significant number as well. It would be lower than the number in this quarter, but it would still be, as I said before, you know, at least a couple cents.

Okay. And last thing here is, it looks like G and A was up slightly. Is there anything special going on there?

Nothing really specific. We have a - there's a lot of G and A costs that we incur in the second quarter, typically associated with annual meetings and certain ICSC conventions and things along those lines.

Okay. Great. Thanks a lot, guys.

Again, if you would like to ask a question, please press 1 on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key.

Our next question comes from Greg Andrews of Green Street Advisors.

Good afternoon. On the income statement, it looks like operating expenses and taxes were up considerably, more than the recoveries or minimum rent, and I'm just wondering if there are any particular expense issues this quarter there.

No. I think, again, going through the comparison, we still did not have a full quarter last year of the industrial portfolio that we merged with American industrial properties in mid-May last year.

Okay.

So that does not reflect a full quarter of expenses or recoveries, which are, on a percentage basis, lower than the retail portfolio.

Okay. That makes sense. And then with the taxable REIT subsidiary, DD development company, there's just a little footnote, I guess, that says you have a 95% economic interest. Could you talk about the remaining 5%, who owns that, how that works?

Yeah. I think that Greg - I think when the taxable REIT subsidiary was originally structured, there had to be a third-party entity owning some interest in the entity in order to be a tax-free subsidiary, which I own - you know, this is Scott Wolstein - which I own, and we're in the process of working with the board on restructuring that since that's no longer required.

Okay. Great. And then just to kind of clarify the recognition of, you know, merchant building gains, it just - it seems a little unclear to me what the dividing line is between a property that's sold at a gain or loss, where it gets recognized in FFO or doesn't get recognized in FFO.

My sense was that the definition at a sort of bright line wherein if you recognized any depreciation on an operating property, then you couldn't recognize a gain or loss in FFO versus if you - if you never did recognize any depreciation on it. In other words, if you sold it as soon as it was built.

How do you - you know, how do you view that? I guess I'm just trying to understand how I predict what gets in or doesn't get in FFO going forward.

Well, the way we viewed it, basically, and GAAP requires certain things to be done, you know, from a depreciation perspective, but these are the assets that we put in the taxable REIT sub-with the idea that, you know - and these things do get tax affected, that these things would be sold, there would be a tax effect and -

I mean it's very simple, quite frankly. Any asset that we develop in the taxable REIT sub, you can expect as part of the merchant building program. Otherwise we wouldn't put it in the taxable sub.

So is it put in there at commencement of the project?

Yes.

You sort of identify what you're building to sell?

Yeah. We have to.

Okay.

We can't just drop it in and, you know - you know, and - at the end when we're ready to sell it. It's really - it's really something we've decided at the inception. And, you know, we can work with you and go over, you know, where things are held so that you can predict it with specificity, but it's a decision that's made at the outset. And it's developed in that subsidiary because there's adverse tax treatment to us for putting assets in there. Unless we are pretty certain that we're going to sell it pretty quickly, we wouldn't structure it that way.

Okay. And I mean is there - is there - in your supplemental, I haven't pored through the whole thing, but is there a page that describes what's in there currently?

I believe so. If you get into the joint venture section, it will - it will talk about the certain assets that are in the DD did he have comes and so forth.

Okay. Great. Thanks very much.

Again, ladies and gentlemen, if you have a question, please press 1 on your touch-tone telephone.

Our next question comes from John Perry of Deutsche Banc.

Hey, guys. Any update on the AIP sales?

Nothing new to report. We have one project right now that we're in negotiations on, but as we've disclosed in the past, because these assets are under-leveraged at high interest rates with debt that's going to burn off next year, we've pretty much taken them off the market pending the burn-off of the existing debt, and we intend to re-offer them on an individual basis when we can offer them on an un-leveraged basis.

Okay. Thanks.

Ladies and gentlemen, this does conclude the conference call for today. Thank you for your participation. Everyone have a great day.