Site Centers Corp (SITC) 2007 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to Developers Diversified earnings conference call. My name is Lacy, and I will be your operator for today's call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference.

If at any time during the call you require assistance, please press star followed by zero and an operator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to our host, Michelle Dawson. Please proceed, ma'am.

Thank you, Lacy. Good morning and thanks for everyone for joining us. On today's call you'll hear from Scott Wolstein, Dan Hurwitz, Bill Schafer and David Oakes. Before we begin, I'd lake to alert you that certain of our statements today maybe forward-looking. Although we believe that such statements are based upon reasonable assumptions, you should understand those statements are subject to risks and uncertainty and 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 our press release issued yesterday and filed with the SEC on form 8k and in our form 10k for the year ended December 31, 2006, and filed with the SEC. I'd also like to request the callers observe a two-question limit during the Q & A portion of our call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue. At this time, I'll turn the call over to Scott Wolstein.

Thank you, Michelle and good morning, everybody. I'm pleased to report this quarter's real time operation of $0.80 per share which includes approximately $0.03 per share or $4.2 million of aggregate gain. This transactional income compares to approximately $0.15 per share or $16.8 million of gains in the same quarter of 2006. After adjusting for these items, our core FFO per share increased by more than 12% from the prior year.

Similarly, on a nine-month basis, after adjusting for these items, core FFO per share increased by approximately 15% as compared to the prior year. Reflecting the quality of our portfolio and continued strong demand for well positioned retail space. As you'll hear throughout the call, our accomplishments over the last three months reflect our continued focus on creating value for shareholders as follows. One, by improving the quality of our portfolio through active management. Two, by increasing the size and scope of our development pipeline. Three, by formalizing and growing our funds management business. Four, by broadening our investment strategy to include select emerging markets with high growth profiles. Five, in strengthening our balance sheet to levels at least capable to where we were prior to the Inlet acquisition.

These initiatives clearly leverage our (inaudible) and national platform in an efficient and profitable manner that will enable us to grow long-term earnings, dividends and asset value. At this point, I'd like to turn the call over to Bill Shafer for his comments on the balance sheet.

Thank you, Scott's remarks. I'd like to highlight a few important items from the quarter and your impact on our (inaudible) position. As we indicated on our second quarter call, we sold approximately 600 million of assets in late Q2 and early Q3, including three redevelopment assets acquired from Inland that were sold MDT for approximately 50 million. The remaining assets were noncore smaller order assets in more remote locations with limited growth potential and higher capital and management requirements and therefore were sold to a third party. This portfolio included assets acquired from Inland as well from our existing portfolio. The sale of these assets was slightly dilutive to current FFO, the result had a significant positive impact on the quality of our asset base, the effect on this on our operations and the strength of our balance sheet a sales proceeds were used to repay debt.

We continued to operate with a conservative balance sheet and I have already returned our debt and coverage ratios to level with the existed prior to the Inlet acquisition. Over the last few years, the company has grown significantly providing us with considerable and stable critical mass and strengthening our position as a leader in our industry. This growth has been achieved without any deterioration in our balance sheet. In fact, the balance sheet is much stronger than it was a few years ago simply due to the significant increase in total equity. Our growth has been and will continue to be financed through various sources of capital. We've demonstrated this broad access to capital to all of our previous acquisitions over the last few years including J.D.N., Benderson, C.P.G. and now Inland.

And as our development pipeline continues to grow, having access to both public and private debt and equity capital, we'll continue to provide the funding necessary while enabling us to maintain a solid balance sheet. We have made great strides to diversify our sources of funding and limit our reliance on any one source, especially the most costly source common equity. I'd like to comment more specifically on our capital position given the recent volatility in the debt markets. During the last few months, spreads have increased to levels higher than I can remember.

In fact, there was a period of time in which (inaudible) financings may not have been available at any price. This uncertainty reemphasizes the need to access diverse sources of capital, maintain liquidity and stage debt mature lease carefully. Most significantly it underscores the importance of the conservative balance sheet that provides flexibility and access in capital and enhances our ability to manage assets with limited restrictions. This position consequently allows us to be opportunistic in our investment strategy in accessing the most efficient and lowest cost of financing available.

With regard to debt maturities, I believe we're in a strong position that will help isolate us from continued volatility. On our balance sheet, we've addressed all remaining 2007 maturities which aggregate less than $10 million. Our 2008 aggregate maturities are less than $400 million approximately 75% of which relates to mortgage debt. We've also made sure our liquidity continues to be strong. At September 30, 2007, we had over 600 million available on revolving credit facilities. In addition, we expect to increase our secured term loan facility through our accordion feature by over 100 million within the next few months to incorporate certain inlet assets that are already subject to low loan of value to first mortgage loans. This capacity combined with our retain cash low in additional asset sales will provide us flexibility in funding our development pipeline and other investment opportunities.

With regard to joint venture debt maturities, I also believe we're in a good position. The remaining $85 million in debt that matures in 2007 is already being extended. I'd also like to emphasize that over half of the 600 million in 2008 debt maturities are not scheduled to mature until December of 2008, and more than half of the remaining 2008 maturities have extension options available. I believe we have effective limit gated our refinancing risk and maximized our flexibility. Our banking relationships, which are broad and competitive, will reduce the impact of volatility and capital markets, and we have taken proactive steps to maintain and improve the strength of our balance sheet in recent quarters. We will continue to do this in the future. Now I'd like to turn the call over to Dan.

Thank you, Bill and good morning. The third quarter was another successful quarter for our leasing and development teams. Strong occupancy and leased rates continued rental growth with modest capital expenditure and record volume of leasing have all been a function of our continued focus on improving the quality of our portfolio through active asset management and the consistent demand from tenants which we continue to see across our portfolio. Of particular note this quarter, our leasing team had a record quarter in terms of number of deals signed, volume of space leased and rental spreads on new leases.

Specifically, there were 179 new leases signed representing over 940,000 square feet of G.O.A. With an average spread on a cash basis of over 41%. As mentioned, the 41% spread on new leases is the highest level we've achieved within our portfolio. This impressive figure was driven by many deal that many different locations across the country. But a few highlights include in Amherst, New York, we added a 15,000 square foot on Eastern Mountain Sports where a former tenant was paying $1.55 a foot and new rent was $21 a foot. In Monaco, Pennsylvania, we added office depot in (inaudible) City to retain a former shopping center supermarket with the old rent was $3.80 with a new rent being $12.95. And in Chester, Virginia, we had had a former rite aid that was paying us $3.23 on 15,500 square feet that was replaced with a petcoe with a new rent of $15.

We also executed 299 renewal leases comprising $1.6 million square feet of G.O.A and an average spread of 7.4%. In total, our leasing teams executed 478 leases aggregating 2.5 million square feet of G.O.A. and average spread of 13.8%. The 478 leases signed and the 2.5 million square feet of G.O.A. are record highs for our leasing department. Our leasing team has consistently performed at a very high level, and this quarter's obviously no exception. The record leasing activity this quarter is a testament to the hard work of our leasing professionals and the various support departments with whom they work within our company. And I'm justifiably we proud of what they have all achieved this quarter. We've all seen the headlines recently lamenting the played of soft volume (inaudible) and the general trouble in the housing market.

Now this has the potential to impact overall consumer spending and the retail industry in the midst of the current economic turbulence. The reality is that our portfolio is well insulated from this uncertainty and has consistently performed well throughout many economic cycles. Broadly speaking, national retail sales have grown very consistently since World War II including during several recessions and housing slowdowns, a fact that we believe is missed in most press coverage of the current environment. More specifically over the last seven years, we've had over 20 quarters of overall leasing spreads in excess of 11%.

Similarly, we've had very little volatility in our long-term portfolio lease rate which has remained at approximately 96%. Moreover, we've been able to consistently achieve these results without significant capital investment and tenant improvements or leasing commissions. While tenants may come and go over time, shopping centers that are well located and actively managed will continue to perform well. Clearly, we are very conscious of and sensitive to the risks posed by the current economy, but we feel comfortable with where our portfolio is positioned and the general diversity and credit quality of our tenant base. On the development front, I'm pleased to report that we continue to find opportunities in underserved regions. The (inaudible) is clearly impacted lower to developers to the benefit of larger one. And as a result, we are rapidly seeing more opportunities and less competition. Due to these current conditions, we have increased our investment in development, which spreads between development yields and acquisition pricing still reflect prime opportunities to create value.

Our development pipeline has grown considerably from 3.5 billion in the third quarter of '06 to over 4 billion today. Total construction and process has increased from 450 million in the third quarter of '06 to over 600 million in this quarter. As a result of this ramp up in our development pipeline, we are anticipating record deliveries in 2009 and 2010. In addition to our robust domestic pipeline, we have also increased our presence in faster growing economies to investments in development projects in Brazil, Canada and Russia. We have pursued investments in these markets in a prudent and strategic manner allocating a nominal amount of capital to these markets relative to our total domestic asset base. Of particular note this quarter, we entered Canada through a 50% joint venture with rice construction, a strong Toronto-based developer.

The joint venture's first development project will be a 74 acre mixed use project comprises of approximately 700,000 square feet of lifestyle retail office and residential uses in Suburban Toronto. The estimated cost of the project is expected to be approximately 150 million Canadian with construction expected to begin in spring of 2009 and retail tenants opening as early as fall of 2011. We are pleased to be able to enter the market in this manner because the opportunity presents a very attractive development project in a market with strong demographics and considerable supply constraints due to recent green belt regulations that permanently restrict new development in areas surrounding the Toronto M.S.A. This is an exciting opportunity to control one of the limited remaining large parcels of developed land in this rapidly growing and nearby market.

We look forward to finding additional attractive investment opportunities to increase our presence in Canada. There is a presentation on our web site that illustrates the many reasons why we believe this is an attractive investment. In addition to the Myriad leasing and developing initiatives that were ongoing throughout the quarter, we were also -- we also completed a very successful company-wide portfolio review. At this two-week annual event, more than 100 departmental representatives alongside Scott, David, Bill, and myself evaluated each asset strategic position with our portfolio, identifying opportunities and challenges based on the assets performance and competitive market positions. This comprehensive asset and management exercise resulted in over 300 action items to improve portfolio performance, pursue opportunities to create value and generate better shopping venues for our tenants and consumers. Importantly, the portfolio review identified additional assets to consider for disposition as well, continuing our capital recycling initiative.

This quarter was a very active and successful quarter for our company on many fronts. Our leasing department produced record results. Our development pipeline expanded. Our international footprint increased through our joint venture in Canada and finally we completed a very important asset management review of our portfolio, which will help us add additional value going forward. We look forward to hold on these successes and maintaining the positive momentum that we clearly enjoy in the current market. With that, I'll turn the call over to David.

During the quarter, we continued to sharpen our capital allocation strategy further implementing relative value framework, executing key transactions and broadening the scope of opportunities that we are evaluating. For example, we completed the sale three value added redevelopment assets from the core of DDR trust. Our current portfolio had a considerable number of potential redevelopment on which we expect to execute and we were happy to find a partner whose refine investment strategy lined up ideally to participate with us. This preserves our capital while also generating attractive returns for us and our partner.

Further, these property sales and at accompanying lists of assets to which we gave M.D.T. a right of first offer underscore a long-term commitment to this relationship. We also continued to formalize our funds' management business which includes our long-term relationship with M.D.T. As well as teachers, T.I.A.A., the investors in our first (inaudible) fund as well as many others. Our joint venture program is historically generated significant returns for both us and our partners, and we recognize the continuing to operate with the same performance-driven philosophy is crucial to our growth in this arena.

Well, there may be some softening in the demand in pricing for lower quality assets, we continue to see strong investment demand from our institutional clients for well-positioned properties with a visible growth profile. We also continue to see very intense demand through our platform and expect to see our assets under management increase in the coming years and we are staffing the department appropriately to insure its success. Also during the quarter, we repurchased more than $100 million of our stock at prices we believe represented a material discount to the value of our assets. Now I'll turn the call back to Scott for his concluding remarks.

Thanks, David. The strategies and achievements we've highlighted during the last few minutes are initiatives you've been hearing us talk about for several quarters. Clearly, the overall quality of our portfolio to adjust position development and acquisition returning the balance sheet to levels comparable to or better than where we were prior to our inlet acquisition, increasing our investment in development where our capital can earn the highest return, selectively investing a reasonable amount of capital and international markets that offer superior growth, and outstanding value creation opportunity and investing in our stock prices meaningful below the value of our assets.

As we look to the coming year, we're deciding our strategy to focus on further upgrading our portfolio through active portfolio management, including redevelopments and dispositions which will have a long-term positive impact on our internal growth and cash flow, improving the quality of our FFO, growing our funds management business through execution for existing partners and by adding new clients, using the current dislocation of the credit market to our advantage by broken developments or other unique investment opportunities created by the dramatic change in liquidity and the repricing of risk. (inaudible) our domestic development pipeline and broadening our international investments. Based on this activity, we expect FFO per share for 2008 to be in the range of $3.95 to $4.05. The key assumption that drive this guidance are as follows. Same-store NOI growth of 2 to 2-1/2% which is in line with 2007 and driven by consistent leasing spreads and stable occupancy.

Anticipated disposition of additional noncore assets, a consistent level of transactional income, in addition, 2008 development deliveries will be well below the 2007 level and well below our expectations for 2009 and beyond. We'll help particularly driver for this other than the protected timing of completion. In fact, we expect 2009 to be by far the strongest level of development deliveries in the company's history by a rather wide margin. We acknowledge that this FFO growth is slightly lower than our historic norm, but we believe that the constitution of 2008 FFO will be higher quality and we would expect our FFO growth to accelerate dramatically in 2009 and beyond. The strategies and assumptions I just mentioned reflect the constant and strategic evolution of our business model as we continually strive to create value and enhance returns for shareholders and clients. We're looking forward to put in the strategies to work at all levels throughout our organization. Then, I'd like to open the phoneline for questions.

(OPERATOR INSTRUCTIONS) And our first question comes from the line of Jonathan Litt with C.I.T. Please proceed.

Hi this is Ann (inaudible) with Jon. Can you comment on the level of transaction volume that's embedded in 2008 guidance? Is it specific deals that you have already set up that you expect to occur given that level -- the level of transaction activity in 2007 was quite high, I just wanted to see what got you comfortable with 2008 levels?

We expect that at this point that transaction volume in 2008 to be lower than the record volume in 2007. We've budgeted some expected asset sales continuing to recycle capital and work on the assets that Dan mentioned specifically that came out of the portfolio reviews that might be good candidates for sale and do not have acquisitions identified at this point, and so our budget currently to be a net seller of real estate for 2008.

And just specifically focusing on the gains, do you have steels in place that makes you comfortable with the transactional profits to be in line with the previous year?

We are comfortable with our guidance that transactional gains would be consistent with or somewhat lower than the level of 2007 that support the range that Scott provided.

You know, most of that is merchant-building gains based on actual development completions that already exist, which will probably be conveyed into joint ventures financial partners as we've done in past years. So yes, we've identified actual properties. The yields on those properties are already in place and, you know, we pretty much know what the cap rates would be on any sale or contributions with joint venture.

Okay, thank you.

Our next question comes from the line of Jay Haberman with Goldman Sachs. Please proceed.

Hey good morning everyone. I guess, just on the '08 guidance, I guess telling for sort of 5 or 6% growth year-over-year which, you know, again looks reasonable but availability of the acceleration. Can you just comment to what degree being a net seller next year. What sort of dilution you are expecting there? In what degree will you be in net seller, I guess in 2008.

Right now, for the budget we're expecting to be a net seller of, you know, several hundred million dollars of real estate in 2008.

Okay. And can you just characterize the pipeline of acquisitions that you're actually looking at today?

I'd say, you know, despite the slowdown a few months ago, there continues to be, you know, healthy amount of product on the market, and we continue to evaluate, you know, a very large number of acquisition opportunities across the spectrum of retail that are available today.

Yes. Jay, you know, just to elaborate on that a little bit. I mean, i think what you're seeing in the marketplace today is we're seeing an acceleration of portfolio opportunities, largely from private developers who are facing liquidity crunch. You know,(inaudible) of course that are caused of cap rates today, you know, as well and you know, the core investors that we're typically invest with, are a little bit nervous about going, you know, heavily intercore at low cap rates because of, you know, risk in terms of potential inflation of cap rates.

So it's going to be an interesting year to see how all that plays out. There's lot of -- there's going to be a lot of assets in play, you know, we're certainly not going to be issuing equity to buy those assets. We would invest in core as we said in many prior conference calls only, you know, in a joint venture with private capital. And our ability to execute on those transactions would be largely dictated by whether private capital has an appetite to buy core assets in this environment. You know, right now, I think it's a little unclear. And that's why we haven't included any of that in our guidance.

Okay. Thanks, Scott. And then also, just one of the question. Can you just talk about the decision to enter Canada and obviously go with the joint venture with rice and pursue mixed use and just talk about the expected returns there?

Yes. I think the decision to enter Canada was a recognition that while we see the greatest opportunity for, you know, and the greatest need around the world for new development in some of the emerging markets that are meaningfully underserved for retail space that there were also some opportunities closer to home and the reality is, you know, Toronto is closer to our headquarters here in Cleveland and, you know, three quarters of the rest of our portfolio. And so I think it was a natural extension in many ways.

The project, overall, is a mixed use project, however, the net costs of roughly $150 million that we've outlined so the great majority of the overall budget relate to the retail section of about 700,000 square feet of lifestyle space. Demographics of this particular site are extremely attractive, and also, you know, the greater comfort that we feel, especially due to new supply constraints in the Toronto market. So feel like both sides we did line up very well. In addition to having found a partner that we feel extremely good about. And so I think we would continue to look for those sort of opportunities in all of the markets in which we operate, but particularly in and around Toronto.

Is this a one-off transaction or do you expect to pursue additional projects with Rice?

This is a one-off transaction but we've had a very positive experience with the Rice group so far and would be very open to working with them on additional projects. They have additional land bank in and around Toronto, and I think that's a conversation that's, you know, we're very willing to have.

Okay and just last one for me. Dan, are you okay pull back from retailers in terms of the development business?

We're not seeing a real pullback from retailers from a desire to open new stores. What we are seeing is retailers are using the current economic climate as an opportunity to renegotiate or at the very least poor mouth a little bit that deals that we're working on with them. Retailers have gotten a little tougher. I think they're trying to grab back some of the pricing power that we've enjoyed over the last four or five years, and, you know, sometimes that works for them and sometimes it doesn't. One of the beauties of our business right now is there's still a lot of competition for space.

So if you have a desirable location and you can generate competition and an auction for this space, you're still able to get your price. So, even though they're getting tougher, the deals are getting a little tougher, but there's other parts of the development business that are getting a little less tough. One of the things that we're seeing is a little less competition for land. One of the things that's been driving costs up and margins down a little bit in development is land costs. With some of the dislocation in the capital markets, we're starting to see that lighten up a little bit, which should give us the opportunity to recapture some of the margin.

Okay. Thank you.

Our next question comes from the line of Christeen Kim with Deutsche Banc. Please proceed.

Hey, good morning. Scott, you talked how investors were feeling, a little bit be more nervous about getting involved in these portfolio acquisitions. Can you talk about is there any differentiation between the different aspect and classes a quality product versus b?

Well, yes. I mean, there's always been a clear differentiation among institutional investors between a & b quality assets. There has never been a broad new institutional (inaudible) for B-quality assets, unless they had a value-added component to them where there was an opportunity to create A assets out of a B asset, and have a great opportunity for value creation. You know, I think today, you know, the appetite among institutional investors is clearly more towards the value add than core. To protect themselves from, you know, possible changes in pricing.

You know, I haven't seen it necessarily translate into transactions being priced at lower prices yet on A assets. I haven't seen that. And I don't know if we will. But, you know, there certainly is a less voluminous demand from the capital side, you know, to invest in, you know, blind pools to go out and acquire core assets if you will, you know vis-a-vis value-add opportunities.

Could does not imply that you haven't seen much movement in cap rates then?

I'm sorry? So does that imply you haven't seen much movement in cap rates? We haven't seen it yet. But I guess what I'm saying is that, clearly is some concern that might happens. And that has an impact on the depth of demand on the institutional private equity firms. Yes, I think also in terms of the institutional demand for real estate at this point, you know, we clearly gone through a great period of uncertainty and, you know, the reason that we have had such great interest in working with us and our platform in general is because we are able to go out there and take some of the risk out of these opportunities, and that's what a large portion of the core investor universe wants.

And I think in a, you know, the uncertainty we've seen in the market in the past few months, it just causes this slowdown in activity as everyone some would wait to see where it settles out. I think another aspect is just a calendar issue in terms of, you know, this time of year. You either get to a point where institutions have put out the capital they need to for the year this which case case they're focused on their way planning or they haven't and are fighting for deals to close in these last couple months. As it stands today, given the, you know, the incredible record volume transaction across all property types in the first half of 2007. I think many institutions are simply done with the allocation that they needed to invest for 2007 and are making their plans for the best ways to put out capital in 2008. And you know, very actively having those conversations with us and others about what opportunities we're seeing to invest more capital.

Great. And just quickly on the '08 NOI growth guidance, given how much portfolio repositioning you've done this year? Why isn't that range a little bit higher?

You're talking about the same-store NOI growth?

Yes.

You know, it really takes time for that to resonate. I mean, you know, a lot of our assets are new, you know, new developments either that we've built or that we acquired and, you know, leases don't roll every year. They roll every three to five years. I think you will be seeing that in the coming years. There's no question about it, you know, and there's also, you know, a little bit of, you know, to be quite candid with you, you know, our budgets, you know, come from our leasing people, and they have to perform, you know, as they guide us to what will happen at the portfolio level. And we certainly hope that there will be do better than what they project. They're not likely to give us, you know, forecasts that are, you know, a major stretch from what they think they can achieve. Oftentimes we do, do better than what we guide to at this point in time.

Okay.

I also think one of the things to consider that Scott mentioned is that we were more conservative for 2008, primarily because we you know, we are have an economy that people are concerned about. So we think it would have been imprudent for us to be overly aggressive in 2008. So we did go through the portfolio and we did make some projections on some tenants that we may have had concerns with. If if proves out that the economy is better than people think and the world actually isn't coming to an end. We hopefully will be in a position to outperform.

Great. Thanks, guys.

Our next question comes from the line of Michael Mueller with J.P. Morgan. Please proceed.

Thanks. Hi. Dan, going back to the question about tenant demand in the development pipeline. We're only looked at at the ''08/ '09 pipeline. Can you give us a sense to what's under letter of intend what's preleased and just if the economy softens further and I don't want to say recession but gets a little bit weaker. What should we think of as being at risk or is the visibility high enough where you're not necessarily worrying about that?

You know, the visibility's pretty high so we're not overly concerned about it. If we're buying land out there, Michael which is sort of the ultimate in spod you're to the development project, we have a very, very good understanding of the majority of the tenants that are going to be on that site. We may not have of a release sign or even every letter of intent signed, but we clearly have visibility as to who the tenants are and some cases the tenants sent to us those markets. That makes it even easier from that perspective. We know who the supporting cast will be around those tenants.

When you talk about '09 for example and in particular ten which we have a number of deals we're working on, it's a little early to be preleasing those sites other than the actual anchors. So we have great visibility on our anchor interest and we have a lot of confidence on who the followers are after you secure those anchors. And if we don't, to be honest with you, we won't close on the land. If we don't have a good feel for what we can do there based on the marketing that is currently going on within our development r leasing departments, we will pass on the site. And, you know when we do that on a regular basis. There are times when we have projects that tenants just won't commit to at this time or they feel that the market's too green or in some cases the housing projections seem unrealistic from a development perspective, particularly in the current climate. If that's the case, then we move on.

The good news is that the pipeline is very, very full. And probably even exceeds our capacity if it all were to hit. So therefore, we continue to work the ones that are most profitable and where we have the most tenant interest. We've never really done a project, quite frankly, where it's been built that we haven't been able to lease it.

Okay.

So, I don't see any change in that.

Okay. When you talk about the pipeline getting bigger in '09 or 10, should we think of that as popping or running at a higher level kind of you're hitting your stride and that seems to be a good number for the foreseeable future? It's going to continue to accelerate. You know, as Scott mentioned, in '08 on deliveries is going to be lighter than '07 but '09 will be a considerable acceleration and '10 should be as well.

Okay. Last question, did some staff with MDT, is there access to capital better these day.? Is this access to capital better these days? I mean, you can see where the stock trades on the A.F.S. and where you know, the reported N.T.A. of the company is. So clearly there's a relatively meaningful spread there that I think they have to evaluate if they're thinking about equity capital, you know, overall our view is that their balance sheet continues to be in, you know, very strong shape. So I think they clearly have access to capital, but I think in general that question is much better posed to Nick Ridgewell and the MDT team.

Okay. Thanks.

Michael?

Yes.

I'd like to elaborate a little bit on with Dan when taken about with respect (inaudible). I think it's important to note that when we're talking about a 2009 delivery that's typically a project that's been in the pipeline now since 2006. You know, the gestation period for our project at this point tends to be about three years. So by the time, you know, we're sitting here, you know, at the end of 2007, we have a very good idea of the anchor lineup for all of those properties and probably have large intent with the anchors in most of them.

That is different from the way it used to be where we used to have a year, year-and-a half gestation period. And the leasing was going on, you know, as we were going through the entitlement process. At this point in time, sometimes the leasing is actually preceding the time of process and gets done quicker. So we have a much higher visibility on leasing than we do on entitlements in many. The other thing, your other question about whether the increase in volume in 2009 is indicative of a trend, it very clearly is if for no other reason than we've broadened our universe of opportunities by adding international development deals to the mix.

You know, we have several deals in the pipeline in Brazil. You know as David mentioned, we have one in Canada and others that we'll look at beyond that. We have a few deals in Russia keyed up as well. So, the development pipeline going forward quite naturally is going to become larger just because it's a greater universe that we're dealing in. Okay great, thanks.

Our next question comes from the line of Matt Ostrower with Morgan Stanley. Please proceed.

Thanks, good morning. I may have missed but just looking at your guidance, it looks like the mid-point is in the 5% range, 4 to 5% I guess. And if I look at your same-store NOI growth we're talking about 2-1/2% growth there level that up to 4 or 5% growth level. Transactional income is flat but then gains go down. Doesn't that get you below sort of the midpoint of your guidance? What's the offset there? If you already answered this question, I apologize.

Matt, we did answer it, I think. That is we're net seller which is dilutive to earnings. So you're, you know, while we have same-store NOI growth in the core assets that continued to be held in core, the amount of the core assets in the core are -- will decrease under our guidance.

Right and I'm wondering if the guidance looks a little high to me given that your net seller and that your development gains are going down. Why would you still be in the mid to single digit range guidance wise? Why wouldn't you be under that under that sort of base case scenario?

Well, that's a very difficult question-and-answer on a conference call. There's so many things that go into the budget. You know, you just got to trust that, you know, all of the moving parts this is kind of where it comes out.

Okay. For midpoint this year to midpoint next year 5-1/2% growth, I think based on the assumptions we've outlined is a level that we're very comfortable with.

Okay and then just as a second question, you guys disclose your capitalized G & A. You talk about $8 million to date of construction associates. Is there more sort of administrative costs that you capitalize there, so like of senior management and other stuff in there or is that really your full capitalized G & A?

That is really the full capitalized G & A. There's not senior executive capitalization in there. It's Basically the development and related leasing activities that are associated with development that are pretty much capitalized there.

Okay. Thank you.

Our next question comes from the line of Jeff Miller with (inaudible) Capital. Please proceed.

Hi, guys. Most of my questions have been answered. I just wanted to verify what's your liquidity at this point? You mentioned that over 600 million?

Yes. At the end of the quarter, we had 600 million available on our lines. There's not a whole lot of refinancings that we have for the balance of the year. There's some, you know, I think there's a hundred million dollars of note to comes due in the first quarter of next year and we continue to evaluate options, you know, on a daily basis.

Okay. You said that just under 400 million in '08 coming due maturing? Most mortgage debt and half that extension options available?

No. I think that was with regard to the joint ventures as to where we had the -- there was half of the joint venture maturities of about 600 million were in December of '08. The remaining half of that, more than half of it was subject to extension options.

Okay.

I think it's important for to you know that all of the joint venture debt is project debt. There's no unsecured corporate debt. There's no corporate guarantees on any of the joint venture debt.

Okay.

Once again, ladies and gentlemen, that's star one to submit a question. Our next question comes from the line of Rich Moore with R.B.C. Capital Markets. Please proceed.

Hi. Good morning guys. Dan, you sound a little bit hoarse. I assume that's from root for the Indians. I hope that's the case.

(LAUGHTER)

I'm curious a little bit about the dynamics of the merchant building sales. When you guys complete these projects. Everybody knows you're ready to sell. So in this sort of suffer environment for pricing, does it pressure the selling process just to put more pressure on the pricing and if so, might you pull back on some of the actual sales and put the product inside the portfolio rather than sell it?

I think from our perspective, we're focus on, you know, doing the right thing with the asset and, you know it's a strategy decision in terms of, you know, where we want our capital allocated. The merchant building program has worked well because, you know, brand new high-quality assets fit exactly what some institutions are looking for for that, you know, relatively low growth, you know, almost no CapEx sort of profile of very visible cash flows over the coming years to the extent that pricing for some reason that we absolutely have not seen today would not make selling those assets acceptable.

I think, you know, the reason we were in the projects from the beginning is that, you know, we had an interest in owning them. So if the pricing for some unforeseen reason is not their. I think there's absolutely a willingness to own it and not just try to push our quality product out the door at prices we don't feel comfortable with.

Okay. So, basically, Dave, you don't think there's any reason to think we'd see lower margins on sales in 2008 than we've seen previously?

I don't think so. You know, the pro forms for the project get us to relatively comparable returns and cap rates on a relatively comparable range. So I think there's, you know, generally, we would be in the same range, you know, we sold some very high-quality assets in this year. And I think we would think about doing the same next year and so could expect margins to be comparable.

Okay. Okay. I'm curious as well, guys, how the stock buyback is working for you? I I mean you sold already a bought back 100 million dollars worth of stock. You have another, I think, $400 million you go buy back. Is that still an attractive option, you think, or is that sort of meaningless, you know, at the current share prices or how are you thinking about that?

I absolutely don't think it's meaningless, you know, the board authorized a $500 million repurchase. The balance sheet is in a strong position where, you know, we could comfortably execute on that if, you know, based on all the opportunities we're seeing that was the best opportunity to buy the stock at a big discount to net asset value. You know, so I think it's something we, with the exception of our buybacks periods, absolutely consider very, very regularly.

Okay. So we can anticipate probably more buybacks in the coming months?

You can anticipate that it's something we're going to think about every day.

Okay. Very good. Thanks, guys.

Our next question comes from the line of Jim Sullivan with Green Street Advisors. Please proceed.

Hi, guys. Can you give an update on Napa Idaho one of your bigger development projects?

Sure. J.C. (inaudible) Napa is doing extremely well. We're in the construction with the lifestyle phase of the project. And we'll have store openings in '08. On that portion, and wear not giving negotiations with another department store for a second anchor on the site.

What kind of preleasing do you have on what you're constructing?

We're about at 40 to 45%. Not executed leases but strong indications of interest and letters of intent.

And following up on a question raised earlier, can you comment on the preleasing for your overall development pipeline at this point?

Well, like I mentioned earlier, our preleasing is focused on the anchors because once you have the anchors committed, the other tenants usually follow if you have the right merchandise mix. And we have yet to have a problem with a project where we had anchors committed where we couldn't lease additional G.L. A. So that being said, if we're proceeding with a project, you can be very comfortable with the fact that our anchors are committed and that we're very comfortable that we can lease the rest of it up.

You known one of the things that I mentioned on past calls, one of the mistakes that we made and I develop a pipeline overall is in some cases bowing to market pressure to prelease at a high market too early where you leave money on the table because a project that's coming on the ground leased a lot better than a project off a piece of paper. So we gauged that interest from tenants. We have dialogue with these tenants everyday. We understand what their expectations are from a co-tenants perspective and we go get it when it's the appropriate time to do so. But overall, you should keep in mind our portfolio is 96% leased and overall, we've opened up our development projects. In many cases mostly in the mid-to high 90s unless we've made a conscious effort not too because we felt that the space would be higher value after the project has some operating history.

Okay. Thanks.

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