Site Centers Corp (SITC) 2008 Q2 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Developers Diversified second quarter earnings conference call. My name is Towanda, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Ms. Michelle Dawson. You may proceed, ma'am.

Good morning. And thanks for joining us. On today's call you'll hear from Scott Wolstein, Dan Hurwitz, Bill Schafer and David Oakes. Before we begin I would like to alert you that certain of our statements today may be forward-looking. Although we believe that such statements are based upon reasonable assumptions, you should understand those statements are subject to risks and uncertainties, 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 the press release issued yesterday and filed with the SEC on Form 8-K, and in our Form 10-K for the year ended December 31st, 2007 and filed with the SEC.

I would also like to request that 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.

Good morning, everybody. I am pleased to report our earnings results for the quarter. We have reported funds from operations per share of $0.82, which is precisely in line with our guidance, although below the estimates of some [sell-side] analysts. These results reflect virtually no transactional income. We reported FFO is almost exclusively derived from recurring operating income from the core portfolio, and our operating metrics continue to be strong and well in line with our expectations. While the other DDR participants on this call will speak at length as to the specifics of these operating results, I would prefer to speak to our operating strategy in the current environment, and our view as to what lies ahead for DDR and for our industry.

At the outset I would like to emphasize that although the operating environment for retail faces near term challenges, those challenges are not the same for all landlords. The pressure on the consumer's disposable income from the precipitous increase in energy costs has clearly resulted in a pronounced trend of trading down by the consumer from full priced retailers to value and off price retailers. Recent sales reports by retailers have demonstrated an undeniable and significant shift in market share from those retailers that typically populate our nation's regional malls, to those value retailers that typically populate Developers Diversified portfolio. Investors that choose to ignore this trend do so at their own peril.

This shift in market share will not have been evident in recent earnings of various landlords, as there is a significant timing lag before retail distress impacts landlords. But the distress among many of the full price specialty stores will start to become evident over the next 18 months. Developers Diversified will not be immune from the distress in the economy, but we do believe that our focus on value retail will allow us to be less impacted than many other landlords. Further, our international development initiative will enable us to achieve remarkable returns on capital in markets that are not equally susceptible to the economic problems in our domestic economy.

Nevertheless, we, like all other real estate companies, will be forced to operate in an environment of radically reduced availability of traditional funding for real estate by commercial banks, investment banks, and traditional investors in corporate bonds and commercial mortgage backed securities. Similarly, our business strategy must assume that we will not be an issuer of public common equity at any time in the foreseeable future. We at Developers Diversified have been mindful of these challenges for quite some time, and we have adopted significant changes to our investment strategy and our capital market strategy to enable us to navigate successfully through this period of constrained credit. Our strategy will focus on enhancing liquidity, protecting the quality of our balance sheet, maximizing our access to private equity, and concentrating the investment of our own capital in areas where our returns will be in excess of our cost of capital.

While you will hear more details on this call as to the details behind this strategy, I would like to highlight the following initiatives for your consideration. We will continue to aggressively sell assets outright and into joint ventures, including those asset sales that are necessary to enable us to realize the merchant building gains and our earning guidance for the balance of 2008. And we are in advanced negotiations on a transaction that will accomplish that goal. We will fund the bulk of capital required to build out our domestic development pipeline through joint ventures with private equity investors in structures that will adequately compensate our common shareholders with fees and promotes, whereby Developers Diversified will receive a disproportionate share of the value-creation to be realized from these projects.

We will complete the fund raising for a new value fund that will focus on investing private equity along side Developers Diversified in developments that have been initiated by private developers who are in desperate need of funding. We have received particularly strong interest from several large foreign institutions, one of which has committed to be the lead investor in this fund. We will proactively address all 2009 debt maturities with new funding, as we have done throughout 2008. We currently have addressed all 2008 debt maturities. We will continue to invest internally generated capital well within our balance sheet capacity in international development initiatives, where our returns are truly extraordinary, and we will explore the potential co-investment in these opportunities by private equity investors, only to the extent that such investment will dramatically enhance our investment returns from these opportunities.

We will continue to avoid any investment of capital in core portfolio acquisitions, as such opportunity simply cannot offer comparable returns to those available from our other investment and development opportunities. We will enhance our scrutiny of all projects in our development pipeline and we will defer or abandon any and all projects that don't meet our pre-leasing thresholds or our return thresholds. And we will continue to pursue any and all operating initiatives that will protect and enhance the growth and performance of our core portfolio and company overall, including compensation plans that enhance the alignment of interest of all of the company's key employees with shareholder returns, as well as with departmental and company-wide goals and objectives. At this point I will turn the call over to Bill for his comments on the quarter.

Thanks, Scott. I'd like to first highlight a few items from the quarter, and then give an update on our current financings, balance sheet position, and what we're hearing from our lending partners. With regard to the current quarter's operating results, first, we recognized approximately $64 million of transactional income, including fees, in the second quarter of 2007, compared to less than $1 million in 2008. As David will discuss shortly, we expect comparable levels of transactional income to occur later this year.

Second, the asset sales that occurred late in the second quarter of 2007 make a year-over-year comparison difficult. Late in the second quarter of 2007, we sold nearly $1.5 billion of assets into joint ventures. The revenues and expenses associated with these assets, with the exception of depreciation on the Inland assets that were sold, continued to be reflected in the 2007 numbers, and are not reflected in Discontinued Operations due to our continuing involvement with these assets. There were also a significant number of asset sales that occurred in late June of 2007, that are reflected in Discontinued Operations. These assets contribute over $8 million of FFO in the second quarter of 2007.

Third, the 2008 tenant recoveries were impacted by the finalization of the 2007 common area maintenance true-up calculations. Certain estimates were used to finalize the accrued estimated tenant recoveries in the 2007 year end results. During the second quarter of 2008, the final common area maintenance billings were processed, resulting in a negative $2.7 million adjustment. This adjust is (inaudible) in nature.

In addition to the unique guidance just discussed, our core same store NOI growth was consistent at 2.5%. There has been upward pressure on the company's bad debt expense when compared to recent years. Our bad debt expenses continued to approximate 1.5% of total revenues in 2008, compared to approximately 0.8% for the same time period in 2007. The driver for the increase primarily is due to an increase in the level of financial stress across the small and mid-sized tenants.

The operating results of our properties in Brazil continue to perform extremely well, including additional investment in certain assets of approximately $30 million, the portfolio has generated FFO growth of 82% and 69% over 2007 second quarter and year-to-date results, respectively. We have also acquired 62.9 million shares of MDT for $29.3 million, which produced approximately $4 million of FFO in the second quarter 2008, and included approximately $3 million of income from mark-to-market capital hedging.

With respect to funding needs for DDR and her joint ventures we continue to execute on our strategic plan. We originated approximately $500 million of new mortgage capital and refinanced $275 million of existing mortgage capital year-to-date. We also have signed term sheets on $445 million of refinancings and $40 million of new debt, which are expected to close during the third quarter. Moreover, we're looking beyond 2008 to make sure we're appropriately prepared if the current credit market dislocation continues.

Our pending deals include three large loans. First, we have a signed term sheet and rate lock for at least $340 million of mortgage debt that will refinance the December maturity of MDT's original IPO debt. The blended pricing on the loan is approximately 6%, at approximately 55% to 60% loan to value. Second, we have a signed term sheet on our Horsehead's, New York development at 80% loan to cost and priced at LIBOR plus 150 basis points. We should provide proceeds in excess of $40 million, subject to the outcome of pending appraisal. Third, we have a commitment to refinance our Ward Parkway Center in Kansas City, which is is held by our Coventry Two joint venture. In addition, we have $120 million [re-apps] of long-term Brazil-based debt under negotiation that is a hybrid of construction and permanent financing.

All remaining 2008 maturities have extension options which are expected to be exercised, with the exception of approximately $30 million of loans on two Texas developments that mature in November, December 2008, which are currently in discussions with existing lenders, and approximately $40 million of mortgage loans, with a weighted average interest rate of 4.65%, and a loan to value of just under 50% that will be repaid with our revolving credit facility. Our 2009 maturities are relatively light, consisting of $275 million of unsecured note issue in January, $120 million of consolidated mortgage debt, and $430 million of joint venture mortgage debt, of which our ownership interest is approximately $73 million. Of the 2009 maturing joint venture mortgage debt, we have the option to extend over $200 million at existing terms. Our share of the joint venture mortgage debt that is not extendable is $33 million. We've already begun discussions with a variety of banks and lenders about opportunities to meet these maturities and expect to address them early, and at the most competitive terms possible.

Since our last call, we've continued to find financing opportunities despite the adverse market conditions. Select commercial banks are still providing quotes, and participations have become more prevalent. Like companies remain active, but are clearly focused on the strongest relationship and best projects. Overall, loans are taking more time to close, as lenders are employing greater scrutiny and more extensive due diligence. Given this environment we're obviously pleased to have broad, long-standing relationships with a variety of commercial banks, as well as an established track record among many institutional lenders. We're leveraging these relationships to secure the most favorable financing alternatives available.

We continue to keep a close eye on our liquidity. We're committed to maintaining our debt level sufficient to maintain our ratings and sustaining adequate cushion, relative to our debt covenants. We're well below our total debt threshold of 65%, our secured debt maximum of 40% and comfortably above our debt service and unencumbered asset test. These covenants reflect how our lenders look at our leverage as opposed to simple metrics, like debt to market cap, which can completely misrepresent a company's true leverage and risk profile. By staying ahead of the curve, and raising capital proactively, I'm comfortable with our current balance sheet position and our outlook for 2009, despite the ongoing dislocation in the credit markets. Now I'd like to turn the call over to Dan.

Thank you, Bill, and good morning. As I mentioned on our recent conference call, there continues to be a disconnect between Wall Street and Main Street, with respect to many aspects of our business. Consumers' concern regarding the health of our economy and its impact on disposable income have caused broad changes in shopping patterns. Clearly, consumers are more price-sensitive than ever, and patronizing those retailers that offer the best value for non-discretionary goods. As a result, our core retailers are actually doing quite well and are still pursuing new store locations. Wal-Mart is still opening 140 to 150 stores this year and throughout the foreseeable future. Target is still opening over 100 stores a year. TJX, Kohl's, J.C. Penney, Petsmart, Bed Bath, Dick's Sporting Goods, Barnes & Noble, Staples, Ross, and many other national retailers, continue to be very profitable and are very focused on external growth.

Most tenants have effectively controlled inventory and debt levels, and remain on plan with respect to sales. They are also maintaining margins despite somewhat lackluster same store sales growth. It is important to note that same store sales results in a cautious inventory environment are somewhat of a self-fulfilling prophecy. Not a good barometer of overall retail health, and certainly not a reliable metric in determining overall financial performance. Simply put, you can't sell what you don't have on the shelves, but you can maintain margin with lower sales, combined with prudent inventory control, and that is exactly what we are seeing from the vast majority of our key retailers.

Weaker retailers, some of which we also have in our portfolio, are feeling pressure, and will likely continue to experience difficulty in the foreseeable future. Furthermore, we anticipate more store closings and bankruptcies, and have adjusted our 2008 budget and reserves appropriately. We have experienced these cycles before and have made the necessary adjustments to our leasing and development strategies to accommodate the changes in our operating environment and mitigate risk. In many cases, the loss of a weaker tenant creates a great opportunity to release space at higher rents to a stronger retailer. More appropriately, the quality of or property revenue stream is very consistent ,as it is generally derived from retailers with strong credit profiles under long-term leases, with very little reliance on overdrench generated by tenant sales performance.

Since 2000, there have been numerous tenants whose store closings made headlines at the times that they were announced. OfficeMax, Eddie Bauer, KB Toys, Regal Theaters, Kmart, Food Lion, Rhodes, Home Place, Tops Markets, Ultimate Electronics, Winn Dixie, Zany Brainy, and a host of others. Our occupancy and rent growth remained stable despite, the historic store closures and challenging retail headlines.

I'd like to highlight a few case studies to illustrate what our experience has been when tenants actually vacate. Two of the largest bankruptcies we experienced were Home Place and Kmart, both of which were among our top ten tenants at the time of their bankruptcies. Home Place occupied 12 locations in 2001, and represented over $7 million of rental revenue at a time when our portfolio was less than half of its current size. Within 12 months, all the stores were released at rents 26% higher than previously in place.

Subsequent to Kmart's bankruptcy in 2002 they closed 18 stores within our portfolio. We re-tenanted 16 locations and received 133% higher revenues. Toys R Us and Kids R Us represented another perceived blow to our centers, but resulted in an attractive outcome. We have released five of their seven units in their entirety, for an 81% revenue increase.

With respect to speculation regarding Mervyn's potential bankruptcy, we've been monitoring their status closely since the first signs of vendor pressure this spring and we continue to do so. Mervyn's has not declared bankruptcy and is current in all rent payments. We acquired 36 of our 38 Mervyn's stores in 2005. Notably, we bought the first portfolio they sold post LBO, and were able to select what we believe are the most attractive locations. Approximately 70% of the assets are based in California, including nearly one million square feet in and around Los Angeles, and over 500,000 square feet in the Bay Area. If our Mervyn's locations should become available to release, we believe there will be significant retailer interest in the sites we own, based on their desirable West Coast locations, with high barriers to entry, infill locations and strong demographics.

Within our core portfolio alone for example, we re-tenanted a former Mervyn's box in Utah with Ross Dress For Less, DSW, and Michael's, increasing rental revenues over 1500% after adjusting for TI. I'd also like to emphasize that we hold a $25 million letter of credit that we can access if Mervyn's files for bankruptcy, or if Mervyn's defaults and we terminate all the leases. In addition, we hold three other letters of credit aggregating $8 million, which we can tap if they default on individual leases. The combination of quality locations and significant credit enhancement, coupled with already known tenant interest, clearly minimizes any risk we have should Mervyn's filed Chapter 11 or Chapter 7.

Notwithstanding the potential upside achieved through re-tenanting, we're analyzing the near term financial impact from the bankruptcies of Steve & Barry's, Linens 'n Things, and Goodies. If each of these tenants completely ceased operations, which is not expected to be the case, and we were unable to re-tenant half of their stores, which we clearly don't expect based on our assessment of the quality of the real estate and our track record in past similar tenant bankruptcies, we would still only suffer the following reductions in FFO on an annual basis until we were able to find replacement tenants. If Linens 'n Things closed half of their stores in our portfolio, we would lose $3.7 million of rent, or $0.03 of FFO. Similarly, if [Goodies] closed half their stores, we would lose $2.6 million or $0.02 of FFO. And lastly, if we assume the same for Steve & Barry's we would lose $1.5 million or $0.01of FFO.

We are mindful of the current environment and are closely monitoring the relative strength of the tenants in our portfolio. We feel confident in our ability to create substantial value for our company and shareholders even in these difficult times. Expecting that there are more store closings likely to occur this year, we continue to be very proactive in our leasing strategy to reflect a much more conservative stance. We already addressed most of our 2008 renewals earlier in the year. During the second quarter, we focused on maintaining future occupancy by aggressively pursuing new lease commitments within reasonable margins on pricing. As a result of this effort, we signed a record number of new leases, despite a very difficult operating environment.

While our 9% blended rental rate increase is below our historical average, we strategically decided to focus on transactional volume, succeeded in that goal, and were still able to increase our average square foot rate across the portfolio by $0.25 a foot. This effort will have a very positive effect on our projected occupancies for 2009. Just to give you a little flavor of who is active in Q2, we signed new leases in our operating portfolio with Michael's, Hobby Lobby, David's Bridal, Justice, and JoS A. Bank. In our development portfolio we signed 100,000 square feet of new deals, including leases with tenants such as Petco, Barnes & Noble and Ulta; in addition, Macy's signed 103,000 square foot lease earlier this week joining Macy's, J.C. Penney and Sports Authority as a third anchor in our Nampa, Idaho development. The Macy's deal has created considerable leasing momentum, and we have another 50,000 square feet of leases near execution and over 100,000 square feet of letters of intent that are progressing.

We have tenant commitments for additional locations from Target, Barnes & Noble, Ulta, Bed Bath, Anna's Linens, and HH Greg, and many other stores for additional locations at our developments. And just this past week in addition to Macy's, we have executed leases with Kohl's and J. Crew as well. Overall, we have commitments on over 80% of our 2008 wholly owned development deliveries, and 66% for 2009. Within our JV developments, we have comparable levels of tenant interest, with 77% committed for 2008 deliveries.

We continue to make significant strides with respect to our international investments and developments, and I would like to provide a brief overview of our platform and the investments we have made to date. As with our domestic operations, we always seek investment opportunities with the most attractive risk adjusted returns. We have explored many international markets, but we have chosen to selectively invest where we believe the greatest value creation opportunities exist and are focused on success in a few markets, rather than feeling the need to be everywhere. We target countries with economies that are growing at faster rates than the U.S., and we identify strong local operating partners, with an increased focus on retail real estate development expertise and trustworthiness. Last, we always try to leverage our core strengths of leasing, development and tenant relationships in all of our dealings, and that is no different internationally.

With respect to our investment Brazil, I am pleased to report that the portfolio continues to perform exceptionally well. Economic and real estate market conditions in Brazil remain strong, as evidence's by the 5.8% economic growth that occurred during the first quarter of '08, which was the fastest first quarter growth in over 13 years. Consumer spending in retail sales growth continue to remain robust as well, with an 11% growth rate in year-to-date retail sales recently reported. Within our portfolio, retail sales have increased 13% year-to-date, with commensurate same store NOI growth, which is consistent with what we've seen in the portfolio since our initial investment nearly two years ago. We continue to see intense demand among retailers for space within our existing assets, as well as for our development projects. And with the healthy sales growth we're seeing in our portfolio, rental rates are growing as well.

With respect to our portfolio, we have seen a substantial increase in the value since our initial acquisition in the fall of 2006. This is due to a variety of factors, including tremendous cap rate compression, the immense demand for retail real estate in Brazil, robust economic conditions, a favorable currency exchange rate environment, and our ability to drive NOI at our existing assets. Based on current market conditions, we are seeing development yields in the low to mid-teens, while stabilized assets continue to trade below an 8% cap rate on a consistent basis. This compares to our initial acquisition cap rate of over 11%, based on third party valuations by Cushman and Wakefield. Based on those valuations, which reflect the factors I just mentioned, our investment has increased in value by $190 million, more than $1.50 per share. This amount includes none of the considerable value creation we expect to realize through our development of the shopping center that is currently underway in Manaus, or the additional development opportunities we expect to secure in the future.

We made substantial progress at our three development projects in Brazil, and Russia as well. Our developments located in Londrina and Uberlandia are scheduled to deliver in 2010. And our development in Manaus is scheduled to open in the first half of next year, obviously those are all in Brazil. To date, we have nearly 75% tenant commitment for space in Manaus, with anchor leases signed with national retailers such as Marisa, Renner, and C&A. Through end of the second quarter we have invested approximately $200 million in Brazil, and have a commitment to invest an additional $100 million over the next two years.

Now in Russia, our developments in Yaroslavl and Togliatti continue to progress. We're currently seeing development yields in the low double digits, which is well above cap rates on stabilized assets. Both of our projects are expected to deliver in 2010. To date we've invested approximately $50 million out of the total commitment of approximately $260 million. We continue to work with our partner ECE to explore additional opportunities.

Our investments in Canada to date consist of development projects which include three with Rice Commercial Group and two with Holburn Property Investments, all of which are in the greater Toronto area. The five projects upon completion will aggregate 2.4 million square feet, with expected total costs of $530 million with expected deliveries commencing in 2011. With incredibly high barriers of entry in the Toronto market and robust retailer demand, we are extremely pleased with the momentum that each of our projects currently enjoy.

Our success internationally has attracted the attention of both retailers looking to expand overseas, and private capital interested in co-investment opportunities. We continue to work very closely with Wal-Mart, for example, which is evaluating locations in Brazil and Russia, as well as other countries. With the emergence of the RIAG-based debt market and with potential JV partners, there are numerous opportunities to continue to seek out attractive investment opportunities in Brazil and other markets in a prudent and strategic manner. As our international investment platform continues to evolve, our international developments could come to represent 70% of our total development investments in the future. We do not expect our international investments to represent 70% of our total asset base, as was erroneously reported recently in the press.

That all being said, operationally, we are very focused on navigating the choppy domestic environment and the more robust international market with the appropriate care to mitigate risk and maximize value. We continue to expedite new and renewal leases, staying extremely focused on controllable occupancy levels. We have also continued to phase our developments to avoid capital expenditure on unleased space, raise our return thresholds on new projects, which will reduce the expansion of our pipeline, market space anticipated but not yet rejected in bankruptcy to limit down time, and continue to meet with all of our retailers to understand the ever-changing market and the potential impact on our portfolio.

When you cut to the chase the story is still pretty simple. Leasing volume is still strong, even though there is some obvious pressure on pricing. The vast majority of our tenants are still growing externally. Our development pipeline in progress is substantially pre-leased, and if projects are not pre-leased going forward they won't get built. Our same store NOI is very solid, and average brace rent continues to grow. Our exposure to bankruptcy, as known to date, is very manageable, and we feel comfortable with our anticipated future exposure. And international continues to progress, regarding high value creation growth and opportunity.

While we are very cognizant of the conditions in which we operate, it is important to see the conditions for what they are not let the abundance of negative pressures cloud the numerous positives that occur in every challenging environment. I would now like to turn the call over to David.

Thanks, Dan. In today's environment, we're approaching all capital allocation decisions more selectively than ever. We continue to see compelling investment opportunities created by the ongoing capital market's dislocation. While potential returns from some of these investments are better a than we've seen in many years, we remain very focused on conserving capital and separating our investment decisions from our financing decisions. Clearly, we're very focused on completing our financing plan for new investments and will not simply rely on our lines of credit.

Given today's environment, in which there are a variety of competing investment opportunities coupled with more stringent underwriting and approval processes, the capital partners we're working with are naturally slower to move. These investors include both domestic and international institutions, which are significantly less dependent upon the debt markets and continue to be interested in the secure cash flow generated by our sort of assets.

Transactional activity remains subdued, but we are getting relatively better visibility on these asset sales and our negotiations continue. Based on feedback from the market we expect to reach or exceed our goals of asset sales at pricing consistent with market trends. In the 6% cap rates for higher quality assets and 100 to 200 basis points higher for non-core assets. Margins on sales of recently developed assets should be between 20% and 40%, relative to our undepreciated development costs.

Although overall transaction volume is down relative to recent years, sales are occurring. Year-to-date, we've closed $27 million in non-core asset sales, of which $19 million sold during the second quarter. Cap rates on the assets sold and under contract average about 7%. Relative to our core portfolio, these assets are generally smaller, more mature, and lower growth. Buyers range from local individuals to multi-billion dollar REITs, with motivations ranging from a high cash flow, opportunistic to tax driven. They've generally been financed with mortgage debt at 60% to 70% loan to value.

We currently have over 80% of asset sales under contract, and another $100 million subject to letter of intent. We continue to move forward in negotiations with potential investors for our recently developed assets and are in negotiations with several parties on several large additional transactions. We have nearly $1 billion of merchant building product at or near stabilization, representing over $180 million of potential gains, net of our deferral due to retained ownership.

From an investment perspective, we talked for several quarters about the number of co-investment opportunities we see with smaller developers. This is a very attractive opportunity to increase our returns and actually shrink the dollars we have invested in development, while still participating in projects. We're primarily interested in participating in the development of a large scale community center assets that are fully entitled and have some level of pre-leasing. At the same time, we're receiving interest from private capital for the precise sort of risk profile and returns that these projects generate.

Obviously, our opportunity to capture this market disconnect is to vest these projects diligently, identify the best investments on a risk adjusted basis, and structure attractive investment vehicles that bridges the gap between those that are long capital and those that are long opportunity. This approach allows us to preserve our precious capital and increase our investment returns while exceeding the return requirements of our capital partners.

We also continue to see the purchase of MDT units as a compelling investment because of the significant discount that the market currently assigned to this stock. We currently control over 6% of the units, and when legally permissible, would expect to continue to buy units in the market. This position clearly aligns our interest with those of all MDT unit holders. Moreover, given current market pricing, we can capture immediate and outsized returns on our investment. We also like the effective increase in our ownership of some of the highest quality assets in our entire sector.

Much of MDT's share price decline can be attributed to investor's concern regarding its balance sheet, we we believe were substantially addressed in a press release issued by MDT last night. First, with the June 30th revaluations completed, MDT continues to be in compliance with all of its debt covenants. Second, with respect to near-term debt maturities, as Bill described earlier, the trust has agreed to terms, received approval and rate locked the refinancing of its $340 million debt facility, originally due to expire December 2008. Third, MDT has agreed to improve its debt covenants in order to provide the trust with greater balance sheet flexibility going forward. Fourth, the trust announced it's in negotiations to dispose of select property assets which will further improve the trust liquidity. We believe that these announcement may relieve some of the pricing pressure on MDT's stock, and we remain committed to its long-term success.

Before I turn the call back over to Scott, I want to discuss some changes we've made the development section of our quarterly supplemental. In response to feedback from investors regarding additional disclosure, we have added a table detailing our land held for development. This new table provides greater color on the non-income earning assets that we own, and allows us to reserve the space in the development-in-process schedule for projects that are actually under construction today, while still disclosing what our next starts may be. During the quarter, we commenced construction on projects in Norwood, Massachusetts and Gilford, Connecticut, and added to our land holdings in Russia and Canada, as you'll see reflected in these schedules. Now I'll turn the floor back to Scott for his concluding remarks.

Before I open the line for questions I would like to reiterate some of the most important items that we discussed this morning. First, our balance sheet remains a top priority. We continue to proactively pursue new financing opportunities to ensure a strong balance sheet position throughout the remainder of 2008, and throughout 2009. As a result of these dedicated efforts, we are very comfortable with our ability to meet all of our future debt maturities and development funding requirements.

Second, we're actively marketing dark and vacant space from recent bankruptcies and store closings. As Dan described, we've been down this road many times before and have demonstrated the stability of our assets and our ability to create value through re-leasing. Third, we're committing less balance sheet capital to early stage domestic development. And lastly, while we're seeing many new and attractive investment opportunities, we have adjusted our underwriting assumptions to ensure that any new capital investment must meet more stringent return requirements that address all potential risks appropriately. The tougher it becomes in the broad market, the more attractive the stability of our asset class becomes. The consistency and cash flows generated by long-term leases to high-quality tenant base, requiring comparatively little ongoing capital investments, and offering most compelling value propositions to consumers for increased (inaudible), and insulate us very well from the volatility of the broad economy. As I have said before, I am comfortable affirming our 2008 FFO guidance of $3.95 to $4.05 per share, and we expect to have considerable progress on our transactional activity to report in advance of our next conference call. At this point, we will open the lines to receive your questions.

Thank you. (OPERATOR INSTRUCTIONS). Your first question comes from the line of Michael Bilerman with CitiGroup. Please proceed, sir.

Good morning. [Invika Goel] Is here with me as well. David, I want to go back to a comment you made on the merchant development where you talked about having $1 billion pipeline, $180 million of net gain. You know, in the last quarter call and in our discussion, you talked about a few $100 million of merchant development, and just going back over history, I don't know if you've even developed the $1 billion to have that sort of inventory, so I'm sort of scratching my head a little bit to what encompasses $1 billion of merchant development sitting on your books?

Well, I think, you know, given the conversations we've had previously, we've refined our methodology for making sure that we do have that pool identified. And that pool at current market values of stabilized or nearly stabilized developments has a market value in excess or right around $1 billion currently, and again, relative to current market pricing we would expect even net of taxes and net of the gain we deferred due to our continued ownership, would think that the gains recognizable for this over the next year or several years, if we chose to sell all those assets, would be in excess of $180 million.

But what changed from last quarter where you thought it was only a few $100 million?

I think last quarter we had spoken specifically about our plans for calendar 2008 as opposed to the entire scope of recently developed or nearly stabilized assets that would be eligible for sale at a considerable gain relative to our cost basis.

And this is all in the core portfolio or some of this is JV?

A few of these would be partially owned projects, but a majority of that would be within the core portfolio.

I really think we need some disclosure. I mean, this is well over 10% of the company's assets, if it's north of $1 billion. And I think just understanding where and how you're booking the gains is very important for shareholders and analysts to understand. Separate from that, can you just walk through the same store NOI, was up 2.5% this quarter and occupancy was down 40 basis points, the reimbursement rate was 77% versus 86% last year, the NOI margin was 70% versus 72%. OpEx was higher, and so I'm just trying to piece it together, if you have all those downward movements, how is same store NOI up?

Well, on the merchant building side of it, I think we understand your point. You know, a great majority of it exists in disclosure from the past several years in our development schedule from our supplemental, and then I'll leave the same store NOI question in terms of the calculation to Bill.

I want to correct you, Mike. $1 billion dollars represents less than 5% of our assets, not over 10%. We manage $22 billion in assets.

Your share. Maybe there's a difference between what your share is. Is $ 1 billion - -

Our wholly owned portfolio alone is over $12 billion our share of the other $8 billion. Our assets are considerably more than what you just said. Maybe we have a different idea of value, but that's clearly far less than you think it is. What you're talking about vis-a-vis the last call and this call are apples and oranges. We talked about which merchant building assets we had determined that we would sell and that's roughly half of what is available to be sold. I mean, for instance, we have a very large asset that's well over $100 million in Miami that we determined not to sell at this point, and it was not included in the numbers that we cited on last conference call. But in terms of what we have capacity to do, it would be included.

We have also made progress on developments that were in progress that are now nearing completion that could be sold, because they have greater visibility on the NOI for instance, projects that we have in homestead, Florida, Chicago, Illinois, San Antonio, Texas, Horsehead, New York, there's a lot of projects that are added to that pool as the year goes on, so there's nothing inconsistent at all vis-a-vis what we said on the last call and what we said today. I mean, we know exactly what we have. I think we know it better than you do. And we obviously, when we disclose the gains, you will see exactly what they are where they came from, as we have in every year. We've never yet failed to deliver on those transactional income items when we said we would, and this year will be no exception.

It's the number one question we get, Scott, constantly of where is that pool of assets, what does it encompass, where do those gains come from, and that's where I think there's a difference, and so you're not going to get credit for being able to generate those gains if people don't feel comfortable where they're going to come from. So I think that's part of the disconnect that the Street is feeling, relative to your merchant build.

Well, I think that's a fair comment. We will discuss internally whether we want to expand disclosure in that area to give that greater visibility. But I do think after 15 years of operating as a public company and delivering every single quarter on our promises, that we deserve a little bit of benefit of the doubt and credibility when we say something and not people suspecting that we're being disingenuous which is somewhat insulting to be quite honest with you.

With regard to the same store NOI, Michael, as you mentioned, actually as I indicated in my remarks, during the quarter we did have an adjustment relating to the 2007 year-end recoveries which negatively impacted the current quarter's recoveries, I think which you indicated were about 77% or so.

Right.

Adjusting for that number, you're going to be up in the low to mid-80s I think, consistent with historic amounts. And for this year too, we've include our operations in Brazil, which are really performing very strong, down there from the same-store NOI perspective, and the portfolio really is operating consistent with how it has in the past and, again, Brazil is really showing some significant growth in the international.

And per our historic definition of same store NOI at this point, we have a same store pool that includes a broader base of assets including inland and including the Brazilian operations, and have included Puerto Rico for several years. So it's consistent with our methodology over time to include assets once they've been in the portfolio for a period of time.

Okay. Thank you.

Your next question comes from the line of Christy McElroy with Banc of America. Please proceed, ma'am.

Hi, good morning. Just following up on the leases on the 36 Mervyn's stores you bought in 2005, are all of the stores under one master lease, such that if they wanted to close a store or amend some of the terms on a lease it would impact all of their stores, and they would have to amend the entire master lease?

No, there's not a master lease but there's a cross-collateralization in our favor, so that in the event there's a default on one lease, we can choose to default them on all the leases but it doesn't work the other way.

Okay, and then you said you have a letter of intent, a letter of credit of $25 million?

That's correct.

Okay. And then my second question, David, you talked about the non-core assets that you have under contract or letter of intent. What kind of cap rates are you projecting based on your negotiations and is it similar to the 7% you talked about on your recent asset sales?

Yes, it's very similar, both for the $80 million under contract, as well as the $100 plus million that is subject to letter of intent behind that.

Okay. Thank you.

Your next question comes from the line of Lou Taylor with Deutsche Bank. Please proceed, sir.

Thanks, good morning. David, in terms of the sales that are under discussion, do you have enough visibility to get a sense for when they're likely to occur over the second half? Are these fairly eminent, or are these are things that are going to close closer to the end of the year.

Let me answer that, Lou. With respect to the merchant building asset sales, vis-a-vis the non-core asset sales, we expect that to go under contract in the third quarter, maybe close in the third quarter. That part of it I'm not sure about. We'll probably be able to provide guidance in advance of the third quarter conference call as to where it would fall between Q3 and Q4. David would have a better handle on the non-core assets.

The non-core asset sales, a larger number of smaller transactions that will close, spread between the third and fourth quarter, where everything's progressing but it's clearly a deal environment where everything moves a bit more slowly than the traditional pace.

And then second question, just pertains to the international development pipeline. What are your expectations for starts for the second half and which projects were - - which country do you think they'll occur in?

You know, it's certainly the asset in [Euroslavo] in Russia will start in the second half of 2008. Togaliatti maybe late 2008 or early 2009. In Brazil, there's three projects in the pipeline that haven't started construction. Maybe one of them will start late 2008 but more likely they're all 2009 starts. I don't know that any of the Canadian projects - - I don't think any of them will start until 2009.

2009, fall of 2009.

Okay last question is for Bill. In terms of your debt maturities balance this year and maybe looking into '09 next year, can you give us a flavor of the sense of the type of debt they are? In other words, are they CMBS loans which you'll have to replace with new capital, versus maybe bank or life company debt that you can maybe get an extension on without actually doing a brand-new financing.

Again, as I indicated, with regard to the joint venture, there's almost half of that that is subject to extensions that would be available to us. With regard to DDR's portfolio, there is $275 million of public debt that we would have to repay and then there's I think in the neighborhood of $120 million, $130 million of various mortgages throughout. And those a lot of times we would just pay off because of those were existing mortgages that were assumed in conjunction with acquisitions and so forth, and they're kind of spread throughout the year. So really, the only significant one that we have in really '09 is the $275 million of the public debt.

Great. Thank you.

(OPERATOR INSTRUCTIONS). Your next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed, sir.

Here with, [inaudible] my team as well. You did maintain guidance for the full year and I'm just curious, sort of zeroing in on obviously the transaction-based income, but is your sense that the market has slightly picked up at least a little bit? You're really banking on obviously sales really falling in the latter half of the year.

Jay, that's exactly what we guided before the year began and you know, in terms of the most likely transaction that is in negotiation on the merchant building side, it really is more of a joint venture, a sale of assets into a joint venture which has always been our preference versus trading out our trophy assets in all-out sales. Those transactions take a little bit longer to document. There's a lot more to negotiation and we're exactly on track as we have guided even last October. We were quite clear that we were - - it was our expectation that the transactions would occur in the second half of 2008. So from our standpoint, although we certainly recognize that there seems to be some discomfort or lack of patience among investors in this regard, nothing has occurred to change our views that things will happen exactly on the schedule that we telegraphed on each call over the last three calls, probably.

I think just given the fact that it's roughly $0.50 of your full-year number, still is certainly the potential that some of that could roll into 2009?

I really don't expect that, no.

In addition, could you just comment on the private equity fund that you mentioned, how far along are you in those discussions and how large could that fund be? What sort of interest would you take?

Yeah, I mean, we're targeting $500 million in equity. You know, we've received a commitment from a lead investor for roughly 40% of that. And we're in advanced discussions with several more. We would expect that fund's first closing to happen late 2008 or early 2009. The challenge, quite frankly, has been matching up the deep interest we have overseas with enough domestic investors to give the foreign investors domestically controlled private REIT for tax purposes.

As you would imagine, the pace of commitments from domestic investors is a little bit slower than it is from overseas investors, so we have several large domestic pension funds that are doing their work and due diligence. We have favorable indications from the consultants that they rely on, with respect to this fund. So we feel pretty good about having this thing closed late this year or early next year.

Thank you.

Your next question comes from the line of Craig Schmidt with Merrill Lynch. Please proceed, sir.

Thank you. There were three projects that were on your wholly-owned consolidated JV development chart that aren't on this. I was wondering if you could tell me why these fell off. Two were in Tampa and one was in Raleigh.

I believe as we increased our development disclosure and added this category, that more clearly reflects the land that we hold, we believe that each one of those projects that were effectively land or improved land or land that had come from Inland, where a very, very small portion of the project, generally one or two outparcels, had been developed, but had not been under construction by DDR in terms of any level of us adding vertical improvements. We thought with the expanded disclosure that those projects were more appropriately reflected in the land schedule and that's the way they've been thought about and treated and invested in internally at DDR.

So more a change in reporting than actual status of those projects?

The status of those projects has not changed; it's a reflection of how we disclosed them, I think more appropriately currently in the supplemental package.

Okay. And then my second --

Excuse me, Craig. I think it's important to understand that what happens when we engage in a large acquisition as we did with Inland, as we did with JDN, you know, you inherit some cats and dogs that are actually development projects that maybe are a little bit different than the type that you might initiate yourself, and you go through a little decision matrix as to is it worth had pursuing the development or should we just sell it and I think that's really, all of these assets fall in that category. These are all part of the inland portfolio that we're just trying to rationalize what's the best outcome for DDR. None of them are projects that really fit the profile of something we would have engaged in ourselves from the ground up.

Okay. And then one other question. On the MDT vis-a-vis the 6.7%, how high would you feel comfortable taking that ownership?

I mean, we're obviously subject to the Securities laws that anyone else is that have certain costs associated with one's ability to participate in open market purchases. Outside of that, I think at recent valuation levels, we see extraordinary value in the shares and would continue to purchase them at these levels, subject to securities limitations, both regarding when we are allowed to participate in the open market, as well as the maximum ownership stake that any party can acquire before making a full tender offer.

Okay. Thank you.

Your next question comes from the line of Carol Campbell with Hilliard Lyons. Please proceed, ma'am.

Good morning.

Good morning.

I had a question on G&A, I think on your last call you had a goal of having G&A stay around 4.5% to 4.75% of revenue. I noticed it was higher in the quarter. When do you expect to get it down to that point?

Actually, I think it's right in line there.

Okay.

Yeah. When you include all the revenues of the joint ventures and so forth, which we manage, when you include all of the total revenues it came in at 4.6%.

Okay. I didn't look at it that way. Thank you.

Sure.

(OPERATOR INSTRUCTIONS). Your next question comes from the line of Michael Mueller with JP Morgan. Please proceed, sir.

Thanks, hi. A couple development questions first. Can you comment on the cost of the Brazil project? It looks like it went up in the quarter without an increase in square footage. And on Yukia, that was scaled back. Is that a phasing or is that permanently going to be a smaller project?

Well, first, in Brazil, our project in Manaos is now very advanced through the leasing process and development process. A portion of that is a fundamental increase in pricing. It's a function of the boom that's going on in Brazil, the exact reason that we want to have product, and additional product there. And so we've seen our developments costs in local currency terms increase by about 7%. On the other side of that, now that we're north of 75% leased for the project, we've seen lease rates come in about 10% higher than our original projection. So on that side of it I think the yield is only increasing as the overall strength of the economy down there has contributed more to rental growth than it has to construction costs, but it's certainly increased both sides.

The second part of it relates somewhat to a methodology change in the way that we have disclosed the cost in U.S. dollars. I think initially we thought it would show less volatility and show a more clear picture of the project if we locked the currency rate from our original investment in Manaos. You know, so we would eliminate certain quarterly volatility if the currency was moving back and forth. But at this point, I think we realized that the meaningful one way move in Brazilian currency versus the U.S. dollar, we want to more appropriately reflect what the current cost would be, even though many of those dollars were invested at a prior exchange rate. So taking our original pro forma cost, increasing it by the 7% fundamental cost increase that I referenced earlier, and applying current 1.57, 1.58 exchange rate, gets you to the current number.

So the great majority of the change there is simply a foreign exchange rate change which, again, you know, doesn't have an impact in any negative way on the project yield and all in, on our investment now in U.S. dollars where the total project cost is roughly $120 million, we expect the yield north of 15% on that project.

Another way of looking at it is what investors seem to interpret as an increase in cost was actually an increase in value, because the project is actually being funded primarily through internally generated cash flow in Brazil, in real, and from debt borrowed in Brazil, in real, and the cost that we're investing in riag is just worth more in dollars, because the real is worth more than it used to be against the American dollar. So what people mistakenly looked at as a dramatic increase in cost was actually increase in value of the investment.

Okay. And David, you mentioned about buying MDT stock because it's pretty cheap. Can you turn the tables a little bit and talk about your own stock in this environment, how you think about that as investment opportunity, balance sheet considerations, et cetera?

I think we absolutely believe that at current prices our stock represents a very attractive investment alternative. You know, we balance that against the fact that we are making our balance sheet a very high priority and making sure that we are in very strong financial condition to weather whatever existing storm may be out there and so we think of those two items together. We do have additional approval for additional share repurchase and I think it's absolutely something we consider at these levels, especially as we advance through and continue on a daily basis to get more clarity on the asset sales that we're progressing through and the proceeds that we'll recognize from those.

Okay. Thanks.

Your next question comes from the line of [Poan Malguire] with Wells Fargo. Please proceed, sir.

I'm sorry, somebody already asked my question. Thanks a lot.

Your next question comes from the line of Kitty Wong with Train Babcock Advisors. Please proceed.

Could you just quantify for me in order to meet your guidance for the year for FFO, how much transaction you actually have to do in the second half of the year? And also what is your dividend expectation for 2008? Thank you.

The transactional portion of our guidance is in the $0.50 to $0.60 range out of the total guidance of $3.95 to $4.05. So to put that in dollars, that ends up being in the $55 million to $70 million range of transactional volume, or of gains from transactional activity.

So in the sales dollar term, what would that be?

You know, if we apply the roughly 20% margin that we've guided to and on the low end of what we've experienced historically, you would be in the $250 million to $350 million range for merchant building sales to recognize those gains.

And your dividend expectation for 2008?

Dividend expectation for 2008, we've had a consistent policy of revising the dividend at the beginning of the year when the Board of Directors makes that decision, and that dividend for now has been set at $0.69 per quarter that's been paid for the first two quarters of 2008, and historic policy would be that would be what you would expect to see for the remainder of 2008.

Is it too early to comment on your expectation for 2009 at this point?

Yes, we complete our budgeting for 2009 in October. And traditionally speak to that on our last conference call.

Okay. Great. Thanks very much.

(OPERATOR INSTRUCTIONS). Your next question is a follow-up from the line of Michael Bilerman with Citigroup. Please proceed, sir.

Thank you. Scott, you talked in your opening comments about two funds. One was for the broken development deal. I think you also mentioned raising a potential fund for existing development.

That wouldn't be a fund Michael. We're really looking at that as discrete asset joint ventures. We really couldn't do that as a fund and I'll tell you why. In order to attract private capital in a fund scenario, we really can't cherry pick assets. We would really have to give them sort of an optionality on everything we do from a development standpoint and we're not prepared to do that. So what we do on the development side from our wholly-owned portfolio is we enter into discussions with potential private equity joint venture partners and specific development opportunities on a discrete basis, and not on a discretionary fund basis.

And would that be for existing developments that you already have underway or this is for new developments out of your land bank of new developments that you find?

We have basically about seven projects that - - seven or eight projects we've identified and entered into discussions with investors on. About three of those will start in 2008 and four of them will start in 2009.

And that's existing land that you have?

It's existing land that we either own or have under option, and typically we would bring in the investors at the stage where the project is fully entitled, 50% preleased and ready for a construction loan such that we could mark up the project at the front end and recognize some gain when the investor comes into the deal.

What sort of stake would you go down to?

Well, we might go down to as little as 10%, but our share on the outside could be as much as 50%. Typically, the way those deals are structured, we co-invest on a 80/20, 90/10 basis from capital. We have pro rata distributions up to a cash flow prep. Above that prep, we have a waterfall that maybe starts at 20% and goes up to as high as 50% of the upside. So the goal on those joint ventures is to basically access most of the capital from our partners, but grab as much of the upside as we can after they get their returns.

And investors today are targeting IRRs from that kind of activity in the high 'teens to up to maybe 20, and on a project that you can bring in anywhere north of an 8% return on cost, which is well below our threshold, which allows us for front end markup, and you can sell on completion at say a seven cap. It's very easy to generate IRRs well in excess of that.

Okay. And on the sort of the value add, the value funds to go after the broken development, how far along are you in identifying properties, or is it sort of a blind pool up front?

We've created a department within the company that does nothing but that, and we've had dozens of projects identified. We've had probably as many as 10 meetings with private developers recently to go over specific projects. The challenge there, Michael, is really, to be quite candid, is a lot of these developers are in trouble because the returns they were willing to accept were kind of low. So the decision we need to make on some of these is do we want to do a deal with the developer or do we want to do a deal with the bank, and that's kind of how we look at this opportunity, and I think some of the best opportunities - - there's plenty of opportunity now to do a deal with a developer. Some of the best opportunities might be those that we wait for when we can deal with the lender.

Another thing you mentioned in your opening comments was new comp plan, sort of align interest of your employees to stockholders. How far along are you in terms of putting in new comp plans, and what sort of value and impact to earnings would that be?

Well, the major plan that was already announced, which was a supplemental equity plan that we announced I think last quarter - -

Last year.

Actually, last year I guess we announced it. But what I was referring to really wasn't so much a new compensation plan as much as what we've been doing internally, which is establishing very specific operating metrics, both on a departmental and individual basis, so that the employees' bonuses and long-term incentive comp is very specifically tied to quantitative or qualitative metrics that are established in advance, so that employees are really more aligned, if you will, with the goals that we have for them to achieve not just on a company basis but also very specifically on a departmental basis.

Okay. And on the bad debt expense, is that in your same store NOI or out of it?

It's not reflected - - we have a definition in our supplement where we slow the calculations of same store NOI. We don't include lease terms. We don't include bad debt expense in those numbers. We don't include straight line rents.

And was there anything in the true-ups that you were talking about, those are in the numbers or out of the numbers?

Those true-ups would have been adjusted to make truly a comp comparison.

So you adjusted both years?

Right. Actually, we really just adjusted the first year because I think the numbers would have been spread throughout the various quarters last year, so we really didn't make any adjustment for the prior year. We did in the current year, we adjusted for the 2007, or the adjustment that we made in 2008, we eliminated the effect of that.

Just on the sales that you're doing, both the core and non-core assets, also the merchant build. We've seen a lot of REITs provide seller financing to get deals done. Is that in the realm of what you are doing?

There's a real possibility we may do that on a interim basis in order the to accomplish a transaction on a timely basis, but our goal if we did that, would be to refinance that debt as soon as possible.

Is this all the transactions, and what sort of magnitude of seller financing are you talking about, and how do you get comfortable with providing that?

How do we get comfortable with providing it?

Yeah, just in terms of what terms, how long, what rate?

We're really governed very specifically by our auditors in that regard. Whatever financing we provide has to be regarded as market rate, both in terms of proceeds and in terms of interest rate. We're not providing the financing with a way to enable us to achieve a higher purchase price, if you will. It's really much more of a timing issue.

You know, where those are today, just to give you some guidance, I mean, they're in line with recently announced financings by our peers, you know, pretty much 70% loan to cost is where the market is on the proceed side, and interest rates roughly 250 to 300 over LIBOR.

And how long are you comfortable providing seller financing for? Is it a short term? We've seen guys go 30 day to a 90 day max. We've also seen in some cases a transaction where it was two years at 0%. I'm trying to understand where your threshold is.

I would really rather not get into those specific details until we announce the transaction. I wouldn't expect that we would have a loan outstanding that we didn't refinance, either behind the loan or in place of the loan, you know, within 90 days.

And also, I think it's important relative to other transactions, this is not subsidized financing. This is market-rate financing where we're not sacrificing anything regarding the economics relative to the market.

The reality is these deals couldn't get done today if you didn't provide the financing.

I wouldn't necessarily say that. I would say they wouldn't get done as quickly. The financing is available in the market. It just takes a long time.

Right. These assets have mortgage debt on them or they're unencumbered assets?

Some do. Some don't. The ones that do, the debt would remain in place.

Thank you.

Your next question comes from the line of Jim Sullivan with Green Street Advisors. Please proceed, sir. Mr. Sullivan, your line is open. Your phone may be muted.

This is Nick Batter here with Jim. Sorry about that. Just looking at your supplemental, looks like the estimated leasing commission/tenant improvement has been ticking up recently. Just curious if this is a general trend we should expect to see going forward as an effort to maintain occupancy?

Well, I don't think the tenant improvements are a general trend. That spikes quarterly, depending on the nature of the transaction and where it fits in the portfolio, as you know. If we have a significant number of re-leasing in the lifestyle portfolio, that number will go up. If it's in the community center portfolio, it will go down. I think that's more time sensitive than anything else.

It's really not capital that you're providing the tenant, it's actual cost. We are going to see an increase in third party leasing commissions paid, as tighter economics force tenants to move more with off balance sheet real estate departments. Instead of having their own internal real estate group, we're seeing a much more third party broker oriented representation by retailers, which is adding cost to the overall transaction.

Okay. So you're not really seeing too much pushback in terms of leasing sessions and at this point.

It's all focused on price right now. We're not seeing a lot of concessions. We're not seeing a lot of people ask us for a lot more additional capital. They're really looking for lower rent for the most part, if they can get it, and we've seen some of that in the portfolio and it's reflected in some of or numbers.

In terms of the capital expenditure numbers, I think overall our numbers are so low relative to a lot of others, that even just smaller increases end up being a larger percentage increase on our overall tenant improvement and capital expenditure budget, so it is going up somewhat, but in terms of absolute dollars it's on the side of this portfolio, it's not that significant, it's just relative to a small base of spending.

But we absolutely are seeing and I think we will continue to see as a trend increased cost to lease from a third party perspective. Even those tenants that have had brokers historically represent them, the cost of those brokers has gone up dramatically.

Great. Thanks. Quickly, a second question. Looking at the MDT refinancing, you mentioned that it was refinanced about $340 million at a 60% to 65% loan to value. What sort of cap rate could you equate with that?

The lender equate to that?

Yes, what was the cap rate that they were expecting on that transaction?

I think the lenders are typically applying a cap rate in the low to mid-sevens on their financings, which is probably less than the value of the asset, but that's what they're typically applying from an underwriting standard today.

Okay. Great. Thanks.

Thank you.

Ladies and gentlemen, this concludes the question-and-answer session. Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Have a wonderful day.