Rithm Property Trust Inc.
Q3 2008 Earnings Call Transcript

Published: 23 Oct 2008

[Operator:]

Greetings and welcome to the Ramco-Gershenson Property Trust third quarter 2008 earnings conference call. (Operator Instructions). It is now my pleasure to introduce your host, Dawn Hendershot, Director of Investor Relations for Ramco-Gershenson Property Trust. Thank you, Miss Hendershot, you may begin.

[Dawn Hendershot:]

Good morning and thank you for joining us for Ramco-Gershenson Property Trust third quarter conference call. I am hopeful that everyone received our press release and supplemental financial package which are available on our website at rgpt.com. At this time management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Ramco-Gershenson believes the Act's expectations reflected in any forward-looking statements are based on reasonable assumptions it can give no assurance that its expectations will be obtained. Factors and risk that could cause actual results to differ from expectations are detailed in the press release and from time-to-time in the company's filings with the SEC. Additionally, we want to let everyone know that the information and statements made during the call are made as of the date of this call. Listeners to any replays should understand that the passage of time by itself will diminish the quality of the statements made. Also, the contents of the call are the property of the company and any replay or transmission of the call may be done only with the consent of Ramco-Gershenson Properties Trust. I would now like to introduced Dennis Gershenson President and Chief Executive Officer, Richard Smith Chief Financial Officer, Thomas Litzler Executive Vice President of Development and Michael Sullivan, Senior Vice President of Asset Management. At this time I would like to turn the call over to Dennis for his opening remarks.

[Dennis Gershenson:]

We appreciate you sharing your time with us today. First, we are pleased to report that FFO for the third quarter was $0.63 per share which met First Call estimates. Also, even in these turbulent times during the last 90 days and for the first nine months of this year, our management team has been successful in executing a significant number of agreements with mid-box retailers as well as new leases and lease renewals with smaller tenants keeping the company's redevelopment and core portfolio goals [inaudible] half of the year. Our plans for the redevelopment of 12 of our shopping centers in 2008 and 2009 continue to be approved. At 10 of these centers we have executed new leases with anchors that vary in size between 20,000 and 80,000 square feet. As reported in our supplement, after deducting rents for spaces demolished to make way for these expansions our redevelopments will produce double digit returns on new dollars invested. You should also note that we have maintained a strong occupancy rate. If these were different times I would be ecstatic about our quarterly results, which include new leases at rental rates well above our portfolio average and superior same center [NLI] growth. These are, however, challenging times and although we are holding our own the current market environment has caused us to reassess our business plans for the balance of 2008 and 2009. Therefore, this morning we will cover our plans for development, the status of our redevelopments, how our core portfolio is performing. including the impact of Linens 'N Things on our financial projections and our efforts to refill these spaces as well as our debt expirations and capital requirements for the next 14 months. We have in various stages of development four major projects. Our present overall game plan is to eliminate or postpone capital expenditures for all these projects until such time as we have secured tenant commitments which constitute a critical mass in order to move a project or a part thereof forward. In all of these developments we have analyzed their scope and scale and have redesigned them so that we will be able to proceed with their construction in phases eliminating the potential for building significant unleased space. At our Hartland Town Square in Hartland, Michigan, an existing off balance sheet joint venture development, we have sold 21 acres to Meier for a 192,000 square foot superstore. Meier has already started construction of their building and it is expected that they will open in August of 2009. We have signed a purchase agreement to sell Menards approximately 17 acres for the construction of a 162,000 square foot home improvement superstore. We should close on the sale to Menards in the first quarter of 2009 and they expect to start construction on their building in May of next year. We also signed a letter of intent with a 30,000 square foot national mid-box retailer. Additionally, we have signed leases or purchase agreements for three out lots at numbers which exceed our pro forma. Even with this progress the center will be developed in phases. Beyond the construction of Meier, Menard's and the 30,000 square foot user, there are two additional retail sections of this project that will be developed later as leases are signed. To that end we are presently negotiating with three national and regional retailers that vary in size from 20 to 45,000 square feet for these phases. Our second development is Gateway Commons in Lakeland, Florida. This project sits adjacent to our existing 312,000 square foot Shops of Lakeland which is anchored by Target. As we pursue governmental approvals, which we reasonably expect to achieve in the second quarter of 2009, we are negotiating letters of intent with five national retail anchors. It is our plan to have executed leases or signed purchase agreements with all of the anchors for this development at the time municipal entitlements are secured. No construction will be commenced in Lakeland until we have ironclad commitments from our tenants. This center will be constructed as an off balance sheet venture. We are working with two prospective partners for the development of this asset. We continue to experience significant interest from a number of companies to joint venture our new retail developments. Our third project is the Town Center at Aquia in Stafford County, Virginia 35 miles south of Washington D.C. The first phase of this project, an office building of 100,000 square feet, is over 80% leased. We are finalizing agreements with the U.S. Government and a defense contractor for the balance of the building with the exception of 6,000 square feet on the ground floor which we are reserving for future retail uses. We have spent a considerable amount of time redesigning the Aquia project. Based on hotel, residential and additional office interest we have reduced the amount of retail square footage contemplated for the site. We are actively engaged in negotiating with developers for these non-retail components in the form of either outright sales or joint ventures. Please note in our supplement that the overall project cost for the Ramco-Gershenson portion of the development has been significantly reduced. You should also know that this lower number still includes two additional office components which we may joint venture in the future, however, they're an integral part of the project design and thus are included in our overall project numbers. The reduced capital expenditures are the results of a more efficient use of the site, the elimination of a parking deck, and the proposed sale of certain elements of the project consistent with my earlier comment. We do not intend to move beyond our completed first phase until such time as we have generated additional retail interest and secured commitments for the non-retail components. Even then, the elements of the project for which we are responsible can be developed in phases. Our fourth potential development is in North Point Town Center in Jackson, Michigan which was conceived as the result of national anchor tenant interest that could not be accommodated in our existing 650,000 square foot Jackson Crossing Center. Although we believe this is an excellent site, presently the location does not command the priority by both anchor tenants with whom we've been working, to move to binding commitments as they cut back or postpone their expansion plans. Therefore, we will continue to work with the community and will secure an extension of our option to purchase the land to a date that will allow us time necessary to redevelop retail interest in this project. With a scaled back development agenda, our asset management team has been hard at work executing anchor leases and value engineering our redevelopment projects. Of the 12 redevelopments listed in our supplement, we have binding commitments with new anchor tenants or have executed lease amendments for expansions at 10 of our centers. Eight redevelopments are under construction. We are pursuing site plan approval for the two other centers with anchor commitments and for the last two of the 12 planned redevelopments, we have identified users and are working to finalize lease agreements with them. Thus, even in these troubled times our high quality assets continue to show the potential for growth as they are validated by national retailers who chose our shopping centers as the ones where they are willing to make their limited number of current commitments. Our leasing efforts in 2008 are showing results across the portfolio. This year, including redevelopments, we have signed 13 new anchor leases at our shopping centers accounting for approximately 450,000 square feet. Twelve of these redevelopments will open in 2009 positively impacting our numbers for next year. In this quarter alone we have signed three leases with national retailers in Troy, Michigan, Dearborn, Michigan, and West Allis, Wisconsin, encompassing over 134,000 square feet. Also, as noted in our supplement, we have opened 64 new non-anchor tenants year-to-date at an average rental of $17.74 or 8% above this category's portfolio average and we have renewed year-to-date 107 non-anchor leases accounting for over 368,000 square feet with an average increase over prior rental rates of 12.1%. There has been some speculation that our overall occupancy would decline based on the number of shopping centers we owned in Michigan and Florida which are viewed as economically challenged markets. There is no question that we will see a change in occupancy in Michigan and Florida based on the Linens 'N Things bankruptcy because six of the seven stores they leased from us were concentrated in these two states. However, our leasing statistics and occupancy numbers do not support this negative conclusion. I am pleased to report that year-to-date in Florida of the 62 leases that expired only 17 tenants chose not to renew their occupancy. Those tenants that renewed are on average paying over 11% more than their prior rental rates. Also in Florida, for the nine months ending September 30th, we opened 31 new non-anchor retailers at an average rental rate 21% above our non-anchor portfolio number. Our occupancy rate in Florida at September 30th for those centers which are not presently being redeveloped stood at 95.3%. Thus, irrespective of how Florida centers are doing in general, our shopping centers are performing ahead of the pack. Our Michigan leasing statistics have also held up well. Although only nine leases expired in the third quarter with two retailers leaving, we have achieved a renewal rate of over 14% above prior rents paid. A more telling statistic involved the 66 leases that expired in Michigan during the first nine months of this year where approximately 73% of our retailers renewed at rental rates approximately 10% above those paid previously. We have also opened 22 new non-anchor retailers in Michigan through the first nine months of this year at approximately $16.00 per square foot which equals our non-anchor portfolio average. Occupancy at quarter end for our Michigan centers, excluding those being redeveloped, stood at 95%. A word about our Linens 'N Things exposure, now that we know Linens will liquidate we have initiated a full court press to retenant all of their spaces. You will remember that of our seven locations leased to Linens 'N Things five are joint venture properties and two are wholly owned. At Troy Marketplace in Troy, Michigan, which is a joint venture property, we have already executed a lease with Golfsmith for the Linens space. Golfsmith expects to open in May of 2009. At four of the six remaining locations we are negotiating letters of intent with at least one replacement anchor. We are reasonably confident that we will have announcements concerning a replacement tenant in at least two additional centers by our fourth quarter conference call. However, if all of the Linens spaces, excepting the Troy store lease to Golfsmith, remain vacant throughout 2009 then between rent and charges after deducting the two locations with CVS guarantees, Ramco could experience a reduction in income of $1.2 million. The speed at which we sign our prospective retail uses for these vacancies plus the time required to thin out their stores will determine the magnitude of this loss. We are well aware that the investment community is very focused on debt maturities and the type of institution that made these loans. Rich Smith will cover in detail our limited exposure to debt expirations over the next 14 months, bringing us to the end of 2009. I would merely add that we’re on top of these maturities and are well-grouped plans for each of the loans. Rich will also discuss our plans to source capital for our scaled back 2009 business goals. As I said at the outset in any other circumstances we would be crowing about our third quarter results. Instead we understand that in the near term we need to play defensive ball as none of us can foresee when the markets will begin to respond to both national and international efforts. I can say however, that some things never change. Superior locations and strong anchor draws produce high quality assets. Occupancy declines in a peer group reflect the experience of both weak assets and centers that continue to perform well. We are a company with shopping centers populated by retailers who provide everyday goods and services that fulfill needs. Our assets have multiple anchors which protect us against the consequences of losing a center's one and only draw. We have lived through difficult times before. We have a seasoned management team, adept at being creative, and we have the new anchor, mid-box, and small tenant leases to prove that our assets are the retailer shopping centers of choice. Based on our activities to-date and how we view the next 60 days we remain comfortable with our earnings projections for the year. As for 2009 we have revised the road map for our business plan based upon those factors which we can and cannot control. First, our plans reflect the inclusion of our healthy leasing results, successful redevelopments, limited debt maturities and scaled back developments. Our 2009 plans are tempered by those factors we acknowledge are beyond our control, which include retail tenant's willingness to make additional near term commitments, what the fallout might be from a continuation of a depressed marketplace and how access to capital will evolve in the coming months for both debt and equity. What we do know is that based on our line of credit, transactions in the pipeline and our conservative capital needs through 2009 we are confident that Ramco-Gershenson can meet its capital needs to complete its business goals for the next 14 months. Further, we have the knowledge, expertise and experience to confront whatever challenges come our way. I would now like to turn this call over to Rich Smith who will provide details on our quarterly numbers as Dawn mentioned Mr. Tom Litzler and Mr. Michael Sullivan are with us today and are prepared to answer your questions on our developments, re-developments and asset management. Rich.

[Richard J. Smith:]

Thank you Dennis and good morning everyone. For the quarter our diluted FFO per share was $0.63 which met First Call estimates. This represented a 4.5% decrease from the $0.66 reported in 2007. On a gross basis our diluted FFO decreased $600,000. We went from $14.1 million in 2007 to $13.5 million in 2008. Some significant changes quarter-to-quarter included reductions in property level income and expenses due mostly to the effects of contributing assets to off balance sheet joint ventures, taking income offline for planned re-development and a decrease in lease termination income. These reductions were offset by the full quarter effect of River City's lease up. Other changes include an increase in our fee income resulting from increased development, leasing and management fees, offset by a decrease in acquisition fees. The decrease in our G&A was the result of increase in capitalized costs charged to development projects. Our interest expense for the quarter decreased $1.2 million over the same period last year. $1.1 million of the decrease was due to lower average borrowings at a lower averaged interest rate. The remaining decrease was due to an increase in capitalized interests and other items. For the nine months ended September 30th our diluted FFO per share decreased 3.1% or $0.06; we went from $1.92 in 2007 to $1.86 in 2008. On a gross basis our diluted FFO decreased $1.4 million. We went from $41.3 million in 2007 to $39.9 million in 2008. For the nine months ended significant changes included reductions in property level income and expenses, again, mostly due from contributing assets to off balance sheet joint ventures and from taking income off line for planned re-development. These reductions were offset by bringing River City back on balance sheet. The decrease in other income related primarily to reductions in termination fee income and interest income. The interest in other operating expense was due to increases in legal fees and reserves for bad debts. For the nine months our interest expense decreased $4.3 million over the same period last year; $3 million of the decrease was due to lower borrowings at a lower rate, $800,000 related to increase in capitalized interest on development and re-development projects, and the balance related to a decrease in loan amortization costs and other items. Through the end of next year we have five loans maturing which are all manageable. Our $150 million unsecured credit facility, which we just extended through 2009, can be extended at our option through 2010 under the same terms and conditions. We’re currently working to place permanent debt on the assets securing the $40 million loan held by Keybanc which matures in December. We have the right to extend the maturity at our option until March 2009. Our $24 million loan with Traveler’s Insurance is due in December of 2009. Since our current loan to value is approximately 30% to 35% we don’t expect any problems refinancing the assets. In fact we'd expect to generate approximately $20 million of additional capital from refinancing. We’re in the process of extending our $8.5 million construction loan on Beacon Square until November of 2009. And lastly, we'd expect to refinance our $7.6 million construction loan on Gaines Marketplace when it matures in March of 2009 for about the same amount. Our total debt this quarter end was $637.8 million with an average rate of 5.7% and an average term remaining of 5.1 years; 74.7% of our debt was fixed at an average rate of 6.1% and 25.3% of our debt was floating with an average rate of 4.6%. Availability at quarter end on our credit facilities was $43 million. Our EBITDA interest coverage for the nine months was 2.3 times and our fixed charge coverage was two times. Our pay out ratio was 74.5%. As Dennis pointed out we do not plan on spending significant development or re-development dollars until we have achieved a critical leasing mass. Assuming we’re not able to secure construction financing for our current developments and re-developments projects, Ramco's additional capital requirements through 2009 would be approximately $30 million. Our sources of capital include $33 million of line availability, $15 million of debt, expected to be placed on our newly developed Aquia office building, $20 million of refinancing proceeds from our Spring Meadows and West Oaks shopping center and additionally we may continue to sell or contribute assets to lock down and achieve joint ventures. And lastly, our guidance remains unchanged. We expect our diluted FFO per share to be between $2.47 and $2.53. Operator ,can we open up the call for questions please?

[Operator:]

Thank you ladies and gentlemen. (Operator Instructions). Your first question comes from the line of [David Speck] – Stifel Nicolaus

[[David Speck]:]

Can you talk about given that you are pulling back on the development of pipeline, what the ramifications might be to G&A and to development staffing in your company?

[Dennis E. Gershenson:]

As far as staffing is concerned, we have always had a very lean staff at Ramco, for both development and redevelopment. We only have senior people here, excluding our leasing staff. We have no real construction department. So aside from the individuals who oversee the totality of the project; leasing as well as construction, and a construction manager, we really do not have anybody else in the organization. Certainly as we limit the amount of development that we will do in 2009, that will impact our ability to generate fees from these projects as a contribution to FFO. But we expect, based on the velocity that we have in our Lakeland project that sometime in the late part of the second quarter, maybe even the beginning of the third quarter, that we will indeed have a project that we can move forward with. And as I mentioned in my prepared remarks, we are working with no less than two organizations who have the cash and are very interested in becoming our partners.

[[David Speck]:]

On your secured term loan that is maturing in December, did I hear you correctly? You have four months on your right to extend? Can you, first of all confirm that, and second what are the assets that secure that? Do you think you are going to have to burn your line capacity to deal with it?

[Richard E. Smith:]

First, we will expect to have to burn a line of capacity on that asset. We may take one of them though, David, and put it in there, which is Ridgeview. The other assets that are in that are Northwest Crossing and Taylor Square. Both of those assets are brand new Super Wal-Mart Centers that we had bought some time ago, and then expanded and renovated to the new Wal-Mart. So, the credit is good. I would expect to be able to finance that, I think we are very close to financing it and our lender pulled back on us. We are back up in the market again to put financing on that. Never an issue with the properties. I am just, again, I am glad we have until March because I am not trying to push that through. I think we will get better terms as the market stabilizes a little bit.

[[David Speck]:]

Are you looking to keep that cross collateralized or would you get individual –

[Richard E. Smith:]

No, I think we would do either one. I think for the two Wal-Mart’s we would cross them. I think for Ridgeview, again, I think that more likely than not I would guess that we would put that into our line. You know when we were talking before of the $40 million; probably somewhere around $33 million would be financeable on the other two assets alone.

[[David Speck]:]

My other question is when your unsecured revolving facility that you just extended, it seems to me that it is just incredible pricing and that there is no bank in the country with a cost of capital below where you were able to get this facility. Can you just talk about who the players are there, and how that negotiation played out?

[Dennis E. Gershenson:]

Really no negotiation happened; it happened probably three years ago when we put it in place led by Keybanc and other members include, Bank of America is in it, PNC is in it, Comerica is in it, Deutsche Bank is in it, Huntington Bank is in it, Fifth Third is in it –

[[David Speck]:]

I’m sorry; this was a routine option on your part to extend?

[Dennis E. Gershenson:]

Yes it was a part of the original negotiation. We put in two one year options to extend, so when coterminous with the term loan that we have with them as well.

[[David Speck]:]

I misunderstood that. So, these kinds of terms truly would not be available on the market today?

[Richard J. Smith:]

Yes, I think that is a valid point –

[Dennis E. Gershenson:]

Well, it depends on how well we negotiate it.

[Operator:]

Your next question comes from the line of Rich Moore – RBC Capital Markets.

[Rich Moore- RBC Capital Markets:]

To follow up on Dave’s question, if I could for a second, I think everybody is trying to figure out when do these credit markets sort of unfreeze? Could you characterize in general what the conversations with the loan officers at this point are like for you guys? Are they getting any better? Are they getting worse?

[Richard J. Smith:]

No, I think that they are stabilizing, how is that, but I am not sure they are stabilizing to where we want them to be. I think that people expect the markets to change. It may not be until next year, but they expect them to change. Currently, you're talking to some of the brokers anyway are starting to see some light at the end of the tunnel. I think that the deal that we had with the $40 million secured revolver, I think that we were pretty far along in that negotiation on that loan and then at the end of the day when the lender pulled back they said to us it’s not that we don’t have the money,; I just don’t know how to price it. And I think that, that has got to work its way through the system. I think that once that happens – I think that – I’m not sure the markets go back to where they were, but at least you will get some transactions done. And once you get transactions done, I think you will get more people stepping in.

[Rich Moore- RBC Capital Markets:]

So, would you say Rich that they are getting a little more interested in talking about getting a loan done? We have heard horror stories, obviously about banks that simply don’t want to lend under any circumstances. Sounds like this is a little better than that, is that true?

[Richard J. Smith:]

Slightly – not greatly better, but slightly better., at least they are starting to have discussions again.

[Rich Moore- RBC Capital Markets:]

On the dividends front, you guys are not getting paid to for the dividends that you are providing. The stock price is not rewarding you for the dividend you are paying. So I have two questions on the dividend and would you consider cutting the dividend, even though obviously from the payout ratio, you don’t need to cut the dividends, but it is a source of cash? The then second thing, how much could you cut the dividend and still maintain REIT status and still pay the 90% of taxable net income?

[Dennis E. Gershenson:]

We sit with the board every quarter and talk about the dividend. To date there has been absolutely no discussion about cutting the dividend. Therefore, in a sense, I am really not in a position to give you a number, although we could probably do it offline as to how much we could cut it, because, again it has not been a topic of discussion. My wife absolutely would not be happy if we contemplated it.

[Rich Moore- RBC Capital Markets:]

She is a very important, very important person in all of this.

[Dennis E. Gershenson:]

She is the most important shareholder I met.

[Rich Moore- RBC Capital Markets:]

I understand. I am with you there.

[Richard J. Smith:]

Look Rich, not that, I mean Dennis just answered part of the question. I mean it's not one you want from a tax perspective. I will have to get back on that number, but just from a free cash flow or in fact from an FAD perspective you are probably $8 million to $10 million is what we generate in cash flow between where what our FAD payout ratio is compared to whether it be at 100% for example, but I know the question you want is how much room do we have tax wise. I will get that to you.

[Rich Moore- RBC Capital Markets:]

Looking at tenants guys, you gave us a great, great break out of what is going on with the tenants. I mean, again, same sort of question as with the loan officers. How would you characterize where tenants are? Is this getting worse? Are they getting more afraid? Are they loosening up, saying, I think we can deal with it? Where are we with the tenants in general?

[Michael J. Sullivan:]

Rich, this is Mike Sullivan. At the second quarter call we discussed what we thought were trends in these struggling or failing tenancies. The impact that it will have on our operating metrics and we thought at the time that we have really seen the worst of it, and quite frankly I think the data in the third quarter support that conclusion, that these negative impacts are moderating, that tenancies are loosening up a little bit. We are seeing a drop off in requests for rent release. We're seeing a drop off in approved payment plans for delinquencies. We are seeing in general that our retention factor, our retention rate of renewal is actually going up slightly higher so, all of this is really pointing I think to the fact that these trends are moderating and our tenancies in general are improving.

[Dennis E. Gershenson:]

Let me just amplify that if I may, Rich. Obviously a potential concern is as the periodicals write about Christmas and the state of the economy, etc. this holiday season will be an important time for a significant number of retailers. And we of course are keeping our eye on what's happening with people such as Circuit City and Borders, although we have a limited number of stores with either of those.

[Rich Moore- RBC Capital Markets:]

And then if I could, on two funds – on the private equity fund, I know Dennis you're looking for partners for Gateway and Aquia. Any progress on Aquia, I mean is that something where you might get a good partner you think?

[Dennis E. Gershenson:]

As I mentioned, the potential partners are out there. We still – we have talked to about three of them. We still get calls from those three, but each one of them really insisted upon a significant amount of pre-leasing, over and above the movie theater, in order to move forward. I think that the approach that we have, we're working with a number of hotels. Again, we wouldn't develop it. We're working with three resident developers for the residential component. And now, as we close in on, for all intents and purposes, being completely leased in the first office building, we're initiating some conversations with office developers who might buy into the first building and then be our partner in the next phase of the buildings, which again those will be a part of the retail development with office above, but in a more traditional office format. So, as we secure these non-retail elements, we bring down the overall cost of this project and the exposure for someone, I think that we'll get a lot more attraction. But, Aquia – for the projects that we're into, fortunately we are truly able to say that the office building is there. It's throwing off nice cash flow. As I reported before, on an unlevered basis, even with these two new tenants in, it will throw off about an 8-1/2% unlevered cash-on-cash return. And at some juncture, hopefully sooner as opposed to later, we'd be able to put that into a venture and not only finance it, but get back a significant part of the equity.

[Rich Moore- RBC Capital Markets:]

And then the last thing for me is the sales environment. I know you guys talk about selling assets. You had had a portfolio you were working on selling. I mean characterize that for us would you, that you've something where you're starting to see things shake loose a bit or are we still pretty much in lock-down as far as asset sales go?

[Dennis E. Gershenson:]

Well, I think the biggest problem with asset sales for everybody is that the people with money who are potential [inaudible], feel that the sales price should be a lot lower than the potential seller. If you look at what we've accomplished this year, we have contributed two $75 million assets, one for each – into each of our joint ventures at some very good sales prices. So, our view would be to generate capital through sales, we're much better off contributing that to the ventures, which keep us in the picture and our venture partners are willing to pay a little more aggressive price because the assets that we're talking about are that completely stabilized, but have some nice upside. And so, they're much more focused on a end-of-the-day return, once we work some magic in redevelopments.

[Rich Moore:]

So, outside of the JVs, it's kind of slow in terms of asset sales?

[Dennis E. Gershenson:]

We're finding it very slow.

[Operator:]

Your next question comes from Nathan Isbee – Stifel Nicolaus.

[Nathan Isbee:]

Just following up on Rich's question about the equity money, if you can comment in your discussions with these potential partners how things might have changed versus a year, year and a half ago and the terms that they were demanding. And just one other detail, on the Jacksonville project, even those private equity partners have to put down a petty small amount of the total equity, being that you were able to finance a larger portion. Are they willing to provide the larger and higher amounts of equity that would be required in today's environment?

[Dennis E. Gershenson:]

Well, let's start with this. With the two companies that we're presently working with, both have indicated that the cash is already in the bank, so that they don't have dollars to raise. As far as the differential between what they're looking for this year as opposed to last year, obviously their return thresholds have gone up significantly, just because they have the cash. My problem, and we could spend a great deal of time talking about this and you and I have conversed on it before, and that is extremely high internal rates of return can be achieved by me sitting down and asking you what kind of return do you want and then I'll go into the back room and massage the numbers until I get there. We have been able to demonstrate through our redevelopments, through developments such as River City Marketplace, that we can produce very healthy internal rates of returns for our partners because we have the expertise to execute when we make a commitment. I think that's worth I don't know how many basis points, but somebody can take our word to the bank. So we are looking at somewhere, Nate, an IRR with a two in front of it? Absolutely. Do some people want something in the 30% range or higher? For sure, but I think on our – especially on our new developments, we can produce 20-plus percent internal rates of return.

[Nathan Isbee:]

And just one last question, how much hard money did Menards put down on their purchase contract in Michigan?

[Richard J. Smith:]

I'll have to get back to you on that, Nate. They're in the process of going through site plan approval, so they spent a lot of money on engineering and architecturals right now. They're going for a township to get those.

[Dennis E. Gershenson:]

Yes, typically when we're working, and I don't care if it's a [inaudible] door, it's a Wal-Mart or any of these guys, they don't put down a significant amount of money only because there are many hurdles to jump over before they get approval. But the real way to tell whether or not they're committed is the amount of energy and the amount of plans that they're prepared to produce in order to put themselves in a position to close. And as Tom, has just mentioned Menards is going full speed ahead with that.

[Operator:]

Your next question comes from Philip Martin – Cantor Fitzgerald.

[Philip Martin:]

My first question is for Rich. In terms of the maturing mortgage debts and the loan to values on these assets, the loan to values that you are quoting are based on what assumed cap rate?

[Richard J. Smith:]

I really think they go anywhere from 7-1/2% to 8%, Philip, is what we're looking at. And then, again, what we're also talking about is kind of blended rate.

[Philip Martin:]

So that's –

[Richard J. Smith:]

Yes, I think that they're worth more than that, but that just to be conservative, that's what we've done.

[Dennis E. Gershenson:]

And just if I can add, Philip, the two assets that secure the loan where Rich said it's about 30% loan to value, our West Oaks I Center and our Spring Meadows Center, both of which have significant numbers of anchors, these were ten year loans. The loan was cross collateralized and I think that Rich is conservative on the amount of money that – on any conservative basis that we could pull out of here, because there was a very [inaudible] of this loan over its term.

[Philip Martin:]

That was my next – now the banks, I'm assuming, are comfortable with this 7-1/2 to 8% cap rate?

[Unidentified Corporate Participant:]

You mean the banks are...

[Philip Martin:]

I mean – yes, the banks.

[Unidentified Corporate Participant:]

The only guys not comfortable with it is us.

[Philip Martin:]

Understandable. Secondly, in terms of the timing of the '09 debt maturities and 2010, can you break that down a little bit more for us, Rich, as to –

[Richard J. Smith:]

If we go back to the supplement and it's all laid out on page 13.

[Philip Martin:]

Thirteen?

[Richard J. Smith:]

Yes, it gives you the maturity [inaudible].

[Philip Martin:]

Well I know – let's see, for some reason I thought that was just the annual.

[Richard J. Smith:]

And again, the dates we have in there are without the option, the dates that we have due [inaudible].

[Philip Martin:]

And in terms of the construction line rate, as you're looking to refinance these, what rates are being talked about? I know it's a moving target but...

[Dennis E. Gershenson:]

Just while Rich gets ready to tell you that, I don't know if everybody on the call has the supplement, but even including 2010, there's only $16 million that will come due in 2010, excluding the revolver.

[Philip Martin:]

Yes.

[Richard J. Smith:]

So, again, depending on the project, I think that the rates we've been quoted are mid-two's over on those.

[Philip Martin:]

So, mid-two's.

[Richard J. Smith:]

And then going from basically 150, so [180], a little bit over.

[Philip Martin:]

Now, in terms of the sale to [Hightman] of the Plaza at Delray, what cap rates did that occur at?

[Richard J. Smith:]

Well, the cap rate was somewhere between 6% and 6.25%.

[Philip Martin:]

Six.

[Richard J. Smith:]

And again, the reason for that is they were very focused on the opportunities that we moving on at that shopping center and were well in the process of accomplishing. So, the cash-on-cash returns that they would be receiving within the first 12 months, would increase. So, the initial cap rate wasn't anywhere near as critical as the return that they saw coming out at the end of 12 months.

[Philip Martin:]

Fair enough. Now, Tom, in terms of opportunities you might be seeing out in your markets from developers, not necessarily distressed opportunities, but distressed developers. Do you expect to see that heating up through 2009 and maybe being in a position to exploit some of those opportunities?

[Thomas W. Litzler:]

Well, we see plenty of those opportunities, but our focus really is on executing what we have in our pipeline already for the time being. And when the time is right, we will – we'll source the one or two best of those that makes sense for us.

[Philip Martin:]

But you are planning to see opportunities. Whether you'll do something with them or along side them, that remains to be seen, but there's opportunities out there that could be there?

[Thomas W. Litzler:]

There are opportunities already.

[Unidentified Corporate Participant:]

And just to amplify that, Philip, there are opportunities that we are doing preliminary research on now, that again, are adjacencies to some of our existing shopping centers where we are seeing some significant, continuing anchor leases or anchor interest, I'm sorry. So, some of these may be generated by us without having somebody else bring them to us.

[Philip Martin:]

My last question also for Tom. Your development portfolio, what's the pre-leasing number? What percent of the development portfolio's already pre-leased?

[Thomas W. Litzler:]

It's going to vary by project, so I guess that's the best way to put it. In the case of Aquia as Dennis alluded too, we're only going to execute once we achieve a critical mass on retailer on the next office building. In the case of Lakeland, we have – we've got five categories there, where we've got at least one player in each category that we're talking to. So, we would expect to be even more than 50% closer to the 75% or 100% committed at least, when we start there. So, it really is going to vary by project. In the case of Hartland, we have as Dennis said, we've got an LOI from a mid-box retailer. We've got a host of out-lots where people are already either leased or sold. And we've got a retail building, which is 100% LOI, and we're in the process of papering those leases. So, we're going to be very judicious about that and make sure that we are significantly pre-leased.

[Operator:]

Thank you ladies and gentlemen. There are not further questions at this time. I'd like to turn the call back to you.

[Dennis E. Gershenson:]

Well, thank you very much everyone, for your attention. We look forward to talking with you again in about 90 days. Have a happy holiday.

[Operator:]

Ladies and gentlemen, this concludes today's teleconference. (Operator Instructions)

[Operator:]

(Operator Instructions) Your first question comes from Analyst – Company.