Weingarten Realty Investors
Q4 2007 Earnings Call Transcript

Published: 27 Feb 2008

[Operator:]

Good morning. My name Natasha and I will be your conference operator today. At this time, I would like to welcome everyone to the Weingarten Realty Fourth Quarter 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions). Thank you. It is now my pleasure to turn the floor over to your host, Richard Summers, Vice President of Investor Relations. Sir, you may begin.

[Richard Summers:]

Thank you, Natasha. Good morning and welcome to our fourth quarter 2007 conference call. Joining me today are Drew Alexander, President and CEO; Stanford Alexander, Chairman; Martin Debrovner, Vice Chairman; Johnny Hendrix, Executive Vice President; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Vice President and Chief Accounting Officer. As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results could differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the company's SEC filings. I would ask 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. I will now turn the call over to Drew.

[Drew Alexander:]

Thank you, Richard. We had a very strong fourth quarter with FFO per share of $0.78, up 8% from the fourth quarter of last year. We also grew FFO by 8% for the full year to $3.06 per share reaching the 7% to 9% growth target we had set for 2009. Our Board increased our dividend by 6.1%, extending our record of increasing dividend to 23 years. Our strong FFO growth is due in large part to the successful execution of our strategic growth plan. We have met or exceeded our goals in virtually all areas. First, Robert Smith and his team have done an outstanding job of advancing our new development program. We achieved $96 million of new development completions in 2007, exceeding our $80 million target. Additionally, we recorded $0.16 of FFO per share from merchant building gains. Robert will review the great results that he and his team have made in a few minutes. Second, certainly the pace of acquisition slowed substantially after the disruption of the credit markets in late summer. We completed $115 million of acquisitions in the fourth quarter, with most of these acquisitions committed to prior to the credit market downturn. This brought our total acquisitions for the year to $891 million, hitting the middle of our annual target of $800 million to $1 billion. Additionally, we continued to strengthen our existing portfolio by selling non-core assets totaling $55 million in the fourth quarter. For the full year, dispositions totaled $257 million, at an average cap rate of 6.9%. Third, we continue to expand our use of joint ventures and our assets under management, which totaled $2.8 billion at yearend, up 47% from the prior year. Joint venture fee income totaled $8 million in 2007, up from less than $3 million in the prior year. And fourth, we continue to produce strong results from existing operations with an average GAAP rental rate increase 15.4% on new leases and renewals completed in the quarter and over 95% occupancy in our retail portfolio. Johnny Hendrix will review the performance of the existing portfolio in a few minutes. In summary, I am very pleased with our results for the fourth quarter and the full year, and the very strong contributions from our growth initiatives. I believe we've proven we can deliver on the new growth strategy outlined over two years ago, and believe we will continue to produce strong FFO growth and create value for our investors. And now I'd like to turn it over to Steve to review the financial in more detail. Steve?

[Steve Richter:]

Thanks, Drew. As he mentioned, we had a very good fourth quarter beating consensus estimates by $0.03 per share for the fourth quarter, but $0.04 for the full year due to the rounding issue with consensus numbers, where the quarters did not add up to the full year consensus at $3.02. As Drew mentioned, our funds from operation rose over 8% on a fully diluted per share basis to $0.78 for the quarter and $3.06 for the year. The strong growth in FFO per share was a result of three primary factors. Number one, the impact of our new development program, including merchant build gains. Second, very strong growth in joint venture fee income; and third another solid quarter from the operating properties, that produced a good same property NOI growth. Merchant build activities for the quarter generated FFO of $6.2 million net of tax or $0.07 of FFO per share and for the full year totaled $0.16 per share within the guidance range we gave in early 2007. Along with the other components of our new development program, merchant build activities have grown rapidly. But they still contribute only 5% of our full year FFO per share. Fee income was $2.5 million for the quarter, up more than 75% from the level of year ago, which is a direct result of our success in developing new joint venture relationships. For the full year, fee income grew to $8 million from less than $3 million in 2006 and we expect continued strong growth in fee income from joint ventures going forward. G&A expenses for the fourth quarter were flat compared to the prior year. For the full year, expenses were up 13%, however most of the ramp-up in expenses to support the strategic plan have now been accomplished. During the fourth quarter, we repurchased $15 million or $1.4 million common shares at an average share price of $36.47. Repurchases for the year totaled a $104 million at an average price of $37.12. We believe Weingarten start represents a compelling value at recent prices and feel it is the most attractive investment opportunities available to the company. We will evaluate future repurchases in light of projected capital needs for our new development program and other additional investment opportunities. I would like to also note that in 2007, we issued 400 million of preferred equity, expanded our revolving amount of credit from $400 to $575 million and raised more than $500 million in joint venture capital. This one plus billion of capital positions us to take advantage of opportunities that these changing markets make bring. In summary, we had a strong fourth quarter culminating in an extremely successful year, what I believe we have demonstrated that we are delivering on our strategic growth plan. So, what does 2008 hold? Neighborhood and community shopping centers that cater to basic necessities are the most resilient income producing real estate sector. However, we are also in a much more challenging credit market and the economy is obviously slowing. We are committed to producing growth and value for our investors, but we will proceed at a pace that reflects economic realities. Robert will discuss in a minute how the current economic environment is expected to affect our new development program. We expect to generate in 2008, FFO per share in the range of $3.21 to $3.27 representing growth of 5% to 7% over 2007. We acknowledge that this is a little lower than the 7% and 9% we budgeted with our new growth plan but we feel we must approach 2008 with caution. Our 2008 budget cost for new development investment is in the range of $275 to $325 million and with new development completions of $150 million to $160 million. Merchant build gains are projected in the range of $0.14 to $0.20 per share. Gross acquisitions are targeted at $300 million to $500 million, and we anticipate all of these acquisitions will be done through joint ventures. Our 2008 plan includes non-core property dispositions of $200 million to $250 million as well as the recapitalization or partial sale of existing assets to joint ventures in the range of $250 million to $350 million. So, planned dispositions total about between $450 million to $600 million. Same property NOI growth for 2008 is budgeted in the range of 2.6% to 3%. One final note, starting with the first quarter of 2008, we are making a change in our methodology for calculating interest capitalization on new development. For more than 25 years we have employed a methodology that used a pool consisting of our highest cost debt to determine the rate for interest capitalization on new development. The theory behind using this rate was that we had not invested -- if we had not invested in new development we would have used those funds to pay down our higher cost debt first. The resulting rate represents the opportunity cost of investing in new developments. This methodology is in accordance with GAAP accounting and has been reviewed and discussed with our auditors as I mentioned for over 25 years. The impact of employing this approach increased with the sharp growth in our new development program, which caused us to reexamine our methodology. We will now be using the weighted average rate on all of our applicable debt. We estimate that due to the growth in the new development program the impact of this change in accounting methodology will reduce FFO per share $0.05 in 2008. Our FFO guidance of 5% to 7% growth over 2007 is after adjusting for the additional $0.05 per share of interest expense. Again, we are excited about 2008 yet we approach it with some caution. I would now like to turn the call over to Robert to talk about the success of our new development program.

[Robert Smith:]

Thank you, Steve. 2007 was a record year for new development at Weingarten in terms of new projects started, total invested dollars, completions, stabilizations, and merchant build transactions. We started 13 new projects with an estimated final investment of $284 million, when stabilized. We invested a $193 million in our development program in 2007. As Drew mentioned earlier, our development completions totaled $96 million for the year exceeding our $80 million goal and finally we stabilized with four projects in 2007 totaling $52 million of which two were sold prior to year end. Those two projects plus our other merchant build activity contributed $0.16 of FFO in 2007. The company now has 32 properties in various stages of development up from 30 properties under development a year ago. We have invested $341 million to-date in these projects currently under development and estimate our total investment when they are completed to be $629 million. Additionally, we have eight new development sites under contract that have a final investment of $178 million bringing our total new development pipeline to $807 million. From this pipeline, we are projecting that six of these projects will be stabilized by the end of 2008 and these centers are 93% leased. By the end of 2009, we are projecting that 16 of the 32 projects currently under development will be stabilized and these projects are currently 73% leased. Of the 16 projects we are completing by the end of 2009, four are supermarket anchored and 11 are anchored by national big-box retailers. In terms of dollar completions, we are projecting approximately $150 million in completions for 2008 and approximately $250 million to $300 million for 2009. Our 2008 and 2009 completions have a projected return on investment of approximately 9%. To reflect our ongoing assessment of the softening market conditions, which is impacting anchor opening dates and leasing velocity, we have pushed out stabilization dates on a number of our projects. We have also elected to move four projects from the development pipeline into the category of land held for future development. Our total investment in these four projects currently stands at approximately $50 million and we fully expect that these properties will be successfully developed at a future date. Additionally as part of our ongoing feasibility and due diligence review process, we wrote-off $3.5 million of predevelopment costs on projects that we elected not to pursue because they did not meet our development criteria. As Steve reported, merchant build activities for the quarter generated FFO of $6.2 million net of tax or $0.07 of FFO per share and for the full year totaled $0.16 per share. As you will note on our new development schedule in the supplemental many of our new development projects are currently in joint ventures. These are not institutional joint ventures, but various types of development partners. We anticipate that going forward many of our merchant build projects will also be sold upon completion into institutional JVs and included in our assets under management. We expect to retain a 10% to 20% interest in these projects however. Therefore we did away with a categorization between core hold and merchant build in the supplemental, since we expect that most new development projects will be joint-ventured in the future. In summary, we now have a total pipeline including properties under development and those under contract, which totals $807 million. Conditions in the credit markets and the national economy may lead to fewer development opportunities in the short term. However, with the adjustment we've made to our pipeline, we are confident about the execution of our business plan for new development going forward. While we are being highly selective in initiating new development projects, we continue to find compelling opportunities, such as our most recent addition to the pipeline, Decatur 215, located in Las Vegas, Nevada. This is an outstanding target-anchored power center, consisting of 376,000 square feet of retail, restaurant and office space. This center has excellent demographics with a current trade area population of 95,000 people and average household income of $77,000. This center is scheduled to open in the fall of 2010 and is an excellent example of the new development opportunities we continue to see in this more challenging market. For more information on this development as well as all of our projects under development, I would direct you to our website at www.weingarten.com. There you'll find a description of each of our development projects, including current site plans, trade area demographics, maps and aerials, as well as other important information about each of our projects. We feel very comfortable with our new development program and encourage you to also get very comfortable by closely examining the details of each development project on our website. I will now turn the call over to Johnny to discuss the continued strong performance of our existing portfolio.

[Johnny Hendrix:]

Thanks, Robert and good morning to everyone on the call. As Steve and Drew mentioned, we are pleased with the results from the operating properties for the fourth quarter and the full year. On a cash basis, same property NOI for the company rose 3.2% in the fourth quarter. For the full year, same property NOI rose 2.8%. I should note that we have enhanced our disclosure adding same property NOI on a cash basis. Using cash is consistent with most of our peers and will eliminate some of the distortion of the operating results caused by what can be significant fluctuations in straight line rent. Our last eight quarters using same property NOI is included in the supplemental. On a GAAP basis, including straight line rent, same property NOI was up 2.4% for the year, and in the future we'll report cash. One more note on enhanced disclosure, we have expanded the average base rent schedule in the supplemental to reflect our rent by CVSA. This should add some additional color to the report and highlights the quality of our portfolio. In the fourth quarter, we completed 330 new leases and renewals totaling $1.7 million square feet with strong average space rental rate increase of 15.4% on a GAAP basis and 11.1% on a cash basis. For the full year, 1261 new leases or renewals produced some space rental increases of 14% on a GAAP basis and 10.3% on a cash basis. Occupancy continues to be strong. We ended the year with occupancy at 94.4%, up from 94.1% a year ago. Looking ahead to 2008 we are concerned about the economic slowdown ahead of us. At the same time, Weingarten is positioned to continue the consistent growth of our same property NOI. We have great people and execute solid properties and a strong group of retailers who have proven in the past to be resilient in difficult economic environments. Several retailers have reduced expansion plans. Most however are still expanding, albeit, at a reduced rate and they are significantly more discriminating than several months ago. Our ongoing portfolio reviews in long term relationships with retailers like Starbucks, TJX, Ross, Target, Kroger, Safeway and others gives us an advantage over smaller property owners and I think we will get more than our share of these tenants business. Of all the retailers that have announced closings, we are impacted by two of note. Hollywood Video, Movie Gallery stores announced they will be closing 400 locations in their latest round of closings. Four of those will be in our centers. We will lease these spaces for higher rentals, but there will be some short-term negative impact. Also we are expecting CompUSA to close all of their locations in the near future. We currently have four CompUSA stores. Again we expect to generate higher rentals from these spaces, as they vacate. But it will be negative in a short term. Overall the portfolio is well diversified both geographically and by retailer. No single tenant is more than 3% of our NOI and the top 25 make up less than 23%. There will be some fallout among our tenants. But again, the diversification we have will be a key factor as we go forward. Sales results have been mixed by category. We are seeing softness in home furnishings, home accessories, full priced apparel and casual dining. At the same time, we are seeing good sales increases from most supermarket operators, drug stores and discount apparel. 65% of our NOI comes from centers with supermarket component. So we've been trying to quantify what is making up their increases. We know some of the increases, inflation of food costs, we just completed a survey of our supermarkets in 20 metropolitan areas and found an average increase across the portfolio of 5.4% in customer account in recent months. This provides our retailers with a competitive advantage over non-supermarket anchored properties and confirms that during difficult economic times, consumers are continuing to go to supermarket. It turns out they are actually visiting our centers more often than before. During our budget process, we have reviewed each shopping center and created a detailed game plan for each of our properties. We are proactively soliciting for spaces occupied by weak tenants, planning to take advantage of circumstances that could create long term value. In summary, it was a good quarter and a good year. We are faced with some challenges ahead, but I think our portfolio is highly diversified, has a very strong tenant base with 65% of our tenants being national or strong regional retailers. And we have talented, experienced associates ready to meet the challenge ahead. I would now like to turn the call back over to Drew.

[Drew Alexander:]

Thank you, Johnny. Our success in executing our strategic growth plan resulted in the strong 8% FFO growth achieved during 2007, which actually hit the growth targets we set for 2009 and beyond. Even though due to the economic slowdown and the accounting methodology change, 2008 growth may fall slightly below our long-term targets. I'm very optimistic about our ability to execute our strategic growth plan and to produce recurring annual FFO growth per share of 7% to 9%. Before taking questions, I would like to cover two more items. First and most importantly, after a 40 year career with Weingarten Realty, our Vice Chairman, Martin Debrovner has decided to retire around June 30 of this year. Over this 40 year career, Marty has played a tremendous role in Weingarten's growth from a company with 45 properties and 10 employees to its current position, as an industry leader with a national platform. We all have great deal and our success to his dedication, skilled leadership, and the lasting relationships he has forged. In recent years, he has played a very key role in guiding our acquisition and new development programs. But perhaps his most lasting legacy is in mentoring the next generation of leaders, who are fully prepared to step into the important role he has filled. I know I join all WRI associates and wishing Marty all the best for his retirement and we look forward to continuing working with him on some special projects and to continue to get his advice. All the best, Marty. Second, I would like to remind everyone about our upcoming property tour and Investor Day, which is scheduled for April 8 and 9 at the Venetian Hotel in Phoenix. We plan to tour some of our outstanding new developments and existing Phoenix properties as well as look at the market, update our strategic plan and answer any questions you have there. So, we hope many of you can make it, please contact us about that. Natasha, we would be happy to take questions at this point.

[Operator:]

Thank you. (Operator Instructions) Your first question comes from Craig Schmidt of Merrill Lynch.

[Craig Schmidt:]

Yeah. I was wondering if you had any expectations of occupancy changing from the year end '07 versus '08 given your guidance?

[Steve Richter:]

Craig, as we go through the budget we're always negotiating with our salesmen here and salesmen tend to be optimistic. We do have, I guess, a reduction in occupancy budgeted in the first quarter and then it moves up through the rest of the year. On an average basis it's pretty flat. We've also overlaid some increased bad debt on top of that and that's pretty much where that stands.

[Craig Schmidt:]

And where do you feel most comfortable in terms of the mix of general merchandised anchored center versus supermarket anchored centers?

[Steve Richter:]

Either or I guess I feel most comfortable with supermarket anchored shopping centers and certainly in this sort of times. Most of our general centers, Craig, are Wal-Mart and Target anchored and even though those companies are going through some modest changes they are still very, very strong retailers in the grand scheme of things. So, about two-thirds of our portfolio is supermarket, most of the rest is Target or Wal-Mart so.

[Craig Schmidt:]

And you would expect to keep that ratio that's I guess, maintain that ratio of two-thirds, one-third?

[Steve Richter:]

It may change a little bit overtime in terms of has we develop more properties. But I don't think it will substantially change and certainly not quickly.

[Craig Schmidt:]

Okay. Thanks a lot.

[Operator:]

Thank you. Your next question comes from Carol Kemple of Hilliard Lyons.

[Carol Kemple:]

Congratulations on your dividend increase.

[Steve Richter:]

Thank you.

[Robert Smith:]

Thank you.

[Carol Kemple:]

I just had a couple of questions. One; what kind of cap rates are you expecting for acquisitions made in 2008?

[Robert Smith:]

I'd say we're probably in the low to middle 6s, again we're focused mostly on good quality core properties everything we budget to do in 2008 acquisition wise will be done through joint ventures, where we'll be putting in 15%, 20% of the capital increasing our assets under management, getting a reasonable fee stream, getting some long-term promotes. And at this exact moment, we hear a lot of anecdotal evidence about the market coming back and getting stronger over the next several weeks. But at this exact moment the market is very, very slow.

[Carol Kemple:]

Okay. And I noticed you had a couple of prefers that you all can call it your option. Do you expect to call any of yours prefers this year?

[Steve Richter:]

I don't really anticipate calling. We do have one preferred that we executed last year that we do anticipate refinancing. But I don't expect actually doing a call of either one of them.

[Carol Kemple:]

Okay, thank you.

[Operator:]

Thank you. Your next question comes from Ambika Goel of Citi.

[Ambika Goel:]

Ambika with Michael Bilerman. Can you just add some more color on the developments that were pushed off the pipeline because their stabilization date was delayed?

[Robert Smith:]

Sure. I can do that, this is Robert. We typically routinely review all of our projects and are constantly evaluating where we stand in the status for each one of these and as the economy has begun to turn and we stayed in touch with all of our anchor relationships and our retailer relationships and for the continuous feedback that we get from them, we've had conversations with our anchors about some potential opening delays. We know the couple that we've already assumed and budgeted in here, we're anticipating may be a couple of more of those. Generally, velocity of leasing has slowed down some because of this market more of an uncertainty thing. So, we've gone in and probably addressed about a dozen of these properties that we've pushed up probably in an average of six months on the stabilization dates. But we think that we're pretty comfortable with where those stand now. We've got great clarity on 2008 where we stand with the leasing status of those properties and again we're a lot more comfortable with 2009. So, we think these adjustments will really put us in line with what's happening in the marketplace today.

[Drew Alexander:]

One of the other things to keep in mind for everyone on the call is when we talk about pipeline that's estimated final. If we push a project out, we own the land, which is typically about 25% of the total investment. So, it's not like we've the whole big shopping center sitting there built empty. It's a much smaller portion of that. Again, these are good strategic locations, very few really affected by the housing situation to any degree and it is something as we've talked about in the formal text. It's pretty well detailed on our website and certainly happy to answer any detailed questions that folks have at the proper forum.

[Johnny Hendrix:]

I'll also add to that, Drew, that we've dialed-in all of these effects. We're still standing at a 9.2% return overall on this pipeline. So, we're pretty comfortable with that. We've done some analysis where if you delayed it for a year, the impact is quarter to 50 basis points.

[Ambika Goel:]

Okay, great. And then on those developments that were pushed back of the schedule, do you have anchor commitments or leases completed for those projects?

[Drew Alexander:]

I would say we do for primarily -- I would say for virtual all of that we do. On the ones that were delayed we do virtually all of them on the ones that moved into the health or future development we don't.

[Johnny Hendrix:]

No. That's correct.

[Ambika Goel:]

Okay, so just to clarify, what's Weingarten's policy, I guess, on buying a land? Do you always have an anchored commitment before you move forward and put money down on the land, just because I guess the project costs of the $200 million of projects that was pushed off the schedule ahead about $50 million of investment already in the project. So?

[Drew Alexander:]

I would say that we usually have an anchored commitment. We got involved in a few things, where in hindsight maybe we took a smidge more risk than we should have. Again we think we will be fine at the end of the day. One of the larger projects is a big mixed used development in Raleigh, that is still very good real estate. But we may end up going in a different direction than we originally planned.

[Ambika Goel:]

Okay, great. And my last question is on the development yields. It's based upon the disclosure, it appears that the 2010 and beyond development yields are about 8.7%. Is that conservative underwriting or what's the reason that the development yields essentially falls from 2007 to 2010?

[Drew Alexander:]

I would say it is conservative under writing. It’s also little bit of thing as Robert alluded to getting pushed a little bit more interest and it will slip some but not very much.

[Ambika Goel:]

Okay, great. Thank you.

[Drew Alexander:]

Look forward to seeing you soon and Michael and Jonathan as well.

[Ambika Goel:]

Great, thanks. Operator Thank you. Your next question comes from Lou Taylor of Deutsche Bank.

[Lou Taylor:]

Good morning. Steve, can you just clarify a little bit in terms of the merchant build gains and the development deliveries. Of the '08 deliveries, do you plan to sell all of them or just some of them?

[Steve Richter:]

There will be some of them, a couple of deals that will be sold outright. I'd also remind you that it also includes some pad sales out front. So it's just the final sale of the shopping center.

[Lou Taylor:]

So, of the '08 deliveries then, how much do you expect to may be keep on balance sheet or keep in the core portfolio?

[Steve Richter:]

I don’t know that breakdown immediately. I can get back to you with that.

[Lou Taylor:]

Then how about in terms of the merchant development earnings contribution at $0.14 to $0.20. What's your expected margin on the sales and can you give us a ballpark sense of the disposition cap rate that’s baked in there?

[Steve Richter:]

Well, again it's a mixture of the shopping centers, of the sale of a couple of shopping centers as well as pad sales. The margins on the shopping centers are anywhere between 20% to 30% and we are assuming about a 7% cap rate, which we think is a pretty conservative number, given the quality of some of these projects. And then again, you have some pad sales that are again in the same kind of margin numbers, but don’t necessarily drive directly of the cap rate.

[Lou Taylor:]

Okay. And just last question, I got a little confused in terms of your development starts for this year that would deliver in say, late '09 and '10. Should we assume that the development pipeline is moving toward a pure merchant build pipeline or is there going to be still a mix of some merchant and some retained on balance sheet?

[Steve Richter:]

I think there will be a mix of three things and this is why we feel changing the disclosure made more sense, because it is very hard for us to know even with great clarity. There will be some properties that we'll keep our ownership where it stands, in terms of either, it's a 100% or in a lot cases as Robert mentioned, we are in an active joint venture partner. As an example, our partner in the Rio Grande Valley, my guess, subject to the forward-looking statement would be those properties stay just as they are, because he owns 50%, we own 50% and all indications are that that will just exactly like it is. In other cases, where we currently own 50%, I think it's a distinct possibility our partner would sell -- we would sell part of ours and we would end-up owning 15% of those assets, because again it just appeared to us after we got into this, that made a lot more sense to increase our assets under management, and increase our joint venture using the properties that we developed, which are good properties that we know and understand. And then thirdly, there will be some cases and this is primarily the locations that are a little more outlined, not metropolitan areas, where we'll sell a 100% of the center. So it really boils down to the sort of three categories, those that will stay like they are, some of which is a 100%, some of which is 50%, those that will sell a portion of, that will sale all of.

[Lou Taylor:]

Great, thank you.

[Operator:]

Thank you. Your next question comes from Michael Mueller of JPMorgan.

[Michael Mueller:]

Yeah, hi. Just first, following up on that prior question. So, if you are looking at the pipeline of the 32 projects there, what's your sense in terms of what portion of them would be either held in some form of fashion whether it's with the current JV partner or just wholly-owned on your balance sheet versus a second category a transaction happens that generate some sort of gain?

[Drew Alexander:]

I was scanning over the list, while Steve was talking before and it's really going to take me a little bit to come up with even a rough estimate. I mean that's where we've more backed in to the overall guidance numbers of where we think the merchant build will be. But as Steve said before it comes from a lot of different sources. So, we're going to have circle back on that estimate.

[Michael Mueller:]

Okay. And second question, when was the last time that you brought stock back?

[Steve Richter:]

In the fourth quarter.

[Michael Mueller:]

Okay, nothing this year?

[Steve Richter:]

That's correct.

[Michael Mueller:]

Okay, thank you.

[Operator:]

Thank you. Your next question comes from Mark Biffert of Goldman Sachs.

[Mark Biffert:]

Good morning. I guess related to the tenant bankruptcies that you had talked about into the store closure have you built any dilution into your '08 guidance for those tenant bankruptcies?

[Johnny Hendrix:]

Yeah. Mark, this is Johnny. We've budgeted for these closings. I just want to make sure that there is no confusion here. We're not saying Comp USA is filing bankruptcy, we don't know that. Hollywood video has in fact done it. But we've built those closings and those reductions into the budget.

[Mark Biffert:]

And how much are you planning during the year in terms of per share?

[Steve Richter:]

I think, we've got somewhere around 3.5, what's the total of that number?

[Robert Smith:]

It's probably about $0.04 total of bad debt.

[Mark Biffert:]

Okay. And Tom has one question as well.

[Tom Cholnoky:]

Hey, guys. We've spoken about how you expect to sell an increasing portion of your merchant build projects into institutional funds, where you retain an ownership stake. Can you talk about how that might affect your expectations for overall merchant build gains in future periods. I'd assume that when you sell a merchant build project into a fund and you keep a stake that you can't book as much of the gain on sale to FFO?

[Steve Richter:]

That's of course correct. When you are keeping 15% to20%, so it reduces it by that amount versus 100% sale and it's one of those tradeoffs that you know, while it does have that slight disadvantage. We think the increasing assets under management, the efficiencies of being involved in properties that we know, we structured the leases outweighs it. I guess we're also sensitive to the fact that we're comfortable with a certain amount of merchant build income. But we don't want to see it grow to be a huge percentage of the companies FFO. So, it is something as we see it will absolutely plateau as well as the fact that we think overtime, our dispositions of non-core properties will level out a bit as well. So, it actually sort of nicely correlates.

[Drew Alexander:]

The other point

[Tom Cholnoky:]

Just a very quick follow up, do you think that the level of merchant build contribution to FFO will at some point exceed the $0.20 to $0.25 that you expect or that you plan to book in 2009?

[Steve Richter:]

I could see it maybe slightly exceeding that but certainly not very much.

[Tom Cholnoky:]

Okay, thanks a lot guys.

[Steve Richter:]

We'd ever get to 15% of FFO but that would be hard to see.

[Tom Cholnoky:]

Okay, thanks a lot.

[Operator:]

Thank you (Operator Instructions) Your next question comes from Rich Moore of RBC Capital Markets.

[Rich Moore:]

Hi, guys. Steve, could you tell us about '08 debt maturities which you've left and maybe what the creditors are seeing at this point?

[Steve Richter:]

Yeah, Rich we've about a $120 million of maturities left in this year and that split between couple of secured financing that matures as well as few NTNs scattered throughout the year. We also were able to pay off the $120 million piece of CNBS debt that was we assumed, when we purchased Burnham Pacific portfolio, I guess that was 7, 8 years ago, whenever it was. Now, so, that's very well --we're very comfortable with our maturities at this point.

[Rich Moore:]

And then what you are hearing from the credit markets, any update on that?

[Steve Richter:]

In terms of raising capital or.

[Rich Moore:]

Yeah. What you are hearing from lenders in terms of how ready already they are to lend, what spreads might be that kind of thing?

[Steve Richter:]

Well the CNBS market, I think, is all but closed. The life market is still out there. I think if you have good assets with good sponsors, you can still get, I'll say this relatively competitive rates. They are certainly wider than they were six months ago. But you can still attract money. On the public side, the spreads that were quoted for our public debt, the NTN market are pretty wide, but that market as yet to be tapped. Certainly the preferred market is still open and the recent transaction, we had due to a transaction a week or two ago. So, I think the markets are still open. The pricing is different and you obviously have risk and credit being priced differently today.

[Robert Smith:]

It's also something with the availability under our lines until things calm down. We are in no rush to do anything. So while we look at it a little bit and been approached by some investment bankers, we have not been actively in the market as we see it too choppy and we want things to calm down.

[Rich Moore:]

Okay, good. Guys thank you. And then did you have any auction rate security, Steve, in your cash balance?

[Steve Richter:]

No.

[Rich Moore:]

Okay. And just so I understand this correctly on the guidance, are you saying you would be $0.05 higher in terms of guidance without the accounting change for capitalized interest rate?

[Steve Richter:]

That is correct.

[Rich Moore:]

Okay, and last thing I had guys on leasing, Johnny, where are you at on 2008 explorations and how are you seeing that playing out for the rest of the year?

[Johnny Hendrix:]

We're somewhere around 60% done with 2008. In a lot of cases, we have chosen not to renew some of those tenants trying to take advantage of some individual circumstances. But generally we're comfortable with where we are for 2008.

[Rich Moore:]

Okay, great. Thank you, guys.

[Operator:]

Thank you. Your final question comes from Jeff Donnelly of Wachovia Securities.

[Jeff Donnelly:]

Good morning, guys. Hey, Drew, I think it was in late October you guys had begun marketing and pretty substantial portfolio of assets. I mean it was just under 2000 assets or about $300 million and $350 million. I think at that time you were saying that you guys had expectations that the cap rate on that portfolio will be about 7%. Does that still hold and I guess I would have expected that it maybe an announcement will be close at hand. Can you update us on where things are at there?

[Drew Alexander:]

I would say we're close in both fronts. We have nothing to announce. We obviously have seen a lot of changes in credit markets, but we are making progress on the deal and are cautiously optimistic we'll have something to announce reasonably soon, that we think will be good for all parties involved.

[Jeff Donnelly:]

You know, I guess on that portfolio, you and I were one time debating whether they were low growth or lower growth assets. But, I guess, given that they are probably not, that I would call, the highest growth assets in your portfolio, have you seen as you move through the negotiations, much pushback from the investment community or from your investors ability to get -- or your buyers ability to get financing on those assets at all?

[Drew Alexander:]

I wouldn't say that we have seen a lot of pushback. It's just been a very turbulent market with a lot of things to get done. I also think that it is a very good growth portfolio. A lot of the assets, as you know, because you've looked at them, are more ethnic, more independent supermarkets and as I tried to articulate to you and others, a big reason for us doing this deal is the sort of Wall Street perception that, while we think these independent supermarket operators are very strong, do fabulous sales per square foot, while we believe that these locations have barriers to entry. We have found it difficult to convince Wall Street of this, whereas some pretty sophisticated real estate people have spent a lot of time in the car looking at these things, and concluded that they have very good growth; they have great sales per square foot, great franchises, good barriers to entry and I think we've made progress on this transaction. When you look at the broader markets and what we've had to deal with, it's going on in the time that we've been marketing this. I mean in hindsight our time to the market could hardly have been worse that we had this teed up and we're ready to take it to market the early part of August and we slowed it down a little bit to let things calm down after Labor Day and I think I need to tell anybody on the call that it's been a pretty choppy 4 or 5 months in the financial market. So, I think we've made tremendous progress when you consider what's been going on in the broader market.

[Jeff Donnelly:]

I don't know if I'm allowed one more question but.

[Robert Smith:]

Given that you're the last guy on the call sure, Jeff.

[Jeff Donnelly:]

Thank you. And I guess as it relates to the assets that you guys are planning to sell either in the JV or outright in 2008. Can you talk a little bit about the basis from a balance sheet perspective as you guys having those assets because I guess my impression is that you're selling a lot of your assets that are probably lower basis from a balance sheet capacity standpoint. It's probably more beneficial than it might seem on the surface. Is there a way that you can give us some data around that?

[Robert Smith:]

It's a complicated thing and I think Steve wanted to respond as well. You're right, they are lower basis assets. So we've a great gain and we also think it will do a lot to underline and provide evidence. So, while we think the NAV of the company is a lot stronger than a lot of Wall Street does, we think it will show the quality of the portfolio stronger than what Wall Street does. It does get into some other complicated things in terms of the amount of gain and where we might end up at some point in the future vis-à-vis special dividends and other things. So, it is complicated.

[Steve Richter:]

I withdraw my comment. My CEO made the NAV comment that I want to make.

[Jeff Donnelly:]

Okay, thanks guys. I'll follow up with you offline. Thank you.

[Robert Smith:]

Thanks, Jeff.

[Operator:]

Thank you.

[Drew Alexander:]

Well, I thank everyone for their time. I reiterate both that we think we had an excellent quarter. We're very comfortable with our long-term strategic progress. We would certainly draw your attention as Robert mentions to the website if you have any questions about the new development and lastly and somewhat importantly the analyst investor tour in Phoenix should be a nice time of the year. In Phoenix, the Venetian is certainly a nice place, April 8 and 9, a chance to go over the strategy, see some of the new development, some of the existing properties as well. So, thank you all very much. We look forward to talking with many of you further.

[Operator:]

Thank you. This concludes today's conference call. You may now disconnect.