Weingarten Realty Investors
Q1 2009 Earnings Call Transcript

Published: 29 Apr 2009

[Operator:]

Good morning. My name is [Maggie] and I will be your conference operator today. At this time I would like to welcome everyone to the Weingarten Realty investors first quarter earnings conference call. (Operator Instructions) I'll now turn the call over to Kristin Gandy, Director of Investor Relations. Please go ahead, ma'am.

[Kristin Gandy:]

Good morning and welcome to our first quarter 2009 conference call. Joining me today are Drew Alexander, President and CEO, Stanford Alexander, 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 of 1995. 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. Also during this conference call management may make reference to certain non-GAAP financial measures such as funds from operations or FFO, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to this non-GAAP financial measure is available in our supplemental package located on our website. I'd 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. I'd now like to turn the call over to Drew.

[Drew Alexander:]

Thank you, Kristin, and good morning, everyone. I'd like to open our call this morning with a thank you to all who participated in our 2009 analyst and investor property tour here in Houston. It was a great success as we had over 275 participants either in person or on the webcast for the company's presentations. That event took place four weeks ago today and things have changed dramatically in just about a month. At that presentation we outlined our strategy. We were very comfortable with that plan, which provided liquidity over the next year or so through additional secured financings, dispositions, a couple of new joint ventures and common equity to be sold through a continuous equity program. We believed as we executed our plan the market would reward us with a higher multiple and higher stock price, thereby minimizing the dilutive effects of selling the new equity. The morning of our presentation our common shares opened at $9.04 per share. In the two weeks that followed that presentation the market provided a 68% increase in share price. That provided us the opportunity to recapitalize our balance sheet and substantially reduce our future liquidity needs. We achieved those results by selling common shares last week which resulted in net proceeds of $439 million. The offering was quite successful. It was four times over subscribed and the over allotment option was exercised by the underwriters. Concurrent with that offering we reduced the quarterly dividend to $0.25 per share. On an annualized basis this represents a dividend of $1 per share. The company's revised dividend was based in part upon our estimate of taxable income for 2009. This estimated taxable income - and it's a very rough estimate - which must be distributed in order to satisfy REIT requirements includes taxable income from our operating properties, capital gains from completed property sales, and projected capital gains from property sales that we currently have under contract or letters of intent. Assuming a $0.25 per share dividend for the remainder of the year, the full year projected cash dividend for 2009 would be $1.27 per share, which would approximate our dividend obligation. The company anticipates disposing of properties in addition to what we currently have under contract or letter of intent. In the event significant capital gains are generated from these additional dispositions, the company may elect to declare a special dividend in a later period in order to satisfy REIT requirements. The company would consider paying all or any part of any special dividend in common shares. Reducing the dividend was a tough decision for the management team; however, we feel that in these uncertain economic times the best value we can provide our shareholders is by preserving liquidity, which meant reducing the dividend. The new annual $1 per share dividend is a sound level for the company as we move through this difficult economic environment. Once the economy and credit markets stabilize, the company will once again be in a great position to increase the dividend. The quality of our operating assets and our great associates ensure our future success. Our first quarter results confirm the resiliency of the supermarket-anchored shopping center space given the solid operating results. And with that I'd like to turn it over to Steve to review the financial results for the first quarter.

[Steve Richter:]

Thanks, Drew. Funds from operation or FFO on a diluted per share basis grew to $0.77 for the first quarter of 2009, up 1.3% from the prior year. Net income on a diluted per share basis was $0.38 for the first quarter of 2009 compared to $0.32 per share for the same period of 2008. In the first quarter the completed a sale of a portion of Wyoming Mall in Albuquerque, New Mexico which produced merchant build income of $9.6 million net of tax. Subsequent to quarter end, WRI closed on the sale of our interest in one of our new developments for $15 million, generating additional merchant build income of $3.9 million. So in total, we have generated $13.5 million net of tax in merchant build gains thus far in 2009. These gains achieve our full year merchant build guidance of $0.14 per share. I'd note that that's a pre-offering per share number. The company does not anticipate any significant amount of merchant build gains in the balance of 2009. The company also completed non-merchant build dispositions of $8.5 million subsequent to quarter end. So in total, we have closed $71.9 million of dispositions thus far in 2009. Additionally, we have $32 million of dispositions currently under contract and have signed letters of intent on another $81 million of assets. Not all of these sales will close, but we are making good progress on our goal of $300 million for the full year 2009. We also currently have $300 million of other assets for sale in the market today with an additional $290 million of properties that will hit the market prior to ICSE in early May. Thus in summary, we will have $590 million of properties on the market, which is the total of the $300 million that's in the market today plus $290 million that will hit the market soon. We do not plan on selling all these properties, but are extremely focused on achieving our $300 million goal. We remain committed to our 2009 liquidity plan that includes the $300 million of secured loans, $300 million of dispositions I just talked about, and some additional new capital from JVs. This plan will provide us in the neighborhood of $750 million of new additional liquidity during 2009. We are focused on the total liquidity versus the individual components of the plan. As an example, the assets in the proposed industrial joint venture will probably be included in our disposition or secured financing initiatives. From a balance sheet perspective during the first quarter we closed the final four properties in the Hines joint venture. We completed the loan assumptions on each of the properties, transferring secured debt totaling approximately $34.6 million to the joint venture. I would actually deviate slightly from my prepared remarks to make the point that this is a good example of how long it takes to get real estate deals done in today's market. Our team worked very hard and we got the transaction completed, but I'm not sure that folks fully appreciate all the details that must be worked through with lenders and services and the attorneys and how careful everyone is in this market. It was a tough job, but it does take quite a bit of time. During the quarter the company locked in interest rates at an attractive 7.49% on a $103 million secured loan with a major life insurance company. This loan will be for approximately 8.5 years, representing a 55% to 60% loan-to-value and will be secured by four shopping centers. We anticipate this deal closing shortly. Additionally, a five-year secured loan totaling approximately $10 million was completed on a retail property in Lubbock, Texas during the quarter at a 6.5% interest rate. We are currently in conversations with other life companies and banks for additional secured loans and at this point are very comfortable in achieving our goal of closing $300 million of secured debt this year. Subsequent to the end of the first quarter the company purchased $57 million in face amount of our 3.95% convertible debentures for $47.1 million excluding any accrued interest. We will continue to pursue the repurchase of our near-term debt obligations as long as we can achieve acceptable yields. As Drew discussed, subsequent to quarter end the company sold 32.2 million new common shares. The net proceeds of $439.3 million from the sale were used to completely pay off our $575 million revolver and currently we have about $110 million invested in short-term cash instruments. With the completion of this offering we substantially improved our liquidity position and while we remain focused on our efforts to provide additional liquidity through asset sales, new secured financing and joint venture transactions, the equity allows WRI to reduce its outstanding indebtedness earlier than anticipated and ensures the continued success of our operations. I would also note that our new annualized dividend of $1 per share is well below our estimated AFFO - and this is a post-offering number - of $1.30 per share, which allows the company to provide significant free cash flow and improve our liquidity position going forward. I would also note that due to the common share offering management decided to discontinue to the ATM equity offering agreement that was entered into earlier this year. No shares were ever issued under this program. Let's now move on to guidance for 2009. We believe FFO after the equity offering will be in the range of $1.88 to $2.12 per share. Additionally, it assumes the excess liquidity that we have today, along with additional amounts of cash that we anticipate will be added during the year as we complete our liquidity plan for 2009, will be invested in short-term cash-type securities which yield only nominal interest rates. Also, our FFO guidance does not include any gains from the repurchase of our debt securities. We have made significant improvement in strengthening our financial position in this difficult capital-constrained environment and we are well positioned to weather the current economic turmoil. I would now like to turn the call over to Robert Smith to talk about our new development program.

[Robert Smith:]

Thank you, Steve. We currently have 25 properties under development representing $644 million in total gross investment. That's $466 million as Weingarten's share upon completion. We have invested $389 million to date in these projects. We are 66.4% leased, inclusive of anchor tenants not owned, with an overall average yield of 8.1%. We continue to make the completion of our projects under development a top priority and are pleased to report we achieved completions of $26.3 million during the first quarter. This includes the grand opening of our anchors at Clermont Landing, the 366,000 square foot shopping center in Clermont, Florida anchored by JCPenney, Epic Theater, Ross and T.J. Maxx. We will have a net investment of approximately $19 million and a projected 9.2% return when this project stabilizes in 2010. Despite our positive progress this quarter, the continued reduction in demand for new development space nationally leads us to believe completions for the year will trend to the lower end of our previous guidance of $100 to $130 million. We did not add any properties to land held for development this quarter, which currently stands at $117 million in total investment, as Weingarten share; however, we will continue to monitor the lease up of our phased projects and larger developments for possible reclassification to land held for development in subsequent quarters. While future growth is likely a few years away, we remain focused on leasing our current development and utilization of our land inventory to create value for the shareholders and keep us positioned as a viable developer in our markets. I will now turn the call over to Johnny to discuss our existing portfolio.

[Johnny Hendrix:]

Thanks, Robert. Good morning to everyone on the call. The retail environment continues to be challenging, but we are seeing some hopeful signs that it could be stabilizing. Consumer confidence held steady during the quarter and according to the U.S. Census Bureau, sales for retailers who typically occupy our type of shopping centers were mostly up for the quarter versus last year. Supermarket sales were up 1.5%. Most supermarkets also enjoyed some increased margin, with higher volumes for private label products and lower fuel and delivery costs. Restaurant sales were up 3.6%. While consumers are trading down, they apparently are still eating out. General merchandise sales were up 1.8%. Clothing sales were down slightly - 0.1%. Taking into account that Easter sales moved to the second quarter of this year, I don't look at that as an indication of further weakening. These are the vast majority of retail categories that anchor Weingarten's portfolio, so we're encouraged by their performance in the first quarter. Several viable retailers, such as TJX, Best Buy, Ross, Hobby Lobby, Big Lots and Bed, Bath & Beyond, are back in the market looking for stores. Rents for these box users are lower than 18 months ago, but it is important that they are back looking for infill sites to relocate and upgrade existing locations or open new stores in areas they may not have been able to access previously. I am still concerned we will have significant retail bankruptcies in 2009, but there have not been as many filings to date as I had anticipated. Weingarten's operating metrics for the first quarter of 2009 were slightly better than my expectations, and overall I believe we will be within our forecast for the full year. Same property NOI was down 2.6% overall and 2.5% for retail. This is actually above our forecast, which anticipated more bankruptcy filings during the quarter. Bad debt and falling occupancy for the last 12 months were the primary drivers for this result. Additionally, common area maintenance and tax [inaudible] have been completed for 2008, three months ahead of last year and these true-ups resulted in an earlier recognition of adjustment in bad debt reserves. This should balance out through the next two quarters. I still expect to perform within the same property NOI range we forecasted at zero to minus 2% for the full year. Just as a reminder, Weingarten does include bad debt and accounting adjustments in our same property NOI calculations and we do not include termination fees. Rent growth for leases commencing during the quarter was 9.2% on a GAAP basis. Spreads for renewals were 12.3%, while new leases were down 2.1%. Rent growth for new leases signed and not commenced is currently in excess of 5%. Occupancy fell 110 basis points from the fourth quarter of 2008. Approximately 67% of this reduction is due to the fallout of Circuit City, which was 225,000 square feet, and Goody's, which was 90,000 square feet. Occupancy at quarter end was 91.7% for retail and 91.5% overall. I am anticipating further reductions in occupancy next quarter as I believe we will see some retailers on our watch list succumb to the pressures of the market. We had forecast approaching 90% occupancy in mid-2009 and that may still happen, but I believe we will stabilize during the third quarter and slightly increase occupancy through the balance of the year. My optimism is primarily driven by the leasing activity we have been able to generate in recent months. Leasing velocity has remained consistent for our like-for-like properties and slightly above projections we had used for our 2009 forecast. In total, we executed 126 new leases for $6.8 million in annual rent in the first quarter of 2009. This is compared with 138 leases for $8.8 million in annual rent in the first quarter of 2008; 60% of the decline in the number of leases is attributable to a reduction of leasing within new development whereas Robert mentioned earlier, we have pretty well completed the lease up of new developments to be delivered through 2010. We are seeing good activity with restaurants that offer good value. Buffalo Wild Wing, Subway and Chinese buffets are good examples of this group. Most encouraging is the activity we are generating with the big boxes. Weingarten has 38 vacant spaces in excess of 15,000 square feet. We are currently negotiating committee-approved transactions for 7 spaces and actively negotiating letters of intent for an additional 10 spaces. These 17 transactions would represent a 150 basis point improvement in occupancy on a pro rata basis. We are working with traditional retailers for the most part but are also negotiating transactions with a medical school, a charter school and a vocational school. This highlights the adaptability of open air centers as they do lend themselves to alternative uses. We talked a lot about Weingarten's proactive leasing initiatives at the investor tour last month. We continue to aggressively seek business using cold calls, e-mail blasts, Internet listing vehicles, direct mail, broker relationships, and global tenant meetings. These efforts are bearing fruit and we are continuing to lease space even in these challenging times. We still have a lot to do, but I am confident our portfolio, which generates 68% of our NOI from supermarket-anchored properties, will be resilient through the current economic climate. We'd now like to turn the call back over to Drew.

[Drew Alexander:]

Thank you, Johnny. As many of you know, the Weingarten team has been very busy over the last six weeks with the tour, the equity offering, and the quarter close. I'd like to take this time to congratulate the team for a job very well done and for operating under some very tight timeframes. These are unusual and challenging times. For years REIT share prices, including WRI, experienced low volatility and oftentimes did not correlate to the broader market. That is not the case today. Given the pace of change, we feel we must remain focused and flexible to achieve our long-term objective of increasing shareholder value. The market and our decisions over the last six weeks are an example of the current environment and our focus and flexibility. Weingarten has a great team that has once again proved they're truly committed. I take great pride in the strides the company has made in these challenging economic times. We have been and are focused on adapting our operations to the new market conditions, addressing liquidity and maintaining a solid balance sheet. We've had a tremendous start to 2009 with first quarter operations exceeding Street expectations and raising $439 million of new equity. We appreciate we are still in a tough economic climate, but we're very confident of our future success. Operator, with that we'd be happy to take questions.

[Operator:]

(Operator Instructions) Your first question comes from Craig Schmidt - BAS-ML.

[Craig Schmidt:]

I was wondering what is your expectation with the Blockbuster Video - I see you have 49 locations - in terms of your year end occupancy?

[Johnny Hendrix:]

Craig, we've met with Blockbuster. They have been a tenant with us for a long time and have always been a great partner. I think it's obvious that they are struggling. For the most part we have very good locations with them with leases that are relatively old and I think if we do get some of those back we would release those fairly quickly even in the condition of the market today. We have some leases that we've already talked with them about that they may be not renewing [break in audio] we're not looking for a real loss hit in occupancy right now.

[Craig Schmidt:]

And it sounds like the big box interest in taking new space has picked up somewhat. When was that maybe that inflection point?

[Johnny Hendrix:]

You know, it's interesting because it seemed like the middle of January it started to bubble up and I would say in February it started growing more significantly. The last quarter of 2008 was a little bit spooky, where a lot of the retailers did not have committee meetings and it was seemingly in mid-January to late January that it seemed to kind of turn around and pick back up.

[Craig Schmidt:]

And are they looking to open before the end of this year or would this be a 2010 event?

[Johnny Hendrix:]

Some of them are looking to open this year, but I think today if we don't have a signed lease right now it would be difficult for them to get open by October so they could hit Christmas. So I would say the majority of them would be 2010.

[Operator:]

Your next question comes from Jeffrey Donnelly - Wachovia Capital Markets, LLC.

[Jeffrey Donnelly:]

Johnny, I guess if I could pick up from there, can you talk a little bit about new leasing volumes and pricing in April just post-quarter? Have you continued to see the same pace and volume of new leasing that we saw in Q1, particularly versus the same time last year?

[Johnny Hendrix:]

You know, it's kind of funny. Leasing kind of goes up and down and it's hard to track it on that short of a basis. I think the leasing for April has been a little bit slower than it was in March. I don't know if that's a trend or anything else, but that's really in the small spaces. In the bigger spaces we do have I think some really good traction with leasing velocity on that 38 boxes that are over 15,000 square feet. All in all I think that it's better than we had anticipated it would be, but probably a little bit less than March.

[Jeffrey Donnelly:]

And hopefully I can sneak in a two-part question here concerning dispositions. First, can you give us an update on the marketing in the industrial JV, I guess I'll call it. At the analyst day I believe you said you were on the verge of a call for offers. I was curious how that's shaping up and what we can expect for either gross valuation there or net proceeds to Weingarten.

[Drew Alexander:]

As Steve mentioned in his remarks, the industrial joint venture - and I think we mentioned this at the analyst day - is probably just going to move into the general one off dispositions. I don't think a joint venture is very likely. And as we split the portfolio up, it looks at this point that it'll probably be in small enough sizes that we just consider it part of the overall disposition effort.

[Steve Richter:]

I would also add that we probably will wind up putting a couple of secured loans on some of those assets as well.

[Drew Alexander:]

Yes. Some we'll elect not to sell but just to finance.

[Jeffrey Donnelly:]

I must have missed that. And I guess as a follow up, though, considering the retail assets that you similarly listed, I believe you had a flyer out with Eastdale, what's been the feedback that you've heard from the marketplace there? The fact that - not that they're necessarily too shabby - but the fact that there are two Krogers that do $400 a square foot versus the rest of the portfolio at $600 to $700 a square foot, have you seen a real difference in interest across those individual assets?

[Steve Richter:]

So far the feedback on the retail build has been quite good. We've signed a number of confidentiality agreements and everyone is optimistic that we'll have some real good traction for that, as you mentioned. Those are really good quality centers, so it's something that even in this market we would expect very good interest.

[Operator:]

Your next question comes from Jay Habermann - Goldman Sachs.

[Jay Habermann:]

Steve, in your comments you mentioned possibly having $590 million of assets on the market over the next few months, but in light of the recent equity raise I'm just curious, would you look to dial that back? I'm just curious why you're pushing sales so aggressively, especially when this is a pretty tough time for pricing.

[Steve Richter:]

Jay, I think in this market, we used to have about a 75% hit rate on dispositions once we got them under contract and that number has drifted down more in the kind of 50%-ish percent range, if you will, just because of the difficulty in the market, principally driven by buyers' access to capital or lack thereof, quite frankly. So it's just a matter of making sure we have enough product out there that the market price is what we feel like is a reasonable price, but we're still very focused on trying to get to at least that $300 million number for 2009.

[Jay Habermann:]

And then second question, the earlier comment on retailer bankruptcies, obviously a light quarter so far, a light year so far. Is there risk that some of those bankruptcies get pushed into the latter half of the year? I was just curious on comments there that perhaps you might see, instead of a second half pickup, perhaps some weakness in the second half?

[Johnny Hendrix:]

I think there obviously is that risk. We're not certain why there hasn't been more bankruptcies than there have been. Some of it I think is there's been some problem with retailers getting financing, but that's a difficult question to answer. There may be more; I'm really not certain. The one thing that would be I guess good about it is for the most part the retailers on our watch list are current and we would have gotten the rent for the first half or the first three quarters of the year if they do file bankruptcy later. If they are able to get financing, I'm hopeful that we won't see liquidations like we have seen with Goody's, Circuit City and Linens 'n Things and it wouldn't hurt as much.

[Jay Habermann:]

And just to follow on a bit, the recent pickup you noted in terms of the tenant demand, are you seeing where sort of the big box base that rents are down 15% - 20%, that's sort of where the real interest is coming?

[Johnny Hendrix:]

Yes. You know, it's difficult to give a specific number but, yes, that's probably a good range.

[Operator:]

Your next question comes from Quentin Velleley - Citigroup.

[Quentin Velleley:]

Just a question [inaudible] if you include the one in the second quarter, but on your previous guidance you'd said that merchant build would be about [inaudible], so I'm just wondering where the weaknesses come from to offset the higher gains [inaudible]. Is that from, you know, a slower stabilization on development or higher bad debt expenses or something?

[Steve Richter:]

Quentin, I got a little bit of your question; I'm not sure I got the whole question. But in terms of merchant build guidance, the gains for FFO that we provided was $0.14 a share and that is obviously a pre-offering per share number. And in actuality we came in a little bit stronger than that, so I think we were kind of right on target with our merchant build gains for all of 2009, because we don't really anticipate any significant amount of gains for the balance of the year.

[Quentin Velleley:]

No, but I mean in your previous guidance on the last call you said it would be $0.10, so obviously you've had some weakness somewhere else that's offsetting that, so I'm just wondering where the extra $0.04 or $0.05 of weaknesses come from.

[Steve Richter:]

The only thing I can think of is that you're a little confused between pre and post numbers, because I think we've been with the $0.14 consistently - and again, that's a pre-offering number - but the number does come closer down in the $0.10 range when you do post-offering, so I don't know if that's the confusion.

[Michael Bilerman:]

Steve, it's Michael Bilerman. In the last press release it says, "The company believes FFO will be in the range of $2.30 to $2.60, including gains from merchant development sales of $0.10 per share." So I don't know. It was very specific that it's $0.10 and this is the prior share count, so I don't know if the $0.14 is a range so in your mind $0.10 was the midpoint of zero to 30. That's what we're just trying to get our arms around.

[Steve Richter:]

We were $0.10 for the first quarter, Michael, but there wasn't any weakness. We feel like we delivered exactly what consensus we provided.

[Michael Bilerman:]

And then maybe just to step back for a second in terms of the equity offering. It obviously had a significantly dilutive effect on earnings and I'm just trying to get your perspective of how you sized all of it up of using the equity markets to delever rather than pursuing a number of these other things that you're going down the road on - and obviously it came at the expense of much lower FFO and obviously the reduced dividend. So just help me understand how your mind-set was in evaluating it.

[Drew Alexander:]

I think it's one of those things that was a tough decision and there's a lot of different numbers that we could have gone with, and I don't know that anybody would be in a position to say which ones are right or wrong. Frankly, we originally started with a smaller offering, more sensitive to the dilution, after listening to a lot of advice and a lot of feedback from our institutional shareholders. And let me just say this deal went almost entirely institutional, that represented some 92% of the deal, with all of our large shareholders consulted. Listening to their feedback, talking with our Board, thinking about it, talking with our advisors, we decided to upsize the deal to $400 million, which we felt was a very comfortable number in addressing and handling the liquidity issues that we have in 2011. We frankly were getting some pressure to upsize the deal even farther and as I mentioned it was very oversubscribed and we could have sold a lot more. So I think it's one of those compromises that clearly one could look at it from both sides and logical people come to different conclusions, but we felt the $400 - and we had a pretty good inkling, given the demand, that the shoe would be exercised - we felt the $400 million was a good number that transformed the balance sheet, took all the risk out, and was less dilutive than a $500 million or $600 million, and that's the compromise that we reached.

[Quentin Velleley:]

If you were to complete the development pipeline and you made no further leases from the - I think you said it was [65%] leased so far - what would the yield on your full CapEx cost be? I assuming it'd be around 5%?

[Drew Alexander:]

Quentin, it's Drew. For some reason you're breaking up, but what I thought I heard was if we don't do any more leasing, where would the yield on the development pipeline be and you guessed around 5%. That's a ballpark neighborhood. It might be a smidge ahead of that, but that's not a terribly bad guess.

[Operator:]

Your next question comes from David Fick - Stifel Nicolaus & Company, Inc..

[David Fick:]

Following on that yield question, what would it take for you right now to initiate any development in terms of stabilized hurdles and might it not make more sense now to offload some land for whatever it brings and simply eliminate the balance sheet direct?

[Drew Alexander:]

It's a tough one, David, to say specifically what it would take on a new development. I don't think it's very likely that we'll do anything and certainly wouldn't do much. But if you had something that was 11% or better returns with almost no risk, you know, all of the entitlement out of it, a supermarket anchor, no contingencies with a very modest amount of shop space and a pro forma that was scrubbed to current market conditions, if you lined all that up I would at least listen to our development people. But again, I don't think there'll be too terribly much of that. You know, as to monetizing some of the unimproved land, we're actively looking at that and would consider reasonable offerings, but as was mentioned before in terms of liquidity, you know, it gives us a little bit of breathing room to not just give property away. But, you know, we would certainly be sensitive to the fact that we can monetize some of the unimproved land at anywhere close to reasonable that would make long-term sense.

[David Fick:]

Speaking of your development people, you had peaked, I think, at about 140 people in that group, if I remember correctly. Is that right and where does that stand today?

[Drew Alexander:]

I don't think it was that high, David. A lot of people in different departments in terms of leasing, construction, legal support that new development effort, but I don't think it got that high. The total employee count peaked at around 500 and today is around 400. I don't have the development breakdown - Robert is estimating it's about 25 people today.

[David Fick:]

And Steve, where do you stand where do you stand with the rating agencies in terms of your decision at this point to add as much secured leverage as you're talking about?

[Steve Richter:]

Well, I've had conversations and communications with both of them since the offering and, of course, interjecting $440 million of equity is nothing but a good thing there. So I think we still feel rather comfortable. Having said that, additional secured debt is something that they continuously look at. But they're very tuned in, very current on our business strategy and our plan, so I would tell you that there's nothing that I'm aware of out there in terms of additional new news there.

[David Fick:]

Okay. Well, look, congratulations on your balance sheet enhancements. It was, I think, a very smart move. [break in audio] question. At your investor day you spoke about having 25 of your 30 junior anchor spaces that were open spoken for in one way or another. Can you just update us on the status of leasing of those spaces?

[Johnny Hendrix:]

Well, we have really 38 spaces that are over 15,000 square feet; 17 of those we're actively negotiating letters of intent on. We do have interest on some others and I would say that's the current situation. There are some of them that we did lease and I think we've leased two of those spaces for this quarter. But that's where we are today.

[David Fick:]

I think at your investor day you said you had 30 in total that had gone dark and 10 of those had been re-leased and another 15 were either LOI or in some form of negotiation. Is that recall incorrect?

[Johnny Hendrix:]

Yes, I think that's where we were and I think that the 15 is now 17.

[David Fick:]

Leased?

[Johnny Hendrix:]

They're under negotiation. Either we've got a committee-approved transaction or we're actively negotiating a specific LOI with a tenant.

[David Fick:]

But you had also leased on top of that another 10 or so over the last year that had become vacant?

[Johnny Hendrix:]

I'd have to go back and look at that, but if that's what [Patty] said I would agree with it.

[David Fick:]

That seems like a pretty high number. Can you just review the roll downs in rent and sort of where those tenants are coming from given the markets you're in?

[Johnny Hendrix:]

We talked a little bit earlier in terms of the rent. I would say it's somewhere around 20% less on the boxes. It's pretty much across the portfolio that we are leasing space. I would say there in Florida, California and Texas is where most of the space is and that's where most of the activity is. I'm not really sure if that answers your question or not.

[David Fick:]

Yes, I was just looking for that element, the box element. Thank you very much.

[Operator:]

Your next question comes from Michael Mueller - J.P. Morgan.

[Michael Mueller:]

I guess sticking with Johnny here, when you were talking about occupancy declining into the midpoint more toward the middle of the year, can you talk a little bit about is it larger tenants, national tenants or more of the moms and pops? And the second question is, following up on Dave's question, when you're looking at blended lease spreads, I think in the first quarter it was 9% on a GAAP basis. What's your expectation for the full year at this point given what you see so far in the year?

[Johnny Hendrix:]

Occupancy declines for the future, I think, are pretty well spread out on a regional level and on a [size] level. I think we are going to get some more boxes back. I think we are going to get some more small shop space back. There doesn't seem to be a specific individual piece that's dominating what we're projecting in terms of the reduced occupancy, so I think that's kind of that. In terms of the rent spreads, we report new lease spreads based on commenced leases, leases that commence during the quarter, so we have leases that we have signed and not commenced and those leases, the spreads on those individual leases are currently a little bit above 5%. There is significant pressure on renewals, but for the most part we have been able to hold renewals to 5% to 10% increases and so I'm hopeful that we will see 5% or better increase in lease spreads over the rest of the year. I think once those boxes start commencing we'll see further declines.

[Michael Mueller:]

And is that 5% number, is that a cash number or a GAAP number?

[Johnny Hendrix:]

GAAP.

[Operator:]

Your next question comes from [Abbe Lerner] - Robert Baird.

[Abbe Lerner:]

I have a couple specific model questions. What was the after-tax contribution to Q1 results for the merchant build and land parcel sales?

[Steve Richter:]

Merchant build after tax as - for the quarter or year to date?

[Abbe Lerner:]

Well, for both if you have it.

[Steve Richter:]

Joe, do you have it handy?

[Joe Shafer:]

The quarter is the $9.3 million after-tax and then we have another $3.9 million that will be in the second quarter.

[Abbe Lerner:]

And then what was the additional interest expense associated with the [A2B 14 1] for the first quarter, the current year end year ago. Do you have it on a dollar basis?

[Steve Richter:]

It's $8.3 million for 2009, for the full year, but that does assume we began the year with $531 million - $537 million of convertibles and so that assumes that number going forward. And just a footnote, as I noted in my prepared remarks, we have purchased some of that convertible debt back, so the $5.3 million is on the $537 million.

[Operator:]

Your next question comes from Nick Vedder - Green Street Advisors.

[Nick Vedder:]

First off, I appreciate the new disclosure with respect to CapEx. That's very helpful. On another note, I didn't see cash releasing spread disclosed anywhere and I think that was a number that you had reported in the past. What was that for the quarter?

[Steve Richter:]

I don't have it, Nick. Let me get back to you.

[Nick Vedder:]

Okay, we can touch base offline. Just a second question. With respect to the Wyoming Mall merchant building sale, was that just the Wal-Mart box that was sold?

[Drew Alexander:]

Yes.

[Nick Vedder:]

And what was the rationale behind selling just the Wal-Mart box? It seems like if you sold off the anchor then without control of the anchor space then the shop space would be less valuable.

[Drew Alexander:]

I don't know that that premise is necessarily correct. I think it's a distinct possibility we'll end up selling off the whole project and in my mind there's we think some pretty good evidence that componentizing it, selling the triple-net income stream to somebody who likes that, selling a floater building to somebody who likes that, selling a triple-net ground lease of a Burger King to somebody who's rolling out of a 1031, that when you add that up we think it's actually synergistic, that it creates more proceeds.

[Johnny Hendrix:]

It looks like 9.2% on renewals on a cash basis and down 3.7% on new leases, so the combined total is 6.4%.

[Nick Vedder:]

6.4% on a cash basis?

[Johnny Hendrix:]

Right.

[Operator:]

Your next question comes from Richard Moore - RBC Capital Markets.

[Richard Moore:]

Some of these retailers disappeared late in the quarter, some of the bankrupt retailers, and I'm curious how much more second quarter rent we're losing that we didn't see in the first quarter from specifically the bankrupt guys.

[Johnny Hendrix:]

You know, we definitely will see some of that. For the most part I don't know that I have that quantified, but I would think it would be several hundred thousand dollars. We had at least five Circuit City leases through March and I think Goody's left some time in March, so we didn't have any of the Linens 'n Things in the quarter. There also was some bad debt associated with those folks on the taxes and insurance that we had accrued during the first couple of months, so that actually probably evened out a little bit, but I would say it's several hundred thousand dollars.

[Richard Moore:]

Okay, but basically all of the Circuit City and most of Goody's?

[Johnny Hendrix:]

Yes.

[Richard Moore:]

And then so what are you thinking about for year end '09 occupancy, Johnny?

[Johnny Hendrix:]

I'm looking at somewhere around 91%.

[Richard Moore:]

And maybe for all you guys but I guess specifically for you, what does your ICSE book look like for the end of May? Are people showing up for the conference?

[Johnny Hendrix:]

Yes, I think that ICSE has said that attendance is somewhere around 30% below where it was last year. We are taking fewer people. I think we're still taking somewhere around 35 folks and I anticipate we'll have somewhere around 500 or 600 meetings. The retailers that we talk to are very focused and I'm thinking we'll have a really good series of meetings, so we're looking forward to it.

[Richard Moore:]

And what do you guys usually get? If you're getting 500 to 600 now, what do you usually get when you go?

[Johnny Hendrix:]

I think we were up to 800 last year.

[Richard Moore:]

On construction, are you seeing construction costs come down as you guys finish out your developments based on what's going on in the economy?

[Robert Smith:]

We are in fact seeing some improvement in the construction pricing. It's much more competitive. We're seeing some improvements on commodity prices, so there's some benefit that we're getting out of these latter stages of construction on these development deals.

[Richard Moore:]

Are labor costs coming down as well?

[Robert Smith:]

Yes, they are.

[Operator:]

Your next question comes from [Peter St. Denis] - Markstone Capital Group.

[Peter St. Denis:]

[Break in audio] mentioned how many converts you've bought subsequent to the market. I was wondering if you had bought any during the quarter and who you purchased them through. And then getting to the balance sheet, you said you reduced your revolver so you have nothing outstanding on your revolver. Did you repurchase any other outstanding debt during the quarter

[Steve Richter:]

Relative to the converts, we had no repurchases of converts or debt during the first quarter. All of the convertibles that we bought back were subsequent to the quarter and they were all bought through the brokers secondary market. And we have repurchased nothing other than the convertibles in terms of our debt obligations.

[Peter St. Denis:]

So no repurchases in the quarter. Did you use a bunch of brokers or you just used one?

[Steve Richter:]

I'm not specific. We actually have used more than one.

[Peter St. Denis:]

And so now do you have nothing outstanding under your revolver?

[Steve Richter:]

That is correct. After the proceeds from the offering, we paid down the revolver to zero and we actually are sitting on about $110 million of excess cash.

[Operator:]

Your next question comes from David Wigginton - Macquarie Research Equities.

[David Wigginton:]

Steve, on that same note there with respect to the cash that you guys are sitting on this point, is your intention to just sit on it at this point or have you planned on more aggressively repurchasing converts and maybe even some of the bonds that are coming due in 2011?

[Steve Richter:]

We're very focused on whatever we can buy at what I would call reasonable numbers to take out both the converts and some of our regular MTN/bonds, the straight unsecured stuff as well. Our investor base there are generally buy and hold life companies for the most part and there's not a lot of trading that goes on, but we would consider that as well.

[David Wigginton:]

So what's the threshold at this point as far as the discount that's acceptable for repurchase?

[Steve Richter:]

We evaluate each one of the transactions as we get requests, opportunities that folks want to buy. We have not solicited or tendered, so the only way that we find out is when a broker calls us and says that they have an investor interested in selling. And I will sit here and tell you that we have accepted some of those, obviously, but we've also turned down some of those offers.

[David Wigginton:]

So you've accepted more than you've turned down or vice versa?

[Steve Richter:]

I would just pass on that one.

[David Wigginton:]

So in the event that you aren't using all the proceeds to repurchase the debt are you just going to hold onto the cash until you have an opportunity to repurchase the debt or do you plan to deploy that more actively?

[Steve Richter:]

No. We said we'd look at all alternatives, you know, as we talked before about development hurdles. We're also looking at other different things and we'll evaluate opportunities as they come up.

[David Wigginton:]

Finally, was there any specific debt associated with the two operating properties that were sold in the quarter?

[Steve Richter:]

No.

[Operator:]

Your next question comes from Quentin Velleley - Citigroup.

[Quentin Velleley:]

Just going back to the asset files and what you're targeting, I'm just wonder whether you could clarify how much actual net equity you want to get from these asset files assuming that some assets are sold with some secured debt? And if you were not to sell any assets over the next few years, do you think that you would need to raise additional equity?

[Steve Richter:]

Our $300 million target is actually net cash to us, so if we're selling an asset that has debt on it, we're looking at that as net to us so it would exclude any debt associated with that. And in terms of, given the $439 million net proceeds we received on the common offering, we feel like that we have a lot of flexibility. And, quite frankly, should we fall short in raising all the liquidity we would like to raise in 2009, we have a little bit more time should we need it to do that. So we don't anticipate at this point having to re-approach the equity market.

[Operator:]

And there are no further questions at this time. I'll turn the call over to Kristin Gandy for any closing remarks.

[Drew Alexander:]

I'd just like to thank everyone. We appreciate your support and your questions, and I'm sure we'll see you at ICSE, NAREIT or elsewhere. All the best. Thank you.

[Operator:]

This does conclude today's conference call. You may now disconnect.