Weingarten Realty Investors
Q3 2008 Earnings Call Transcript

Published: 31 Oct 2008

[Operator:]

Good morning. My name is [Dishanta], and I will be your conference operator today. At this time, I would like to welcome everyone to the Weingarten Realty third quarter 2008 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you. Mr. Summers, Vice President of Investor Relations. Sir, you may begin.

[Richard Summers:]

Thank you, Dishanta, and good morning, and welcome to our third quarter 2008 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; 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'd also like to request the callers to 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 like to turn the call over to Drew.

[Drew Alexander:]

Thank you, Richard. Good morning, everyone. Our financial and operating results for the third quarter were mixed, while we continue to make good progress towards our goals in each segment of our business, financial results were negatively impacted by the weaken economy. Our existing portfolio properties performed reasonably well considering the economic environment. Occupancy and our retail portfolio increased 30 basis points from the prior quarter, as a result of strong leasing velocity and our current pipeline of leases under negotiations is good. However, our same property NOI reflecting the difficult environment was down six-tenths of a percent for the quarter, due to increases in bad debt expense and retailer fallout. In fact, we have seen a further increase in the number of retailers experiencing difficulty in just the last few weeks. Johnny Hendrix will review the existing portfolio in more detail in a few minutes. With the continued softening of the new development market, we remained focused on completing our existing development pipeline. In that regard, we have completed another significant project this quarter and recorded merchant building gains of $0.02 per share. Robert Smith will review our new development progress in more detail later in the call. Additionally, subsequent to quarter end, we issued approximately $100 million of common equity. We believe this was very prudent in this environment to further enhance our liquidity in this challenging economy. I'd now like to turn it over to Steve to review the financial results.

[Steve Richter:]

Thanks Drew. FFO per share was $0.74 for the third quarter. Excluding the non-cash preferred share redemption charge of $0.01 per share and the impact of Hurricane Ike which was $0.02 per share, our adjusted FFO per share was $0.77 for the third quarter, $0.01 above consensus estimate, but down $0.02 per share from the prior year. The decrease from the prior year was due primarily to the timing of the merchant build gain, which were $0.05 per share in the third quarter of last year versus $0.02 per share in this quarter. We had a couple of other significant items impact in the comparison with the third quarter of last year, including an increase in bad debt expense of approximately $0.02 per share and second the additional cost, interest cost from preferred share issuances, since the third quarter of last year which totals $0.02 per share. And finally, an increase in the expense related to our supplemental executive retirement plan, due to a decline in the market value of the assets in the plan. This program which augments the normal retirement plan for officers of the company has been in place for 20 years. We have taken a conservative position and funded our plan by putting the assets into a guarantor trust, where they were invested in a portfolio with mutual funds. The balance of this fund at September 30 was $80 million. These are assets of the company and under the accounting rules must be mark-to-market at quarter end. The S&P 500 index was down 9% for the third quarter of this year and the mark-to-market adjustment on this retirement plan cost us $0.02 per share of FFO in the third quarter. I appreciate that we have several issues that must be considered to understand our core operations for the third quarter. We believe our portfolio for performed well in this difficult environment, but we do see some challenges in the future. This market will undoubtedly be difficult, but for several years we have used something we call the stress test to demonstrate the strength of our operating cash flow and our annual meetings with the rating agencies. In this test, we saw for how low our operations have to go, before we are not able to pay all of our operating expenses, debt service and our commonly preferred dividends. This test revealed that our revenues have to decrease over 11%, which would equate to an occupancy level of about 84%. And I should note that these calculations are done at the company level using averages versus a lease-by-lease build up. Said differently, at 84% occupancy, we can pay all of our obligations including debt service and dividends. And I remind folks, that we have never been below 90% occupancy in the history of the company. Johnny will provide some additional color on operations in a few minutes. I would now like to provide some additional information on our liquidity and the strength of our balance sheet. The $100 million of additional equity we raised subsequent to quarter end increased our liquidity and puts us in a great position to take advantage of opportunities that might arise in this challenging economy. Our debt maturities for the remainder of 2008 and full year 2009 are only a $138 million and our 2010 debt maturities are an additional $129 million. We currently have a $185 million available under our revolving lines of credit. I would now like to make two distinct points on our liquidity. First, we have a unencumbered asset pool of $3.4 billion at historical cost. Of this total, we could leverage approximately $2 billion in assets utilizing conservative underwriting using a 7.75 cap rate and a 50% loan-to-value ratio, which would provide us the ability to raise $1 billion, which we could use for debt reduction without violating any of our debt covenants. So to be clear, as everyone is understandably focused on the liquidity issues, we would still have $1.4 billion of unencumbered assets after raising $1billion of additional debt. And my second point, not to be confused with our ability to raise capital to refinance debt, just mentioned, our debt-to-total asset ratio at quarter end, pro forma for the common share offering subsequent to the quarter end was 54.5%. This is currently our most restrictive debt covenant and at this level allows us to add an additional $800 million of debt, which could be used to invest in real estate assets. Additionally, we have strong investment grade credit ratings from both Moody's and Standard & Poor's supported by a fixed charge ratio in excess of two times. We believe that with the additional capacity under the revolver, the ability to borrow against our unencumbered asset pool, dispositions that we have under contract and our strong banking relationship, we have more than adequate capital capacity and liquidity to conservatively grow the company, service our debt and pay the dividend. Year-to date through the third quarter, our common dividend payout ratio was 68% of FFO. Turning to the future, we are adjusting our full year FFO guidance to a range of $3 to $3.10 per share. The bottom end of the guidance range assumes no merchant development sales in the fourth quarter. Last quarter, we guided to a full year FFO of $3.19 per share after adjusting for the preferred redemption charge. Subsequent to last call, we realized a reduction in FFO of $0.04 per share including $0.02 from Hurricane Ike and $0.02 from the dilution from the equity offering, which gets us to $3.15. Given the further decline in the stock market and a possible impact on retirement plan assets, the impact on operations from a weaken economy and the difficult merchant build transaction market, we feel we will achieve FFO for the full year of 2008 in the $3 to $3.10 range. We are reaffirming new development completions of a $110 million to $130 million for the full year of 2008. As previously noted, fourth quarter merchant build gains have been totally removed from the lower end of our guidance. As Drew reported and Johnny will address in a minute, our same property NOI declined by 0.6% this quarter. Given the current retail environment, we are estimating our full year same property NOI growth to be 1%. Looking ahead to 2009, we are in a process of completing our '09 business plan and will have more specific guidance at our next conference call. The current analyst consensus estimates are for FFO of 2%. At this point, given the market conditions and lack of visibility on the operating portfolio and merchant build results, we would guide to a range of flat to up 2%. I would now like to turn the call over to Robert Smith to talk about the new development program.

[Robert Smith:]

Thank you, Steve. The company currently has 30 properties in various stages of development. We have invested $390 million to date in these projects and estimate our total investment when they are completed to be $542 million. From this pipeline, we are projecting that 11 of our 30 projects will be stabilized by the end of 2009. These centers including tenant-owned square footage are currently 83% leased. Our total development pipeline of 30 projects is currently 65% leased, which is up from 53% leased at the end of last quarter. The average existing trade area population for the 30 properties in our pipeline exceeds a 133,000 people. In third quarter, we completed a significant redevelopment in Orlando, Florida, that was part of our development pipeline. Colonial Landing is a 267,000 square foot shopping center in an outstanding infill location with a three mile trade area population in excess of 97,000. The center has a strong tenant mix including Bed Bath & Beyond, Joann's Fabrics, PetSmart, and The Sports Authority. Our investment for this center totaled $15 million, has a yield of 9%, and a current occupancy level in excess of 95%. Although we continued to advance the leasing and completion status on our existing developments, the task is challenging as the market continues to soften. As a result, we are likely to postpone the development of three projects and move them into the category of land held for development. The company's investment in these three projects totaled $32 million. Additionally, we delayed the projected stabilization dates on seven projects in the pipeline by one to two quarters. As a result of these actions, the projected yield on our total pipeline declined slightly to 8.6%. In spite of the difficult transaction market, we contributed $0.02 of FFO per share in the third quarter from our merchant build transactions bringing our year-to-date total to $0.08 per share. We do have merchant build opportunities under contract which, if completed, will meet the lower end of our full year merchant build guidance of $0.14 to $0.20 per share. However, this is a challenging investment market as we have acknowledged and there is a risk that some of these transactions may not happen. We have achieved completions of $86 million through the end of the third quarter and believe we will accomplish our full year completion guidance of a $110 million to $130 million. In summary, although, we continue to make progress on our existing pipeline, particularly, the 2008 and 2009 stabilizations and we are intensely focused on leasing and completing the balance of our projects. Our new development program has clearly been impacted by the deteriorating market conditions. Likewise, although we continue to at new opportunities, our yield expectations and underwriting standards have increased given the current conditions and we expect fewer opportunities in this environment. Obviously, this is a market where our normal characteristics of caution and patience are well served as we remain a still long-term investors. For more information on all of our projects under development, I would direct you to our supplemental as well as to our website at, www.weingarten.com. On the website, you will find the 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. 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. We continue to be pleased with our ability to maintain good leasing velocity. We executed 155 new leases in the quarter with $11.1 million in annual base minimum rent. This is just three leases shy of Q3'07 and accounts for more than $750,000 in rent. As a result, we saw an uptick in our retail portfolio occupancy of 30 basis points from the prior quarter. Our current occupancy is 94.5% for retail and 93.7% overall. We are still seeing retailers offering necessities in discount prices increasing sale and expanding. We sign leases with Hobby Lobby, Dollar Tree, Ross, Best Buy, Sunflower markets and 99 Ranch Markets during the quarter. We are also making good progress on our renewals for 2009. Currently, we have renewed about 60% of our tenants expiring over the next 15 months. We've also been able to maintain good rate spreads, achieving a 13.9% increase releases commencing in Q3, '08 on a GAAP basis. On a cash basis, the number is 9.9%. Leases signed and not commenced are still holding above a 15% increase. So I would anticipate strong spreads for the next couple of quarters. Our most significant concern for our existing portfolio is the tenant fallout and the bad debt associated with that fallout. This accelerated during the quarter and we are not seeing many small tenants work their way out, once they fall behind in rent. As a result, same property NOI for our retail properties was down 1% for the quarter while industrial was up 3.5%. For the company overall, we were down 0.6%. Our definition of same property NOI includes properties we have owned for at least one year as of January the 1st, except for properties which are undergoing a major remodel. We include bad debt and accounting adjustments, but do not include lease terminations. Our current population of assets in same property accounts for 86% of our overall net operating income and excludes only four shopping centers in various stages of remodel. Just to give you a little color on the retail same property NOI. We did have significant increases in rental income due to rent steps and new leases of approximately $5.6 million. But those increases where more than offset by fallout in bad debts of approximately $6 million. Primarily, as a result of this increase fallout, we will not achieve the 2% same property NOI forecast last quarter. Given the current conditions, I believe we would be around 1% for the year. As you know, there are several major retailers going through a difficulty and I wanted to take a minute to go over our exposure to those tenants in some detail. We have 10 Linens N Things stores. Three of those leases have CBS guarantees and four are earned in joint ventures. Our overall exposure after deducting for guarantees in JV interest is 143,000 square feet, or $1.6 million in annual base rent. We have only one Mervyn's ground lease in a 50% joint venture, Weingarten's pro rata share is 40,000 square feet and $163,000 in annual base rent. That particularly was a sign to Macerich entity, so we do not anticipate getting that store back. We have three Shoe Pavilion stores representing 46,000 square feet and $814,000 in annual base rent. They have announced they are closing all three stores. We have three goodies representing 90,000 square feet and $600,000 in annual rent. Goodies has emerged from bankruptcy and is affirming all three of these locations. We do not have any Steve & Berry's. We have eight Circuit City locations representing 293,000 square feet and $4 million in annual minimum rent. We've started conversations with potential replacements, just preparing for the possibility of getting those stores back. All in all, I believe these issues are manageable. Our total exposure to Linens, Shoe Pavilion and Circuit City totaled approximately 100 basis points in occupancy. We are actively prospecting for tenants for all potential vacancy and seeing good interest from retailers, who are taking advantage of this window to secure great locations. We will have down time, but I think we can replace these tenants within a reasonable period. As Steve mentioned, we have brought a series of (inaudible) scenarios on occupancy attempting to determining what circumstances would need to exist for us not to be in a position to pay all of our obligations and dividend. Keeping in mind what Steve said, that our breakeven point is roughly 84% occupancy. If we did not lease anymore space and we lost every tenant on our watch list, plus we lost every tenant who is currently 30 days behind, plus we lost an additional 1.2 million square feet of tenant, we would still be an 87% occupancy and could meet all our financial obligations and pay the dividend. Market conditions would need to worsen dramatically for us to drop below 84%. I am confident we can continue to lease space and our strong tenant roster will enable us to navigate these difficult times. Our top tenants are detailed on page 13 of the supplemental. Weingarten has taken a very conservative approach maintaining a highly diversified tenant roster. No tenant represents more than 2.4% of our revenue and the top 25 represents less than 22%. Most of our top 25 tenants sell necessity and discounted products and are in very good shape. In summary, we have been able to maintain our leasing velocity while maintaining good rent spread. This is a result of a very focused group of associates executing the basic fundamentals everyday. At the same time, we continue to see high tenant fallout and bad debt resulting in below projected same property NOI. I am confident our shopping centers which are primarily anchored by supermarkets will continue to remain resilient. I would now like to turn the call back over to Drew.

[Drew Alexander:]

Thank you, Johnny. We are in very challenging economic environment, which is impacting our results. As Johnny mentioned, we are keeping our focus on leasing and in maintaining the occupancy of our existing portfolio, completing our existing new development pipeline. Watching our expenses and deploying our capital wisely. We all take great comfort in the fact that over 70% of our net operating income comes from shopping centers that have a supermarket component. Two-thirds of our rental income is from national and regional retailers. Then as Johnny mentioned, we have the most diversified tenant mix in our sector. We'd also like to point out that this management team, manage through a very severe recession in the mid-to-late 80s in Texas, where the vast majority of our properties were in a very depressed (inaudible) we were able to maintain our occupancy above 90%, continue to grow the dividend throughout that period. To this point, the current downturn is not a severe as the recession that we experienced in the 80's. Additionally, our portfolio is more diversified and has a much greater percentage of national and regional retailers. Johnny and Steve reviewed with you our occupancy stress test and some other tough scenarios that we've studied. I appreciate it maybe complicated to understand all of the scenarios that we run in this call, but we've tried to outline that we have prepared for some very serious storms and are confident that we can weather them. With the additional equity that we issued in our strong liquidity position in limited maturities, which Steve reviewed, we feel we're in good shape to weather the storm and when the time is right to take advantage of the opportunities that usually present themselves in these challenging markets. We're experienced and focused real-estate operators, who will get through this tough period. And with that, Operator, we'd be happy to take questions.

[Operator:]

(Operator Instructions). Your first question comes from the line of Christine McElroy with Banc of America.

[Rob Saulsberry:]

Hey, thanks, guys. This is [Rob Saulsberry]. I am here for Christi. Just had a quick question to start off. Could you may be give us little bit of some color on what the cost and availability of debt capital or maybe just total capital as you look into the markets today? Where that's been trending maybe where it is right now and what it's then moving over the past month?

[Steve Richter:]

Rob, this Steve Richter. We probably mean need to break that down between the secured and unsecured market. On an unsecured basis, quietly frankly, those markets, I'm not going to say are totally closed because I think that we could issue unsecured debt at some level. I will tell you that probably is certainly at the double-digit kind of number, and quite frankly, have not pursued that market to any great extent. But to the best of my knowledge, there has not been any unsecured issuances from REIT over the last 30 days or so. Moving to the secured market, I think primarily the life company market as the CMBS is obviously I think closed. You still see transactions out there. I think most recent the entail that we have is they are putting floors of around 7% on loans. And certainly the underwriting terms have gotten more stringent, but you can get in the call it, 60% to 65% kind of loan-to-value range. But I think they're having floors of, again, around 7%.

[Rob Saulsberry:]

Bank line?

[Steve Richter:]

Okay. Excuse me, on the bank line, currently our revolver is at 42.5 over LIBOR, that probably could not be replicated in this environment, but I do believe that there is certainly capacity available from some of the banks out there for a rating like Weingarten Realty and pricing on that and my conservations with the bank is probably on the 150 to 200 over.

[Rob Saulsberry:]

150 to 200, okay. And then I guess, on the same store NOI, I think in the press release you guys mentioned that even though there was decline this quarter, you look to see that maybe moving positive or I guess, relatively to this quarter is moving positive in the 4Q. Could you maybe just give some color on that? And I mean it sounded like there is some negative comments in your earlier remarks about just occupancy and the leasing environment. So I guess the question is what are you seeing that's making you feel more positive about the NOI and the 4Q relative to the 3Q?

[Johnny Hendrix:]

Rob, this is Johnny. And we have good increases in rent debts and new leases that are commencing at the end of Q3 and early in Q4. And it's my opinion that most of the tenants will do the best that they can to hang on through the holidays and we won't see the severity of fallout that we saw in the quarter. There is obviously no guarantee of that. And I will say one of the issues that we have had is that the small tenants who are getting behind in rent, on a historical basis, maybe 70% of those tenants roughly have been able to come out by getting a loan from their brother or their family or the bank or home equity loan or sign a lease and sell the business. And those options do not appear to be available today. And that's really part of the issue that we had during the third quarter. I am hopeful that there will be some loosening of loans, but I am not certain of that. But that's kind of where we're [aiming it].

[Rob Saulsberry:]

Okay. So you're saying that rent steps and the new leases that are getting some bonds are going to offset any kind of occupancy fallout. Is that fair?

[Johnny Hendrix:]

Yes.

[Rob Saulsberry:]

Okay. Thanks. guys.

[Johnny Hendrix:]

Thank you

[Steve Richter:]

Thank you.

[Operator:]

Our next question comes from the line Jay Habermann with Goldman Sachs.

[Unidentified Analyst:]

Hi, guys. This is [Johan] here with Jay as well. I am just turning to merchant build, you've laid out your prior expectations of $0.14 to $0.20 for the year and that would work out to at least 6% of earnings at the midpoint. How are you thinking about these gains as a parentage of your earnings going forward? And then what levels do you feel most comfortable with today?

[Steve Richter:]

I don't think that the merchant build will ever get to truly significant portion of our earning. We've always talked about somewhere in the 10% range, plus or minus is where we think it might be and obviously, we are in unprecedented times. So exactly what it is? Next year, I really wouldn't [has it] a guess too. But we're looking as we said that the $3 of FFO. The bottom of the guidance represents no fourth quarter merchant builds. So only accounting what we've already done and paid for.

[Unidentified Analyst:]

Okay. And then just here in the event that the capital market remain as challenging as they are today, and you aren't able to complete a lot of said merchant builds, sales product into the better half of '09. How much capacity would you have at present to pull these projects on balance sheet?

[Steve Richter:]

We currently have about $800 million of additional capacity where we could add new assets on to the balance sheet.

[Robert Smith:]

We can very comfortably develop our entire development program and not have to sell off anything.

[Unidentified Analyst:]

Okay. And then, just lastly, could you give us some more color on the retailer products that you had in the quarter driving a lot of that decline in NOI and whether there was specific segments that you feel contributed to disproportionately to that increase?

[Johnny Hendrix:]

This is Johnny. Probably the only segment that I would be able to identify were the small not well-capitalized retailers. Some of it was our reserve for some of the larger tenants, Linens and Shoe Pavilion. But I would say, most of the fallout is the smaller tenants. We currently have about a 160 tenants that are behind more than 30 day in rent. And I would say 90%, more than 90% is tenants that are single-store operators and have less than 3,000 square feet.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Your next question comes from the line of Michael Bilerman with Citigroup.

[Unidentified Analyst:]

Hi, this is (inaudible) with Michael. On the call before you just mentioned that you were increasing your development percent target given the increase in cost capital in FFO. So I'm just wondering whether you could quantify what kind of increase that is.

[Steve Richter:]

I would say we're looking 10 or north of that and I would say we're extremely focused on the risk profile or the lack thereof of deals. We really don't think we will see to very much over the next few months. We think it will take a while for the difficult projects to cycle through land owners to adjust their expectations. We could easily be working with some banks along the lines of the article that was in the Wall Street Journal earlier this week, but we see that being more the second half of next year then any times soon.

[Unidentified Analyst:]

And would do increase your pre-leasing requirements?

[Steve Richter:]

Absolutely.

[Unidentified Analyst:]

What kind of level from and to?

[Steve Richter:]

I would hate to get into hard targets, but I would say generally speaking back to the 50% level that we use to talk about 10-15 years ago.

[Unidentified Analyst:]

Back to 50% level, so you haven't been requiring 50%?

[Steve Richter:]

We have on couple of occasions taken some risk that clearly in hindsight, we shouldn't have. I think pretty small risks in the [scene] of the size of this company. But, this is clearly not the environment where we need to take risk. I mean I think we'll have plenty of opportunities six months from now, nine months from now, whenever we start to see the other side of this valley. And then I don't pretend to know when that is and we'll look forward. But I think we'll see a lot of opportunities as things start to bottom out and move back up. So I don't think there is any reason to think about taking risk at this point.

[Unidentified Analyst:]

Okay. Just back to an earlier question on the gains and your guidance for the next year. I understand this $3 has got $0.09 of gains already in it. So, on a worst case scenario, we had no gain next year. What kind of FFO would you be guiding today?

[Steve Richter:]

Well, just to make sure we are clear, we have $0.08 in the merchant build gain through the first three quarters of '08. The Street has about 2% growth in FFO between '08 and '09. And again, we're at this point, given the lack of clarity with the market; when I say market I'm referring to the operational market as well as the merchant build transactional market; we think that we're probably flat to 2% at this point for '09.

[Drew Alexander:]

Said a little differently, we are comfortable saying the words of the flat to 2%. We are obviously in an environment where there is greater uncertainty than any time we've seen in the 30 years that I've been working here, the 25 years that we've been public. If you imagine a world where it's absolutely impossible to sell anything at any price, then that's probably a pretty bad economy in terms of tenants and everything else. So it's, again, hard to forecast FFO for next year. We do a very detailed space by space, center by center business plan that we rollup around the end of the year. And that's where to us the key point of some of the stress test metrics are. We tried to emphasize in this call that our occupancy has never dropped below 90, and it would take somewhere in the mid 80s before the dividend was in jeopardy, and obviously, worse than that before the preferreds and the other things.

[Unidentified Analyst:]

I just want to make sure we understand. You are saying you are comfortable here that the Street right now is at 3.14% for '08 and 3.25% for next year, so about a little over 3% growth. There's obviously wide variances in that range. Clearly, the merchant build being such a big percentage and a volatile percentage, I just want to make sure I understand your comment on saying 0 to 2% growth off of what, off of your revised guidance of 3% to 3.10% or relative to where the Street is?

[Steve Richter:]

Off of the revised guidance. But again, these are very rough estimates.

[Unidentified Analyst:]

But with the merchant build, are you just holding that flat, saying, okay, look, with $3, we have $0.09 this year, we'll just put $0.09 for next year.

[Steve Richter:]

Its $0.08, but we haven't gotten into that level of detail of it.

[Unidentified Analyst:]

But then how can you say 0 the 2%.

[Steve Richter:]

It's a very rough estimate, as I said. I think we'll be able to do it, but I haven't gone through and built a model to the equivalent of what you guys did.

[Unidentified Analyst:]

I mean, we can go through all the fundamentals and the financing, here you have a piece of the business which obviously may decide not to sell anything, in which case you would have zero earnings relative to 8 to some higher numbers this year. And so, when you are putting a number out there in terms of growth, understanding a volatile and significant percentage of it is important. We can make our assumptions, everyone can come up with their own estimates, but when you, the company, are saying we're comfortable with 0 to 2% growth and you have a number in there that represents 5% to 6% of your FFO that could grow or could contract, that makes it a little bit more difficult in terms of providing that comfort.

[Steve Richter:]

I have a hard believing we couldn't do any sales next year. We have a number of opportunities that I think we can execute on, but it is one of those things that I don't know. And I understand your question, I'm just not in a position to answer it. We have not done detailed budgets and detailed models, it's more we feel looking at everything at a very high level that we can achieve flat to maybe slightly positive FFO numbers. Next quarter, we'll have our plans completed and I'll be able to give you a lot more detail on it.

[Unidentified Analyst:]

Okay. And that's off of the new guidance, right? I just want to make sure.

[Steve Richter:]

Off of the new guidance.

[Unidentified Analyst:]

Off of the new guidance. Okay. Great. Thank you. Thanks a lot.

[Richard Summers:]

Thank you.

[Operator:]

Our next question comes from the line of Jeff Donnelly with Wachovia.

[Jeff Donnelly:]

Good morning, guys. I guess a question for Drew. I'm curious, what's been the trend subsequent to quarter end in tenant default delinquencies requests for free rent. I guess, I'm curious how that's changed maybe from the third quarter. And could you talk a little bit about when those small shop tenants get behind on their rent in this environment? What is it that you guys try to do? Do you reduce your waive rent percent of sales. I'm imagining we're in a time where you don't want to really be losing tenants.

[Drew Alexander:]

Since you asked me, I'll give you a little color, but I want to let Johnny handle the bulk of it, since he is a lot more familiar with the details. But I can assure you your general statement is correct. We're very focused on it, and as you know, somewhat experience with it in everything we've been through. As I mentioned, two things continue to slide. I heard a statistic this morning that October in the stock market was the worse month in the last 21 years, and I would say for us October has been a very tough month as well. And as I mentioned in my remarks in just the last few weeks, we have seen a tremendous amount of fallout reductions, et cetera. As Johnny mentioned, we think that that will pause for a bit that people will do everything they can to hang on through the holidays. What January looks like, we don't know. The government has done a lot, as Johnny alluded to in the financing case piece of the [TOT] plan and all the other plans. But everything I've been told none of that has really been executed yet. So hopefully it will get executed reasonably soon. So let Johnny continue one more detail and some of the procedures in the dates and much.

[Johnny Hendrix:]

Yeah I think there were two separate questions. The first one dealt with velocity. And it seems in the last month of the quarter, we just had more tenants who basically gave up and they just were not willing to remain, and many of those left their spaces, gave their keys back and said we are done. I am not sure how to characterize that any differently. In terms of how do we work with tenants; we have a very strict procedure that we follow in notifying tenants after 10 days, talking with tenants after 15 days. And once we can see there is a problem, we do have our collectors and our property managers work with the tenants to see what their financial condition is, what they would need in order to survive, what sort of call backs we might be able to get in terms reducing their term or getting a recapture agreement in order to go out and lease this space quicker, and we do all that we can to try to keep the tenants in place. Unfortunately in most cases the rent is not enough to turn a business around. And certainly even if you got to half rent, its just not enough money that the tenant can really, that it makes a significant different in the tenant business if they are not making money anyway.

[Drew Alexander:]

And just to amplify what Johnny is saying, a lot of that has to do with - if a retailer is supposed service tenant, their inventory level's getting good et cetera and that's even been the problem with some of the big bankruptcies that the vendors quit supporting the company. So we do what we can and make the best decision in light circumstances, but that's where, just in the last few weeks things have gotten tough or tougher, and that's where are hopeful that some of these talked about changes take place, because our tenants is like everybody else's tenants in small businesses. One who has talked about lot on the campaign trial, need access to capital.

[Steve Richter:]

I wanted to add one more thing just to make it fully clear. Of those 160 tenants that are 30 days behind that I mentioned earlier, we are fully reserved on all of those tenants for bad debts.

[Drew Alexander:]

That's of course is part of the situation in terms of the occupancy and the same property NOI Jeff.

[Jeff Donnelly:]

I am curious, do you guys happen to have with you the occupancy as it stands today or even at the end of Q3 versus what it was on average during Q3. I guess I'm just trying to figure out....

[Steve Richter:]

I don't have that number. I don't think there is a significant difference.

[Drew Alexander:]

We actually ended up at the end of Q3 versus the beginning of Q3.

[Johnny Hendrix:]

The other points that Joe Shafer made, Jeff, that this sort of relates to your question in your research piece that the occupancy at September 30 as a snapshot, our leasing team is very focused on getting leases signed at the end of the quarter. So the end of the quarter snapshot is little higher than the quarter as an average and is also up from the prior quarter.

[Jeff Donnelly:]

You actually probably went much higher during the quarter if you lost a lot of tenants, but still finished up?

[Drew Alexander:]

It might have. We don't track it day-by-day.

[Jeff Donnelly:]

And just one another question Drew, I guess a bigger picture. It sort of feels like growing this environment where we're maybe to zero some gain on leasing, where it sort of feels like we're going to be stealing tenants back and forth a little bit if retailer aren't expanding. I am curious because one of the big difference is (inaudible) in the shopping center company really have there staff on leasing side. Some are very local and regional and some are very centralized maybe their product line is it self more towards national tenants. In your opinion, do you think there is going to be one approach or one form of organization that gets peoples on upper hand in the next 12 months and how the leasing environment shakes out?

[Drew Alexander:]

I don't think its one thing, but we are experienced and very focused leasing people that is as you know have local expertise in all of our markets, lease all of, most all of our properties have in-house legal short form leases and are in a position to execute as well as or better than anybody. Further we have good locations with strong population densities, but especially when you adjust for incomes, our cost of livings in our markets, you know we have good locations. Thirdly we have 73% of our NOI in our retail division coming from shopping centers with a supermarket component. We have properly focused on this call on a lot of the bad news that's out there, because that's the nature of this call. Supermarkets are doing quite well, especially from a traffic perspective, along with tenants like Maxx and Ross, who are big tenants in our portfolio. So a large of while we say it over 90% in Texas in the middle and late 80's when Houston lost about 10% of its jobs was many other things that I just outlined, the quality of the locations, the quality of the folks, the basic necessity of other things. And I would say some tenants are expanding, the Maxx's and the Ross' and the other people who are good at what they do are taking advantage of this opportunity.

[Robert Smith:]

I think the another thing too is the relationships over the many years that we have strong, strong relationships with the retailers is that another extremely important component of meeting these challenging times.

[Drew Alexander:]

Our team is watching this and note that it's given little late and I need to answer the questions quickly so I will try to do that.

[Jeff Donnelly:]

Okay. Actually, if I can ask one last one. I think I just missed it in your last exchange. For you comment when you said about 0% to 2% FFO growth, does that -- and I apologize for asking this again, does that include merchant building gains in that. I guess what is an outcome?

[Steve Richter:]

We haven't gone in Jeff to that level of detail of that.

[Jeff Donnelly:]

Okay. Thank you.

[Steve Richter:]

Thank you.

[Operator:]

Your next question comes from the line of Nathan Isbee with Stifel Nicolaus

[Nathan Isbee:]

Hi, good morning.

[Drew Alexander:]

Hi, Nate.

[Nathan Isbee:]

Beyond the 160 tenants that you have 30 days late, how many of your small shops did you see on, are you worried about or you put it upon your watch list?

[Johnny Hendrix:]

This is Johnny. I think those are ones, I probably would say there's probably less another 60 that I'm really concerned about today.

[Nathan Isbee:]

60, sir.

[Johnny Hendrix:]

Maybe they are 15 days late, but they got cone up. The 160 is inclusive of all tenants who are 30 days late.

[Nathan Isbee:]

Right. And how does that look at Q2, how many 30 days late did you have at Q2?

[Johnny Hendrix:]

I am estimating, I don't remember the number exactly, but it's probably more the 100-110 range. I mean typically, I would say it's probably been more in our historically level more in the 50 range.

[Nathan Isbee:]

Okay. Then just one last question. Again focusing on the small shop issues, are you seeing any differences geographically or maybe between centers that have the grocery-anchored and those that don't?

[Johnny Hendrix:]

As you know, most of our shopping centers are grocery-anchored and I do think those retailers are tending to do a little bit better than in some of the non-anchored centers. Geographically, Texas has done better than most of the rest of the country. And I think Florida was probably the first to see the weakness and then it moved to California or the west. And I would say, generally, Arizona, California, Florida today is still the hardest hit, but in Texas it's clear done the best and Houston has done in our portfolio better in terms of retaining tenants and gaining the occupancy.

[Nathan Isbee:]

Okay. Thank you.

[Operator:]

Your next question comes from the line of Mike Mueller with JPMorgan.

[Mike Mueller:]

Yeah, hi. I missed the beginning of the call by five or 10 minutes trying to get on, so I may have missed this, if you cover it. But can you walk through the reconciliation going from Q3 to Q4? Drew, I think you mentioned a $3 a share are their balance, if there were no gain in the numbers. You've done 231 year-to-date that implies $0.69 and $0.70 in the fourth quarter. In the press release, you walked through excluding the one-time items you had $0.77 in the third quarter, you take $0.02 off for the merchant build to get you to $0.75 and other $0.02 for equity offering dilution get to the $0.73. The first question is where is other $0.04? And then, secondly, if the run rate in the fourth quarter is it about $0.70, what are we missing if we annualize that and say that the base case is 280 and you kind of go from there?

[Drew Alexander:]

I think you have some, Mike, from just operations that potentially were assuming some weakness. And secondly, I would say the assets, the executive retirement plan if we had to mark-to-market today, we would realize about $0.04 of FFO for that. But again, that mark-to-market is not today, it will be at the end of the year.

[Mike Mueller:]

Okay. So first of all, where is the geography of that on the income statement where that shows up?

[Drew Alexander:]

Shows up actually in G&A.

[Mike Mueller:]

Okay. So you had $0.02 of that in the third quarter.

[Robert Smith:]

That's a combination of G&A and operating assets.

[Drew Alexander:]

Yeah, and operating. There is a piece of it that's in operating expense the way it gets allocated.

[Mike Mueller:]

Okay. So the expectation is you could have another $0.04 of that in the fourth quarter?

[Steve Richter:]

Mark-to-market today, that's what the number would be.

[Mike Mueller:]

Okay. That could potential go away, okay.

[Steve Richter:]

Let's hope the market goes up.

[Mike Mueller:]

Okay. And then, secondly, kind of going back to the gain question, because I do think it's important. I know you don't have firm numbers there, but you do have something embedded in that number, that 0 to 2% growth. So you're not assuming zero, but it's probably safe to say that you're not assuming gains double and you'll take it up to 10% of earnings. So, not knowing anything else, is it a reasonable assumption to assume that you're kind of keeping that stuff flat?

[Steve Richter:]

Yes. That's probably the best guess, Mike. You are correct. If you were to take out the full $0.08 and assume nothing for next year, we could not be flat, we would be down. So the answer is there is piece of that, and we apologize for not being able to be more clear. But right now, where the market is and we haven't finished our business, then it's tough to really project.

[Mike Mueller:]

I think that will be it. Thank you.

[Steve Richter:]

Thanks, Mike.

[Operator:]

Your next question comes from the line of Jim Sullivan with Green Street.

[Jim Sullivan:]

Thanks. First question relates to releasing cost and releasing cost trends. It's kind of hard to tell for your disclosure what's happening there. Can you talk about whether you have an offer perhaps things now that you weren't before and maybe try to quantify that?

[Johnny Hendrix:]

Jim, this is Johnny. Of course, on renewals, it's almost nothing measured in penny. So it's not really an issue. In terms of new leases, our releasing costs this year are a little bit below where they were at the same time last year, and I don't see a significant change in year-to-year or quarter-to-quarter on what our costs are relatively to leasing space.

[Jim Sullivan:]

That surprises me given how the leasing hidations have softened.

[Johnny Hendrix:]

Jim, it surprised me too when I saw it.

[Drew Alexander:]

One of the other things, Jim, I think we also will have to factor in is construction costs and contractors are a getting lot easier, more flexible with [DLF], which mitigates it a little bit.

[Jim Sullivan:]

Okay. And then the second question relates to merchant building gains for next year. It looks like all of your merchant building gains this year were actually land sales as opposed to selling buildings that you developed and leased out. As you look into next year, is it your expectation that we'll see that situation again where your merchant building gains are actually land sales as opposed to selling buildings that you developed?

[Drew Alexander:]

That's a big part of what we don't know and maybe goes to the heart of a lot of this question that we feel somewhat comfortable that we can complete some land sales to users and some other things in the land part. The shopping center part is a much more difficult thing to examine in today's world where it's very hard to figure out what cap rates are, what financing is, et cetera. We historically have looked at that split being about 50/50. As you observed so far this year, it has been more weighted to the land sale. We have several centers in the works. Whether they happen or not, we'll see.

[Jim Sullivan:]

Okay. And then my final question, Drew, I think you said that the company faces greater uncertainty; I think that was word you used; today that in your 30 years of the company, but you also touched on the mid '80s in Texas when you had pretty much the banking industry go out of business, an oil buzz, the housing buzz, the peso devaluation that hurt the economy. Do you really feel like things are worse today than they were in the mid '80s in Texas and Houston specifically?

[Drew Alexander:]

No. What I thought I said was I think the natural markets are as uncertain as they've ever been, and there is a tremendous lack of clarity and lack of understanding of what's going on in people like Greenspan who don't understand what's going on. In Texas, in the middle of mid '80s, things were worse than they are right now from an operating perspective. And in Texas it was pretty clear what happened. We got way out ahead of ourselves oil-wise and we lost some 225,000 jobs. So the financial market, subprime meltdown to me has caused a situation that is very perplexing for all of the experts that I've at least seen talking in any national media. As of right now, the fundamentals in terms of our tenants and everything are better. We're not as bad as they were in the mid and late '80s.

[Jim Sullivan:]

Okay. Thanks a lot.

[Operator:]

Thank you. Your next question comes from the line of Craig Schmidt with Merrill Lynch.

[Craig Schmidt:]

The comment on the geography where some of the weaker markets of California is on and then Florida; maybe tax is being one of the more stables ones. Just wondering, given the push into the western regions and the eastern regions might this make the effort to capture more growth in those areas more challenged given that you are suffering greater declines now in those regions relative to the area you are sort of moving out of?

[Steve Richter:]

I think, it could present a greater opportunity in those regions. The company is pretty close to its third, third, third across the west, the center, and the east. So I think there could be some opportunities in Florida and California, which I still feel over the long term are very well positioned.

[Craig Schmidt:]

But I am just thinking shouldn't you also be protecting some of them on the downside, if in fact at the end of the day those are going to give you best growth. If they actually crater more in the down periods, it seems like that greater growth is going to be difficult to capture.

[Johnny Hendrix:]

Hi Craig, this is Johnny. In terms of our migration, I think that, our goal along was to have a balanced portfolio that would be evenly spread between the two coast and the central part of the country and I think at this point we've achieved that. And it's certainly not a continued push of ours to reduce our exposure in Texas or the Central part of the country and expand into on to either of the coast. I am not sure, does that answer your question.

[Craig Schmidt:]

Yeah, that gives me some better understanding. Thanks.

[Johnny Hendrix:]

Thanks.

[Operator:]

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

[Rich Moore:]

Hello guys. You guys have always seem to find acquisitions when some of your competitors haven't, and I'm curious anything in the pipeline, is any going on with acquisitions and for that matter maybe dispositions or is that sort of dead.

[Drew Alexander:]

Acquisitions wise, not really looking at too much of anything. Disposition wise, we do have some things working.

[Rich Moore:]

Okay. You think that takes up a little bit Drew, or is it that just state debt?

[Drew Alexander:]

I think there is no question that over time it picks up, exactly when I have no idea

[Rich Moore:]

Okay, great. Thank you. And then on the development front, how do you guys feel about leasing? I mean obviously, you are at the point you are at as you mentioned in the supplemental. But what do we see from here? I mean if its tough in the existing portfolio, I got to believe that filling up these '09 and 2010 spaces, the projects coming on in those years, is getting more difficult, is that accurate or how do you view it?

[Drew Alexander:]

Not really because there is always a certain, just excitement about a new project. We've got anchors in place, good population density, it's challenging, but I don't think it especially more.

[Robert Smith:]

I would add to that too, this is Robert. Generally as you know with development projects there is a lot of lead time that's involved and you get typically commitments from those shops, engineers and other change that go into these projects, as you get your big anchor deals done. And so they slot those, they sway them, they get ready to do them and they stick with you as you go through this until the situation is extreme dire and of course that could be the case overtime. But to this point, they've hung in there to be part of these projects, primarily because they make a commitment early during that lead time.

[Rich Moore:]

Okay, so your targets for those really haven't changed, you think you'll still come in pretty heavily leased for both years?

[Drew Alexander:]

We think so. The other thing we are seeing a lot of – tenants are paying increased attention to the developer, the developers expertise experienced in financial strength. So, they're lot more sensitive to who is behind the [project] and folks who were a year ago.

[Rich Moore:]

Okay. And then the last thing guys thank you. I think the last thing is, Steve on G&A was down and I am curious you had actually extra things in there from the reserve or the money you put in for the mark-to-market for the fall and the value of the executive, the comp area, the executive retirement. And so why is that down and where does it I guess go from here G&A as a total.

[Steve Richter:]

Rick, I think as we've reported before, we did adjusting some staffing levels. We're down about to this point about 55 headcount wise, and there is some unusual cost as you mentioned running around in there. You know the best guess I'd tell you is a customer around a $7 million run-rate is probably what one would use today.

[Rich Moore:]

For per quarter, you're saying.

[Steve Richter:]

Yes.

[Rich Moore:]

Okay, great. Thank you guys.

[Operator:]

Thank you. Your next question comes from Philip Martin with Cantor Fitzgerald.

[Philip Martin:]

Good morning. I'll try not to drag this on too much longer. Well I guess for Steve for you first of all, and I may have missed this at the very beginning. But as you are talking to your banks, and looking to refinance that maturities et cetera; how are the banks viewing cap rates? What kind of the cap rate assumption are they putting, on assets that you're looking to refinance over the next 12 months?

[Steve Richter:]

Well, the banks, quiet frankly if you look at the construction side of things, they are not using cap rate, they are lending on cost. So that doesn't really play into that type of lending. When you broaden the word banks into all lenders and you get into the live company markets, it's again, there I would say being reasonable you are still seeing valuations for good quality assets in the seventh, in terms of cap rate….

[Philip Martin:]

Is that lower…

[Steve Richter:]

And even (inaudible) from very good quality stuff. I mean really to A type stuff, you can even get below that in terms of valuation.

[Philip Martin:]

Okay. So throughout the sevens. It's clear enough. Now, Johnny, we spend a lot of time talking about the tenant's et cetera, but given what you know and how well you know your tenants have markets, what are you preparing for in terms of vacancies, after the holidays here? I mean we've got a about a 160 tenants, 30 days late that could jump up to, let's say, 200 by year end? I mean given you experience. What is that telling you about what to expect in January in terms of vacancies?

[Johnny Hendrix:]

Well, Philip, certainly, I think we expect a decline in occupancy in January and February. In terms of how much I have seen a number of very preliminary budgets and if I fell a 100 basis points in the first quarter, I wouldn't be surprised.

[Philip Martin:]

Okay. Now, flipping that around a little bit, given the strength of many of your locations relative to other centers in the market, is there an opportunity that you are seeing with tenants in some of those centers that maybe those tenants are suffering somewhat unnecessarily because of a weaker location or being in a weaker center? Is there a chance to bring some of those tenants over? Are you having any discussions in that way?

[Johnny Hendrix:]

Yeah, Philip. And everybody in the room just raised up because they wanted to answer this question. Clearly, we are continuing to lease facts. And we released as much space as we did last year and at better rents than we have ever leased space at. I think today we have a portfolio that is higher quality than we have historically. Its better positioned. We have better anchors and we are competing very effectively with the other shopping centers in our market. One of the things I think is really important about where we are today, also, Philip, is that we don't seem to be in a significantly over built situation. And a lot of the new developments that were preparing to come out of the ground or not and we have many tenants who are wanting to replace some of their store count that they have projected for '09 and '010. And they are doing that with existing shopping centers and we're benefiting from that. So I think we are going to continue to lease space and we are going to compete very effectively against other shopping centers in the market that we are in.

[Philip Martin:]

Okay. Okay, fair enough. Thank you for the detail.

[Operator:]

Thank you your next question comes from the line of (inaudible).

[Unidentified Analyst:]

Good morning. You've mentioned that about 70% of your centers have supermarket component. So are you seeing a significant differentiation in operating metrics between the supermarket components centers and non-grocery anchored centers in terms of NOI growth or occupancy?

[Johnny Hendrix:]

This is Johnny. I don't think that it's measurable. I think we get higher rents. We do get a better occupancy. But I don't know that that really translates in the same property NOI growth. I think it's probably more consistent. And it's more up and down in non-anchored centers, probably be the biggest difference. We focus on the supermarket metric because that's what lot of the folks on the call focus on. A lot of our other centers are anchored by discounters like target or Wal-Mart and a lot of the other ones are just very good locations like our Center at Post Oak and the Galleria. So I think that someway it doesn't differentiate itself is buy and large we don't have bad centers.

[Unidentified Analyst:]

Absolutely. Out of the 160 tenants that are 30 days late, is there a disproportionate amount that are in a non-market anchored centers?

[Johnny Hendrix:]

I don't think so.

[Unidentified Analyst:]

Got it, okay. Thank you.

[Operator:]

Your next question comes from the line of Chris Lucas with Robert W. Baird.

[Chris Lucas:]

Good afternoon, guys. Two quick questions for you. One is on the impact of Hurricane Ike, are the one-time items done at this point through third quarter or do you carry over in the fourth quarter?

[Drew Alexander:]

No, we think we do not have full final numbers on Ike yet, Chris. But our estimates are strong enough that we're comfortable we got all material amounts in Q3.

[Chris Lucas:]

Okay. And then my last question have to do with just the change in the environment, is there any more thought to providing seller financing to get merchant build deals done in this environment?

[Drew Alexander:]

In the right circumstance we would with a good down payment.

[Drew Alexander:]

That's all I have. Thanks.

[Operator:]

Your next question comes from Jay Habermann with Goldman Sachs.

[Unidentified Analyst:]

Hi. Just a quick follow-up, just on the share comments on how you deal with tenants who are already at some stage of default on their payments in your portfolio. And I'm curious to know how your credit screening process has changed today as you work through negotiating new leases, especially with a lot of fear in local and regional tenants?

[Robert Smith:]

I think that we've always done the basic blocking and tackling in the leasing and we have always required financial statements, as well as business plans from tenants. We do credit checks. So I don't think there is a significant change in the credit screening of the tenants. I would say probably more than average number of the shopping centers that we buy, we haven't screened all of those tenants, and certainly, we've done some due diligence. But I think as a ratio of tenants who are falling out, many of those are tenants who we bought as opposed to actually did the leases ourselves. It's not to say we haven't leased to people who are falling out, we have.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

Our next question comes from the line of Michael Bilerman with Citigroup.

[Unidentified Analyst:]

Hi. It's (inaudible) here. Just a very quick follow-up question. In relation to the $0.04 that you talked about in the fourth quarter about your license that are with [Harman]. Is that factored into the low end of your guidance range?

[Steve Richter:]

Yes, it is.

[Unidentified Analyst:]

Okay. Thanks a lot, guys.

[Operator:]

Your next question comes from the Mike Muller with JP Morgan.

[Mike Mueller:]

Yeah, hi. Just one quickie from my end and you may have touched on this earlier, but did you put out a number in terms of what the bad debt number was in the quarter?

[Steve Richter:]

The bad debt was actually $0.02 per share greater than last year.

[Mike Mueller:]

Okay. And then, just one last one, very high level of comp NOI growth, a big picture thoughts about heading into the next year, do you think you can hold the line and keep it flat to positive?

[Johnny Hendrix:]

You may have heard on the call we haven't totally finished the budget. I am a salesman at heart and I certainly am hopefully that we can. But realistically with falling occupancies, flat would be good.

[Mike Mueller:]

Okay. Thank you

[Johnny Hendrix:]

Thanks.

[Operator:]

Your next question comes from David Fick with Stifel Nicolaus.

[David Fick:]

Good morning. I guess, good afternoon on the East Coast. Follow-up on your land inventory and development, you guys are just over I guess 110 million of land at this point, or four or five days that you've decided to (inaudible) this point. Is that fair?

[Drew Alexander:]

It's a little longer list than that, but that's substantially correct, yes.

[David Fick:]

Okay. As we will recall, as recently as 10 years ago, good shopping centers were routinely selling at 9 cap and development hurdles were 11 or higher. You indicated a little while ago that [channel] was sort of your minimum bogie now for development. How do you look at your land inventory with respect to carry and when you might adjust that hurdle rate and has really pan enough I guess is the question?

[Drew Alexander:]

I think on the new project with the underwriting standards that we also talked about 10 is enough, because I don't think we will see hardly anything as tight as we have set the funnel. I think it will be six months or so before we do. As to the existing properties, that we are already committed to, I think its something David we have to look at case by case in terms of where we can invest our capital and do we go ahead and build something that is more of a breakeven, so that we can put the land to work or do we continue to hold it till things get better, and I don't know that I can answer that at a high level. It's really very much case by case.

[David Fick:]

You might have a lower hurdle there, just because you don't want to have sit on the [link].

[Drew Alexander:]

Exactly.

[David Fick:]

Okay. Thanks.

[Operator:]

Your final question comes from [Mack Thorpe] with Cantor Fitzgerald.

[Mack Thorpe:]

Hi, Drew this question is for you. You mentioned on the call that you are selling assets. What kind of buyers are out there right now and how are they financing those purchases? Are they mostly all cash buyers?

[Drew Alexander:]

We're seeing some are cash buyers, we're seeing some private REITs, we're some wealthy individuals, we're seeing some small developers with strong bank relationships. We have seen a change that year ago a big portfolio through all the rage and now smaller is better. You know still some 1031 buyers are out there. So it is a lot more work, lot more transactions and get re-traded some, and have to do a lot more work, but it has slowed down a lot, not quite ground to a halt.

[Mack Thorpe:]

Okay, thank you.

[Operator:]

There are no further questions. I'll now turn the conference over to Mr. Alexander for closing remarks.

[Drew Alexander:]

Thank you all for your time. We appreciate that these are very tough, very challenging times. We have tried to lay out for you the reasons and the quantification between the liquidity and the strength of the portfolio that we think we'll weather them. But we'll be around this afternoon, if others have more questions, and we need to go through some of the exercises and the scenarios that we've run. So, thank you so much for your attention.

[Operator:]

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