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Executives

Kristin Gandy – Director, IR

Drew Alexander – President and CEO

Steve Richter – EVP and CFO

Robert Smith – SVP, Director of New Development

Johnny Hendrix – EVP, Asset Management

Analysts

Bolan [ph] – Goldman Sachs

Jay Haberman – Goldman Sachs

Rich Moore – RBC Capital Markets

Quentin Velleley – Citigroup

Chris Lucas – Robert W. Baird

David Fick – Stifel Nicolaus

Weingarten Realty Investors (WRI) Q1 2010 Earnings Call Transcript May 7, 2010 11:00 AM ET

Operator

Good morning. My name is Mandy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Weingarten Realty first quarter 2010 earnings conference call. (Operator instructions)

Thank you. I will now turn the call over to Ms. Kristin Gandy, Director of Investor Relations. Ma'am, you may begin.

Kristin Gandy

Good morning and welcome to our first quarter 2010 conference call. Joining me today are Drew Alexander, President & CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President; Steve Richter, Executive Vice President and CFO; Robert Smith, Senior Vice President; and Joe Shafer, Senior Vice President and Chief Account 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. 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 helps analysts and investors to better understand Weingarten’s operating results. Reconciliation to this non-GAAP financial measure is available in our supplemental information packet located under the investors’ relations tab of our website.

I would also like to request that callers observe a two question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue.

I will now turn the call over to Drew Alexander.

Drew Alexander

Thanks Kristin. Good morning everyone and thanks for joining the call today. Before I begin, I would like to direct everyone's attention to our supplemental package. In a further effort to improve our disclosure, we have made some additional improvements this quarter.

Since completions in our new development program didn't appear to be a metric that was tracked, we eliminated completions and replaced it with NOI produced from the properties in our new development pipeline. In addition, we are providing some enhanced balance sheet detail on unconsolidated subsidiaries. We trust this additional information will help you in analyzing our company.

As many of you have noticed, during 2009 Weingarten weathered the economic downturn very effectively. This is a testament to the high quality of our portfolio, our strong operations, very talented associates, and the quality of our tenant mix. During 2009 we maintained occupancy above 90%, sold two non-core assets, created a new joint-venture relationship, sold equity, eliminated any maturity concentrations, accessed the corporate bond market and the mortgage market and scaled back our new development pipeline.

In 2010, we are pleased with our operations progress. Johnny Hendrix will cover the details in a few minutes, but we are very encouraged about leasing activity and the strength of our portfolio. Given our strong balance sheet and our excess cash, we are also focused on opportunistic ways to grow and increase shareholder value. The opportunities thus far have been limited, and we will remain patient.

Recently, we have seen activity pick up as assets were slowly trickling into the market. We evaluated many assets and portfolios and have some deals working. We expect deal flows to increase towards the end of this year, and in the next year, and we have talented human resources focused on approximately 10 major markets that we are targeting for growth.

We remain confident that we will be able to acquire between $75 million and $125 million, as previously guided, but we will remain patient.

I now like to turn it over to Steve Richter to discuss our financial results.

Steve Richter

Thanks Drew and good morning. We continue to see operations improve during the quarter, as leasing demand accelerates. We reported funds from operations per share of $0.41 for the first quarter of 2010 versus $0.77 per share last year. The primary factors affecting the quarter’s year-over-year results were the dilutive effect of the common offering in April of last year, the lack of any land and merchant bill gains this quarter, and finally the effect of 2009 dispositions including contributions to joint ventures.

We view the limited number of bankruptcies year-to-date as a real positive. We feel things are getting better, however, we do not feel the economy is totally healthy, and therefore are not changing guidance at this time. We maintain our 2010 FFO guidance of $1.58 to $1.70 per share. Bottom line, we believe some of this is timing, and we anticipate additional fallout over the balance of the year.

From a capital perspective, WRI is in great shape. We have over $100 million of excess cash, our maturities are well latter [ph], and our net debt to EBITDA was 6.3 times as of quarter end. We have been asked several times by analysts and investors, how much could Weingarten acquire in new investments before having to raise additional equity and still maintain our strong debt coverages.

If one assumes, we want to maintain a net debt to EBITDA of at least 6.5 times, then as we return to 95% occupancy level, monetize the land held for future developments, and invest our current excess cash, we can invest over $400 million and still maintain the 6.5 times net debt to EBITDA coverage. This allows us to create significant shareholder value before we would have to sell new equity or recycle existing properties.

I would now like to turn the call over to Robert to discuss new developments.

Robert Smith

Thanks Steve. We currently have ten active projects going in our development pipeline, and that pipeline is essentially fully funded at this time. We expect three of those properties to stabilize this year, and that group is currently about 78% net leased. And we expect them to throw off a 7% return once they are finalized. In fact, these properties could be at about a 6% return right now, based on leases in place that have commenced or will be commencing. So we feel pretty good about 2010.

We did not add any new projects this quarter, and we did not extend any stabilization dates this quarter. So looking forward, things look pretty steady. I would mention, however that we are seeing an up tick in leasing activity, and we may not be that far off from the day where we can reactivate some of this land that we have in our land held for development. We're not there yet. I wouldn't model anything, but we are seeing some positive signs, and it would most likely be in the form of a small phase that we would add to an existing project, or maybe recently completed project.

Other than that, I would remind you that we have a talented group of development associates out there beating the bushes and looking for growth opportunities and that could be new projects or stalled projects or broken projects that we might be able to jump into. We are seeing a little more activity in that area. We don't have anything concrete to report, but if we do we will certainly let you know.

And that is it from me for this quarter, so I will turn it over to Johnny to discuss operations.

Johnny Hendrix

Thanks Robert. Good morning to everybody on the call. I started putting together my script about 10 days ago, and this was the section where I was planning to tell you that we are seeing wonderful sales increases in March, from our retailers like Ross, up 16%, T.J.X. up 12% and so on. Over the last 48 hours, several retailers have been recording lower than expected sales. So it is probably more appropriate to say even though there will be some bumps along the way, our retailers’ health is improving.

As I consider these more recent sales in context, with recent employment gains, and with the timing of Easter, I am still confident improvements retailers experienced over the holidays and during the first quarter in both margins and top line sales will continue going forward, and will translate to more demand for retail space.

Occupancy was better at quarter end than we had projected. Our retail properties saw an increase to 92.2%. This was primarily a result of the less than expected fallout from both small tenants and national retailers. We are still concerned about the book and video categories, and as Steve mentioned our guidance does anticipate some fallout of these retailers.

Small shop fallouts slowed during the quarter. We lost 125 retail tenants and 324,000 square feet as compared to 172 tenants and 641,000 square feet in the first quarter of 2009. The 125 fallouts are the lowest we have had since the first quarter of 2008. Leasing velocity was definitely the highlight of the quarter. In retail, we leased 577,000 square feet almost double the 300,000 square feet we leased in the first quarter of 2009. While pretty spectacular, this was in line with our business plan.

Renewals are in great shape as well. We have leased 74% of our expiring leases for 2010. This is well ahead of the pace from last year. Our team also did a great job leasing eight of our big boxes during the quarter. One year after Linens and Circuit close their stores with us, we have leased 60% of the 18 stores we got back from those retailers. The details of the box of the box leasing are included on page 45 of the supplemental. As we move to more normal conditions, we will drop that portion of the disclosure.

We reported same property NOI to be at minus 2.6 for the quarter. Given we are comping against rentals that included Circuit City and Goody’s; this is better than we had expected. The two primary drivers of this better-than-expected results were our ability to get junior boxes delivered and commenced early, and the lower than expected fallout in related bad debt we had discussed earlier.

The timing differential of commitments and fallouts did have an impact on the quarter, but won't generate a material difference on an annual basis. So I believe our guidance of zero to minus 3% is still reasonable. REIT growth remains under pressure. In most negotiations, retailers still have levers. I think we will see more evenly balanced negotiations in higher rent as we approach 2011, when good space is absorbed and more retailers become focused on external growth.

We reported a decrease of 4% overall for signed leases in the first quarter. Our new leases in the retail division, boxes were up 9.7%, and shops were down 11%. Also note that we have modified our definition of rent growth to include leases signed during the quarter, which were reported on a cash basis. Historically, we reported commenced leases. The new definition is more consistent with our peer group, and will provide a more accurate comparison.

Rent growth for leases commenced during the quarter can be found on page 45 of the supplemental, but will be dropped going forward. I also wanted to mention, we have restructured our regional geography adding a mountain region, which includes Arizona, Nevada, Utah, New Mexico and Colorado. The western region now includes California, Washington State, and Oregon. This change allows us to continue to move decisions closer to the assets, and redirect some of our human resources to external growth. This change will also give you a little more granularity, which I hope you will view as positive.

Drew Alexander

Thanks Johnny. We certainly feel things are getting better. As mentioned, we do not think the economy is totally healthy, but conditions are definitely improving. As you have heard this morning, we are encouraged by the positive leasing velocity. We are confident in our core operations. We are seeing stability across all geographies in the portfolio, and our experienced management team is focused on growth as well as our existing operations.

Our teams are investing a lot of resources towards growth, but will be patient and only invest capital to create long-term shareholder value. We are also really looking forward to the ICSC Convention in Las Vegas later this month. We already have a terrific line-up of meetings scheduled. Looking at our master schedule, we are at about 400 meetings with two weeks to go to the convention.

In my mind, more important than the number of meetings is the improving tone that we are hearing both in ICSC meeting planning, and the numerous global meetings that take place before the convention. Some of the themes I here compared to last year include more aggressive store opening plans from over 90% of our retailers and restaurants. Many retailers are increasingly open to altering their prototype footprints to fit into existing space configuration. And more retailers are open to grocery anchored co-tenancy versus focusing just on the power center sector.

We also noticed an increased effort to work as a team between retailer and landlord to value engineer the cost to build out, to make the deal work for both partners. Today, most retailers are focused on growth, and recognize the negotiating balance is beginning to tip back towards the property owner. We are of course looking forward to the convention, and will of course provide a summary of our meetings at our analyst and investor tour in Las Vegas directly after ICSC concludes.

With that I want to remind everybody about Weingarten’s annual analyst and investor day. It is May 25th and 26th in Las Vegas this year at the conclusion of the ICSC RECon conference. Should anyone have any questions please contact Kristin Gandy. We look forward to seeing everybody in sunny Las Vegas.

But that Mandy we would be happy to take questions.

Question-and-Answer Session

Operator

(Operator instructions) And our first question comes from the line of Jay Haberman with Goldman Sachs.

Bolan – Goldman Sachs

It is Bolan [ph]. Jay is here as well. First, if you could just start with the maybe just a little bit more detail on the big box leasing, which types of tenants were taking up that space, and then the 9% growth in rent spread, if I heard that correctly, was that just the case of a low lease, or low rent in there prior to the new one?

Johnny Hendrix

Jay this is Johnny. Yes, that is pretty much – you did hear that correctly. It is 9.75 increase on the spaces over 15,000 square feet. You know, we had a couple of older leases that we replaced, and that is really kind of what made that up. I will also kind of note for you that our TI was up a little bit from over what has been historically, and that was also those two supermarkets.

In terms of kind of what we are doing, I think I mentioned we leased two supermarkets; we leased a pool store, famous label. We cut up a box, route 21, with kind of the lead tenant, and we had some other shops to go with it. I think we did a Shoppers World loss of Burlington. So, I think that that is a…

Bolan – Goldman Sachs

Okay. And then just one follow-up to that, would that 9%, or maybe if you could just wager what the mark-to-market is on the remaining spaces to lease?

Johnny Hendrix

It is less than that. You know, we have kind of been using the 25% to 30% number on the boxes that were leased in the mid-2000s. I think that probably is still a pretty good number.

Bolan – Goldman Sachs

Okay. And then just one separate last question, you talked a little bit Drew at the start about looking at assets in the market, can you talk about one, whether you guys have bid on anything, and two, just give us a sense of what you are seeing in terms of underwriting out there?

Drew Alexander

We have been on a number of things. We do have some deals working. As I mentioned, we feel confident at this point in our guidance of $75 million to $125 million. Acquisitions have always been and we have been pretty active in the market since the mid-80s. Acquisitions has always been a year end focus business, and this year we think that will be the case very seriously driven by the market stabilization and the fact that the numbers of deals we see trickling to the market is increasing.

And I think the tax situation is probably is uncertain as it has been in the 30 years that I have been doing this full-time. So we are seeing a lot. We have bid. We have some deals working. We are optimistic that we will hit our guidance, but we are also being very patient. As you mentioned underwriting is a real key art these days. You know, there are lots of situations where you see a tenant over market and there are differences between buyer and seller as to probability that the tenant will, you know, renew and at what rate. And using the boots on the ground that we have, we are being very we think accurate in using our expertise to look at those properties.

So one sees a lot of different cap rates reported, I would say, from middle 6s up to 8%. In our mind, knowing the deals that we do, that we have looked at, the real key is what one thinks to NOI is going to be 2, 3, 4 years down the road and that is where different people’s crystal balls have different perspectives.

Jay Haberman – Goldman Sachs

Drew, it is actually Jay here, you guys had talked about occupancy possibly tipping 100 basis points in the first quarter, clearly the bankruptcies just didn't materialize in the form that you had anticipated. So, can you give us some sense of what you might think year-end occupancy could be if the patient leasing continues, obviously at the current pace of rents.

Drew Alexander

I am happy to touch on that for a second since you asked me, but I will turn it over to Johnny for his thoughts as well. I think the main thing that we're looking at now that we have tried to get out is that things are better, but they are not perfect. So we do expect some further choppiness, and if we don't see that then occupancy will move up. You know, if we do, it depends how much.

So we think it is certainly possible that things could tick up in here, but we don't know how robustly it will be. Johnny, you are closer to it than I am.

Johnny Hendrix

Yes, Jay, we had looked at – you know, we were thinking that they would be somewhere around 50 to 60 basis points of tenants with bankruptcies in the books and video category. And you know, if that happens, then I think that our guidance of somewhere between 91 to 92 for this year is probably good. If it doesn't, you know, I think we could definitely be above that.

The other thing to remember of course is when we talk about occupancy; we are really more focused on volume. So in terms of modeling and FFO, leases that we sign towards the end of 2010 are obviously not going to commence, and not really effective to FFO in 2010.

Jay Haberman – Goldman Sachs

Thank you.

Operator

(Operator instructions) And your next question comes from the line of Rich Moore with RBC Capital Markets.

Rich Moore – RBC Capital Markets

Hi, guys. Good morning. It sounds like the questioning session is not moving as normal here. Could you address a little bit Drew or someone, your thoughts on dispositions, and I am thinking in particular with prices kind of rising, it is obviously a great environment to think about dispositions, but in particular with regard to the industrial portfolio, is this a good time you think to maybe divest off some of the industrial properties?

Drew Alexander

Well, first off Rich, we appreciate the question. We were wondering if there was a technology glitch. We appreciate we had a very straight forward quarter and thought – we anticipate a lot of the questions and included them in the…

Rich Moore – RBC Capital Markets

So, you did a good job. You did a good job in the prepared remarks, there is no question.

Drew Alexander

Well, thanks, but I'm glad to know that technology works and appreciate your questions, always good to talk to you. As to dispositions, I think we had mentioned at the beginning of the year that we would look for between $25 million and $75 million of dispositions versus the 257 as I recall that we did last year. You know, we all over the next several years look to own our portfolio to improve its already good geographic focus, and to, as you have heard me say in numerous meetings, we want to focus on the markets, where we can be key players. So I think we will own that footprint.

And as far as the industrial deal as I have said many times, it is a business that we have been in for over 40 years. We know it. We understand it. We have a wonderful niche in it, and it is something that we are very comfortable with. That said, as I have said as to every piece of property we will be involved in, we would be opportunistic and do what is right for the shareholders if the right opportunity came up.

Rich Moore – RBC Capital Markets

So, you are not thinking though Drew of maybe putting together an industrial portfolio or piece of the portfolio you have for some sort of joint-venture play given all the capital that is out there?

Drew Alexander

We would always be open to different opportunities, but we don't have any packages in the market or anything like that.

Rich Moore – RBC Capital Markets

Okay, great guys. Thank you. And then on the development front, we have heard a handful of your colleagues in the shopping center business suggest that developments should be firing back up again because tenants are not seeing enough space for the years beyond 2010 and 2011, and obviously if you are going to build for 2012, you guys start thinking about it now. Are you guys thinking the same way, is it time to sort of – you touched on it. Is it time to sort of fire up the development pipeline again.

Drew Alexander

I will let Robert comment more on this, but I would say the short answer is yes, you know, and when I was talking about the meetings in Vegas with a lot of the major anchors. That is absolutely what is on the agenda.

Robert Smith

Yeah, I would agree with what Drew is saying, and maybe add that it will be very market specific. Certain markets are healthier where we will see growth sooner, both employment and population, and those will be the better target markets for that kind of activity. And you are right about the lead time. It does take a year or two to be ready. We fortunately have a good inventory of property we can put into action right away because it is entitled and ready to go.

So that is a benefit, but we would have to see how much we could fire it up, but we will be cautiously pursuing that right now.

Rich Moore – RBC Capital Markets

Okay. Any particular geographies that make more sense than others?

Robert Smith

Well, you know, anything that is supported by the federal government might be good markets. But no, not necessarily. We're just watching that very closely to look for the signs and the metrics that indicate some markets are moving ahead of others.

Rich Moore – RBC Capital Markets

Okay. And last quick thing guys, and thank you for that. On the acquisition front, would you use your units, your currency for any of those transactions you think?

Robert Smith

It is certainly something we would look at in terms of all the arrows in our quiver. It is certainly something we can consider. I think it has to be a reasonably sizeable deal. I think one of the things that we have learnt doing different down REIT op unit deals, there is a operations cost, they are flexible. A flexibility cost to it, so it is something that we would have to factor in, and with $100 million in cash, and nothing on our line of credit, all other things being equal, I would as soon pay cash.

Rich Moore – RBC Capital Markets

Okay, very good. Thanks guys.

Operator

(Operator instructions) Our next question is from the line of Quentin Velleley with Citigroup.

Quentin Velleley – Citigroup

Hi, good morning guys. Just in terms of the joint ventures, you obviously had some success last year. I just wanted to get your thoughts and comments on what you are seeing in terms of joint-venture capital from all your existing partners or new partners, and their desire to invest alongside you guys.

Drew Alexander

I think there is a tremendous amount of interest. We have extremely good relationships with our existing partners and many others. One of the things that we are factoring into that, you know, I have talked about offline Quentin, and you heard me talk about in other conferences like yours is, we are very sensitive to the fee package, and we think that over the history of the last several years, some companies in this space have overestimated the profitability of the fees, and especially when one gets into tough markets, and good managers have two hands on manage their centers, I think some folks are rethinking how profitable the basic property management is, if it is done properly and very hands-on.

So I think over an extended period of time, we will absolutely, positively do a good number of joint ventures. You now, at this moment my best guess is we are not going to do anything too terribly dramatic over the next quarter or so, because as I was mentioning with Rich that cash we have to invest is something that is driving us. But long-term I think joint ventures for good operators like ourselves is a very, very productive thing for all the shareholders.

Quentin Velleley – Citigroup

And obviously in your view is that fees going up and I assume that’s going to come from potentially asset management fees, as opposed to just the property management fee?

Drew Alexander

And that’s where you know, you’re exactly right. You can slice and dice the fee stream a lot of different ways, but it is something that one has to get paid for. So whether it is a larger property management fee, whether it’s an asset management fee, you know, whether it’s labeled something else, we’re not as sensitive to how it is labeled, but we are sensitive to the fact that you know, we believe in talking to our peers that we’ve done more extensive study of what it costs us you know, than anybody or nobody has certainly done more and we’re very tied into. If you have a good manager and he talks to the tenants a lot, and you have good accounting people, et cetera, et cetera, et cetera. There are some definite costs associated with that. So we are very sensitive to the fee stream that it needs to make sense for both sides.

Quentin Velleley – Citigroup

And then just one for Johnny may be, just if you could talk a little bit more about the health of the local tenant base across the different regions, and what your expectations are for closings versus openings in that space over the next sort of 12 months?

Johnny Hendrix

It does seem to be better Quentin. You know, it’s a little difficult to generalize everything, but it does seem that the retailer’s sales are up, that they have adjusted their expense levels and you know, we are having less tenants, who are – haven’t paid rent by the 15th and the 20th than we did last year at this time. You know, I would emphasize it’s still not what I would consider to be normal, but it is improving.

Quentin Velleley – Citigroup

Okay, thank you.

Drew Alexander

Thanks Quentin.

Operator

Our next question is from the line of Jay Haberman with Goldman Sachs.

Jay Haberman – Goldman Sachs

Hi guys, I guess a few questions this morning. So relatively few questions I should say, but just turning back to the books and video category, I mean, given that this category has been under pressure for some time, can you give us some sense of you know, whether or not you have tenants at this point that will be willing to take that space or do you expect to see you know, fairly reasonable downturn or downtime you know, in line with your you know, the rest of the portfolio?

Drew Alexander

I think there’ll be definitely some downtime Jay. I think we have been talking with folks over a long period of time, but keep in mind, you know, there has been a lot of space on the market, and most retailers, especially the national retailers you know, when you tell then there might be a space available in six months or a year, they’re going to really discount that. I think if they saw that the space was definitely available, they would move on it.

You know, clearly the video space and I think everybody knows that Hollywood Video, you know, is going to liquidate. I have eight of those stores, 34,000 square feet, you know, I think that we’ve been getting a lot of interest on those spaces, now that people definitely know that’s going to be available. So I think once there is some certainty of the timing of it that you will get, we will leave some space quicker than we do the other spaces, just because they are better spaces.

Jay Haberman – Goldman Sachs

Okay, thank you.

Operator

(Operator instructions)

And you have a question from the line of Chris Lucas with Robert W. Baird.

Chris Lucas – Robert W. Baird

Good morning everyone.

Drew Alexander

Good morning Chris.

Chris Lucas – Robert W. Baird

Johnny, on the leasing velocity it has been great up you know, over the last I guess you know, a few months. What’s your sense about the velocity going forward? How much of that was really pent-up from non-activity over the prior year and how much you know, do you think is really going to be sustainable, you know, over the next several quarters.

Johnny Hendrix

Chris, based on the feedback that we’ve been getting from our ICSC meetings, and from the global meetings that we are continuing to have there is definitely demand that is building and there is a realization from retailers that 2011 and 2012 is still coming and you know, they need the external growth. So you know, this month was good and it’s basically again on plan in terms of leasing. So, I think that generally I feel really good that we’re going to be able to maintain this velocity.

Chris Lucas – Robert W. Baird

And then on your land position, you know, given the changes that have occurred probably since you have built the position, is there an opportunity to divest the stuff you don’t want, and is there – are there new, you know, are there new opportunities that you really want to be focused on to accommodate where the retailers are headed at this point?

Johnny Hendrix

I would say yes to both as Robert, you know, mentioned in his remarks, we are in discussions with folks and do anticipate over the next several quarters that some of the land held for development will, you know, be active as Robert said. You know, initially this will probably be more in phases and expansions to existing properties. It’s also something that I would say we’ll be opportunistic in terms of getting involved in new pieces of land, but I don’t see the need to put a tremendous amount of additional land on the balance sheet.

I think most sellers in this world you know, recognize the importance of the entitlement process, you know, tying up major tenants. So I think we’ll work on deal, and as Robert mentioned before a lot of the meetings that we have in Vegas are to discuss development deals for ’11, ’12, ’13, et cetera. But I don’t see it is putting a lot of land on our – additional land on our balance sheet anytime soon.

Robert Smith

I would say to you that once we start expanding again into the land held, some of that will be anchors who buy the property. So there will be some liquidation that comes out of that too.

Johnny Hendrix

Absolutely.

Chris Lucas – Robert W. Baird

Okay, and then just kind of a follow-up on the health of the small tenant, I guess Johnny on the – in terms of their decision-making and you, in terms of making decisions on leases, or what are the drivers right now. Is capital still a constraint for them or is it just the opportunity given the improving economy that they are looking at. What do you think is the driver right now for those decisions?

Johnny Hendrix

Chris, it seems like to me that you know, there is a desire by the smaller retails to upgrade, to get themselves into shopping centers that they have not been able to access over the last several years. Capital certainly is a constraint, and it is something that they are very concerned about, but the biggest issue I think is that they’re trying – they think they see an opportunity to position themselves for the next several years and that this window is starting to close for them.

Chris Lucas – Robert W. Baird

Great, thank you.

Operator

And you have a question from the line of David Fick with Stifel Nicolaus.

David Fick – Stifel Nicolaus

Good morning.

Drew Alexander

Good morning David.

Robert Smith

Hi David.

David Fick – Stifel Nicolaus

You guys have done a really good job of anticipating questions this quarter, which says to me maybe Johnny you know, aside from books and video are there other retailers that you think will survive that perhaps might have been on a deathwatch you know, this time last year. We certainly, you know, have our list of death candidates is getting a lot shorter. You know, the Sports Authorities, the Petcos, the Office Depot’s, you know, even the Kmart and Sears look like they’re going to be around longer than we might have anticipated. Do you agree with that, number one, and number two are there others that you might think of?

Johnny Hendrix

You know, I definitely agree that generally the tenants who have access to capital, who are public companies have been able to extend their debt, and add some equity and this has added some liquidity to them. And I hope that they will be able to make it. I definitely think you’ve hit you know, a number of tenants. I wouldn’t recall any out specifically. You know the one area that you know, we are also still a little bit uncertain about is some home accessories, and it does seem like some of those folks have improved and there may be some issues with some others.

Drew Alexander

Hey David, it’s true. You know, as we all have discussed I think so far in 2010 it is played out much better than any of us at least around this table would have guessed or settled for. The other thing that gives you know, me great comfort and I think you know, I’ve talked about this in other context is the thing that was so particularly harsh 15 months ago was that retailers chapter 7, you know, the absence of debtor-in-possession financing was really harsh.

So, you know, while as we have said before, we think the economy is better, it’s not you know, totally perfect and we are you know, monitoring things closely. We do feel better about the fact that there is some debtor-in-possession financing available and to the extent retailers have to take chapter 11, or have to take bankruptcy. It’s much more likely now to be a chapter 11 versus the chapter 7 we saw 15 months ago.

David Fick – Stifel Nicolaus

So, with Circuit City or Linens N Things, or Comp USA were to happen today, you’d think you’d actually be able to retain some of that?

Drew Alexander

Yes, that’s the hope, and again you know, I’m not saying the debtor-in-possession is available for every concept. You still have to put a viable business plan together, you know, and convince lenders you’ve got, you know, at least the ability to pay them back their loans if not you know, some chance of succeeding, but I think you know, versus you know, everybody just about who took bankruptcy 15 months ago was a seven. I think you’d see a higher percentage of 11s, but the things that happen over the next couple of quarters.

David Fick – Stifel Nicolaus

And how about the national franchisees, the folks like you know, Quiznos that were perhaps over paying against their business model, where rent concessions where the game a year ago. That’s pretty well done at this point, isn’t it, and do you see support from the home office if you will with respect to those franchisees?

Johnny Hendrix

David, this is Johnny. Certainly on the rent concessions front, we were never really impacted very dramatically in a material way with rent reductions. We certainly were inundated with requests, and we have been getting some more of those. I would say that you know, we are seeing a strong leasing demand from quick service restaurants. You know, people in wings and burgers and buffets, this is probably the highest amount of volume that we are having. So, you know, there still are some of these franchisees who are you know, coming into the market and looking for space.

David Fick – Stifel Nicolaus

Thank you.

Johnny Hendrix

Thanks.

Operator

At this time there are no further questions. I’ll now turn the call over to Drew Alexander for closing comments.

Drew Alexander

Well, we appreciate everybody’s attention. Let me just mention again that the two who are in the presentation that we have lined up at the conclusion of Las Vegas, you know, consists of a dinner Tuesday night, a short presentation over breakfast on Wednesday, and at breakfast Patty Bender, our director of leasing, will be in a wonderful position to, you know, answer your questions about what she saw at Vegas, as well as comment more on some of the trends that we are seeing in the industry and some of the people that we are dealing with.

Miles Sanchez, who is the head of the mountain region, will also be there and involved a lot in the Vegas presentation, and as I’ve mentioned to some of you, you know, Vegas, you know, we’re almost 94% leased in Vegas, which we think is a fabulous evidence point of the quality of this portfolio, the quality of the talented associates in this team. So we have a great – you know, a number of you are already signed up.

So we do still have some room, but we do have a very good group of folks signed up, and so there is the dinner, there is breakfast, and then there is the tour, and we will be sensitive to getting folks to the airport at the time we laid out. So, contact Kristin if you have any questions about that. We thank you all for your interest and your questions. We’ll also be around later this afternoon if folks have anymore. Thank you so much for your interest and support.

Operator

Thank you for participating in today’s conference call. You may now disconnect.

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