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Inland Real Estate Corporation (NYSE:IRC)

Q1 2008 Earnings Call Transcript

May 6, 2008 3:00 pm ET

Executives

Dawn Benchelt – Director of IR

Mark Zalatoris – President and CEO

Scott Carr – President of Property Management

Brett Brown – CFO

Analysts

Paul Adornato – BMO Capital Markets

Jeff Donnelly – Wachovia

Mark Lutenski – BMO Capital Markets

Operator

Hello and welcome to the Inland Real Estate Corporation 2008 first quarter earnings conference. All participants will be in listen-only mode. There will be an opportunity for you to ask questions at the end of today's presentation. (Operator instructions)

Now, I would like to turn the conference over to Ms. Dawn Benchelt. Ms. Benchelt?

Dawn Benchelt

Thank you for joining us for Inland Real Estate Corporation's first quarter 2008 earnings conference call. The first quarter earnings release and supplemental financial information packet has been filed with the SEC today, May 6, 2008 and posted to our Web site, www.inlandrealestate.com. Please note that the schedules on page 11 and 15 of the financial supplemental filed before the market opened presents incorrect information for same store net operating income, same store NOI percent decrease from prior quarter and top ten retail tenants total. We will file an amended 8-K after the close of the market today.

We are hosting a live webcast of today's call which is also accessible on our Web site. Before we begin, please note that today's discussion contains forward-looking statements which are management's intensions, beliefs, expectations, representations, plans or predictions of the future. There are numerous risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to the documents filed by the company with the SEC that typically are annual report on Form 10-K for the year ended December 31, 2007.

Participating on today's call will be Mark Zalatoris, Inland's President and Chief Executive Officer; Chief Financial Officer, Brett Brown; and Scott Carr, President of Property Management. Now, I'll turn the call over Mark.

Mark Zalatoris

Thank you, Dawn and welcome everyone. Before we begin our review of the quarter, I want to say a few words about the title changes recently approved by our Board. I want to first thank Bob Parks for the years that he has dedicated to the company. Bob played a significant role in the evolution of our company into one of the largest publicly traded shopping center REITs operating in the Midwest today. Although Bob has stepped down from his executive management position at Inland Real Estate Corporation, he will continue to be available to the company as a resource. I also want to express my appreciation to the Board for the opportunity to now serve the company as President and CEO. I look forward to working with the Board and the management team to foster steady growth and build shareholder value.

We are also fortunate that Tom D'Arcy has accepted an enhanced role as Board Chairman. Tom has a substantial grounding in our company having served as independent director and member of the audit committee since 2005. He also has great depth of experience within the real estate industry including previously serving as the CEO of shopping center REIT Bradley Real Estate until its acquisition by Heritage Property Investment Trust in 2000.

Finally, it's important to note that these position changes do not mean that Dan Goodwin and Bob Parks are stepping away from their commitment to the company. Although Dan has stepped down as Chairman, he will remain on the Board as a director. We will continue to draw upon his expertise gaining over 40 years of leading the Inland group's real estate businesses. Both Dan and Bob continue to have significant equity stakes in the company, with Dan being our largest individual shareholder.

I've been asked what these changes mean for the company. Of course, Tom D'Arcy and I bring our own viewpoint and experiences to our roles. However, the fundamental business strategy of Inland Real Estate Corporation will remain the same. We will continue to focus on open air shopping centers that primarily provide every day and value based goods and services. We appreciate the defensive profile of this asset type which has historically delivered steady performance throughout economic cycles. We also like strong demographics and diverse economies of the Chicago and Minneapolis markets where our portfolio is concentrated.

Now, I'll comment on our performance this quarter and provide an update on our joint venture activities. Then I will turn the call over Scott and Brett for a more detailed discussion of our portfolio and financial performance. Turning to performance for the first quarter, we reported FFO per share of $0.35, which was in line with both our internal forecast and analyst estimates. While this represented a decrease from the prior year comparisons, we were impacted by greater gains from joint venture related sales in the first quarter of 2007 versus the quarter of 2008.

For this quarter, I want to highlight the strong portfolio leasing spreads achieved on both new and renewing leases. Average rents for new leases increased more than 33% over expiring leases for this period and average rents for renewal leases increased 9.7%. The rent increases on new leases we achieved this quarter are some of the highest reported for our peer group. Given the challenging leasing environment, we are very pleased by these results. Our consistently high leasing spreads speak to the desirability of our well located retail centers and the skills of our property management team.

At 95.2%, leased occupancy remained high for this quarter, a good indicator of the overall stability of our portfolio. In the Chicago area, our largest market, we are consistently 2 to 3 percentage points above reported occupancy rates. In this credit constrained marketplace, financial stability and ready access to affordable capital are very important.

As Brett will discuss a lit later, in April, we renewed our unsecured line of credit with an expanded banking group. We negotiated increased availability of $155 million and the opportunity to realize savings that take effect by year end upon our achieving an improved unsecured debt profile.

The quarter was not without challenges. Same store net operating income results were significantly impacted by certain big box vacancies, including the Wickes store in Minneapolis. We've already addressed some of those vacancies and we have good prospects for the other high demand manned locations. Scott will provide additional detail in his report on portfolio operations.

I want to emphasize that our business platform and tenant base overall remain healthy. Americans today spend nearly 10% of household income on food according to the agriculture department. A full 45% of our centers are grocery anchored. Four of our top ten retail tenants are grocers and these tenants comprise almost 14% of the total portfolio's annual base rent. In addition, in 2007, the grocers in our portfolio posted a 7% sales increase over the prior year, which speaks to the financial stability of this tenant base.

However, given the relative size of our portfolio, even a few big box store closings can have a significant impact on our same store NOI performance. We expect that same store NOI will continue to reflect this strain over the next few quarters as we systematically work our way through the impact of the Wickes bankruptcy and odd big box vacancies.

Now I'd like to provide an update on our joint venture initiatives. Turning to our joint venture with Inland Real Estate Exchange Corporation, in 2007, we acquired nine properties for the JV with an aggregate property value of $150 million. As of March 31, 2008, 5 of those properties have already been sold out to 1031 exchange investors. In addition, three assets acquired last December at sale leaseback transactions with AT&T services are 100% committed. As of today, we closed on 90% of the available interest in the AT&T properties and we are in discussions with an interested buyer for the remaining 2007 retail property.

In the first quarter, we acquired for $23.2 million the Fox Run Square, a 143,000 square foot shopping center in Naperville, Illinois, anchored by Dominick's, Finer Foods and Ace Hardware. We expect to contribute this property to the IREX joint venture during the second quarter and will be syndicated to investors in the second half of this year.

Our IREX JV is performing exactly as we expected. Our unique relationship with IREX enables us to tap the 1031 exchange market to drive fee income growth. We are in fees for acquiring and then managing properties for the ultimate 1031 exchange investors. This fee income stream increases over time as we acquire additional properties for the venture. In addition, the capital we deploy to acquire properties is quickly recovered through sales to 1031 exchange investors and can be recycled multiple times into other investment opportunities.

This year, we anticipate acquiring $100 million of assets for the IREX JV, with potential upside for more depending on the acquisitions market. According to our IREX partner, the slowdown in transactional volume and the credit crunch have had some impact on the tenants in common industry. There are fewer sellers in the marketplace seeking to roll the real estate proceeds into another property. The volume that is out there is going to quality sponsors. Our IREX partner continues to take market share as a result of this flight to quality. IREX is considered one of the best 1031 exchange sponsors in the business.

While some big sponsors are having difficulty in this credit constrained market, IREX is able to leverage the Inland group's established banking relationships to obtain financing for big dealings. In fact, IREX is projecting that 2008 should be another record year for their company in terms of transactional volumes and net income.

Turning to development initiatives, we have partnered with five established real estate developers to maximize our capital resources and diversify risk. The strategy also gives us the option to grow the portfolio by acquiring finished assets of pre-negotiated market discounts or we can simply sell the assets for a profit. Currently, we have seven projects in the pipeline and we are comfortable with our existing level of commitment in this marketplace. As these projects near completion and market conditions warrant, we will consider adding projects to the pipeline primarily in high density areas.

I'd like to provide an update on our current development projects and give some perspective on retailer demands at these locations. As we reported last quarter, this difficult economic climate has made retailers very cautious about their near term expansion plans. Their decision-making process has slowed and the length of time to get a signed contract for a new store location has increased. We remain optimistic however because healthy retailers are still planning for growth.

In ongoing communications with retailers, they have told us that they can quickly ramp up their activity when economic conditions improve. National players continue to express strong interest in our development projects because they are located in established population centers with sound demographics.

Although the negotiation process may be slower than we'd like, we are continuing to execute deals with new tenants and our projects are moving forward. For example, at our Savannah Crossing development in Aurora, Illinois, Wal-Mart is now open for business and floor anchor Walgreens is scheduled to open by year end. In the first quarter, we closed $1.5 million 1.2 acre pad sale to Fifth Third Bank for a drive-through branch. In addition, Starbucks is putting the finishing touches on their space in one of two completed and nearly fully leased multi-tenant buildings. In fact, the demand for space at Savannah Crossing has prompted plans for a third multi-tenant building.

At our North Aurora town center development, the La-Z-Boy build-to-suit store is open for business and construction is underway on a Best Buy store that is scheduled to open in September. In addition, we expect to close in the second quarter on the sale of 5 acres to a home furnishings retailer, and we continue discussions with a national retailer for a 24-acre land parcel sale at this location.

Overall, the projected completion dates and returns on cost for our development joint venture pipeline are unchanged from last quarter. Estimated stabilized returns on cost for our development projects range from 8% to 16%. Across the development pipeline, we are projecting a weighted average return on cost of 9%.

Turning quickly to dispositions in the first quarter, we sold two retail properties for an aggregate sales price of approximately $5.7 million. The dispositions included a 13,500 square foot vacant Walgreens in Decatur, Illinois for approximately $400,000 and the 41,000 square foot Terramere Plaza Shopping Center in Arlington Heights, Illinois for $5.3 million. We are using the proceeds to pay down debt and for general corporate purposes.

Now, with that, I will turn the call over to Scott to provide an update on our portfolio of operations. Scott?

Scott Carr

Thank you, Mark. I'd like to begin by reviewing our first quarter leasing results. For the quarter, we reported continued strong leasing spreads that demonstrate our portfolio's consistent pricing power throughout market cycles. For the three months ended March 31, 2008, the company executed 86 leases totaling approximately 544,000 square feet of retail space. 18 new leases were signed comprising over 67,000 square feet, with an average rental rate of $17.91 per square foot. This represents an increase of 33.2% over average expiring rents.

54 renewal leases were also signed comprising nearly 348,000 square feet with an average rental rate of $10.95 per square foot, representing an increase of 9.7% over average expiring rents. Additionally, 14 leases were executed for approximately 128,000 square feet of previously unoccupied or newly created space at an average rental rate of $13.55 per square foot.

You will notice in the financial supplement we have included two new schedules that break out this information for both consolidated and unconsolidated properties. This provides additional visibility on our leasing performance and rental rate growth across the different portfolios.

Regarding the same store portfolio, for the first quarter, same store net operating income excluding the impact of straight line and intangible lease rents was $30.4 million, a decrease of 0.6% or $187,000 for the same period in 2007. As Mark mentioned, the decrease in same store NOI for the quarter is primarily due to certain big box vacancies that we are in the process of filling or have already re-tenanted. For example, the vacancy that triggered co-tenancy clauses at one center was recently filled and co-anchors will return to paying full rent in the second quarter.

In addition, I am pleased to report that we have executed a replacement lease for the former Wickes store in Minnesota. The new lease is for a higher rental rate and we are expanding the gross leasable area at that location by approximately 7,000 square feet. This space is scheduled to come back on line in the fourth quarter of this year.

The leases on our four other Wickes location were rejected at the end of April. Our leasing team is aggressively pursuing new retailers for these locations and we are actively negotiating letters of intent for the four remaining spaces. The impact of the Wickes store closing has been included in our 2008 guidance. Based on National Council of Shopping Centers' reports that this will be a record year for store closings as retailers deal with the impact of housing market decline, the credit crunch and the slowdown in discretionary consumer spending.

Another challenged retailer, Linens N Things, filed for Chapter 11 bankruptcy protection last week. Our portfolio includes three Linens N Things stores which represent less than 1% of our annual base rent. Two of the three stores will be closing, one in Schaumburg, Illinois, and the other in Rochester, Minnesota. Both stores are located within strong regional shopping hubs, and as was the case with Wickes, we have been preemptively marketing these spaces for potential retailers prior to the bankruptcy announcement.

Fortunately, both the Wickes and Linens N Things stores are in some of our most in demand locations, so we are confident in our ability to re-tenant these spaces. However, until we do release these big box spaces, we expect the vacancies to continue to impact same store NOI growth. I do also want to point out that while same store NOI was down same store base rental revenue was up quarter over quarter. The decrease in same store NOI was primarily due to lower tenant recovery income resulting from decreased tax reimbursements related to the location of current big box vacancies, particularly those in Cook County, Illinois.

In addition, if the properties we manage through our asset based joint venture with the New York State Teachers' Retirement System were included in our same store portfolio, the same store net operating income growth for the quarter would have been slightly positive. Our asset management team continually reviews our core asset base to identify those properties that will generate the greatest returns on redevelopment costs. Our goal is to drive future same store NOI growth with value-added initiatives, including GLA expansion, lot development and tenant repositioning.

Our re-tenanting of the former Wickes store in Minnesota is a prime example of a positive resolution within a challenging market. We replaced a weak tenant with a stronger player at a higher rental rate and increased productive growth leasable area at that location.

Our re-tenanting efforts result in increased traffic for co-tenants and attract new retailer interest, which reinforces the viability of the shopping center. In the smaller tenant space, we have not seen a significant increase in mom and pop retailer failures to date. There is always an element of revolving door in this space. These tenants typically provide every day goods and services or represent the next new concept, and usually there is another retailer coming in right behind the departing tenant. Regional and local tenants represent approximately 30% of our base rental revenue and we are very adept at managing these types of tenants to minimize our exposure.

Now, I will turn it over to Brett for a view of the company's financial performance.

Brett Brown

Well, thank you, Scott, and hello everyone. I'll just run through the quarterly performance. And as Mark mentioned, our FFO results for the first quarter were in line with internal projections and analysts' expectations, although comparisons to the prior year's quarter were negative impacted by certain one time items taking place in each quarter.

For the first quarter of 2008, FFO was $22.9 million, a decrease of 5.3% compared to the first quarter of '07. FFO per share was $0.35 for the quarter, a decrease of $0.02 or 5.4% from the prior year period. Falling FFO per share were primarily due to greater gains from joint venture related transactions taking place in the first quarter of '07 versus the first quarter of '08.

In the first quarter of '07, we sold a joint venture interest and an undeveloped land parcel resulting in a combined gain of approximately $3.1 million or $0.04 per share. And this compares to a gain of approximately $400,000 or less than $0.01 per share from a land parcel sale at our Savannah Crossing development in the first quarter of '08.

For the first quarter of '08, we reported net income of $10.4 million or $0.16 per share, and that represents decreases of 10.8% and 11.1% respectively from the first quarter of '07. Net income and earnings per share for the quarter decreased primarily due to the transactions that I just outlined above.

Total revenues for the quarter increased 4.9% to $50.1 million from the prior year's quarter primarily due to additional property acquisitions, increased revenue from the same store portfolio and increased fee income from our joint venture initiatives. Fee income from joint ventures before income tax provision was $1 million, an increase of almost 55% over the first quarter of 2007.

JV fee income in the quarter primarily consisted of acquisition fees for properties sourced for the IREX joint venture. The acquisition fee we split with IREX is typically about 5% of the property's purchase price. Because we recognize acquisition fee income after the properties are sold to 1031 exchange tenant common investors, fee income from JVs can be uneven from quarter to quarter. However, we are comfortable with our full year projection for $2.5 million to $3.5 million in gross fee income related to acquisitions sourced for the IREX venture.

Turning to the balance sheet and other financial metrics, as one measure of the company's ability to service and incur debt, our earnings before interest, taxes, depreciation and amortization or EBITDA coverage of interest expense was a healthy 2.7 times for this quarter, essentially consistent with the prior quarter and first year of '07.

At March 31, 2008, the company had an equity market capitalization of approximately $1 billion even and a total debt outstanding of about $1.1 billion, and that includes our pro rata share of debt in unconsolidated joint ventures. Our debt to total market capitalization was 51.8% at March 31, '08. And since that was a function of our share price as of yesterday's close at $16.66 a share, bad debt actually equates out to about 49% debt to total market capitalization today.

Including the convertible notes, 80.6% of our debt was fixed at a weighted average interest rate of 5.13%. Most of the variable rate portion of our debt is unsecured line of credit, which had an outstanding balance of $110 million at March 31. On the line of credit or speaking of line of credit, although we are operating in a credit constrained environment, banks and life insurance companies remain reliable sources of capital for stable low leverage borrowers such as Inland.

In April, we made the three years our line of credit with increased availability of $155 million, up from $150 million, and we plan on using that to fund our 2008 business plan. Pricing terms are relatively unchanged from the prior agreements, increasing only marginally at the higher leverage levels by between 5 and 10 to 15 basis points between the encumbered and unencumbered pricing respectively.

However, we have negotiated pricing advantages that will take effect by year end dependent upon our achieving certain unencumbered debt profiles in our prior facilities strengthened ties with our current banking partners and establishes additional relationships with new lenders. The five bank lending group includes well respected names like KeyBanc, Wachovia, Bank of America, Wells Fargo, and Bank of Montreal.

We have approximately $95 million in mortgage loans maturing this year that we expect to refinance at lower rates than the expiring rates. We also expect to have equity within those maturities by leveraging the smaller number of properties with larger amounts of debt or more likely by utilizing some type of unsecured financing vehicle. Therefore, the debt maturities this year provide an opportunity to increase our flexibility with unencumbered assets and reduced our borrowing costs.

Turning to guidance, we are reaffirming our original forecast. We expect FFO per common share to be in the range from $1.46 to $1.49 for the fiscal year 2008. While we expected the negative impact from the aforementioned bankruptcies and anticipate – but we do anticipate positive offsetting impacts from our re-leasing efforts and also from lower debt costs as we had modeled in higher LIBOR rates throughout 2008.

With that, I'd like to turn the call back to Mark for some final comments. Mark?

Mark Zalatoris

Thank you, Brett. We are navigating a challenging and often unpredictable business environment by maintaining a consistent focus on our core business. That business is owning and operating necessity and value oriented retail within established stable Midwest markets. At the same time, we are implementing resourceful strategies to deliver incremental growth and shareholder value over the longer term. These strategies include partnering and joint ventures that deliver valuable ongoing fee income and the opportunity to add completed assets to our portfolio at accretive prices.

Our company's consistently superior leasing results among the highest in our peer group for this quarter demonstrate a sound business model. Our total return of nearly 10% in this quarter also outpaced our peer average and the all REIT Index. Today, with the real estate platform of $1.7 billion in assets in 11 states, we are continuing to provide a dependable and proven investment to shareholders.

I would now like to open the call to your questions.

Question-and-Answer Session

Operator

(Operator instructions) Our first question comes from Paul Adornato from BMO.

Paul Adornato – BMO Capital Markets

Hi, good afternoon.

Mark Zalatoris

Hi, Paul.

Paul Adornato – BMO Capital Markets

The property that you acquired for IREX this quarter is in suburban Chicago. I was wondering why that didn't fit into your core portfolio, why didn't you keep it for yourselves?

Mark Zalatoris

Paul, this is Mark. We always look at those properties with the intention of seeing if it works for our portfolio first. But, given today's cap rates, where sellers still have what I consider a little bit unreasonable expectations, the returns off of that particular property would not necessarily be accretive to adding to our own portfolio. However, it did lend itself readily to the profile that is looked for by the tenant and common investors. So in a sense, we underwrite for our portfolio first and then for IREX second and it just fit IREX's return profile better.

Paul Adornato – BMO Capital Markets

Okay. And I was wondering if you could talk about the small mom and pop restaurants that you might have in your portfolio, how are they doing in this environment especially given what we are all hearing about food inflation?

Scott Carr

Paul, it is Scott. We are seeing a little bit of strain from those tenants. They are definitely mentioning the pricing pressures. But, for the most part, they are very value oriented in their price points and a lot of them are specific to market. So, we have a lot of ethnic driven stores that cater to neighboring areas. So, thus far as I mentioned earlier, we haven't seen an extraordinarily high failure rate in those concepts and there are still some new restaurant players coming to bear with the quick serve concept. But there's definitely slowness in that area of the business.

Paul Adornato – BMO Capital Markets

Okay. And you got some nice spreads on your new leases this quarter. I was wondering where you see market rents going especially given the stress that we are seeing in the retail environment?

Scott Carr

There is definitely a lot of downward pressure on rents and retailers are driving harder bargains. I think we are in a unique situation because a lot of our spaces are in a position to be mark-to-market because they have been under long-term leases for such a period of time that when we are getting control, even though there may be some downward pressure in the marketplace, we are still able to come up to that market rate. So we anticipate still maintaining growth on both renewals and new leases, perhaps not to this magnitude, but we still expect positive momentum.

Paul Adornato – BMO Capital Markets

Okay. Thank you.

Mark Zalatoris

Thanks, Paul.

Operator

Our next question comes from Jeff Donnelly of Wachovia.

Jeff Donnelly – Wachovia

Hi, good afternoon, guys.

Mark Zalatoris

Hi Jeff.

Jeff Donnelly – Wachovia

How are you doing?

Mark Zalatoris

Good. You?

Jeff Donnelly – Wachovia

Good. I wanted to just try and understand your 2008 guidance a little bit better. Just what's specifically is in your guidance for the vacancy losses from Wickes and Linens N Things? Are you guys able to quantify that in terms of the amount per share or …

Brett Brown

Well, as we looked at the, as you pointed out in our release today that there is a sizeable portion on an annual basis, luckily we've basically released the one spot in Minnesota. We have the two in our wholly owned portfolio and then two in the joint venture portfolio. We had modeled in about half a year of that coming out, since they closed by the end of April so there's a couple of more months that we do not plan on. But, I don't think it will be detrimental to the total numbers there. And then, as far as Linens N Things, we don't have a specific as far as when they are coming out. We did model in a greater amount of bad debt expense this year than in prior years. Typically, it's been right around $1 million a year and I think we dialed that up by about 30%, 40% this year.

Jeff Donnelly – Wachovia

Right, so it wasn't specifically to one of these items, it was just an overall higher?

Brett Brown

Correct.

Jeff Donnelly – Wachovia

I guess is it fair to assume that if I turned it around that you guys might have actually increased your guidance were it not for the losses from Wickes and Linens N Things?

Brett Brown

That's very possible, yes.

Jeff Donnelly – Wachovia

And I guess where do you see same store NOI. growth then for 2008? I guess how do you think that will progress over the next three quarters just given that it declined 0.6% in the quarter with the vacancies, how do you think that …

Brett Brown

You're exactly right, good question, with the vacancies now coming online, we do expect to stay probably in that negative territory for at least the next two quarters, with a pickup in the fourth quarter, probably getting us back to right around even maybe up to 1% probably similar to last year. But that should have, that's where we are expecting right now.

Jeff Donnelly – Wachovia

Okay. And you answered a bunch of my other questions, but I guess I had two last ones. A few other REITs have taken steps to, not many, but taken steps to repurchase some of their convertible debt at a discount, which they used to boost their FFO per share. Is that something that you have considered or is that option available to you guys.

Brett Brown

It's not available to us until 2011.

Jeff Donnelly – Wachovia

(inaudible) And actually, I was curious, is Tom D'Arcy on the call or no?

Mark Zalatoris

No, he's not, Jeff. But, on the convertible debt question, if we could buy a discount, we might consider it, but it really is a good low cost of funds for us. So, we are not being hurt by it and I think we are managing the use of our funds appropriately with that lower cost. So, we are happy to have that component to our debt structure.

Jeff Donnelly – Wachovia

And then I guess my last question then would be for Brett, I mean, can you talk a little bit about maybe where you see mortgage rates today versus the cost of debt that you guys have expiring in the next say 12 to 18 months or so?

Mark Zalatoris

Mortgage rates I think for a lot of the companies are still below 6. We've seen close on seven-year money for upper 5s. And we closed two deals in the first quarter at – one was at 5.83, the other was 5.86, so really pricing has remained basically the same. Spreads may have gone up a little bit but the pressure is down a little bit from there. And the expiring rate on our debt this year averaged about 6.5%. So, we do see a pickup there.

Jeff Donnelly – Wachovia

Great, thank you.

Mark Zalatoris

All right, thanks, Jeff.

Operator

Our next question comes from Mark Lutenski from BMO Capital Markets.

Mark Lutenski – BMO Capital Markets

Hi, a lot of my questions have already been answered, but I was wondering if you could touch just a little bit more on the big box vacancies. Who – like what kind of tenants are looking to expand and fill in those?

Scott Carr

Yes, we are – in most cases, we are not talking to furniture replacements, so we are looking to go into general merchandise, some specialty merchandise. I don't want to get too specific. But, what we are most excited about is that we are moving out of the furniture spectrum for tenancy, which should really increase the desirability of our centers. There are some junior box players out there right now that are looking very attractively at our spaces.

Mark Lutenski – BMO Capital Markets

And are you seeing any appetite for expansion from some of the grocery anchor tenants?

Scott Carr

It's unique. We are still seeing in the Chicago land market Dominick's is becoming a more active player, primarily in urban infill locations. But, they are active. Jewel has slowed but they continue to remain active as they always have, but at a greatly reduced place. Up in the Twin Cities, we are seeing slight activity from Roundy's, which is Rainbow, and then Cub still does remain active in that market. But, they are definitely not going as aggressively on those outer ring locations because obviously the housing growth has stopped in that ring, but they are being very aggressive in looking for infill locations throughout the metro areas.

Mark Lutenski – BMO Capital Markets

Okay. And I guess this question is for Brett. Maybe I missed this, but did you say how far along you were with the $95 million maturity debt?

Brett Brown

Well, actually, what we've been doing throughout '07 and we are going to actually do here in '08 is we've been using the line of credit to take down some of that expiring debt, achieving tremendous savings on that. And we are looking into the credit markets right now for unsecured private placement. The pricing is still a little crazy for us right now but we are hoping to do, if we have to, some form of unsecured term loan to get us into a better pricing area hopefully in the future, but that's been the process right now.

Mark Lutenski – BMO Capital Markets

Okay, thanks.

Brett Brown

Great. Thanks Mark.

Operator

At this time, there are no further questions. I would like to turn the conference back over to Mark Zalatoris for any closing remarks.

Mark Zalatoris

I would like to thank you for your interest and your participation in this call. We look forward to talking to you again next quarter. And as two legendary TV pitchmen Frank Bartles and Ed Jaymes used to say at the end of their commercials, we thank you for your support. Good afternoon everybody.

Operator

Thank you for attending. The conference is now concluded. You may now disconnect.

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