Nov 21, 2008
Executives
Adam Chavers – Director, IR John Kite – President and CEO Thomas McGowan – Senior EVP and COO Daniel Sink – EVP and CFO
Analysts
Jehan [ph] – J.M. Sloan [ph] Quinton Falelli [ph] – Citigroup RJ Milligan – Raymond James Philip Martin – Cantor Fitzgerald Jay Habermann – Goldman Sachs Paul Adornato – BMO Capital Markets Rich Moore – RBC Capital Markets
Operator
Good day, ladies and gentlemen, and welcome to the third quarter 2008 Kite Realty Group Trust earnings conference call. My name is Krista and I'll be your coordinator for today.
At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this call.
(Operator instructions) I would now like to turn the presentation over to your host for today's call, Mr. Adam Chavers, Director of Investor Relations.
Please proceed, sir.
Adam Chavers
Thank you, operator. By now you should have received a copy of the earnings press release.
If you have not received a copy, please call Kim Holland at 317-578-5151. She will fax or e-mail you a copy.
Our September 30, 2008, supplemental financial package was made available yesterday on the Corporate Profile page in the Investor Relations section of the Company's Web site at kiterealty.com. The filing has also been made with the SEC in the Company's most recent Form 8-K.
The Company's remarks today will include certain forward-looking statements that are not historical facts and may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results of the Company to differ materially from historical results or from any results expressed or implied by such forward-looking statements, including without limitation, national and local economic, business, real estate and other market conditions; the ability of tenants to pay rent; competitive environment in which the Company operates; financing risks, including access to capital at desirable terms; property management risks; the level and volatility of interest rates; financial stability of tenants; the Company's ability to maintain its status as a REIT for federal income tax purposes; acquisition, disposition, development and joint venture risks; potential environmental and other liabilities; and other factors affecting the real estate industry in general.
The Company refers you to the documents filed by the Company from time to time with the Securities and Exchange Commission which discusses these and other factors that could adversely affect the Company's results. On the call today from the Company are John Kite, Tom McGowan, and Dan Sink.
Now I'd like to turn the call over to John Kite. John?
John Kite
Thanks, Adam. Good morning and thank you for joining us today.
During the third quarter, despite an extremely challenging environment, we had solid results, as reflected by our FFO of $0.32 per diluted share and made strong progress towards our corporate goals. Tom and Dan will get into the details of those results shortly, but first I'd like to take a few minutes to address the key issues in regards to our business strategy in the current economic environment, particularly, as it relates to our liquidity and development strategy.
As we discussed in the second quarter call, we had approximately $230 million in debt maturing throughout the balance of 2008 and into 2009. I'm pleased to announce that as of today we have refinanced, extended, or received commitments for over half of that debt.
There are a few important things to know regarding our remaining short-term debt maturities. First, of the $108 million of debt maturing next year that we have yet to extend or refinance, it's made up of eight loans at an average of approximately $14 million each.
Due to the relatively small size of these loans, we're able to market them to a broader base of potential lenders. Second, despite the appearances that the capital markets are completely frozen, our recent experience is that the markets while still very difficult are selectively open for appropriately underwritten, high quality properties owned by experienced sponsors.
As I mentioned, we recently refinanced or extended over $120 million of our $230 million of maturing debt. And based on current negotiations with lenders, we remain confident in our ability to refinance the balance of the remaining debt.
In addition, this quarter, we closed on an $11.5 million construction loan on our South Elgin project and obtained the commitment for a $30 million construction loan on our Eddy Street Commons project. While we've been very focused and successful in addressing our maturing debt, we also have been ensuring that we will have appropriate liquidity.
At the beginning of the month, we raised $48 million by selling 4.75 million shares at $10.55 per share. This capital infusion, along with our recent $55 million unsecured term note allowed us to open up $100 million of availability.
Tom will discuss our development strategy in more depth later. But let me be very clear that we are well aware of the importance of capital preservation in this unpredictable environment and we will make prudent decisions with respect to our development plans.
In these unstable times, our credit facility availability is intended to be a safety net to provide us cushion against potential unexpected events in the near-term as well as providing dry powder for opportunistic situations down the road. We plan on financing our development through construction loans not through the credit facility.
Our $100 million current development pipeline is 75% leased and has only about $40 million left to fund in fully committed construction loans. In regards to our visible shadow pipeline, we will not begin vertical construction until appropriate pre-leasing thresholds are met and third-party financing is in place.
Our strategy with respect to each asset is fluid, and we have the ability to phase or delay projects based upon the state of the capital and real estate markets, pre-leasing activity and third-party financing. Excluding our unconsolidated Prudential joint venture, the five wholly-owned projects in the visible shadow pipeline are estimated to cost approximately $235 million.
We have approximately $82 million invested in those projects today, which could support 65% loan to cost ratio construction loans, levels which we've been able to achieve and exceed in recent transactions, such as Eddy Street and South Elgin. Now turning to the operating portfolio, although our occupancy percentage took a slight dip in the third quarter to 92%, our portfolio, which is made up of new, high quality, Class A assets, is fundamentally strong and built upon the right principles.
Our decrease in occupancy is almost entirely due to the loss of Linens N Things at Cedar Hill Plaza in Dallas, and the migration of three new development projects into the operating portfolio. While we have not yet been significantly impacted by retailer closings, we expect the tenant environment will continue to be challenged and may deteriorate further before improves.
However, on a positive note, none of our three Circuit City stores were on the closure list published this week. As we've discussed in the past, our focus on leasing to strong credit tenants remains one of our core strength, and we believe that it's important that no single tenant constitutes more than 3.4% of our base rent and that our top 25 tenants comprise less than 40% of our annualized base rent.
This focus on strong credit tenants and tenant diversity helps us mitigate the impact from events like the recent wave of retailer bankruptcies and closures. In 2009, we're fortunate that only 5% of our annualized base rent will roll over.
Lease expirations will increase in 2010 through '12, which we believe will be a better environment to realize positive rent spreads. As you know, we've traditionally generated some of our FFO and capital from transactional activity.
It's important to note that the vast majority of these transactions have been in the form of residual land sales, most notably, the sale of outparcel ground leases to third party investors. We are not and have never been merchant developers.
While ground lease sales to investors have been impacted by the current credit disruption, it's not been as dramatic as the merchant building business, in large part due to the relatively small size of these transactions. We do believe that it's prudent to assume that liquidity crunch will further impact these sales, particularly to investors.
Since we will likely see less activity going forward, we'll continue to look at opportunities to engage in direct sales to outlot users rather than investors. But we are reducing outlot and residual land sales in our current capital plan for 2009.
While the length and depth of the current credit disruption and economic stress is unknown, there obviously will continue to be unpredictability in the near-term. With that in mind, I want to be very clear that our current capital plan will be focused on liquidity and flexibility throughout 2009 and into 2010.
In order to do that, we intend on executing on previously mentioned asset sales. We also intend to finalize at least one more property level development joint venture in 2009.
This will put us in a position to focus on operating and leasing our core portfolio and to continue to execute on our current development and redevelopment pipelines. The bottom line is we are well-positioned to weather the current storms and ultimately benefit from them.
Now I'd like to turn it over to Tom for more details around development.
Thomas McGowan
Thank you. I'd like to follow up on John's comments about our plans for the development pipelines in 2009.
I want to reemphasize that we are keenly focused on completing the projects in our current development pipeline, and transitioning them into the operating portfolio. With respect to the visible shadow pipeline, we're taking a fluid approach consistent with our underlying objectives of capital preservation and realizing maximum asset value.
Through the first three quarters of 2008, we have moved a total of six projects from our development and redevelopment pipelines into the operating portfolio at a total project cost of $100 million. In the third quarter, we moved three projects into the operating portfolio, totaling approximately $70 million in project costs.
Bayport Commons, a Target anchored shopping center in Tampa, Florida, is currently 91% leased. Gateway Shopping Center, near Seattle, Washington is anchored by Kohl's, WinCo Foods, and Ross.
The center is currently 76% leased, and we're negotiating the lease to bring the occupancy to 91%. We're very proud that the complex redevelopment of Glendale Town Center has been completed.
The project was moved back to the operating portfolio at an occupancy rate of 92% after a very successful redevelopment. The Glendale redevelopment demonstrates our ability to generate strong returns through our redevelopment activities.
Five projects remain in our current development pipeline, with a total estimated project cost of $105 million. All five projects are fully entitled, under construction, and have only $40 million left to fund through existing financing.
The vast majority of the remaining costs apply to Eddy Street Commons at the University of Notre Dame. Cobblestone Plaza is fully entitled and well under construction, and our first group of tenants are scheduled to open in March of 2009.
Our Eddy Street Commons project is moving forward at a rapid pace. Construction of the 1,200 space parking structure and the commercial mixed-use buildings remain on schedule, with an anticipated project opening date of Fall 2009.
The vast majority of our work to date has been funded by the $35 million public incentives we secured for the project. Our visible shadow pipeline consists of six projects.
We own the land for these projects and are completing final entitlements. We will not move forward with these projects into the current development pipeline and begin vertical construction until our underwriting goals, including pre-leasing and financing objectives have been fully satisfied.
As John mentioned, we are reassessing our current development plans for each of these projects in the visible shadow pipeline, and we will make appropriate adjustments as needed. Until we begin vertical construction, minimal capital is required to carry these projects.
Retailers are obviously more selective in this environment, but we're aggressively working our relationships and finding that retailers continue to pursue high quality, well located shopping centers with qualified, experienced sponsors. In the past quarter alone, we met with ten national anchor and junior box retailers at their headquarters.
We're encouraged by these meetings and the opportunities that may come from our longstanding relationships. We believe that our track record, combined with our conservative and flexible approach, will enable us to successfully deliver the projects in the current development and redevelopment pipeline.
Dan will now summarize our operating results.
Daniel Sink
Good morning. For the three months and nine months ended September 30, funds from operations were $0.32 per diluted share and $0.94 per diluted share.
For the quarter, we exceeded consensus estimates by $0.01. Our quarterly results were consistent with our expectations, so I'm going to spend the remainder of my time today on the capital markets.
During the last couple of months, we have been able to secure approximately $103 million of new capital in the form of a $55 million term note and a $48 million equity raise. These capital events have provided line of credit capacity to fund any additional requirements to secure longer-term financing on maturing debt, fund any upfront capital prior to construction loan takeout on the visible pipeline projects and to take advantage of distressed opportunities.
After closing on the $55 million term-loan, we quickly executed a hedge to fix the rate at 5.92% for the three-year term. In addition, we recently executed a new hedge on the $20 million, three-year loan on Gateway Shopping Center at 4.88%.
As John mentioned, we currently have approximately $100 million of line-of-credit availability in cash. Our current development pipeline has $40 million to fund via committed construction facilities.
Our redevelopment pipeline has approximately $14 million to fund, the majority of which we anticipate securing project-specific construction loans. Our disciplined approach to funding future costs on our visible shadow pipeline allows us to keep ample liquidity in the current economic environment.
We also made significant progress on our 2008, 2009 maturities. We have provided a new page in our quarterly supplemental, a current financing update page to account for these events subsequent to quarter-end.
Approximately, $230 million of our total outstanding debt was scheduled to mature in the remainder of 2008 and 2009. Subsequent to the quarter-end, we have extended the maturity dates to 2010 on $60.9 million of variable rate debt at four consolidated properties, with plans to further refinance these maturities to 2011 and 2012.
We have refinanced the $17.9 million of variable rate debt on Gateway Shopping Center until 2011. We also have a loan commitment to extend the maturity date on the $21 million variable-rate debt on Bayport Commons until 2011.
We expect that loan to close before the end of the year. We also anticipate extinguishing approximately $22.4 million of variable-rate debt at three of our operating properties in the fourth quarter by utilizing proceeds from the borrowings on an unencumbered asset.
Finally, we are aggressively pursuing the additional refinancing options on the remaining $108 million of variable-rate consolidated and unconsolidated debt that matures in 2009, the majority of which includes land loans on Parkside and Delray that we anticipate rolling a construction financing when we reach appropriate leasing thresholds, a construction loan at Cobblestone Plaza that we plan on extending through the completion of construction, and two secured loans on Boulevard Crossing at Ridge Plaza that mature in the fourth quarter of 2009. These two particular properties have a combined loan-to-value ratio of approximately 65% to 70%, so we feel comfortable securing replacement financing at or near maturity.
As I just described, the only category of loans with significant near-term maturities is our variable-rate land and construction loans. We have very limited maturity in the next two years with respect to our permanent loans.
Of the $332 million of permanent loans on operating properties, only the loans on Boulevard Crossing and Ridge Plaza expire before the end of 2010, and only an additional $21 million expires in 2011. Our unsecured line of credit matures in 2011 but has an automatic one-year extension to 2012.
And we are well within the parameters for the loan covenants on both the credit facility and our new term loan. As we discussed in our press release, we maintain our fourth quarter dividend at $0.205 per share.
Overall, we executed on our 2008 plan, including meeting our cash flow objectives, and the fourth quarter dividend is adequately covered. As we do on an annual basis during a review of the 2009 budget with the Board, we plan on discussing our 2009 earning projections, liquidity needs, and dividend coverage.
We are revising our 2008 FFO guidance from the previous range of $1.25 to $1.30, to $1.18 to $1.22. This reduction primarily relates to the effects of our recent equity offering and the delayed timing of transactional income due to the challenging economic environment.
Thanks for participating in today's call, and operator, please open up the line for questions.
Operator
(Operator instructions) Your first question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.
Jehan – J.M. Sloan
Hey, guys, it's Jehan [ph] here with J.M. Sloan [ph] as well.
I know you've given us quite a bit of detail on your financing plans for the next one year or two years. And then just looking at the individual pieces of debt that you're currently in negotiations for extension options on what types of restrictions and covenants come with these – with exercising these extensions?
You've specified that service coverage for Beacon Hill, but just curious as to which other pieces of debt might have similar restrictions at this point?
Daniel Sink
Yes, this is Dan. I think, when – overall, when we're negotiating these extension ops, I mean, the biggest is the debt service coverage ratio.
Most banks want you to be anywhere between the range of 1.1 times to 1.25 times coverage. So that's primarily as you're going through this and you're executing the extensions and/or refinancing the debt.
I think more than anything I know, as John mentioned, the loan-to-cost ratios that we have achieved on both the refinancing on Eddy Street and South Elgin, we feel comfortable with where we are in loan-to-cost ratios, et cetera with our projects. But the banks are focused, clearly, on debt service coverage ratios.
Jehan – J.M. Sloan
Okay. And then on the $12 million construction loan that was closed on in the quarter when exactly was that negotiated?
And I guess what are your thoughts on that LIBOR plus 180, 190 basis point REIT for construction funding still holding at current times?
Daniel Sink
As far as the loan and when it was negotiated, it was probably negotiated in the mid-to-late third quarter. I think as we look out today, the LIBOR plus 190 is somewhat difficult to achieve.
I think it's – there's been a little bit of uptick. For instance, on Eddy Street Commons, we are – on the committed construction loan we have there, it's LIBOR plus 235.
And I think right now the environment we've been seeing as far as on the mini perm loans that we've been closing on, the three year – three year to four year loans; it's more in the line of LIBOR plus 275. So I mean it's ranging for us right now.
I think the LIBOR plus 190 will be difficult to achieve on future construction loans, but I think we're still seeing rates that are sub 300.
John Kite
The other thing its important there is that the way the yield curve has evened out a little bit, we're in a situation where we can execute hedges and so on. These mini perm deals, right now, as I think Dan mentioned, we can execute extremely favorable hedges in sub 5%.
So that's part of our overall strategy when we're refinancing these deals for between two years and four years, that we can get these very attractive rates that don't have defeasance and breakup costs, that if we want to put longer-term debt on as the market settles out, we're able to do that.
Jehan – J.M. Sloan
Okay, great. And then just lastly, could you remind us of how much of unencumbered assets you currently have at this point?
John Kite
Yes, the unencumbered assets, we have about 47 unencumbered assets that are used as collateral for our unsecured credit facility. So I think in the unsecured credit facility, I think we have a little in excess of $200 million of availability if we expanded that currently.
I think the supplemental shows that there is $200 million of availability, but with other unencumbered asset, we could – with the banks – at the banks approval increase that to a little bit above $200 million.
Jehan – J.M. Sloan
Thank you.
Daniel Sink
Thanks.
Operator
Your next question comes from the line of Quinton Falelli [ph] with Citigroup. Please proceed.
Quinton Falelli – Citigroup
Yes, hi, it's Quinton. I'm just here with Michael Bilerman.
I was just wondering, what's the actual value of those unencumbered assets?
Daniel Sink
The actual value – when we go through the calculation of the unencumbered assets, the value is a little in excess of $200 million.
Quinton Falelli – Citigroup
Right. And so the assigned value as those as the line, right?
Daniel Sink
Yes, the assigned value under the line, which the line has a somewhat conservative calculation. I don't have the – I don't have that particular exact calculation of what the total value is based off NOI, because you're right, the line applies a cap rate and then discounts it to like 65%.
John Kite
So Quinton, I think actually that we see that number – that's a very conservative number that we use for the credit facility in terms of the valuation purposes. And we've actually – I think we've talked with you guys about this in the past that –
Quinton Falelli – Citigroup
Yes.
John Kite
Even beyond the vacancy that exists, there is an additional vacancy that's put against it, and some credit loss. And so when you bring that NOI down that far and you've got a rather conservative cap rate that gives us a lot of cushion there.
Quinton Falelli – Citigroup
Right. And so it expires in 2011.
John Kite
Right and has a one –
Quinton Falelli – Citigroup
I know it's a long way out, but what are the covenants against that for the one-year option?
John Kite
Really, the one-year option is that as long as we aren't in default of the line and we pay a minimal extension fee, that option is renewable.
Quinton Falelli – Citigroup
Okay. And just on your development – on the current development pipeline, could you just outline where the development yields that you're expecting are at the moment and whether they've changed at all?
John Kite
No. I mean, in terms of the current development pipeline, we're continuing to get in the mid 8% kind of return range on a cash basis.
And again, just to remind you, Quinton, we don't – we assume cash kind of at that one-year stabilization with no outlot sales, that's a real return on cash. And we're still in that mid – kind of mid 8% range, some higher, some slightly lower.
Quinton Falelli – Citigroup
And just on your outlot sales you said that it's likely they're going to come back the next year. Can you give us some kind of level that you're aiming at?
John Kite
Well, again, we're still seeing how that market shakes out. Obviously, we've had transactions this year through this quarter.
As Dan mentioned in our guidance, we're getting – we're going to pull back on that in the fourth quarter in terms of being conservative around what could happen. So it's really hard to tell you exactly what we see happening next year.
The point I was trying to make was that we have been selling these outparcels and they range from, say, a $1 million transaction to a $2.5 million transaction to third-party investors. So that market has been impacted, but nowhere near what I think people assumed in the sense of in the merchant building side where you're trying to sell a $50 million shopping center, it's a little different story.
So it's going to be impacted to the investors, but in terms of the users, that's a whole other avenue for us to go to, to sell directly to the users, and you're just making a slightly smaller margin. So that's why we got a kind of get our hands around when we do the – when we finish the '09 budget, which we've begun the budgeting process already.
We started this month, and will be finished soon. But, after we do that, then we'll have a better handle on that.
Quinton Falelli – Citigroup
Okay. And just the last question.
In relation to your shadow pipeline, you mentioned some underwriting goals in terms of pre-leasing and financing. Could you just give us some kind of indication of what that pre-leasing target is and financing and so forth?
John Kite
Well, Tom and I have both talk about it, but from a macro level, I want to make it clear that we're not saying that we're focused on those aligning in any particular way. We have very stringent internal pre-leasing requirements that may exceed what we could do and what we could get from third-party financing.
So it's difficult for us to give you one particular range. Historically, it's been around 50%, but you can look at individual projects we have, like Delray, for example, where we wanted to be in excess of that.
So on a macro level, we're just trying to be very, very conservative and take out as much risk as possible. And I'll let Tom kind of elaborate.
Thomas McGowan
Yes, as John mentioned, each one has a specific criteria because each project is so vastly different from the other. But one thing that we have done as a company that we have always been consistent on is, we attempt to get each and every anchor tenant executed prior to moving forward with the deal.
And as John mentioned, as it ties back to small shops, the small shop leasing percentage were really tied to the risk reward component of the project. So we keep a pretty stringent eye in terms of our ability to move forward based upon those parameters.
Quinton Falelli – Citigroup
Okay. Alright.
Thanks a lot, guys.
John Kite
Thanks.
Thomas McGowan
Thank you.
Operator
Your next question comes from the line of RJ Milligan with Raymond James. Please proceed.
RJ Milligan – Raymond James
Good morning, guys.
John Kite
Good morning, James.
Daniel Sink
Good morning.
RJ Milligan – Raymond James
I have a question. Dan, can you walk me through the fourth quarter guidance in terms of – with the dilution that's about $0.02?
So is the other $0.04 and this is over the third quarter is going from the $0.32 to about the midpoint of the fourth quarter guidance. Would about that $0.04 be all transactional income?
Daniel Sink
That's correct. Yes, the majority it's going to be transactional income.
As John mentioned, we do have a loss of Linens N Things that will affect the fourth quarter. So we do have some tenant disruptions, but the majority of its going to be the transactional income that we discussed.
RJ Milligan – Raymond James
And how much transactional income are you guys modeling for the fourth quarter? So what's the delta?
In terms of – you guys are reducing it $0.04, but what's still built-in? Is any transactional income built-in?
Daniel Sink
Yes, right now the transactional income in the fourth quarter, as we've talked about on the last call, we anticipate selling one of our non-core assets, the portion that's going to generate FFO. And we also have the potential to sell maybe one other land parcel.
So those are the two items that will be in the transactions.
John Kite
Basically, we also – RJ, we had – as we always do, we have several things going on at once, and there are a couple other land transactions that could occur, but we're assuming they're not going to. So rather than pinning it down to specific numbers, because we kind of throw it all in a bucket, you're talking about maybe four transactions or five transactions is one or two.
That's the way we're looking at it.
RJ Milligan – Raymond James
Okay. That's helpful.
Thanks, guys.
John Kite
Thanks.
Daniel Sink
Thanks.
Operator
(Operator instructions) Your next question comes from the line of Philip Martin. Please proceed.
Philip Martin – Cantor Fitzgerald
Good morning.
Thomas McGowan
Hi, Phil.
John Kite
Hi, Phil.
Philip Martin – Cantor Fitzgerald
A couple things here. First of all, in terms – Dan, for you, in terms of the $108 million or even just of the mortgages and the debt refinanced so far, what types of cap rates are the banks assuming on those transactions – or when they value those properties?
Daniel Sink
Philip, the problem with this – the problem with the cap rate is, I think everybody is struggling to get their arms around the cap rates because there really hasn't been any indication of what those are because not a lot of – there's a lot of big spread between the bid and the ask. And I think what banks are focused on right now is more cash flow coverage and debt service coverage ratios.
So I think that's primarily the focus of the banks now.
John Kite
Philip, I think, adding to that – Dan and I have been so focused on – these are – when you're refinancing these assets, it's really, as you said, more about the cash flow. But there are – I mean, we have seen these banks recently have appraisals that are still kind of in the high 6, low 7 range.
Philip Martin – Cantor Fitzgerald
Really? Okay.
John Kite
They're not really focused on that as much as they are – we don't want to say – make a big statement about that, because they're just really focused on debt coverage ratios.
Philip Martin – Cantor Fitzgerald
Cash, which is good.
John Kite
Ultimately, yes, you back into it from there. But if you look at – since appraisals kind of operate with the information they have available to them, they still can easily get appraisals at 6.5 to 7, but it's not really relevant to what we're trying to do.
Philip Martin – Cantor Fitzgerald
Okay. So it is – well, I mean, that's good to hear that they're looking at cash, which – okay.
So if you back into it, though, you're still kind of high 6s to mid 7s?
John Kite
I think that's what the banks have underwritten. Those aren't ours, but that's what they've underwritten.
Philip Martin – Cantor Fitzgerald
Okay. And that kind of gets you into that 60%, 65% loan-to-cost loan-to-value range?
John Kite
Yes, which we can – we've exceeded also as I mentioned. So – but I think the point we're trying to make there is, we've had plenty of cushion.
Philip Martin – Cantor Fitzgerald
Okay. Okay.
And John and/or Tom, on the leasing front, given the environment out there, I have to think many tenants are struggling somewhat unnecessarily because of the locations they're in. Are you seeing any demand or are you hearing from tenants that when their leases are up for renewal, they'd like to locate in what they might perceive to be a better center, like a Kite center?
John Kite
Well, we've talked about this before, Philip. I think, first of all, that type of process takes time.
I think we specifically talked about markets where you see a great deal of unanchored shopping centers, lot of these smaller 20,000 to 50,000 square-foot strip centers with no anchors. Yes, ultimately, as those leases roll over, they're going to want to move into shopping centers that are Class A, high quality, well anchored, and this is probably going to be the best opportunity for those tenants to be able to do that.
Now, the flip side is, we always have to – we got to keep the same kind of underwriting process and credit kind of stringency that we have, so there is a balance there. But yes, I think, in general, as things shake out and you get into next year and people start to realize that we're in a tough environment, but they're still doing some business, they're going to want to be in the best possible center they can be in.
Thomas McGowan
Yes, and Philip, that's another reason we've been spending so much time actually getting out and seeing the retailers and trying to understand each individual's mind set in terms of what they're looking for, how they're going to address some of these vacancies, how they're going to retool their store count as a whole. So we're working hard on that right now.
Philip Martin – Cantor Fitzgerald
Well, and to that end, Tom, when you look at your visible shadow pipeline, can you give us some feel – I mean, I know it's – everybody including the retailers, are on a wait-and-see mode here, and they want to see how things shake out in 2009. But how confident are you with the potential tenancy of the visible shadow pipeline?
Obviously, you have some good retailers and you're fairly strong from a credit standpoint. Do you remain more – pretty confident on those – on that potential tenancy at this point?
Thomas McGowan
We have reason to remain confident. However, we're going to take a very cautious approach in terms of the way we look at the pipeline as a whole.
And we have some nice things that occurred over the last 60 days that tie back to two major letter of intents with what we think to be the best big box user out in the space at this point. So we've seen some positive signs, but at the same time, we will not get out ahead of ourselves as it ties back to that pipeline.
That's just something we will not do. And we're going to make sure that even though there's positive signs, that we're going to do the things that we talked about, get the anchor leases in place, like John said, make sure that, that small shop leasing is a point that we're comfortable.
So reason to maintain a confidence level, but at the same time be very cautious.
John Kite
To expand on that, Philip, I mean, I think – and again, we're all – this whole – everybody's cautious, right? I mean, we're all in this mode of wanting to be very careful.
And I think we want to be clear that we understand that and that we have a situation where we have – we're very fortunate to have a great deal of liquidity for a company our size. And we want to make sure the market understands that we want to husband that liquidity.
However, as Tom said, we've made some real good progress here just in this quarter by executing two letters of intent at our two big projects in Raleigh for the anchor tenant that we need. And we don't typically get into that.
As Tom is saying, we don't get into LOIs very heavily. But in this environment, when you execute a letter of intent on the anchor large box tenant, they don't do that in this environment unless they're dead serious about the deal.
So I think that's a good sign, and then we also have a lot of other activity – LOI activity on the junior boxes, and several hundred thousand square feet of leases under negotiation. So the key here is that we are still making very, very good progress on the leasing front, but we're being extremely cautious in terms of when we deploy the capital.
So we're just elevating our pre-leasing requirements to a level that we can really mitigate a great deal of the risk even more so than we've done historically. So it's actually working out pretty well in the sense that, since we're talking about delivering these things in late 2010 and into 2011, the timing is going to work well for us there with the retailers so.
We don't want to underscore the fact that there is good activity. We just are going to be very cautious with capital.
Philip Martin – Cantor Fitzgerald
Now, I know those are going to be – many of those, and they're already in some joint ventures. But when you look at the $150 million, $155 million yet to fund on that visible shadow pipeline, at this point, what type of funding may be required in 2009 if you were to move forward with these?
John Kite
Yes, I think the point Tom was making in his prepared remarks is, very little is required in funding, but for when we're at levels where we want to be, and we anticipate that funding to come from third-party construction financing. So, really, you're just kind of looking at carry costs until we're at a level in pre-leasing that enables us to be comfortable, first, internally and then second, enables us to receive third-party construction financing.
Now, we may get there sooner than we think, but the bottom line is, until we get there, the amount of capital we have to expend in that visible pipeline is really just limited to carrying it.
Philip Martin – Cantor Fitzgerald
Okay. Okay.
My last quick question here, for Dan. Potential net sale proceeds over the next 12 months – I know that again – I know the environment is the environment out there, but what's a range that you think might be achievable?
I'm looking at this from a sources and users standpoint.
Daniel Sink
I think, in particular – I think when we talked about – and we've talked about in prior calls, our objective is to generate, number one, potentially selling a retail asset and then potentially moving some of a development asset into joint venture, therefore, pushing off the future funding needs on that particular development as well as getting some additional liquidity back on the balance sheet. So I think, right now, when we've put together our preliminary 2009 plan, those are the two particular items that we are discussing.
I think that gives us a range of, say – I think in the prior call, I mentioned $30 million to $35 million potentially on those two items. And I think everything's in place, Philip.
We're going to be looking at our assets and potentially – I don't have an exact number for you, but obviously if we see an asset that we can prune some value out of and reduce our leverage and paid – and get some liquidity, I think we'll be discussing that for opportunities.
John Kite
I think the key there, Philip, is if – the point – the reason we are trying to make that fairly clear is that all we really anticipate doing is selling the two properties that we mentioned before, the one office property and the one retail property and entering into one joint venture, one property level JV. If we do those things, which, quite frankly isn't a ton of work to do in the next 15 months, if we do those things, then we're going to maintain the capital levels where we're at right now.
But, as Dan said, if we can – if we see opportunities to exceed that and have more capital in this type of environment, we would do that. So I think our – what we're trying to say there is, we have a very clear plan to maintain current liquidity levels.
But since we can't predict whether the market – where the market goes, we need to make sure that we're looking at other things as well.
Philip Martin – Cantor Fitzgerald
Okay. Okay.
Thank you very much.
Operator
Your next question comes from the line of Jay Habermann with Goldman Sachs. Please proceed.
Jay Habermann – Goldman Sachs
Hi, just a really quick follow-up on your comments earlier on banks today being more focused on cash flow generation when working through a lot of your refinancing. To what extent do you sense the safety of those future cash flows being stress tested to the obviously given expectations for a lot – retailers to continue, closing stores and perhaps even liquidating into 2009?
John Kite
Well, I think, obviously, when the banks underwrite cash flows, that's the point we were trying to make is, they'll discount the leasing beyond what we are leased, so that's how they stress test. And then some of them would have a credit discount as well.
But beyond that, it's difficult for them to probably get into individual credits. And one of the things that's great about our product and in general in our industry, that we have very high quality, Class A assets that are leased to high quality tenants.
So when they look at the cash flows, they come from a good range of creditworthy tenants. So right there you have the advantage over something else and the individual piece of debt on one credit.
So I think, from my perspective, the stress testing is probably just going back to what we used to do when the market was more conservative and more realistic, and that's where we're at now. Just kind of traditional, conservative underwriting, and that works for us.
Our product can be financed in that type of environment.
Jay Habermann – Goldman Sachs
Great. Thank you.
John Kite
Sure.
Operator
Your next question comes from the line of Paul Adornato with BMO Capital Markets. Please proceed.
Paul Adornato – BMO Capital Markets
Hi, good morning.
John Kite
Hey, Paul.
Daniel Sink
Good morning.
Paul Adornato – BMO Capital Markets
How much in excess of the statutory requirement is the current dividend?
Daniel Sink
The current dividend is – right now we're anticipating for the end of the year to be about 35% to 40% return of capital. That right now is a brief – a anticipation based on taxable income projections.
Paul Adornato – BMO Capital Markets
Okay. And looking out into 2009, what would that number be?
Daniel Sink
In 2009, as I mentioned, we're going to be reviewing that with the Board and going through both the earnings projections, liquidity needs, and dividend coverage. And at that point, we'll provide that when we provide 2009 guidance.
Paul Adornato – BMO Capital Markets
Okay. Thank you.
Daniel Sink
Sure.
Operator
(Operator instructions) Your next question comes from the line of Wes Golladay with RBC Capital Markets. Please proceed.
Please proceed, sir.
John Kite
You must be having a –
Rich Moore – RBC Capital Markets
Oh, hey, guys, it's Rich Moore. How are you?
I'm just learning how to work the phone, sorry.
John Kite
Rich –
Rich Moore – RBC Capital Markets
Yes, I asked Wes to spoke because I hit the hang up button when I wanted to talk to you guys, instead of the mute button. So anyway, I'm here, I do have a question.
John Kite
Alright.
Rich Moore – RBC Capital Markets
To get back to Paul's real quick, are you basically saying, Dan, that you could lower the dividend about 35% to 40% and still meet the taxable net income requirement at least for 2008?
John Kite
I think – let me jump in for Dan because, Rich, what Dan was answering this question I think specific to what the facts are. So yes, the facts are that the dividend that we paid exceed the statutory limit, so that's a fact.
Rich Moore – RBC Capital Markets
Sorry about that.
John Kite
Beyond that, that's a discussion that, as Dan mentioned, that we always do discuss with the Board, and we – particularly as it relates to the beginning of the year, which is very important, and we have to lay out the entire 2009 cash flow and capital plan. So it's premature to kind of go beyond that, because we haven't laid that plan out for the Board yet.
Rich Moore – RBC Capital Markets
Yes, I got you, John. I just wanted to make sure I understood exactly how that works.
John Kite
Sure.
Rich Moore – RBC Capital Markets
And then, Dan, if I could, when you say mini perm, are you basically saying a short-term fixed-rate loan, like, three years or four years? Is that what you think of as mini perm?
Daniel Sink
That's correct. And yes, sorry about that.
Yes, what I refer to as mini perm is a three-year – typically a three-year loan with a one-year option, because typically on the permanent loans, you go five, seven, or ten. So we're utilizing the three-year term right now and swapping out the rates because, as John mentioned, the forward curve is advantageous with the spread.
So, like for instance, on a recent loan, we were able to lock in that 4.88% for the three-year period, which is a terrific rate that you can get for three years. So that's kind of where we're focused on now, Rich, with the banks, and what – in discussion with the banks, the three plus one option is a very viable opportunity for us.
John Kite
I think that's pretty important, Rich, because I think some people have had situations where they've had debt rolling over that they've had to refinance at significantly higher rates. And this strategy is really allowing us to refinance it at three-year to four-year increments at even lower rates and/or equal to where we were, so it doesn't impact cash flow either, that's important to us.
Rich Moore – RBC Capital Markets
Okay, very good, John, thank you. And then, Dan, G&A for the rest of the year, I guess really for the fourth quarter, what are you thinking there?
Daniel Sink
I think – I know, and previously our guidance was $6.3 million to $6.5 million, and I think right now, as you would expect us to do in this environment, we're being very prudent. We've always been prudent, but we're really diving into the expenses and making sure that we're conserving everything we can.
And I'd say, right now, we're probably going to be at the lower end of that guidance or even below that, maybe $6.1 million to $6.3 million versus $6.3 million to $6.5 million.
Rich Moore – RBC Capital Markets
Okay. Good.
Thanks. And then back to the unencumbered asset question, if I could real quick.
Are those really unencumbered if they're used as collateral for the line? Could you actually put a mortgage on one of those separately or do they stay with the line?
Daniel Sink
No, they – what you do is you can pull them out of the line and it reduces your availability under that line. But under the unsecured facility, you do have – it gives you a lot more flexibility to pull them out of the line and replace that collateral with something else.
So that's what I – when I was talking about potentially selling an unencumbered asset, what we would do on that is, we're looking at the assets and line – trying to line it up with regional banks and what the regional banks appetite would be for a particular asset, putting debt on one of the unencumbered asset – in our particular case, paying off the debt on three others. So what you end up doing is replacing the collateral on the line of credit, but, in essence, your availability is not affected, because you're putting in future unencumbered assets with the proceeds on another.
John Kite
Also, Rich, when we transition development properties in at larger NOIs that grows the collateral pull as well.
Rich Moore – RBC Capital Markets
Okay. Alright.
I got you, John, good, thanks. And then the last thing, on Maple Valley, it seem like that shrank a little bit in expected scope.
Is that sort of a victim of the economy?
Thomas McGowan
Hey, Rich, this is Tom. It actually had nothing to do with the specific plan itself.
What we decided to do there was about 29,000 square feet of existing space in the center that we had originally acquired that would be ultimately part of the broader base development. What we did is we took the three buildings that were going to be renovated as part of that project and decided to move those to the redevelopment pipeline, because that's really a separate component in a separate project from the broader base deal.
John Kite
So, Rich, it was in the operating portfolio. We move it into the redevelopment pipeline because now we're getting – we're starting to get to the point where we're getting ready to start to not renew leases, things like that.
So that plays into it and that lowers the overall total size.
Thomas McGowan
Which then lowered the project cost as well.
Rich Moore – RBC Capital Markets
Right. I got you.
Okay, good. Very good.
Thanks, guys.
John Kite
Sure. Thank you.
Operator
At this time, there are no further questions. I will turn this presentation back over to Mr.
John Kite.
John Kite
Well, again, thank you all for joining us today. And we appreciate your time and look forward to talking to you next quarter.
Operator
Thank you for your participation in today's conference. This concludes the presentation.
You may now disconnect. Good day.