Rithm Property Trust Inc (RPT) 2003 Q1 法說會逐字稿

Good morning. My name is

and I will be your conference facilitator today.

At this time, I would like to welcome everyone to the Ramco-Gershenson Properties Trust first quarter 2003 earning conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number on one your telephone keypad.

If you would like to withdraw your question, press the pound key. Thank you.

Ms. Hendershot, you maybe begin your conference.

Thank you. Good morning and thank you for joining us for Ramco-Gershenson Properties Trust first quarter conference call.

At this time, management would like me to inform you that certain statements made during this conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1985. Although Ramco-Gershenson believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ from expectations are detailed in the press release and from time to time in the company's filings with the SEC.

Additionally, we want to let everyone know that the information and statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.

Also the contents of the call are the property of the company, and any replay or transmission of the call may be done only with the consent of Ramco-Gershenson Properties Trust.

Having said that, I would now like to introduce Dennis Gershenson, President and Chief Executive Officer, and Richard Smith, Chief Financial Officer, and at this time, would like to turn the call over to Dennis for his opening remarks.

Thank you Dawn.

Dawn Hendershot is head of our Investor Relations Department.

Good morning, and thank you for joining us for our first quarter 2003 conference call. In a marketplace still buffeted by economic uncertainty, we're pleased to have met first call estimates of 55 cents per share. Further, although leasing transactions are taking even more time to document than ever before, we are completing agreements with anchors such as Wal-Mart, Target and Kohl's as well as mid-box retailers including Ross, Linen N Things, Michael's and Marshall's mega-store for shopping center expansions, renovations and developments.

We continue to work with those national retailers who understand economic cycles and seek superior locations to position themselves to take advantage of an improving economy.

To that end, we have been very busy during the first quarter. On the acquisition front, we purchased the Livonia Plaza Shopping Center in January. This 134,000 square foot center anchored by Kroger in 57,000 square foot and TJ Max in 24,000 square feet is well positioned in a densely populated western suburb of metropolitan Detroit.

During due diligence, we learned that our supermarket anchor Kroger was doing so well that they wanted to undertake a second expansion of their store.

During the first quarter we also put under contract two additionally shopping centers. One is in Florida on the west coast. It's a public supermarket anchored center and we expect to close on this acquisition in the next several weeks. The other shopping center under contract is in Michigan. It's a property of 360,000-square feet, with significant upside in the form of a building pad attached to the center and four out lots. None of these have been priced as part of the acquisition. We are presently in the process of conducting due diligence, and we expect to close on this purchase later in the year.

Additional acquisition potentials are also being reviewed. Please remember that in a marketplace where institutional and individual buyers are still driving cap rates to historic new lows, we continue to pursue acquisitions that lend themselves to value-added opportunities. In this way we can be competitive for selected centers, where our ability to increase value through repositioning activities improves our return on investment, producing an unleveraged return that justifies the use of our capital.

In the area of asset management, we have been especially busy on the redevelopment front. In this quarter's earnings release we have announced the redevelopment of our Troy Towne Center in Troy, Ohio, a northern suburb of Dayton. The center was developed by Ramco in 1990, with a 160,000 square foot Wal-Mart, and a 40,000 square foot County Market. A number of newer, larger supermarkets moved into the trade area. County Market closed their doors, creating an opportunity for Wal-Mart to expand to a super store. Wal-Mart will commence construction of their expansion this summer, opening their 197,000 square foot superstore in the spring of 2004. We have replaced the supermarket with an 87,000 square foot Kohl's department store, which is open, and exceeding expectations. As of this date, the shopping center is 99 percent leased and occupied.

At our Shoppes of Lakeland Center in Lakeland, Florida, we are very close to announcing the signing and the commencement of construction for our new 125,000 square foot national credit retailer. Demolition has commenced on the portion of the center, needed to accommodate our new anchor. Additionally, we are finalizing an agreement for a 78,000 square foot destination use to occupy the former Builders Square store. This retailed planned a December opening at the latest. Almost all of the square footage in the center is spoken for, and we anticipate full occupancy by the spring of 2004.

At our Taylors Square Shopping Center in Greenville, South Carolina, we are finalizing agreements for a significant repositioning of this asset. We will be announcing our plans during the second quarter.

At our Holcomb in Alpharetta, Georgia, a suburb of Atlanta, we are finalizing an agreement to replace a vacant A&P with another recognized supermarket. Plans are proceeding the pace, however, there are a series of governmental approvals that will be required before the project is formally announced.

Our Northwest Crossing Shopping Center in Nashville, Tennessee is also slated for a major redevelopment that will be announced and commenced this summer.

Lastly, at our Taylor Plaza Shopping Center in Taylor, Michigan, a western suburb of metropolitan Detroit, we are finalizing documentation for one national credit retailer to take the entire site previously occupied by an 84,000 square foot K-Mart. Excuse me. The new retailer will be at a rental rate of more than twice what K-Mart was paying.

Each of these repositioning involves the expansion of the center, either through the inclusion of a new major retailer or the addition of substantial square footage to an existing anchor or both. These redevelopments as well as the leasing of anchor spaces in our South Bay, Roseville, West Allis and Crofton Centers will dramatically impact our occupancy percentage by year-end.

On the leasing front, we have executed 58 agreements this quarter. We are have renewed

at rental rates 5.5 percent above those that existed at the expiration of their term. We have also opened 13 new retailers at an average rental rate, 45 percent above our portfolio rental average.

If there is to be a potential soft spot in our numbers for 2003, it will involve the velocity of our small tenant-leasing program. Retailers are faced with competing priorities. On the one hand, their lackluster Christmas and first quarter sales have caused many to scale back their 2003 capital budgets. Still they must be able to show increasing sales volumes going forward. Our leasing department indicates that there is no lack of interest in our centers. The issue instead is whether retail prospects can build and open in 2003 or 2004.

In the area of new development, we are actively working on a number of sites, four in the Midwest, and a major opportunity in the state of Florida. We do not, we do not foresee a significant development contribution to our 2003 numbers. However we expect to commence several development projects starting next year.

I would like to take a moment to touch on corporate governance. Over the last several quarters, our board of trustees has reviewed its corporate policies and procedures to insure our compliance with the requirements of Sarbanes-Oxley, the Security and Exchange Commission, and the proposed new listing standards of the New York Stock Exchange.

I am pleased to report that in the main we were in compliance with the majority of the new and proposed requirements. Six of our eight board members meets the independence test. All of our board committees are staffed only by independent trustees, and each committee has adopted a revised charters. A great deal of time was dedicated to a review of our audit committee's charter, and our Chairman, Mr. Stephen Blank, meets the SEC requirements for financial expertise.

We are in the process of establishing an internal audit function and an internal controls procedure review. Also our code of business conduct, or code of ethics has been reviewed and updated to insure a responsible and ethical working environment for all Ramco-Gershenson employees and trustees.

Our company's philosophy has always been to grow through acquisition and development. However, we have always dedicated a significant percentage of our energies and capital to constantly upgrading, expanding, renovating, and re-tenanting core assets.

This effort is evidenced by the number of shopping center development and redevelopments that we have undertaken over the last seven years. This being said, 2003 will represent our most active period for repositioning core assets. As we have demonstrated in the past, we are not afraid to make substantial changes to successful, fully leased centers if those changes improve the assets tenant mix, trade area draw or physical appearance.

Although it would be easier to turn a blind eye to these opportunities and just keep the centers leased, our focus has always been on increasing shareholder value. Thus, instead of directing all of our attention toward growing the portfolio with new additions, we believe that it is critical that we insure the viability and desirability of each of our core assets, no matter how long we've owned them, or how successful they've been.

We have also experienced our share of issues, be they bankruptcies or disappointing performances by individual retailers. Throughout this year, you will see the fulfillment of our pledge to re-tenant our current anchor vacancies with more desirable, better credit destination users. We will also advise you over the next several months of major anchor expansions similar to that announced today at our Troy, Ohio center.

The repositionings well help to insure the long-term viability and value of our core assets. These activities, coupled with our acquisition and development programs, will produce a growing portfolio of shopping centers that are well tenanted, attractive and responsive to the ever-changing needs or our trade area demographics.

Although it would simplify our lives to lease vacant space to any warm body, irrespective of how it impacts tenant mix, and dedicate capital only to projects that produce immediate returns, we are a company committed to the idea that the shopping center industry is still about producing a venue that provides the appropriate goods and services, which reflect the needs of our trade area consumer.

I would now like to turn this call over to Rich Smith, our CFO who will address the highlights of our financial results.

Good morning.

As Dennis indicated for the first quarter, we met first call estimates. Our diluted FFO per share was 55 cents. This was an 11.3 percent decrease from the 62 cents reported in 2002. The primary reasons for the decrease resulted from the effects of our 2002 stock offerings, taking properties offline for planned redevelopments, and tenant bankruptcies including K-Mart, Service Merchandise and

.

Our diluted FFO increased $993 thousand. We went from $7, 454,000 in 2002 to $8,447,000 in 2003. The $993,000 increase was made up of $2,566,000 contribution from property acquisitions, offset by a $1,273,000 decrease in core assets, primarily attributable to our redevelopment projects and tenant bankruptcies. It was also offset by a $300,000 reduction related to the sale of our Hickory Corners Shopping Center.

Our operating statistics for the first quarter include a reduction in occupancy which went from 94 percent in 2002 to 90.9 percent in 2003. The majority of the decrease was related to several big box and mid box vacancies that we gained control of and are currently negotiating with tenants to reoccupy. They include K-Mart at

, Jacobsen's at Southbay, Service Merchandise at Clinton Valley Strip in Roseville Towne Center and Builder's Square at West Allis. For the quarter, our same center NOI decreased 3.5 percent. This reduction was generated from planned redevelopment projects, including our Tel-Twelve and Lakeland Centers and from the fallout of K-Mart and other bankruptcies. Excluding redevelopment at centers requiring major re-tenanting, our same center NOI increased 2.8 percent. As a result of our offerings and redevelopment projects, our quarterly FFO payout ratio went from 67.7 percent in 2002 to 76.4 percent in 2003 and our FAD payout ratio went from 75 percent in 2002 to 85.7 percent in 2003. These ratios have significantly improved since year end and are in line with our 2002 guidance which we provided in our last conference call. For 2003 we expect our FFO payout ratio to be in the mid to high 70 percent range, and our FAD payout ratio to be in the mid to high 80 percent range.

For the quarter, we renewed 45 non-anchor leases at an average rental rate of $10.02, which was a 5.5 percent increase over the previous rental rates. We also added 13 new non-anchor stores at an average run of $17.78, which was a 45 percent increase over the average--portfolio average. Additionally, we opened two new anchor stores at an average rate of 6.65--I'm sorry, an average rental rate of $6.65, which was a 9.7 percent increase over the portfolio average. Out total debt at quarter end was $438.9 million at an average rate of 6.5 percent and an average term remaining of about 3.7 years. 25.3 percent of our debt was floating at an average rate of 3.7 percent and 74.7 percent was fixed at an average rate of about 7.5 percent. The availability under our secured revolver at quarter end was about $30 million and it was $18.3 million on our unsecured revolver. Our EBITDA interest coverage increased slightly, going from 2.2 times in 2002, to 2.23 times in 2003. For the quarter, our debt to market cap improved; it went from 62.5 percent in 2002 to 54.9 percent in 2003. The improvement was a result of our stock offerings and an increase in our stock price which went from $17.76 in 2002 to almost $22 in 2003. During the quarter we also paid off the mortgages on our Horizon Village center and acquired our Livonia Plaza property for cash. Both assets are currently unencumbered.

The other uses of our capital for the quarter totaled $16.2 million; again, $13 million was spent on the acquisition of Livonia Plaza, 2.6 million on expansion renovation projects, 200 thousand on recoverable

and approximately $400 thousand on non-recoverable cap ex. We will continue to fund future growth by retaining cash from operations by continuing to sell non-core assets and selected assets with limited upside potential by financing our unencumbered assets and by refinancing assets which had been expanded or renovated in the prior periods. Lastly, we're maintaining our 2003 FFO estimate of between $2.23 and $2.33.

Operator, I think we can open the call up for some questions.

At this time I would like to remind everyone, in order to ask a question, please press star, then the number 1, on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from David

.

Hi. Good morning, guys. David

here with Jay Leupp. First question is given the number of new redevelopments that you guys have semi-revealed in this call, including the Troy Towne Center redevelopment, while the do create long term value, do you expect them to be dilutive near term or are they built into your current guidance already?

Good morning, David. They're built into our current guidance. The--if there was any square footage that we were taking off line, and obviously like the Shoppes of Lakeland is the best example, but in a number of the others as well all of the space that we would have needed to move tenants around in have already occurred. So the downside of it, relative to income anyway, we've already put into our numbers.

OK, great. Just getting to a comment Rich just made about selling assets with limited upside, you guys talked about the current cap rate environment that continues to sink to new lows. Given the friendly selling environment, have you guys identified any assets that you'd like to put on the market at this point and should we expect some dispositions this year?

There isn't any question that there are a number of shopping centers that we have slated to potential disposition, but we are in the process of negotiating on a number of those now and obviously , if we get the right price, we would be more than happy to sell them. These really fall into the category of those centers that don't really fit into our business plan going forward, which might mean they're in smaller secondary or in tertiary markets. Our biggest problem with selling our A type properties is that you would need to find an adequate home for those dollars in redeploying them and you know it's rather difficult with the cap rates that are out there to find assets that we find desirable, albeit that as I've referenced here, we probably have to cull through 20 or 30 to find one now where two years ago we probably needed to look at five or six to find one we wanted.

Hey, David, another comment relative to sales, I think that some of the assets that would be logical sales for us, I don't think we've quite maximized the value of them yet. I think we're trying to do some things with them and when we do that, we'll re-look at selling opportunities. But I think some of them may be a little ways off, but again I think some of them we have

that we have slated.

OK, great. With regards to debt, a couple of questions. It looks like you have about 13 percent, more or less, of your maturities coming due this year. Wondered if you could talk about refinancing efforts and then perhaps talk a little bit about maybe potential plans to fix some of your variable rate mortgages given the current inertest rate environment.

A couple of things. I think most of the debt coming due on '03 really pertains to some of the acquisitions that we made

, including some of the joint ventures we brought back on line. I think we're in the process right now of looking at alternatives for that, knowing that we'd like to put some of that debt into the line to increase availability there and then take some of the properties that are currently in our line out, you know a property, for example, like Lantana, that I think we've maximized the value, have a brand new Publix lease on and it probably makes a great deal of sense to tuck that away for the long term as opposed to keeping it in line. So I think we'll balance that and you'll see that move, in the next few months you'll see some activity going on there.

Relative to the hedging, as you know, we're required under our line of credit to have $75 million of that hedged. We have entered into forward contracts, it's really last month we did that. So when those burn off, we have new LIBOR contracts in place.

OK, great. Thanks, guys.

You bet.

Our next question comes from Andrew Rosivach.

Morning, guys.

Hi, Andrew.

How are you?

Good.

Dennis, I'm wondering if you have any update on what you plan to do or what you might have in the works for the former--I guess now former K-Mart location at Tel-Twelve?

Yes. We have reached an agreement with K-Mart and that involves our ability, really, to work with them to designate an assignee who will take over that lease, and we are in active negotiations now on an agreement, on a specific agreement. Not economic terms, we're past that; we're dealing with the actual terms of an agreement for a replacement user that will not only take over that building, but will expand it by at least a third.

So you think it's likely that, absent the expansion, that the existing terms of the lease will probably be able to continue to hold to a new tenant?

For the most part, yes.

OK.

We'll be more than happy to announce the details of that agreement as soon as it's executed.

You betcha, and I don't want to rush you. And then second, I apologize because it's probably going to be the millionth time you've ever been asked this, but are there any updates on the Atlantic liability issue?

Well, we are reasonably optimistic. I've been too optimistic sometimes, albeit that this is over a six to seven year period. But we believe that we truly have arrived at a point on the appellate level where we are working out the terms of an agreement for the settlement of this case at a sum that should be significantly less than the total asset value of Atlantic. So I am cautiously optimistic. All indications are that things are moving forward and indeed we will have a resolution, knock on wood, before the end of the year.

Terrific. Thanks, Dennis.

Your next question comes from Lou Taylor.

Morning, Lou.

Thanks. Good morning, guys. Dennis, of the stuff you had mentioned under contract, those two deals, one in Florida, one in Michigan, what's the combined price and what would it equate to in terms of dollars for--from Ramco or--and I mean basically subject to existing debt?

The combined purchase value of the two was in the vicinity of around $35 million. As far as--the return on that should be somewhere between 9.2 and 9.4 percent.

OK. But just how about net dollars to you in these two deals? In other words, how much debt would you assume for the two acquisitions?

I think that one of the properties has about $4 million of debt on it and--which is--it's a nine million--the Florida acquisition's about a $9 million acquisition and there's $4 million on it. And the--Rich, do you have the number on the other?

The other one is roughly I'd say in the 15, $16 million range is what the debt is on the other property.

OK, so it's roughly $20 million of existing debt. So net to you'd be around 15 million. Before any rehab or expansion or anything like that.

Approximately. I think it's a little less than that, but approximately.

OK. You guys did a nice job on the redevelopment schedule. Just combined, on the incremental dollars you're putting in there, what's your expected return on those dollars?

I'd say overall, blended. You know you're probably in the 10 to 11 percent range and they vary, really across the board. The lowest one probably is in the 90 percent range; the highest one is almost embarrassing at 47 percent. But that's real small dollars on the 47 percent one.

OK. Now with regard to Wal-Mart, we have seen a couple of instances where Wal-Mart is starting to take some of these locations, which maybe they're not in service if you will, but they're paying rent, and I think in your case there's a couple that are being considered for Superstore format, but just generally, do you see Wal-Mart being more proactive or more serious about putting its unused boxes back into service in some form or fashion or do you think they're just going along at the same pace that they have been going for the last couple of years?

Because Wal-Mart had such a significant inventory of empty stores that they would very much like to re-let, although almost every one of ours has at least some tenants in it, at least in a portion of the space. We have found from our experience that it falls much more to the shopping center owner to be the aggressive party in trying to find tenants for them. We have a number of situations where we are working with Wal-Mart right now in delivering to them a tenant. In some cases, they will do the improvements and reap the entire benefit of the increased rental. In others, we are both putting in money and then dividing on an equitable basis the upside in the rental stream. And I think we have some very interesting and exciting announcements to make, probably within the next 180 days, on one or two developments where we will completely change the character of the Wal-Mart.

OK, so Wal-Mart's not being any more proactive; as you say it all depends on the actual--the landlord and the action that the landlord is taking.

Well again, I think there are some relatively obvious changes that Wal-Mart can make and tenants approach them and they are obviously proactive in moving with those. But once the initial blush of prospective tenants is over, it really falls more to the landlord to go out there and scrounge up the tenants.

OK, thank you.

Your next question comes from Jay Leupp.

Good morning, guys. Jay Leupp with Dave

. A follow up here. Dennis, earlier in your comments you talked about how low cap rates were going. Can you contrast the acquisition opportunities you're seeing in the Midwest versus what you're seeing in Florida and maybe assign some expected cap rates to potential deals in both locations?

First of all, good morning, Jay.

Morning.

We're not seeing necessarily a significant difference in cap rates in the Midwest as opposed to the Southeast. What we are seeing in the Midwest is a dearth of opportunities. It seems that for every five assets that we get that is for sale in the Southeast portion of the United States, we only see one in the Midwest. And I think that based upon the caliber of the supermarket, the Publix and the Albertson's and the Kroger's in the Southeast, versus more of the, basically Kroger in the Midwest, you'll see approximately the same cap rates.

OK. And then just one other follow up on the Tel-Twelve. Can you give us

any further redevelopment activity at that location and your expected yield on incremental investment?

We are in the process of completing a lease with a 10,000 square foot user for a portion of the Montgomery Ward space. We're negotiating with a second retailer of about 30,000 square feet to occupy the balance of the frontage of Montgomery Ward and we are probably 30 to 45 days away from commencing construction on approximately a 20,000 square foot building immediately adjacent to Media Play and in front of the old Montgomery Ward (TBA). Our--with the leasing efforts in the existing buildings, we're obviously seeing, because the structure exists returns in the mid to high teens and on the new construction, at least 12 to 14 percent.

Thank you.

Your next question comes from Rich Moore.

Hi, good morning, guys.

Hi, Rich.

I got a little confused on the redevelopments, developments that you were doing. You had mentioned last quarter that you were going to announce three new redevelopments, I think, this quarter. Then I saw in the little supplemental that you had four kind of coded in there. I thought maybe you guys had been watching a little too much Don Rumsfield on CNN. And then you mentioned three developments as you were going in the call today. Could you reconcile all that for me? I mean, did I miss the explanation of some of these?

Well, we used general references for a number of the developments or the redevelopments in the supplement, only because, being a very conservative group, until everything is completed, including, in several of these instances, lender signoff on the actual lease and an SMDA from the lender. But basically, when you see redevelopments A, B, C and D, I referenced a number of developments, which included

in Greenville, South Carolina. I referenced

in Knoxville, Tennessee. I referenced the replacement at

in Taylor, Michigan, and there's one I'm forgetting. Anyway, all of these references here, basically I did put a name on them when I was talking.

OK. So, those are one in the same. Thanks, Dennis. That's what I thought. Now, how much of your leasing for 2003 is done at this point, would you say? Do you have lease expirations?

For 2003, it, we're probably somewhere around 60 percent.

OK. OK. Great. And then on the operating expense recovery ratio, that was up pretty substantially. Any thoughts on that?

You know, I think that if you look at what we had given guidance on, probably a 98, 99 percent recovery ratio. I think in your first quarter you have all your true-ups from the previous year. So, the 101 or 100 balance, which stat you're looking at, I think is the result of some true-ups from last year and probably the underaccrual from last year through this year.

OK. So, that comes down then, Rich.

Yeah. I think overall, you know, expect somewhere around 98 percent for the year.

OK. Great. Thanks, guys.

OK.

Rich, just as a follow up again, we announced Troy, Ohio in this press release because, indeed, although, and as you could hear from my comments, we had not only signed the Kohl's lease, but had opened the Kohl's Department Store. There had been a delay in the lender approval for quite some time relative to our Wal-Mart transaction because there was some land being put into and taken out of the security on a

loan.

So, that took quite a while. And until that was done, we really didn't want to make that announcement. The reference to A, B, C and D to a greater/lesser extent basically all involved the same kind of issue. The transactions basically are done, but until we really got the signoff from the lenders, we didn't want to make the announcements, albeit that from my comments, I put names on the developments.

Your next question comes from

.

Yeah. Just a question. In listening to your comments, just wondered, wanted to know what, if any, capital needs you're going to need here in the next year with regards to this developments and redevelopments or is that all taken care of already?

I think the redevelopments are probably taken care of. If we start construction on some development projects, we'll certainly need construction financing on that and, more likely than not, probably follow the same model that we had with

, if you're familiar with that.

OK. And then, secondly, you guys have done a good job of getting the debt down. Are you happy where it is now or do you want to continue to get that a little bit lower?

I think over a period of time we'd like to get our debt to market cap down a little bit further.

OK. Thank you.

You bet.

Once again, if you would like to ask a question at this time, please press star, then the number one on your telephone keypad.

At this time we have no further questions.

All right. Well, I know that this is a busy day for many of you, so, I thank you all for your attention and your interest. And if there are any additional questions that do occur, please feel free to contact Rich Smith, myself or Dawn Hendershot. Thank you again. Have a good day.

This concludes today's teleconference. You may now disconnect.