Rithm Property Trust Inc (RPT) 2005 Q2 法說會逐字稿

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  • Operator

  • Good morning, my name is April, and I will be your conference facilitator.

  • At this time I would like to welcome everyone to the Ramco-Gershenson second quarter earnings conference call.

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

  • After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Ms. Hendershot, you may begin your conference.

  • Dawn Hendershot - IR

  • Good morning, and thank you for joining us for Ramco-Gershenson Properties Trust second quarter conference call.

  • I am hopeful that everyone received our press release and supplemental financial package, which are available on our website at www.rgpt.com.

  • 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 1995.

  • 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 in 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.

  • Dennis Gershenson - President, CEO

  • Thank you, Dawn.

  • Good morning, and thank you for joining us.

  • We're obviously pleased to report a strong quarter that includes an FFO number that exceeds First Call estimates, the continuation of a 4%-plus dividend increase and healthy operational statistics.

  • FFO for the quarter was $0.63.

  • This number reflects conservative FFO and FAD payout ratios of 69% and 75.6%, respectively.

  • Another important overall marker of performance is our same-center growth statistics, which shows a 6.5% increase.

  • This number was helped by several termination fees paid during the quarter.

  • If we eliminate the other income category, same-center comparisons show growth of over 2%, which occurred without any significant contribution from our redevelopments.

  • On the operational side of our business, we are experiencing an acceleration of lease signings at rental rates comfortably above portfolio averages.

  • During the quarter, 28 retailers opened stores in over 90,000 square feet at rental rates of over 13% above portfolio averages.

  • We also renewed 19 leases at expiration.

  • The effective average rental rate for the tenant renewals, as shown in the supplement, is skewed as the result of renewing one 8,600 square foot destination user’s lease at $17 per square foot, when they were paying $23 per square foot prior to expiration.

  • The retailer was deemed beneficial to the tenant mix, and as this one space represented approximately 15% of the square footage renewed, it had a substantial impact on the average.

  • Excluding this one tenant, whose rent, by the way, of $17 per square foot for 8,600 square feet is still significant, renewals for the quarter showed a 7.3% increase above prior rates.

  • The one anchor lease renewed for the quarter was a K-Mart lease whose rental rate is less than $3 per square foot.

  • Also on the operational front, please take note of our expense recovery ratio.

  • This number of 97.5% for the quarter continues the Company's history of strong property expense recovery ratios.

  • These strong ratios help insulate our income growth from the effects of operational expense fluctuations.

  • Still in the area of Asset Management, we continue to complete and initiate redevelopments as opportunities arise.

  • The two projects just completed represent the stabilization of both centers, which had originally been anchored by undersized Wal-Mart's.

  • The completion of the re-leasing of the Wal-Mart store at Indian Hills, with the inclusion of a Goody's Department Store, and the expansion of the Wal-Mart in Greenville, South Carolina to a superstore speaks volumes about the ongoing viability of these centers' locations.

  • The newly announced re-tenanting of the vacant Wal-Mart in Crossville, Tennessee by People's Department Store, and the lease with Dollar General Markets in Lenoir City also validates our centers, especially those that are located in smaller markets.

  • These last two retailers, People's in 20,000 square feet, and Dollar General Markets in 29,000 square feet, along with no less than three additional mid-box and anchor retailers, who will be announced in the next 90 days, will convert over 200,000 square feet from the vacant category to leased.

  • These additions, plus the increasing velocity of our smaller tenant signings are expected to move our occupancy figure into the mid 90's by year end.

  • Our acquisition team made one purchase during the second quarter, the Millennium Park in Livonia, Michigan, a suburb of metropolitan Detroit.

  • The shopping center was purchased as part of our joint venture with the Clarion Lion Properties Fund.

  • This 276,000 square foot Center is anchored by Home Depot, Linens ‘n Things, Michael's, Marshalls, and PETsMART.

  • Shadow anchors include Meyer and Costco.

  • A significant plus for the acquisition is an undeveloped inline PAD, which will accommodate a future user of up to 30,000 square feet.

  • The Millennium asset purchase reflects a unique advantage we bring to our off balance sheet investments, that is while the mantra for our joint venture investment criteria is the purchase of stable, well-anchored assets in metropolitan markets, we are able to source shopping centers that fit these requirements, while affording the partnership the ability to achieve above average growth through value-added opportunities.

  • Millennium is just one of no less than three centers purchased for our venture that have the potential for additional upside through center expansion.

  • Some of these improvements are already in the planning stages.

  • Including the Millennium asset, we have acquired 10 shopping centers for our joint venture in less than six months, investing over 70% of the venture's total agreed upon commitment.

  • Our development team continues to make progress on our Jacksonville, Florida project, as they move toward completing both our Gaines Marketplace and Beacon Square centers.

  • At Gaines Marketplace in Grand Rapids we are 98% leased, and at Beacon Square we have only two ancillary store locations left to fill.

  • As I assume you are aware, we have announced the signing of Wallace Theaters and PETsMART for Jacksonville.

  • We are on the cusp of signing three additional national anchor retailers for the project, and we continue to anticipate an opening of the Center in the first half of 2006.

  • As we move through our 2005 business plan, which includes our redevelopments, acquisitions for joint ventures, and completion of our development projects, the capital requirements for these endeavors have raised questions from investors and analysts as to how we will satisfy this need.

  • I can tell you that we are presently finalizing a package of shopping centers for sale that we believe are fully valued and/or that no longer fit the demographic profile we would pursue going forward.

  • The sale of these assets is intended to fund our capital needs for our existing business plan.

  • I would now like to turn this call over to Rich Smith, who will discuss the financial details of the quarter.

  • Richard Smith - CFO

  • Thank you, Dennis, and good morning everyone.

  • For the second quarter, our diluted FFO per share was $0.63, which exceeded First Call estimates by $0.04.

  • This represented a 10.5% increase from the $0.57 reported in 2004.

  • On a gross basis our diluted FFO increased $1,279,000.

  • We went from $11,275,000 in 2004 to $12,554,000 in 2005.

  • The $1,279,000 increase was made up of a $2,263,000 net contribution from property acquisitions, a $1,358,000 increase in earnings from joint venture activities, and an $807,000 increase in income from core assets and operations.

  • These increases were offset by a $1.1 million decrease in FFO related to last year's sale of the Home Depot, a $1,277,000 increase in interest expense, and a $772,000 increase in preferred stock dividends.

  • For the 6 months ended June 30, our diluted FFO per share increased 10.8%, or $0.12.

  • We went from $1.11 in 2004 to $1.23 in 2005.

  • In total, our diluted FFO increased $2,268,000.

  • We went from $22,188,000 in 2004 to $24,456,000 in 2005.

  • The $2,268,000 increase in FF0 was the result of a $4,273,000 positive net contribution from property acquisitions, a $1,954,000 increase in earnings from joint ventures, and a $1,223,000 increase in income from core assets and operations.

  • These increases were offset by a $2,240,000 increase in interest expense, a $1,842,000 increase in preferred stock dividends, and a $1.1 million decrease in FFO related to the sale of the Home Depot last year.

  • For the quarter, our G&A increased $1,265,000.

  • The increase was the result of an additional $300,000 of payroll expense related to normal salary increases, additional headcount related to our development and JV activities, and the inability to capitalize overhead on developments taken off balance sheet.

  • In addition, we had a $295,000 increase in professional fees related to last year's audit and work required by Sarbanes-Oxley.

  • We also had a $294,000 increase in fringe benefits related to health care costs and our long-term incentive program.

  • For the six months ended June 30, our G&A was up $2,309,000.

  • For the same reasons we discussed for the quarter, our payroll increased $656,000, our professional fees increased $630,000, and our fringe benefits increased $520,000.

  • We also had a $158,000 increase related to our new office space.

  • For the year, we expect our G&A to be around $14.5 million, which will include about $775,000 of nonrecurring professional fees, and about $1 million of development costs, which will be expensed since the developments have been taken off balance sheet and we're earning fees for our services.

  • Our operating statistics for the quarter included a slight increase in occupancy, which went from 92.4% in 2004 to 92.7% in 2005.

  • Our expense recovery for the quarter was inline with our expectations at 97.5%, up from the 94.7% reported last year, and our same center NOI increased 6.3%.

  • Our FFO payout ratio improved from 74.2% in 2004, down to 69% in 2005, and our FAD payout ratio improved from 83.8% in 2004 to 75.6% in 2005.

  • For the six months ended June 30, our same center NOI increased 5.7%.

  • Our 99.9% of recovery ratio exceeded our expectations due to positive billing adjustments related to 2004.

  • For 2005, we expect our recovery ratio to be between 97% and 98%.

  • Our FFO payout ratio for the six months improved from 75.5% in 2004 down to 70.9% in 2005 and our FAD payout ratio for the six months improved from 85.5% in 2004 down to 77.8% in 2005.

  • Our debt at quarter end was $678.6 million with an average rate of 6.2%, and an average term remaining of 3.3 years; 83.3% of our debt was fixed at an average rate of 6.4%, and only 16.7% of our debt was floating with an average rate of 5.2%.

  • After the closing of our Jacksonville construction loan, we had approximately $20 million available under our revolving credit facilities.

  • Our EBITDA interest coverage for the six months was 2.3 times in 2005 compared to 2.4 times in 2004, and for the quarter our debt-to-market cap increased from 46.5% at year-end to 50.5% at quarter end.

  • The increase was the result of a decrease in our stock price, which went from $32.25 at year-end down to $29.28 at quarter end, and additional debt associated with equity required to fund our acquisitions.

  • Our capital expenditures for the quarter totaled $22.3 million.

  • We spent $10.6 million on development projects, $6.4 million in joint venture equity contributions to fund acquisitions, $4.5 million on expansion renovation projects, $590,000 on non-recoverable CapEx, and about $255,000 on recoverable KM (ph).

  • For the six months ended June 30, our capital expenditures totaled $64.2 million.

  • We spent $36.6 million in JV equity contributions to fund acquisitions, $17.6 million on development projects, $8.5 million on expansion renovation projects, $1 million on non-recoverable CapEx, and about $452,000 on recoverable KM (ph).

  • We expect to fund our future growth by retaining cash from operations, by selling non-core assets and selected assets with limited upside potential, and by refinancing assets, which have been expanded or renovated in the prior periods.

  • In conclusion, we're comfortable maintaining our 2005 FFO guidance at between $2.39 and $2.44 per diluted share.

  • April, we would like to open up the call for questions at this time.

  • Operator

  • Thank you, sir. (OPERATOR INSTRUCTIONS) Your first question comes from the line of David Ronco with RBC Capital Markets.

  • David Ronco - Analyst

  • Good morning, guys, how are you?

  • Dennis Gershenson - President, CEO

  • Good, David.

  • How are you doing?

  • David Ronco - Analyst

  • Great.

  • Good quarter.

  • I wanted to ask you about the property sales you discussed, Dennis.

  • I wondered if you could give us any color on what sort of dollar volume you anticipate you will sell, potential cap rate range, and then also discuss whether you guys have factored in any temporary dilution from those asset sales.

  • Dennis Gershenson - President, CEO

  • Well, we're looking to sell assets in the $45 million to $50 million range.

  • Our focus, at least at the present time, will be assets in smaller markets.

  • There are a number of things we're looking at in the third and fourth quarter that we reasonably expect that if we're able to sell these, it would not have a significant impact on 2005, and there's always the potential for refinancing of some of the assets, based on the schedule in the supplement, you can see, are coming up either at the end of this year, or in the first quarter of next year that would more than offset any dilution from these sales.

  • David Ronco - Analyst

  • Okay, and then just one more question, and I will yield the floor.

  • You talked about the coverage ratios, they have come in quite a bit, FAD down to 75%.

  • If you guys kind of get to the midpoint of your guidance here you'd be looking at a low 70s FFO payout ratio.

  • Can you talk about your thoughts on potential dividend growth in the future?

  • Dennis Gershenson - President, CEO

  • As we've always said in the past, each quarter we look at the dividend and where we're at and whether or not it would make sense to increase the dividend.

  • As I discussed, and as you are all very well aware, we did increase the dividend this year by over 4%.

  • Will there be an additional dividend increase?

  • That's yet to be seen, but again, you can take comfort in knowing we're always looking at that.

  • David Ronco - Analyst

  • Okay, great, thanks.

  • Dennis Gershenson - President, CEO

  • Thank you, David.

  • Operator

  • (OPERATOR INSTRUCTIONS) Your next question comes from the line of Philip Martin with Stifel Nicolaus.

  • Philip Martin - Analyst

  • Good morning, everybody.

  • Dennis Gershenson - President, CEO

  • Hi Philip.

  • Philip Martin - Analyst

  • A couple of questions regarding the lease termination fees.

  • Obviously, they were high this quarter.

  • Can you talk a little bit about those and what leases specifically they related to, and if those tenants have been replaced, et cetera?

  • Dennis Gershenson - President, CEO

  • We had a relationship, without giving into the exact amount, but we took a look at the Circuit City lease at Tel-Twelve and we have a user for that space.

  • Circuit Street, obviously, had significant competition in the immediate area from Best Buy, and we thought it was in the best interests of the both the tenant and ourselves to terminate that lease and then we're actively working with another retailer, at the present time, to take over the Circuit City space.

  • So we got the benefit of the termination fee and we would expect to be able to announce a new tenant, hopefully, before year-end.

  • Philip Martin - Analyst

  • That lease termination fee, how much rent did that cover?

  • How many months?

  • Dennis Gershenson - President, CEO

  • It covered, I think, approximately two years.

  • Philip Martin - Analyst

  • About two years, so you'll be ahead of the game here obviously with releasing?

  • Dennis Gershenson - President, CEO

  • Absolutely.

  • Philip Martin - Analyst

  • So by the end of the year you expect to have something in that old Circuit City space?

  • Okay, so this should be viewed more as a positive here and --.

  • Dennis Gershenson - President, CEO

  • It should not only be viewed as a positive, but I think it's exciting Circuit City space.

  • Philip Martin - Analyst

  • In terms of the rent that you'd be getting on this space with the new tenant, flat or if it is going to be up, by how much?

  • Dennis Gershenson - President, CEO

  • Well we're talking to two tenants at the present time.

  • Circuit City, although they had very limited frontage had a significant amount of depth.

  • So even though they were paying around, just into the low double digits, the one tenant we're talking to who would be a very good plus for the Center, would only take about two-thirds of this space, but they would be in the mid to high teens in rental rate.

  • The other tenant that we're talking to would take over the entire space would probably be approximately the same rate as Circuit City was paying.

  • Philip Martin - Analyst

  • Okay, got you.

  • Dennis Gershenson - President, CEO

  • And, again, I emphasize that it would be the same, and we probably would not get a significant increase only because we're talking about something in the vicinity of around 35,000 square feet with incredibly limited frontage.

  • Philip Martin - Analyst

  • Okay, got you.

  • In terms of same store occupancy, that declined year-over-year primarily due to the Circuit City?

  • Dennis Gershenson - President, CEO

  • Yes, that's correct.

  • Philip Martin - Analyst

  • Where would you expect, I know Dennis mentioned this, were you speaking of the aggregate portfolio being in the 93% to 95% range, or on a same-store basis, 93% to 95%?

  • I know that's a big chunk of your aggregate portfolio is your same-store --.

  • Dennis Gershenson - President, CEO

  • No, I'm talking about the aggregate.

  • Philip Martin - Analyst

  • How about your same-store portfolio?

  • What is the expectation for occupancy by year end, or over the next 12 months for the same-store?

  • Dennis Gershenson - President, CEO

  • I think we're in the 93% range.

  • Understand, Philip, that the vast majority of the leases that I referenced, the two that I referenced, and then the others that we're working on that we expect to announce, really, primarily come in as core assets.

  • There's at least one of which we've had on our redevelopment schedule for some time with a general reference that, knock on wood here, we're going to be able to announce because we're very close to being able to execute a lease on one of those larger spaces.

  • Richard Smith - CFO

  • A big space (Inaudible).

  • Philip Martin - Analyst

  • Okay, and just more of a housekeeping item, for the third and fourth quarter, straight line and maintenance level CapEx, can you give us some guidance there?

  • Richard Smith - CFO

  • I think that the maintenance level CapEx will probably be at the same rate, maybe a little bit less, if you think most of the work is done in the Midwest, anyway, second, third quarters.

  • So that maintenance CapEx could come -- be -- if you figure the same, you'll probably be pretty close.

  • Yes, it is straight line rent, I can't think of any big pops there, either.

  • Philip Martin - Analyst

  • Okay, just wanted to double check my numbers.

  • And the very last thing, physical occupancy versus the economic occupancy, et cetera?

  • Dennis Gershenson - President, CEO

  • In the main, the economic occupancy compared to physical occupancy is very low.

  • We have a Wal-Mart or two that they continue to pay rent on that we're working on with them on subleasing the space, but they still have control of the space.

  • So what we're doing is working with them to fill the space.

  • Our view, we would take the same position we take in many of these others where we've actually terminated the Wal-Mart lease.

  • That is, once they get about two-thirds full and then we identify one other tenant, we'll allow them to terminate the lease, take a termination fee, and then fill up the Center.

  • But other than that, I really can't thank of another space where we have economic occupancy and not physical occupancy.

  • Philip Martin - Analyst

  • Okay, perfect.

  • I'll hang up after this, but couldn't let you off the hook without giving us a quick update on the IRS inquiry.

  • Dennis Gershenson - President, CEO

  • Relative to the IRS, we have responded to them.

  • Both of our, I wouldn't call them briefs because this isn't a legal proceeding, but both of our responses are in the 25 to 30-page category.

  • Overwhelming evidence, both in the IRS past history, as well as case law backing up our point.

  • Unfortunately, the wheels of progress, here, move relatively slowly, but we have not diminished one iota our confidence that this will be resolved favorably.

  • Philip Martin - Analyst

  • Okay, fair enough, thank you very much.

  • Dennis Gershenson - President, CEO

  • Thank you, Philip.

  • Operator

  • Your next question comes from the line of Lou Taylor with Deutsche Bank.

  • Louis Taylor - Analyst

  • Thanks.

  • Most of my questions have been answered but, Rich, one question for you on G&A.

  • Last quarter you had referenced at about 300,000 or so that occurred in Q1 was non-recurring.

  • It didn't look like that happened and that G&A stayed high for the quarter.

  • What were the contributing factors?

  • Richard Smith - CFO

  • I think, still, the non-recurring stuff, Lou, really were finalizing the audit bill with Deloitte, and some legal and professional fees, really as it pertained to Sarbanes.

  • Louis Taylor - Analyst

  • I guess what was the nature of the items that you couldn't have expected that and provided that in your guidance for the balance of the year?

  • Because you had guided to about a 3 3 run rate.

  • What were the nature of the items that you couldn't have picked it up in your forecast?

  • Richard Smith - CFO

  • I think A., it was that, what we just talked about, and the other was the amount of time and G&A being charged to Jacksonville, Beacon Square, and Gaines, which are off balance sheet.

  • So really -- (multiple speakers).

  • Louis Taylor - Analyst

  • Were these costs you didn't expect, or you didn't know how to account for them?

  • Expense versus capital, as I mean --?

  • Richard Smith - CFO

  • No, we obviously know how to account for them, but I think that the amount of time spent that came in as a little bit of a surprise to us.

  • Louis Taylor - Analyst

  • I'm sorry, the amount of time spent doing what?

  • Richard Smith - CFO

  • On the development projects, on those specific development projects.

  • Louis Taylor - Analyst

  • Okay, so what are your expectations for these costs going forward and for G&A going forward?

  • Richard Smith - CFO

  • Again, I think, what I talked about for the year, somewhere around $14.5 million, but if you're looking at '06, I've got about $775,000 we expect not to reoccur.

  • Louis Taylor - Analyst

  • And then -- (multiple speakers).

  • Richard Smith - CFO

  • And then the capitalization of G&A, I think we had, or the inability to capitalize G&A that's being expensed, we looked at about $1 million.

  • Louis Taylor - Analyst

  • When did you find out you couldn't capitalize these costs?

  • Richard Smith - CFO

  • We knew we couldn't capitalize them and we took them off the balance sheet, Lou.

  • Louis Taylor - Analyst

  • So it sounds like the G&A forecast for the year is up about $1 million as compared to what you thought you were going to run G&A for last quarter.

  • Is it just that the cost you thought were non-recurring are recurring, or, is there -- are there new costs here that you either didn't know about, or couldn't estimate?

  • Richard Smith - CFO

  • I think it's the couldn't estimate.

  • Let's look at the two.

  • The recurring, I think that our audit fees came in a little higher than we anticipated, okay?

  • That's in the $775,000.

  • And the $1 million of cost that we're earning fees on, and developments taken off balance sheet, I think, that, again, that's just a function of time and travel and everything else that you would normally capitalize being expensed, and that is, as good as we think we predicted that, we were off in that.

  • Louis Taylor - Analyst

  • So I guess, what's in the $1 million that you didn't know about three months ago?

  • Richard Smith - CFO

  • Again, a piece of it was there last year, Lou, I mean if it's not the $1 million, it's probably somewhere around $500,000.

  • It's a $1 million for the year is what we anticipate it to be and that's just based on the run rate for the first half of the year.

  • I'm not sure I'm answering your question.

  • Louis Taylor - Analyst

  • Yes, you're not.

  • I guess what I'm trying to find out is what is the extra --?

  • Richard Smith - CFO

  • Let me rephrase the answer, here.

  • I don't think that our G&A, our cash G&A has changed one iota from quarter to quarter to quarter.

  • I think what's changed is the amount of dollars that we previously would have capitalized, but because of the developments were taken off balance sheet, we expensed, and that expense currently is more than offset by additional fees that we earned on development projects from our -- the joint venture.

  • Louis Taylor - Analyst

  • I guess you contemplated taking these developments off balance sheet as long as a year ago.

  • So what is it that changed about the accounting treatment over the last year that caused the G&A to, or caused these costs to be expensed, rather than capitalized?

  • Because you've been talking about this development JV for quite some time.

  • Richard Smith - CFO

  • I don't think that the accounting treatment changed at all.

  • I think it was a function more of the amount of time and travel that was charged to the jobs -- we have got more time and travel charged to the jobs than we had anticipated.

  • Louis Taylor - Analyst

  • All right, so the net cost of doing the jobs is higher?

  • Richard Smith - CFO

  • The net cost of doing the jobs to the venture -- yes.

  • Louis Taylor - Analyst

  • So it's higher than you thought it was three months ago?

  • Richard Smith - CFO

  • Again, I think the run rate has changed a little bit, Lou.

  • Louis Taylor - Analyst

  • Yes, higher than it was three months ago, correct?

  • Richard Smith - CFO

  • I'd say that's correct.

  • Louis Taylor - Analyst

  • So net net you just think these jobs are going to cost more?

  • Richard Smith - CFO

  • I think that at least Jacksonville is going to cost a little more.

  • Louis Taylor - Analyst

  • So what comfort can you give us that your projection for these costs going forward, that you're going to meet that forecast, or going to meet that budget, given that as much as three months ago, the budget has changed?

  • Richard Smith - CFO

  • Pretty much we're at full capacity right now as far as charging to the job.

  • I don't see that changing between now and the end of the year.

  • It certainly isn't additional staff being added -- there's a finite number of people that can work on the job.

  • Right now they're all working on the job at capacity.

  • I can't see that changing and we're not contemplating adding additional people.

  • Louis Taylor - Analyst

  • Okay, thank you.

  • Operator

  • Your next question comes from the line of Rich Moore with KeyBanc Capital Markets.

  • Richard Moore - Analyst

  • Hi, good morning guys.

  • Going back to the IRS issue for a second, Dennis, what happens next and what is the time frame -- the process, I guess -- I realize you don't know when the ends comes, but what is sort of the process here?

  • Dennis Gershenson - President, CEO

  • What happens next is the revenue agent that wrote the original report has an opportunity, probably within a 90-day time frame after you've submitted your response to their initial 60-day letter, to, in essence, rebut our arguments.

  • If you harken back to the case from before, they really didn't do that, they just resubmitted all of the same information they had submitted for the 60-day letter, and then you wind up with an appellate officer.

  • I would expect that would be the exact same process and that sometime, hopefully, September or October, we will be up before the appellate officer.

  • Richard Moore - Analyst

  • Okay, very good.

  • Then looking at fees, for a second, on the joint venture, actually, looking at the joint venture, do you still think that you can fill that up by the end of the year?

  • Does that seem reasonable?

  • Dennis Gershenson - President, CEO

  • If you had asked me six months ago could cap rates go any lower on high-quality acquisitions that really fall into the category of the assets that we're buying with our partner, once it hit, let's say, some of the best at 6%, I said, oh, no way could they go any lower, and guess what?

  • We bid on a number of assets, three to four assets, that we really would have liked, and lo and behold, they went for numbers in the 5’s.

  • So I'm constantly surprised by what the appetite is to get money out and acquire some of these higher-quality assets.

  • But we are working on two to three acquisitions at this moment that we very much would like and that our partner would like to acquire.

  • The question will only be, will there be others who will come in and just bid sums of money that, to be honest with you, we just don't understand why some people are picking off some of these assets at the cap rates they are, but I'd like to think we've got at least one more, if not several more, acquisitions before the end of the year.

  • Richard Moore - Analyst

  • Okay, thanks, and then, the fees for the quarter were higher than I had anticipated in our model.

  • I'm wondering, did anything move from what you had expected in the third quarter to the second quarter in terms of fees for the joint venture?

  • And then, as we look at the third and fourth quarter, net, of course, anything new that you do where you get an acquisition fee, what should we expect for third and fourth quarter numbers?

  • Dennis Gershenson - President, CEO

  • At least as far as movement, relative to fees, as a matter of fact, one of the things that happened is some of the fees moved from the first quarter to the second quarter because we had expected to sign a couple of leases, especially in Jacksonville in the first quarter that just getting the exhibits together and documentation today in doing a major tenant lease has become more complicated.

  • So really, as far as movement is concerned, we've seen some first quarter fees moved into the second quarter.

  • I don't know, Rich, if you want to comment on third and fourth?

  • Richard Smith - CFO

  • Rich, I think that we're on track.

  • The ones that are the toughest to predict are the termination fees.

  • I know we're working on a couple other spaces, whether they happen or not, I really don't know at this point in time.

  • Richard Moore - Analyst

  • Yes, I was thinking more of the management fee income is that --?

  • Richard Smith - CFO

  • I mean, the management fee income, I think, the run rate is going to be pretty close because of the big jump there, obviously, was the result of our ING transaction.

  • Richard Moore - Analyst

  • Okay, pretty close, so this quarter is a good run rate, you're saying?

  • Richard Smith - CFO

  • I would think, unless we make more acquisitions, which we are contemplating.

  • Richard Moore - Analyst

  • Okay, very good.

  • Then on land sale gains, I don't think you guys had any this quarter, do you anticipate any parcel sales of any kind that generate gains?

  • Richard Smith - CFO

  • Again, the logical place is Jacksonville, where we're looking at selling some peripheral property off there, that's in the TRS, so you, potentially, could see some between now and the end of the year.

  • Richard Moore - Analyst

  • And then I want to look at the balance sheet, for just a second, if I could.

  • What happens to those Lincoln loans, that group of four loans on many, many properties that come due in '06, early '06?

  • Richard Smith - CFO

  • We are exploring options on that right now, but again, if we wanted to refinance at all, we would have no problem doing that.

  • I think it's probably about 50% loan-to-value.

  • I think the average rate on the blended rate there is about 8.31%, and I think we could refinance that well inside of that today.

  • Richard Moore - Analyst

  • Okay, and then, Dennis, when I look at -- I just quickly here tossed $50 million of dispositions into the model, given the size of your balance sheet at over a $1 billion of assets, it really doesn't do that much.

  • Is that really, do you think, enough to support what you guys have going here on the external front?

  • Dennis Gershenson - President, CEO

  • Well, I'm not saying that this sale is the end of our view of how we would raise capital.

  • Obviously, with our stock price where it is, we are not all that enamored by raising equity in the public marketplace, so we're at least putting one foot in the water.

  • We know there's a great deal of interest in the type of assets that we own, and I just wanted to give some comfort because typically we get the question as to with our debt-to-market cap creeping up, and our need for capital, how are you going to begin to fund that?

  • I at least wanted to send a signal to you all that we are, indeed, putting our first foot in the water, as far as sales are concerned.

  • Richard Moore - Analyst

  • So we could see more sales?

  • Is that what you're thinking?

  • Dennis Gershenson - President, CEO

  • Hopefully, you'll see a lot of things, but other sales are, indeed, a possibility.

  • Richard Moore - Analyst

  • Okay, very good, thank you guys.

  • Operator

  • Your next question comes from the line of Philip Martin with Stifel Nicolaus.

  • Philip Martin - Analyst

  • Yes.

  • Just another question or two here real quick.

  • Regarding your redevelopments and developments, what are the -- can you just update us as to what the returns and expected returns, cash on cash, will be?

  • Richard Smith - CFO

  • Your redevelopments, Philip, I would say they will probably average around 10% or 11%.

  • I think your developments will be in probably in the 11% to 12% range.

  • Philip Martin - Analyst

  • Okay, and I know you had mentioned -- I know Dennis mentioned earlier the 7.3% increase in rent in the quarter that excluded the one outlier there, I didn't hear all of that, is that a 7.3% increase over portfolio rents, or is that --?

  • Dennis Gershenson - President, CEO

  • Typically on the renewals what we give is a statistic of new rents compared to old rents.

  • Philip Martin - Analyst

  • Yes, okay, so that's 7.3% over the old rents, then?

  • Dennis Gershenson - President, CEO

  • Correct.

  • Philip Martin - Analyst

  • In the quarter, the cash increase in rents was what?

  • I just don't have the supplemental in front of me from where I'm at right now.

  • Richard Smith - CFO

  • I think we're talking about the cash, are you talking about same space?

  • Philip Martin - Analyst

  • Yes.

  • Richard Smith - CFO

  • Yes, it's the 7%, if you exclude that one for the renewals.

  • Again, that's the last paying rent compared to the new paying rent.

  • That's cash to cash.

  • Philip Martin - Analyst

  • Okay and that excluding the one large?

  • Richard Smith - CFO

  • That's correct.

  • Philip Martin - Analyst

  • 8,600 square feet, or 8,800.

  • Okay, thank you.

  • Richard Smith - CFO

  • You bet.

  • Operator

  • At this time, there are no further questions.

  • Dennis Gershenson - President, CEO

  • Well, once again, we thank you all for joining us.

  • We remain bullish about our prospects for the balance of the year, and look forward to talking to you in about another 90 days.

  • Thank you again.

  • Operator

  • This concludes today's conference call.

  • You may now disconnect.