Rithm Property Trust Inc (RPT) 2005 Q4 法說會逐字稿

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  • Operator

  • At this time, I would like to welcome everyone to the Ramco-Gershenson fourth-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 session. (Operator Instructions).

  • Thank you.

  • Ms. Hendershot, you may begin your conference.

  • Dawn Hendershot - IR

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

  • I am hopeful that everyone received their press release and supplemental financial package, which are available on our website at 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 within the meaning of the Private Securities Litigation Reform Act of 1995.

  • Also 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 the 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 all for joining us.

  • Our fourth quarter was an extremely busy time for Ramco-Gershenson, as evidenced by our press releases both during the quarter and since the first of the year.

  • We are obviously pleased to have met our stated financial objectives for the year.

  • More importantly, however, the developments we had underway, our joint venture acquisitions, as well as the value-added expansions commenced and completed in 2005 will all account for an ever-increasing stable source of funds from operations well into the future.

  • In 2005, Ramco-Gershenson had under construction five shopping centers.

  • The latest, Rossford Pointe and The Shoppes of Fairlane Meadows, were commenced in the fourth quarter.

  • Thus, during the year we had under development over 1,600,000 square feet of new retail space.

  • In the fourth quarter, we acquired our partners' interest in Gaines Marketplace in Grand Rapids, Michigan.

  • This 400,000 square foot shopping center is anchored by Target, Meyer, and Staples.

  • Also, significant progress was achieved in the leasing of our River City Marketplace in Jacksonville, Florida.

  • Although we didn't announce any tenant signings during the quarter, we have in the first 20 days of this year announced three new anchors, including Michael's, Old Navy, and OfficeMax.

  • Along with these three, we will be announcing before the end of February two additional national retail anchors in over 200,000 square feet who will also joint PetSmart, Ross Dress for Less, an 18-screen Hollywood Cinema and a Wal-Mart superstore, accounting for almost 600,000 square feet of national anchor tenancies that are committed to our project.

  • At our Beacon Square center in Muskegon, Michigan, we are completing our small tenant leasing and expect to commence negotiations to take this project on balance sheet in the first or second quarter.

  • At Rossford Pointe in Toledo, Ohio we have opened the PetSmart superstore.

  • As we look to the future, based upon the number of development opportunities we are presently investigating, we reasonably expect to commence a number of new projects in 2006.

  • As aggressive as our value-added redevelopment program has been in the first three quarters of 2005, we still commenced three additional value-added projects in the fourth quarter, bringing to 10 the number of shopping center expansions underway last year.

  • In the fourth quarter, we announced the addition of a 20,000-square-foot PetSmart to our 460,000-square-foot Spring Meadows Shopping Center in Toledo, Ohio.

  • We also signed and commenced construction on a 30,500-square-foot TJ Maxx at our 650,000-square-foot Jackson Crossing in Jackson, Michigan.

  • The TJ Maxx addition is the sixth expansion to this center.

  • Previously, in 2004, we added Bed, Bath & Beyond to Jackson Crossing's lineup, which had previously included Target, a Sears department store, Kohls, a 10-screen cinema, Toys 'R' Us, and Best Buy.

  • The third redevelopment commenced in the fourth quarter, with the construction of a Home Depot at our Taylor Plaza in Taylor, Michigan, a metropolitan Detroit suburb.

  • Home Depot replaces a vacant Kmart which was acquired when we saw the opportunity to turn a potential liability into an asset.

  • You will also remember that last year in the second and third quarters, I announced that we had terminated the leases for two retailers, Circuit City and Media Play, at our Tel-Twelve shopping center in metropolitan Detroit.

  • Next week, we will announce replacements for both locations with major, national credit tenants who will open in the second and third quarters of 2006.

  • The fact that a significant number of our center expansions are the second, third, fourth or more additions to an individual asset reaffirms their strategic location in their trade areas.

  • These value-added changes to our shopping centers also allow us to constantly update our tenant mix, refresh the look and appeal of our properties, and as important, remind the investment community that we are asset managers and not merely property managers who are content to operate a center which is 100 percent leased.

  • Speaking of leasing, in 2005 we signed 113 new leases and renewed 151 tenancies.

  • The supplement that was published yesterday contains leasing statistics that must be viewed in light of the footnotes.

  • The fourth-quarter anchor tenant numbers includes an office use that, because of its size, qualifies as an anchor, but is really a nonretail user.

  • Their renewal rental rate represents an understanding with the office tenant that they are renewing for a short period of time so that they can find a new home, as we will be undertaking a major redevelopment of the shopping center.

  • Without the office space, our retail anchor renewals would have shown a 7% increase in the fourth quarter and a 4.6% increase for all renewals.

  • This would translate into a full-year 2005 retail anchor renewal increase of 3.7% and a total renewal rate increase of 4.2%.

  • Another number that conveys a misimpression is the 2005 lease-up of new anchor space.

  • As I reported in the third quarter, the gross leasable area used to compute the base rental rate averages includes the building size for Home Depot in the Taylor shopping center, while the rent that the lease is based on is really only for the land value.

  • Thus, we are lumping building rents for the majority of our anchors with land lease rentals in one category, skewing the numbers, and thus showing a drop in the average, when the real number on a comparable basis would have shown a handsome increase.

  • Starting in 2006, we will break these numbers out between land leases and building rents to more accurately reflect the true rental changes for our new anchor leases compared to existing averages.

  • On the acquisition front, in the fourth quarter, we acquired two shopping centers for our joint venture with the ING Clarion Lion Fund totaling 398,500 square feet.

  • Both centers are located in densely populated trade areas.

  • These acquisitions put us at 84% of our total venture commitment of $450 million.

  • The purchase of 12 shopping centers for the venture was accomplished in less than one year.

  • In the quarter, we also acquired a shopping center in Kissimmee, Florida.

  • This center, anchored by a Target superstore, is strategically located on Highway 192, and was purchased with sufficient unleased space to make the acquisition a desirable addition to our portfolio.

  • For those of you who have followed our joint venture acquisitions, these last two purchases bring to five the number of Michigan-based power centers we've included in our relationship with the Lion Fund.

  • Further, our core portfolio includes 28 shopping centers that are located in Michigan.

  • With the recent news from General Motors and Ford, some of you may be wondering if we're losing sleep over our Michigan assets, and have asked if you should be concerned.

  • There are industries that are certainly feeling the effects of the problems associated with the auto manufacturers.

  • Real estate in Michigan, and particularly retail real estate, has historically not been negatively impacted by the instability of our heavy industry.

  • We have spent a considerable amount of time reviewing our Michigan shopping centers -- their locations, their anchors, and their long-term viability.

  • We remain very comfortable with our Michigan asset base.

  • Our confidence is based on several reasons.

  • First, the largest portion of our Michigan shopping centers and all of the joint venture assets are located in Oakland and Macomb Counties.

  • Both counties have unemployment rates of 5%, which approximates the national average.

  • Oakland County, where 11 of our centers are located, is one of the wealthiest counties in the nation, with an average household income of over $130,000 and a population base of 1.2 million people.

  • Further, Oakland County has experienced a population growth of 1.6%.

  • Macomb County is the fastest-growing county in the state, with a growth rate of 4.4% and a total population of 790,000 people.

  • Average household incomes is $68,300.

  • Statistics, however, explain only part of the story concerning the health of these counties, and thus, the security of our shopping center locations specifically.

  • What is most important is how the major national retailers view these trade areas.

  • Four of our five 2005 Michigan value-added anchor expansion redevelopments occurred in these counties.

  • Each of these anchor retailers committed to new stores or expanded their existing operations based upon an intimate knowledge of the sales potential in Oakland and Macomb counties.

  • Further, Nordstrom's has just announced that they will be adding two more stores in metropolitan Detroit, one in Novi, directly across the street from our West Oaks Shopping Centers in Oakland County, and the other in Macomb County near a number of our existing centers and close to our most recent joint venture acquisition.

  • Parisian has also announced that they will be joining Nordstrom's at the Macomb County site.

  • Both Nordstrom's and Parisian build a limited number of new stores each year based upon extensive research into the viability of those potential locations.

  • Thus, our confidence in our Michigan assets is reinforced by the expansions and new entries into our marketplace by national retailers who base their location decisions on their ability to operate profitably.

  • Our most recent activities also include the sale of seven shopping centers in the Southeast, all located in small markets.

  • Although I will not dwell on these dispositions now, as we will discuss them in greater detail at the end of the first quarter, their sale will have a positive impact on center occupancy, average rental rates, and the demographic profile of our assets.

  • As I've told you before, our philosophy is to exit tertiary markets, as they generally prove more problematic to release if an anchor chooses to vacate the center.

  • With the completion of our two Michigan development, the progress we've made in leasing Jacksonville, the value-added redevelopments undertaken and completed in 2005, the progress we are making on moving in on a 95 to 96% occupancy rate, as well as the disposition of our lower-tier centers, we are rapidly approaching a total portfolio of well-leased, well-located, profitable shopping centers.

  • We're still open to buy additional assets in our joint venture.

  • We have a substantial number of a value-added repositionings in the pipeline.

  • And as mentioned, we are planning a number of new developments.

  • Our future is bright.

  • Our portfolio is stable, yet ripe for additional, value-added opportunities.

  • And we expect to achieve substantial external growth.

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

  • Rich Smith - CFO

  • Thank you, Dennis, and good morning, everyone.

  • For the quarter, our diluted FFO decreased $426,000.

  • We went from $12.2 million in 2004 to $11.8 million in 2005.

  • The majority of the $426,000 was made up of a $1.3 million decrease in gain on property sales, a $420,000 decrease in minimum rents which resulted from anchors at Auburn Mile and Crossroads exercising their purchase options, and lost revenues due to lease buyouts by Circuit City and Media Play at Tel-Twelve.

  • Also affecting in our FFO was a $991,000 increase in other operating expenses due to write-offs related to bankrupt tenants and new expenses incurred in connection with our Florida office.

  • These decreases were offset by an increase in fee income, earnings from unconsolidated joint ventures, and income related to assets held for sale at December 31st.

  • On a per-share basis, our diluted FFO was $0.60, which was a 1.6% decrease from the $0.61 reported in 2004.

  • For the twelve months ended December 31st, our diluted FFO per-share increased 16.9% or $0.35.

  • We went from $2.07 in 2004 to $2.42 in 2005.

  • Excluding the impairment charge taken in 2004, our diluted FFO per share increased 4.8%.

  • In total, our diluted FFO increased $6.5 million.

  • We went from $41.4 million in 2004 to $47.9 million in 2005.

  • The $6.5 million increase in FFO was a result of a $5.6 billion positive net contribution from property acquisitions, a $4.8 million increase related to last year's impairment charge, a $4.3 million increase in earnings from joint ventures, and a $600,000 increase in income from core assets and operations.

  • These increases are offset by a $4 million increase in interest expense, a $3 million decrease in FFO related to last year's gain on sale of properties, and a $1.8 million increase in preferred stock and dividends.

  • As Dennis indicated in 2004 that a goal of ours was to make fee income an integral part of our future business plan, in 2005, we increased our fee income by about $3 million.

  • These fees came from development, acquisition, and asset management services provided to joint ventures we have an interest in.

  • In 2006, if market conditions allow us to continue to execute on our development and acquisition goals, we'd expect to generate fees in the 4 to $5 million range.

  • For 2005 most of the increase in our other income related to lease termination fees.

  • These fees set the stage for redevelopments at Tel-Twelve and Highland Square.

  • In the future, we'd expect our lease termination fees to return to a more normalized amount of between 500,000 to $1 million annually.

  • And for the year ended December 31, 2005, our earnings from unconsolidated entities increased about $2.2 million.

  • The majority of the increase came from our JV with ING Clarion.

  • In prior conference calls, I indicated our 2005 G&A would be about $14.5 million.

  • After discussions with other REIT CFOs, I agreed with their treatment of regional office and property level G&A, and accordingly, we reclassified approximately $1 million from G&A to other operating expenses.

  • After the reclassification, our G&A was about $13.5 million, up approximately $2.4 million over 2004.

  • The reasons for the increases were primarily due to increases in salaries and fringe benefits, legal and accounting costs, and the write-off of proposed development sites.

  • For the year, our same-center NOI increased 2.3%, and our property expense recovery ratio was in line with our expectations at about 97.9%.

  • And taking into account last year's impairment charge, our FFO payout ratio remained relatively constant at about 72% and our FAD payout ratio improved from about 85% in 2004 to 81% in 2005.

  • Our total debt at year end was approximately $724.8 million, with an average rate of 6% and an average term remaining of 4.7 years. 65% of our debt was fixed at an average rate of 6.1%, and 34.9% of our debt was variable at an average rate of 5.8%.

  • At year end, we had approximately $12.4 million available on our revolving credit facility.

  • And after the asset sales in the first quarter, our availability increased to about $40 million.

  • At year end, our EBIT interest coverage was 2.2 times, and our debt to market cap was about 54.3%.

  • In December, we replaced our $200 million revolving credit facilities with a new $250 million unsecured facility.

  • The new unsecured facility consists of a $100 million term loan which matures in December 2010.

  • It also includes a $150 million unsecured revolving credit facility which matures in 2008 unless we exercise our option to extend the loan until December 2010.

  • The unsecured revolving credit facility contains an accordion feature which would allow us to increase the facility an additional $100 million.

  • The advantages of the new facility include increased availability, lower interest rate spreads compared to our prior facilities, and operating efficiencies which should help save our [G&A-ers].

  • Our capital expenditures for the quarter totaled $48.4 million. 23.2 million was spent on acquisitions, $8.4 million on development projects, 7.4 million on expansion and renovation projects, 7.3 million on JV equity contributions, 1.4 on recoverable CAM, and $700,000 on nonrecoverable CapEx.

  • For the twelve months ended December 31, 2005, our capital expenditures totaled $127.9 million.

  • We spent $32.8 million on development projects, 23.2 million on acquisitions, 43.9 million on JV equity contributions, 22.8 million on expansion renovation projects, 3.2 million on nonrecoverable CapEx, and $2 million on recoverable CAM.

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

  • Lastly, we are maintaining our guidance for 2006 to be between $2.53 and $2.58 per diluted share.

  • Carrie, can you open the call for questions right now please?

  • Operator

  • (Operator Instructions) Christeen Kim, Deutsche Bank.

  • Christeen Kim - Analyst

  • I wanted to see if you could just go over again what you had moved from G&A into the other expense lines.

  • Rich Smith - CFO

  • Basically, the two biggest items were the regional operating office that we established in Florida.

  • And the other piece was property level G&A, which in prior we put in corporate G&A, we consolidated there.

  • So those two we moved up to operating expense, with the theory being that if you eliminated those properties, you wouldn't have those costs.

  • Christeen Kim - Analyst

  • Okay.

  • And you're saying that in aggregate, those expenses were about $1 million.

  • So if you hadn't moved those, then G&A total would have about 4?

  • Rich Smith - CFO

  • Would have been about 14.5 million, right.

  • Christeen Kim - Analyst

  • Okay.

  • And lastly, you had indicated that you're expecting G&A to go up about 10 to 12% in '06.

  • Is that still a good growth rate for G&A that we should be thinking about?

  • Rich Smith - CFO

  • I think that is probably about right.

  • Christeen Kim - Analyst

  • And that's including some of the random, nonrecurring items that were kind of pieced in throughout '05, right?

  • Rich Smith - CFO

  • That's correct.

  • Christeen Kim - Analyst

  • Okay.

  • And my next question is -- are you expecting any sort of occupancy ramp in your '06 guidance?

  • Rich Smith - CFO

  • In the '06 guidance, I think we'll get a little bit.

  • I think we expect to be about 95% -- maybe 96 by the end of the year, but about 95 for the year.

  • Dennis Gershenson - President, CEO

  • What's happening is that our statistics do not include tenants, even though we have signed the leases, who are not occupancy yet.

  • Between the tenants that we'll be announcing for Tel-Twelve in our press release, we announced the H.H.

  • Gregg, who is taking 35,000 square feet in our Northwest Crossing, as well as several other mid-boxes, we expect to move rapidly toward a 95% occupancy rate.

  • Christeen Kim - Analyst

  • Okay.

  • And could you provide any more detail on the dispositions that you had mentioned that have already been completed this year in terms of some sort of arrangements in terms of dollar figure or cap rates?

  • Dennis Gershenson - President, CEO

  • Typically, we don't really give any projection as to the total amount that we'll sell.

  • But we have several centers that when we talked about the potential sales last year, we had talked about somewhere between 7 and 9 centers.

  • So there are still several out there that we potentially could sell.

  • But if you look at our roster and look at some assets in the tertiary markets, those would probably be the ones that we would focus on.

  • Christeen Kim - Analyst

  • And can you give us any sort of range in terms of what kind of cap rates you are getting on these assets?

  • Dennis Gershenson - President, CEO

  • You're talking somewhere between -- for the smaller market assets, somewhere between 8.5 and 9.5.

  • Operator

  • Rich Moore, KeyBanc Capital Markets.

  • Rich Moore - Analyst

  • Where should I start here?

  • Okay, so you moved this, Rich, into other property operating expenses.

  • Do those go up?

  • I mean, does that stay sort of flat then, that line item -- those don't change much?

  • Is that right -- I mean, going forward?

  • Rich Smith - CFO

  • It really depends on -- yes, I think they could go up if we bring things on balance sheet and they've got operating costs there, they could go up.

  • Rich Moore - Analyst

  • Okay.

  • So going forward, we could possibly raise those as well?

  • Rich Smith - CFO

  • Yes, I wouldn't.

  • What I'd look at it is more on a same-center basis -- kind of expect modest increases in those.

  • Rich Moore - Analyst

  • Okay.

  • And then you know, Rich, when we do our operating expense recovery ratio calculation, we include those in there, which drops you guys to an 81% recovery, but basically you're saying none of that stuff is really recoverable, right?

  • Rich Smith - CFO

  • What you have in there is, if you just think of it -- I mean, you've got legal fees in connection with properties is probably a big component there.

  • Now if you have ground lease payments, they may be in there.

  • But that's the type of thing you had in there, and it's just generally not recoverable from tenants.

  • Rich Moore - Analyst

  • Okay, so maybe that's not a fair of us to really put that in there.

  • Okay, I got you.

  • Rich Smith - CFO

  • I think what you should include in ours is the recoverable costs being taxes and the CAM as what we bill back. [In that] --

  • Rich Moore - Analyst

  • Okay, very good. (multiple speakers).

  • And then I noticed (multiple speakers) in our supplemental that you have this receivable from Media Play, which -- is that a straight-line rent receivable that you won't be getting?

  • Is that what that is?

  • Rich Smith - CFO

  • You know what it was, is we got a termination fee from them.

  • And I think we collected about 300,000.

  • The rest was going to be paid over, I think, the next year.

  • And it surprised us -- they paid us the $300,000, and then turned around and filed bankruptcy, because they could have just rejected the lease.

  • But we took a charge for that is what it was.

  • We expected to collect it when we entered into the deal.

  • And subsequent to that, they filed -- which we didn't think they were going to do, and we took a charge for it.

  • Rich Moore - Analyst

  • Okay.

  • So (multiple speakers) of term fee from them?

  • Are you saying you're not going to get that?

  • Rich Smith - CFO

  • We're not going to get that, I don't think.

  • I mean, we took a charge when they filed bankruptcy.

  • I assume we'll collect something on it, but right now we're certainly not going to collect anything on it. (multiple speakers)

  • Rich Moore - Analyst

  • (multiple speakers).

  • That was in operating expenses, is that right?

  • Where did you put that?

  • Rich Smith - CFO

  • Yes, it's in operating expenses, because it was a bad debt.

  • Rich Moore - Analyst

  • Okay, good.

  • I just wanted to make sure because that hurts your margin and that kind of thing, so we were looking at that -- okay.

  • The income from joint ventures was up, but the D&A from joint ventures down.

  • I mean what's going on there exactly?

  • And how should we read that going forward?

  • The (multiple speakers) net was kind of close to the same as last quarter but.

  • Rich Smith - CFO

  • I'm sorry, what was down?

  • Rich Moore - Analyst

  • Well, the joint venture income was up, but then the addback to real estate depreciation from the joint ventures, which you get to add back for FFO -- that was down pretty substantially.

  • And we're just trying to figure out what happens going forward, because we didn't expect those line items to move that much.

  • Rich Smith - CFO

  • Let me get that detailed for you, because that doesn't sound right to me either.

  • Rich Moore - Analyst

  • That's fine, no problem with that.

  • And then I want to ask you guys -- on the variable-rate debt situation, my understanding was that would disappear here in the near-term.

  • I mean, reminds me again how you're looking at that, because obviously, it spiked up over the last couple of quarters with your refinancing.

  • Rich Smith - CFO

  • It did, and again, we had some bridge loans out that floated.

  • We just set our line, and I think over a period of time, we're going to set some hedges.

  • I think we've set about -- what was it, about $40 million?

  • Yes, about $40 million of hedges so far.

  • I think we'll probably do about 100 total [yield] on that, and then get that variable-rate exposure down.

  • Rich Moore - Analyst

  • Okay.

  • And then how soon does that happen, do you think?

  • Rich Smith - CFO

  • I think we're watching the rates everyday, and trying to get a downtick and do some more.

  • Rich Moore - Analyst

  • So this quarter, next quarter kind of thing?

  • Rich Smith - CFO

  • I'd say, yes.

  • Rich Moore - Analyst

  • Okay, okay.

  • And then did you guys say what you paid for the Kissimmee Center?

  • I don't think you usually give a cap rate, but that would be great if you would.

  • But did you say what the price of that was?

  • Rich Smith - CFO

  • I don't think we did, but I think you're going to see it in our filings.

  • I talked about on-balance-sheet acquisitions in the speech.

  • So roughly 22, $23 million is what we spent for that.

  • Rich Moore - Analyst

  • Okay, very good.

  • And when I look at the capital structure, it strikes me that you guys -- you seem to be getting more boxed in a bit.

  • When I look at the balance sheet metrics, they have weakened a bit.

  • And I'm wondering how you're looking at that.

  • I don't think $47 million of asset sales really helps that that much.

  • Are you guys going to be at a point here where you need to do some equity, you think?

  • Rich Smith - CFO

  • Everybody sooner or later needs to do equity.

  • But I think right now, as we talked about, I think we have some more assets that we'll be selling, and maybe some more after that as well.

  • I think it probably is a better way to raise capital for us to redeploy our business plan or reinvest in our business plan than it is to raise equity at this very moment, given where our stock price is at.

  • Rich Moore - Analyst

  • I mean, I certainly agree with that, Rich.

  • But I'm just wondering, can you -- I mean is the volume of dispositions in your mind -- I realize you don't comment on exactly what it's going to be, but is that volume heavy enough to offset the softness in the balance sheet, do you think, really?

  • Rich Smith - CFO

  • You know, I think it -- I mean does it drive our debt to market cap down to 40 percent?

  • Probably not.

  • But does it help us execute our plan?

  • Yes.

  • So I think we've got the ability with some of the assets we're looking at to market to raise some serious capital, I do.

  • Dennis Gershenson - President, CEO

  • Rich, let me add something to that.

  • We are all aware of how frothy the acquisition market is and the prices that people are paying for quality assets.

  • We have a number of quality assets that may or may not fit into our long-term strategic plan as far as their location vis-a-vis Midwest and Southeast.

  • So we have a significant amount of capital that is available to us in a very limited number of centers at any point in time that we want to make those disposition.

  • We are obviously looking at our capital structure.

  • I will repeat what Rich said.

  • It makes no sense in our minds to raise money in the public marketplace at our existing cap rates.

  • So we've usually been as circumspect as possible concerning potential sales, but you can rest assured that we're not going to box ourselves as far as access to capital is concerned.

  • And so you and everybody else should expect some moves in 2006 relative to making sure that we've got plenty of dry powder.

  • Rich Moore - Analyst

  • Okay, thank you, Dennis.

  • And by the way, I was not ignoring you. (multiple speakers) I have a couple of questions for you as well.

  • On the joint venture, would you upsize that, do you think, from the 450 million?

  • I mean you're getting close; you're doing a great job filling that up.

  • Does that go higher?

  • Dennis Gershenson - President, CEO

  • We certainly have talked about the possibility of increasing the size.

  • We've been looking at a couple of acquisitions that just based on their portfolio size would put us above that sum.

  • And we continue to talk to our partners.

  • So I don't think upsizing it would be any problem at all.

  • Rich Moore - Analyst

  • So you think they would be amenable to going bigger at ING?

  • Dennis Gershenson - President, CEO

  • Yes.

  • I believe that.

  • We have talked about it.

  • But at this juncture, they have not formally acted on that.

  • Rich Moore - Analyst

  • Terrific, thank you.

  • And then on the IRS issue, I know it's more of a nuisance than anything, but could you give us an update, first of all?

  • And secondly, you guys -- the last time you had this sort of IRS issue, you published every time kind of the where you thought you were in terms of total potential amount of dollars you might be out.

  • I remember that was in the K and I think in the Qs once in awhile.

  • And I am wondering if you have that kind of thought process going on here, and if could give us a hint as to what you're thinking your maximum out-of-pocket expense could be.

  • Dennis Gershenson - President, CEO

  • Well, the answer is twofold.

  • Number one, it is in the K. It's around $22 million, albeit that that sum really represents, at least in part, losing on an issue that we have already won on in the '91 to '95 case.

  • But there is a meeting in the month of March with the IRS on the appellate level where, knock on wood, we reasonably expect to make some progress in bifurcating the case so that hopefully, we just leave out there the issue of valuation on the Highland Shopping Center, and that the REIT status issue goes away.

  • Rich Moore - Analyst

  • Okay.

  • And so of the 22 million, that would be the majority of it going away, is that right?

  • Dennis Gershenson - President, CEO

  • Yes.

  • Rich Moore - Analyst

  • Okay.

  • And when you have the March meeting, would it be unrealistic of all of us out here to expect that that means the end is possibly near, or do we still have another six months to kind of get it all done sort of thing?

  • Dennis Gershenson - President, CEO

  • Well, first, the question is should our expectation be at the March meeting -- the IRS is going to be very forthcoming, and just say, oh, you're 100% right, and let's just write this thing up, which it's my understanding takes several months to write up anyway.

  • But we certainly will be talking to the lawyers so that we can let you know as much information as possible as quickly as possible as to the progress of the case.

  • Rich Moore - Analyst

  • Okay, fair enough.

  • Thank you.

  • And then the very last thing I had is -- Rich, we've talked about this a couple of times.

  • We keep looking at this Preferred C which, again, when we did the calculation last night, appears to be dilutive.

  • And yet, it's not included in the shares.

  • And you may not have an answer off the top of your head, but I'm wondering if someone could get back to us and let us know why that C is not in included in the diluted calculation.

  • Rich Smith - CFO

  • Again, Rich, [I think I'll send] you our calculation, but we're not showing it dilutive at all that this point.

  • Operator

  • (Operator Instructions).

  • At this time, there are no questions.

  • Dennis Gershenson - President, CEO

  • All right.

  • Well, then, we would like to thank everybody for participating, and look forward to talking with you again at the end of the first quarter.

  • Operator

  • This concludes today's Ramco-Gershenson fourth-quarter earnings conference call.

  • You may now disconnect.