Rithm Property Trust Inc (RPT) 2006 Q1 法說會逐字稿

Good morning.

My name is [Kizzy] and I will be your conference operator today.

At this time, I would like to welcome everyone to the Ramco-Gershenson's First 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.

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

I am hopeful that everyone received our 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 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 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.

Good morning.

We're pleased that you could join us for our first quarter conference call.

For the three months ending March 31, our funds from operations were $0.62.

Our FFO ratio of 71.7% and FAD ratio of 79.6% indicates a comfortable margin for our recently announced dividend increase.

Although we didn't make an acquisition in the first quarter, our team completed the sale of seven shopping centers.

The sale of these centers are important for several reasons.

First, they represent the bottom 10% of our asset base.

By that, I mean that they were the most vulnerable shopping centers to anchor relocations.

Their limited population base and income levels made the trade areas and our centers more susceptible to economic shifts.

And because of these two factors, there was an increased risk of retailers being hesitant to enter these markets.

If Wal-Mart, who was an undersized anchor in several of these centers, relocated, not merely next door but across town, the entire retail focus in that community changes.

Further, if one of our mid-box tenants close or the supermarket moved or closed, it would be much more problematic to reenergize these centers when the average community size equaled 37,000 people and the average household income was $48,000, several thousands of dollars below the national average.

We have, with these sales, reinforced our focus on metropolitan markets where there is a wide breadth of anchor tenant opportunities.

Where in good times and challenging periods, shopping centers typically fair better there than in smaller markets, and where appraised values and CAP rates are traditionally much higher.

It was our conclusion that in addition to these factors, the CAP rates in tertiary markets having never been lower, now was an appropriate time to liquidate this segment of our portfolio, generating profits and producing capital for our 2006 business plan.

These sales are the first step in a strengthening of our core portfolio while also producing needed capital and reducing debt.

We are well aware of our debt ratios and are moving to execute on our options to bring this metric more in line with our peers.

If you've been following our press releases in the first quarter, you know that we announced the signing of four additional anchor retailers at our River City Marketplace in Jacksonville, Florida.

Michaels, Old Navy, OfficeMax, and Bed, Bath & Beyond have joined PetSmart, Hollywood Theaters, and Ross Dress for Less as tenants in this development.

We also announced the sale of a 17-acre parcel to Lowe's Home Improvement who joins a Wal-Mart superstore as the primary anchors for this shopping center.

In total, our nine major retailers account for over 565,000 square feet.

Additionally, we have leased over 100,000 square feet of ancillary retail space in the project.

Wal-Mart will open in May and the balance of our anchors will open throughout this summer and into the fall.

In the area of asset management, we were pleased to announce that leases were signed with PetSmart in 37,000 square feet and Best Buy in 44,000 square feet to replace Circuit City and Media Play at our Tel-Twelve shopping center.

You will remember that we terminated the leases with Circuit City and Media Play in the second and third quarters of 2005.

Our new anchors at this 550,000 square-foot shopping center improves its tenant mix, draw, and credit quality.

Including Tel-Twelve, as of the end of the first quarter, we were actively engaged in the redevelopment of seven shopping centers.

These activities, while having a short-term negative impact on FFO, demonstrate the continued appeal of our shopping center locations for new retailers entering our trade areas and the success of our existing retailers who wish to expand.

Each improvement produces a positive change to the shopping center's net asset value.

Some investors have suggested that we consider slowing the pace of these redevelopments, which are value-added, as they create a drag on the growth in FFO.

Our history in this industry has taught us that if one does not strike while the iron is hot, tomorrow someone else may have stolen our fire.

On the leasing front, significant improvement has been made.

We renewed the leases of 67 ancillary tenants, achieving an average 9.5% increase over prior rentals.

And we extended five anchor leases achieving a 12% increase.

We also signed 20 new non-anchor retailers at an average rental rate of $17.05, or 14% above our portfolio average.

Further, we signed two new anchor leases at a rate significantly above our anchor portfolio average.

In fairness, however, this statistic must be viewed in light of my prior comments in past calls on anchor averages.

As our anchor statistics include both building and land leases, when we sign building leases only and we report this number in a particular quarter, then it will tend to be higher as when we sign only anchor leases that are land leases, we will fall below that average.

We will soon be separating these two statistics to get a more accurate picture of how we're doing against comparable numbers.

That being said, all of our lease signings paint a very positive picture for our retailers both in the Southeast and the Midwest.

These leasing numbers are complimentary to the growth of our portfolio occupancy rate, which now stands at the end of the quarter at 93.9%.

If we include the square footage of the mid-boxes who signed leases in the fourth quarter of 2005 and the first quarter of 2006, and which are presently under construction and not yet open, our effective occupancy would be 94.8%.

Although our same center comparison for the quarter was up only 1.6%, the leasing stats plus the occupancy increase will positively impact this number as we move through the year.

Ramco-Gershenson is pursing a number of initiatives as part of its 2006 business plan that draws on our expertise in development as well as redevelopment.

You should hear about these undertakings in the next several quarters.

We will also be announcing those actions taken to improve our balance sheet.

We remain positive and optimistic about our prospects.

I would now like to turn this call over to Rich Smith, who will add details to our quarterly numbers.

Thank you, Dennis, and good morning everyone.

For the first quarter, our diluted FFO per share was $0.62, which exceeded First Call estimates by $0.01.

This represented a 3.3% increase from the $0.60 reported in 2005.

On a gross basis, our diluted FFO increased $1.6 million.

We went from $11.9 million in 2005 to $13.5 million in 2006.

Some significant changes quarter-to-quarter included an increase in minimum rents, fees and management income, gain on real estate sales, and contributions from unconsolidated entities.

The additional income was offset by increases in other operating expenses, G&A, interest expense, by a reduction in our recovery margin, and by a decrease in other income due to reduced termination fees.

Our minimum rent increased $633,000, which was made up of an $815,000 contribution from acquisition properties and an $81,000 contribution from core assets.

These contributions were reduced $263,000 due to anchors purchasing their stores at Auburn Mile and Crossroads.

Included in the contributions made by our core assets was a $385,000 temporary reduction in rental income related to taking tenants offline for the addition of Best Buy and PetSmart at our Tel-Twelve Center.

Our fee income for the quarter increased $25,000.

We replaced $915,000 in acquisition fees with additional management, leasing, and development fees.

If market conditions permit us to execute on our development and acquisition goals, we'd expect our fee income to be in the $5.5 to $6.5 million range for the year.

During the quarter, we sold sites at Jacksonville development -- at our Jacksonville development, generating net gains of approximately $1.7 million.

Our other income, or our income from unconsolidated entities increased $453,000.

After adding back depreciation expense, the entities contributed $956,000 to our change in FFO.

Our other operating expenses increased $245,000, primarily due to the addition of our regional office in Florida and additional bad debt expenses taken in 2006.

Our G&A increased $382,000 to $4.1 million for the quarter.

During the quarter, we had approximately $457,000 of one-time employment related charges for new hires.

We expect our G&A for the year to be between $14.5 and $15.1 million.

Our interest expense increased $239,000 over the first quarter 2005; $636,000 of the increase was due to additional borrowings and a lower average interest rate; $114,000 of the increase was related to interest on a capitalized ground lease acquired in December 2005.

The increases were offset by $226,000 increase in capitalized interest on development and redevelopment projects and by a decrease in the amortization of loan origination fees primarily due to the change to an unsecured credit facility and other miscellaneous items.

For the quarter, we recovered 94.2% of our recoverable operating expenses compared to 102.6% in the first quarter last year.

This resulted in an $878,000 negative quarter-to-quarter change in our recovery margin.

The variance was a result of prior years' estimates to actual based on billings completed in the respective first quarter.

These adjustments increased recoveries in 2005 and decreased them in 2006.

In addition, in 2006, we reduced income for the potential affect of prior year tenant audits, which are currently in process.

We expect our recovery ratio in 2006 to be between 96 and 97%.

Our debt at quarter end was $683 million with an average rate of 6.2% and an average term remaining of 4.6 years. 77.6% of our debt was fixed at an average rate of 6.2% and only 22.4% of our debt was floating with an average rate of 6.1%.

Availability at quarter end on our credit facilities was $52.5 million.

Our EBITDA interest coverage at quarter end was 2.1 times, and for the quarter our debt-to-market cap improved to 49.9%, down from the 54.3% reported at year-end.

The decrease was a result of paying down our debt with the proceeds from asset sales and an increase in our stock price since year-end, which went from $26.65 to $30.27 per share.

For the quarter, our capital expenditures totaled $20.4 million. $15 million was spent on development projects, $4.7 million on expansion/renovation projects, $677 million on non-recoverable CAPEX, and $48,000 on non-recoverable CAM.

We expect to fund future growth by retaining cash from operations, by continuing to sell non-core assets and selected assets with limited upside potential, and by refinancing assets, which have been expanded or renovated in prior periods, and by drawing down our credit facilities.

And lastly, due to a difficult acquisition market, we expect our 2006 diluted FFO to be at the low end of our guidance of between $2.53 and $2.58 per share.

Kizzy, can we open the call up for questions?

Yes, sir. [Operator Instructions.]

Your first question comes from Lou Taylor.

Yes, thanks.

Good morning guys.

Dennis, with regards to the land sale during the quarter, is that it for the year or do you expect to have much more beyond that?

There will be some additional land sales, Lou.

In Jacksonville, we are in contract on a number of smaller parcels.

They're in TRSs and so I would say there will probably be maybe anywhere from four to five additional land sales.

But, obviously, smaller than the one to Lowe's.

Do you have a sense at this point what the total gains would be from land sales for the calendar year, just a ballpark figure?

Lou, if everything goes right we could probably be in the $3 to $4 million range.

Okay.

And then next topic is G&A.

You had mentioned that there's $450,000 of costs for some new employees.

Can you give us a sense for where those employees -- what functions are they in?

And if you're not buying much and you're selling some properties, I'd think you'd have some people that might have a little bit of capacity.

So can you give us a sense for where the new hires were?

Basically in development, redevelopment, and operations.

I'd say, Lou, that because we had a filing on this.

What we've done, really, is that we have brought in one or several highly skilled individuals who will occupy senior positions in the organization who will more than offset, by a variety of multiples, the initial sums that we were required to pay.

They basically were one-time items that really compensated these folks for giving up something that they would have received at their prior places of employment.

Okay.

Thank you.

[Operator Instructions].

Your next questions come from Rich Moore.

Good morning, Rich.

Hi.

Good morning, Dennis.

Good morning, Rich.

You were talking about options to lower your debt ratio.

Specifically, what are you thinking about there?

Well, we're thinking about either sales or off balance sheet joint ventures where we would contribute high-value assets that would produce a significant amount of cash to the Company upon contribution.

So it would be one of those two options.

Good.

Do you have, Dennis, a partner identified for any joint venture type activity?

Would this be more of the ING partnership?

On the off balance sheet joint venture, it would be very similar to the ING relationship.

Okay.

But someone different, you're saying?

Could be.

Okay.

And then is an equity issuance of any kind in your thought process?

At this juncture, it is not part of my thought process.

Okay.

Very good.

What are you guys --

So that was the right answer?

Well, whatever you say it is, is the right answer.

I was going to ask you about bankruptcies.

What are you guys seeing on the tenant bankruptcy front or how do you view that for the rest of the year?

We haven't really even begun -- we talked about this before, I think the good times, bad times, your retailers go bankrupt, concepts change.

I don't see anything abnormal this year than what we've had in prior years, again, forgetting the Kmart situation.

I think, Rich, to just amplify Rich Smith's comments.

Number one, we really are not seeing any significant bankruptcies.

The issue might be more telling, how do the accounts receivable look?

We have been very proactive in that area in managing our accounts receivable.

We're working with our retailers and we're trying to ensure that even though bankruptcies don't occur, you don't wind up with a significant receivable that you're going to have to write off.

So, so far both in the Southeast and the Midwest, we've seen our numbers hold up very well.

And again, we're signing not only in the first quarter but in the second quarter and what we're looking for in the third quarter, we're signing leases with both large and small retailers at some very significant increases above portfolio average.

Okay.

Very good, Dennis.

So if you guys had to wager a guess based on where we are in the year as to what the occupancy at the end of year would look like, how would you view that versus the roughly 94% now?

Well, again, I’d say it would be -- personally, I think we'll be between 95 and 96.

It's kind of an easy answer to give you if you heard me at 94.8, if we just open the three to four mid-box retailers who we presently have under construction.

Okay.

Very good, right.

And by the way, I just saw the River City project and it looks like an outstanding project.

Well, thank you very much.

We're very excited about it.

As a matter of fact, in the middle of next week, we're going down there to cut a ribbon for the opening of the road that we've installed and it's called Airport Center Drive.

And that is the main feeder road off of the expressway for the shopping center.

So our timing to open Wal-Mart and the improvements necessary for them to open are now in place.

Okay.

Very good.

I think that covers everything.

Thank you guys.

You bet.

Your next question comes from David Fick.

Hi David.

Hi.

Good morning.

This is actually Nate being here with David.

Just one quick question.

What are you assuming in other income for the year in your guidance?

The other income, the big variable on that, Nate, is termination fees.

Right.

And I hate to speculate them.

They come and they go.

Right now, I think that you're probably somewhere in the million to 2 million range, which is a big swing, I know.

Okay.

So it will go down?

Yes.

Okay.

Thanks.

At this time, there are no further questions.

Well, thank you all for both your time and your attention.

We look forward to giving you some additional press releases during the second quarter and talking to you once more at our second quarter conference call.

Thank you.

This concludes today's conference.

You may now disconnect.