Rithm Property Trust Inc (RPT) 2006 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2006 Ramco Gershenson Properties Trust earnings conference call.

My name is Lisa, and I will be your coordinator for today. [OPERATOR INSTRUCTIONS] I would now like to turn the presentation over to Ms. Dawn Hendershot.

Please proceed, ma'am.

Good morning and thank you for joining us for Ramco Gershenson Properties Trust third 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 statement are based on reasonable assumptions, it can give no assurance that its expectations will be obtained.

Factors or 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 and welcome to our third quarter call.

In addition to meeting First Call estimates of $0.63 per share, we are pleased to report successes in each of our three private centers.

In the area of acquisitions, we purchased Collins Pointe Plaza in Cartersville, Georgia, a suburb of Atlanta.

This center of 81,000 square feet will join our second quarter acquisition, Paulding Pavilion, as the first two of three centers that will form the basis of our soon-to-be-signed $75 million joint venture with the Heitman discretionary fund focused on the realization of above-average returns from opportunistic acquisitions.

Although each asset is relatively small in size compared to our average center size, we are presently exploring the expansion of both centers as part of their repositioning plan.

In addition to our share of cash flow from the shopping centers we will receive from the venture an acquisition fee, an asset management fee, and a property management fee, as well as leasing, tenant coordination, and redevelopment fees.

We are presently negotiating an option for a third acquisition, which, along with Collins Pointe and Paulding Pavilion, plus the capital required to reposition these centers, will equal the total $75 million commitment.

This joint venture is distinctly different from our existing relationships with the Clarion Lion fund as the Heitman relationship is focused on distressed assets that are well-located and present opportunities to add substantial value.

This exciting opportunity is not the joint venture I mentioned last quarter where we plan to seed the relationship with several of our core and core-plus shopping centers.

We reasonably expect to announce that venture in the fourth quarter.

Although it will have many of the characteristics of our existing joint venture with ING, it will cover a distinctly different geographic area.

Our development group is hard at work putting the finishing touches on our River City Marketplace in Jacksonville, Florida, in preparation for the grand opening of phase one of the center.

For those of you who have followed our progress on this development project, we have worked hard to produce a shopping center that the city can be proud of.

Occupying 125 acres and three-quarters of a mile of frontage on I-95, this power and town center project at the time of the grand opening will have over 720,000 square feet of retail tenants signed.

On November 17th, the Wal-Mart Superstore, Lowe's Home Improvement, Ross Dress for Less, Michael's Crafts, Office Max, Old Navy, Bed Bath and Beyond, PetSmart, and a 14-screen Hollywood Cinema, along with 22 retailers will welcome our customers.

Phase two of this project was originally planned for a construction start in 2008.

We are announcing today the signing of a 55,000 square-foot lease with Gander Mountain.

We are also in final lease negotiations with two other mid-box retailers who will round out our anchor lineup.

We are now planning to commence construction on our phase two this coming spring -- a year ahead of schedule.

The development team is also presently working on preliminary plans for two additional shopping centers.

We are optimistic that at least one of these centers will break ground in 2007.

In the third quarter we sold a parcel of land at our Lakeshore Marketplace on the west side of the state of Michigan to Target for the construction of a 127,000 square-foot store.

Target joins five other anchors at this 475,000 square-foot power center.

The addition of Target not only strengthens our tenant mix and further validates our location as the retail focus for the trade area, but it will also allow us to achieve even higher rental rates from our smaller retail tenancies.

Within a week of closing on the Target sale, we commenced discussions with another one of our anchor retailers at this center for an additional value-added improvements.

Thus Lakeshore Marketplace joins numerous other core portfolio centers that, because of their strategic location and anchor draw, present us with multiple opportunities to continue to add value.

In addition to our Lakeshore redevelopment, we have just announced the signing of a lease with Office Depot at our West Allis Center in Milwaukee, Wisconsin.

The Office Depot signing heralds the commencement of a significant value-added redevelopment at this center.

The details of our plans will be presented over the next few months.

The announcements for West Allis and Lakeshore Marketplace bring to six the number of value-added projects we currently have underway.

Of that number, three are significant Michigan value-added projects involving national anchor tenants.

These retailers have determined independently the desirability of the respective Michigan markets.

Last quarter I discussed both demographic and anchor retail commitments that support a viable consumer economy in Michigan and especially Oakland and Macomb counties, where our metropolitan Detroit centers are located.

Our shopping centers in Michigan continue to be some of the best performers in our portfolio.

Statistics that support this statement include an occupancy rate at quarter-end for our Michigan centers at 96% and same-center growth of 2.7%.

Further, rental rates on new leases -- or I'm sorry -- on leases renewed in Michigan exceeded 11% over the prior rental rates and for new leases signed in Michigan, we are achieving a rental rate of approximately 19% above portfolio average.

I can tell you that some of the highest rental rates we're achieving in the portfolio for spaces over 2,000 square feet, which are in the $30 and $40 per square foot range are occurring in metropolitan Detroit, in Oakland and Macomb counties.

On the leasing front, portfolio-wide, we are experiencing significant increases in non-anchor as well as anchor renewals at 16% and 12% increases, respectively, over prior rental rates.

We are also extremely pleased with both the number of new leases signed at 32 non-anchor and seven anchor leases as well as the rents achieved.

Please note that although the base rent for our 32 new leases show an average of $14.12, which is approximately 6% below our portfolio average.

Two spaces, one at 10,000 square feet, and the other at almost 13,000 square feet, change the average for 30 of the 32 leases from $15.96, which was a 6% increase over the average.

The rental rates for these two larger spaces, as well as five retail stores over 10,000 square feet that were signed and opened in the second quarter obviously impact our statistics.

It's important to remember, however, that even with over 73,000 square feet or retail space in the 10,000 square-foot category or above, or over 30% of the 242,000 square feet of new tenants opened in the first nine months of this year, we still average a healthy $14.26 per square foot, and occupancy was positively impacted rising over 100 basis points in the first nine months of this year as compared to our statistics at 12/31/2005.

For those of you listening who help drive our stock over 22% higher since the end of last year, thank you for your confidence in us.

Even with this increase, no matter which analyst coverage you read, we are still selling at a discount to our implied NAV and at a substantial discount to our peer group, possibly presenting a fine opportunity.

The two most significant factors that we believe are still drags on our stock include the IRS issue and our debt-to-market capitalizations.

Specifically concerning the IRS overhang, the statute of limitations runs out at the end of this year.

With each passing day, I become more confident that this problem will be resolved by 12/31.

As to our debt level, the completion of our pending venture will take pressure off of our capital needs.

This, of course, will not be the long-term solution for our growth plans.

However, we believe that it will demonstrate to the market that first our centers command a cap rate significantly below the rate represented by our stock price and, secondly, that the sale or contribution to a venture of our more fully assets are a capital option we are prepared to utilize.

At this point, I would like to turn the call over to Rich Smith, who will help you delve into the details of our digits.

Thank you, Dennis, and good morning, everyone.

For the third quarter our diluted FFO per share was $0.63, which met First Call estimates.

This represented a 6.8 increase from the $0.59 reported in 2005.

On a gross basis, our diluted FFO increased $1,894,000.

We went from $11.6 million in 2005 to $13.5 million in 2006.

Some significant changes quarter to quarter included an increase in minimum rents, an increase in contributions from unconsolidated entities, an increase in gain on sale of real estate, a decrease in Series C preferred stock dividends because the stock was dilutive in 2006 and anti-dilutive in 2005.

These contributions were offset by increases in other operating, G&A, and interest expense as well as a decrease in income from discontinued operations.

The $2,105,000 increase in minimum rent was made up of a $991,000 contribution from acquisition properties and a $1,114,000 contribution from core assets.

Our income from unconsolidated entities increased $254,000.

After adding back depreciation expense, these entities contributed $331,000 toward change in FFO, the majority of which came from our joint venture with ING and our off balance sheet development in Jacksonville, which is starting to come online.

During the quarter we sold sites at our Jacksonville development, an out lot in Light Lake, Michigan, and vacant land in Norton Shores, Michigan, generating net gains of approximately $1.2 million.

The increase in other operating expense for the quarter was mostly the result of an increase made to our allowance for doubtful accounts for receivables, which may prove to be uncollectable in the future.

The $337,000 increase in G&A expense was primarily the result of quarter-to-quarter increases in legal, audit, and tax fees as well as an increase in salaries and fringe benefits.

The $1,050,000 increase in interest expense was the direct result of property access.

Lastly, for the quarter, the decrease in income from discontinued operations resulted from the sale of seven tertiary market assets earlier this year.

For the nine months ended September 30th, our diluted FFO per share increased 3.3%, or $0.06.

We went from $1.82 in 2005 to $1.88 in 2006.

On a gross basis, our diluted FFO increased $4.5 million.

We went from $36.1 million in 2005 to $40.6 million in 2006.

Some significant changes for the nine months ended consisted of an increase in minimum rents, an increase in our gain on sale of assets, an increase in contribution from unconsolidated entities, and a decrease in Series C preferred stock dividends, again, because the stock was dilutive in 2006 and anti-dilutive in 2005.

These contributions were offset by decreases in our expense recovery margin, other income, and discontinued operations, as well as an increase in other operating and interest expense.

Our minimum rent increased $3,887,000, which was made up of $2,644,000 contribution from acquisition properties and a $1,842,000 contribution from core assets.

These contributions from core assets were negatively impacted by a $599,000 reduction in minimum rent related to anchors purchased in the stores at Auburn Mile and Crossroads.

During the nine months, our land sales generated net gains of approximately $2.9 million compared to losses generated in 2005 of approximately $27,000.

Our income from unconsolidated entities increased $815,000.

After adding back depreciation expense, these entities contributed $1.5 million to our change in FFO, again, the majority of which came from our joint venture with ING.

For the nine months ended, we recovered 96.5% of our operating expenses compared to 99.5% last year.

This resulted in a $951,000 reduction in our recovery margin.

The variance was the result of adjusting priors, estimates to actual, based on true-up billings completed in respective first quarters.

These adjustments increased recovery ratios in 2005 and decreased them in 2006.

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

Other income decreased $437,000 primarily due to a decrease in lease termination fees and interest income.

As noted before, our decrease in income from discontinued operations was the result of the sale of seven tertiary market assets earlier this year.

And, as we discussed before, the increase in our other operating expense was the result of an increase made to our allowance for doubtful accounts and the cost related to opening a Florida office.

Our interest expense increased $1,475,000, $2,690,000 of the increase was due to additional borrowings at a higher average interest rate, $304,000 of the interest was related to interest on a capitalized ground lease acquired in 2005.

These increases were offset by a $640,000 increase in capitalized interest on development and redevelopment projects, an $879,000 decrease in the amortization of loan origination fees primarily due to our change to a nonsecured facility and other miscellaneous items.

Our debt at quarter-end was $720.9 million with an average rate of 6.3% and an average term remaining of about four years.

Seventy-three percent of our debt was fixed at an average rate of 6.2%, and 27% of our debt was floating with an average rate of 6.8%.

Availability at quarter-end under our credit facilities was $22 million.

Our EBITDA interest coverage at quarter-end was 2.1 times, and for the quarter our debt-to-market cap improved to 50.3%, down from the 54.3% reported at year-end.

Our capital expenditures for the quarter totaled $25.5 million; $13 million was spent on development projects; $6.3 million on acquisitions; $4.9 million on expansion renovation projects; $792,000 on non-recoverable capex; and $496,000 on recoverable CAM.

Our capital expenditures for the nine months totaled $76.5 million; we spent $44.2 million on development projects; $14.7 million on acquisitions; $14.6 million on expansion renovation projects; $2.1 million on non-recoverable capex; and about $896,000 on recoverable CAM.

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

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

Lisa, I'd like to open up for questions now, please.

[OPERATOR INSTRUCTIONS] Christeen Kim, Deutsche Bank.

You know, Dennis, you mentioned before that there are two other ground-up developments, one of which may break ground in 2007.

Could you give us a sense of how big these projects are and whether you plan on doing these on your own or through JVs?

Well, first of all, we believe that if we, indeed, are successful in finalizing our agreements concerning the land and getting our entitlements this year then we could possibly break ground in the latter part of 2007.

Typically, our developments are running in the $50 million category.

We have historically taken these off balance sheet specifically because of if you have them on balance sheet, they have not been very helpful relative to being a drag with interest costs without producing any income.

As of this juncture, I would then think that we would probably do that the same way we have done the gains, the Beacon Square, and our Jacksonville project but, you know, that could change.

And in regards to the other JV that you mentioned that you'd announce sometime this quarter, have you a sense of how big that venture is going to be?

And you mentioned that you were going to target a specific geographic profile.

Could you comment further on that?

Well, I can tell you this -- it will be approximately the same size as our Clarion Lion fund transaction, and it will be probably more focused on the mid-Atlantic and Midwest area.

Great, and my last question is just housekeeping.

In terms of your land sell gains, are you still targeting the $3 million to $4 million range for the year?

You've already done $3 million, and also on the lease term fees, you've already done $2.2 million this year, where you've got it to 1.2 for the whole year.

I don't see anything with -- Dennis, do you know of anything for lease termination fees between now and the end of the year?

And as far as land sales, I think we've put up a few more between now and the end of the year, but I think the $3 million to $4 million is still reasonable, probably closer to the 3.

Philip Martin, Cantor Fitzgerald.

A couple of questions -- first of all, on your expiring leases over the next 12 to 15 months, it looks like most of those are non-anchor leases.

Average rent on the non-anchor is about 13.47, yet a good quarter here in terms of seeing rents up a little over 15%, can you give us an idea of what you think for the leasing environment over the next 12 months in your portfolio, given the fact that you're 95% occupied, roughly, and there seems to be some pretty good demand for your space.

Well, first of all, you know, thank you for your observation.

The amount of expiring space for the next 12 months will approximate what we've experienced in the last 12 months, and to the extent that we've been averaging anywhere from 7% to 9% historically on increases over prior rental rates, we don't see any problem with that.

One of the things that you can count on, though, Philip, relative to our portfolio even though we will be in excess of 95% leased at year-end, is that with our continued announcements of value-added opportunities, and we've got a few more in the pipeline that will have significant increases in the number of our centers, you can count on rental growth because of these value-added opportunities.

So we still see some significant growth in our NOIs based upon minimum rent increases.

Again, some of these announcements will include Michigan assets at some very significant rents.

Okay, and -- well, before I get to that, so when you look, going forward, again, I'm just comparing this quarter, which was mostly non-anchors.

You had one anchor that you released the rest 26 -- it sounded like 26, 27 were non-anchors.

You're up 15% plus.

Is there a pretty good shot that over the next 12 months we've seen rental increases north of 10% given the fact that you have mostly non-anchors up for renewal or expiring?

Well, again, it always depends, Philip, as we just talked about, with new leases being signed, if we're renewing 10,000 and 15,000 square-foot spaces, then it becomes somewhat more problematic to hit the averages that we're talking about, but we're very bullish about the leasing environment for our spaces anywhere from 1,000 square feet up to 6,000 and 8,000 square feet where we've been averaging potentially significantly higher than our portfolio average.

So, depending upon the mix, we should do extremely well.

Okay, then, the Michigan -- I know you gave this on the call, but for the quarter the leases renewed in the quarter in metro Detroit, or in Michigan, were up what percent?

I think I said 16%.

Oh, it was 19%.

Up 19%, okay.

Sixteen percent for the portfolio, 19% for Michigan.

New leases to the portfolio, right.

Okay, so this is -- these are just new leases signed in metro Detroit -- or Michigan.

Michigan.

Over previous -- so these are --

Really, Philip, there's two steps.

One is about 19% new leases to portfolio average, the other is a little bit north of 11% for same-space renewals.

Okay, perfect.

Okay, now, in terms of the lease termination fees, again, those are -- that's a pretty consistent part of your business every quarter.

Now, the lease terminations that you -- well, the leases that were terminated here in the third quarter, was that more of your doing, and what do you think the upside potential is with that space and how quickly do you think you can get that released?

For the most part, Philip, I think all of our terminations are our doing and, generally, we don't go through and terminate a lease unless we have a pretty strong prospect behind it.

After saying that, Philip, and again it depends on which type of asset you're talking about.

One of the more significant termination fees that we achieved in the third quarter related to a drugstore that -- its lease was up in about a year.

They were in line in our shopping center.

They were going to move to a freestanding location.

We had been talking to them for some time, so we already had a lease executed for their space, for a new tenant to take over.

So even though we got a significant termination fee from them, you know, 60, maximum 90 days, we'll have a new tenant in that space.

Okay, and then just a couple of other issues here.

Well, the lease termination fees for the fourth quarter, the last caller had this question as well, but for the year it was at 1.2 -- what would you expect in the fourth quarter?

Something similar?

Again, you may have some insignificant ones, Philip, but I don't see any big ones coming up in the fourth quarter, okay?

Okay, and the value of the assets put into the Heitman JV, these two in Atlanta, what's the rough value of those?

You're talking somewhere in the vicinity of around $20 million.

Okay, and the third one that will be added?

The third one will be a bigger asset in the vicinity of around $20 million on its own.

Okay, and that's fourth quarter timing there?

Yes.

Okay.

And, Rich, other operating expenses were up a little bit more than I was expecting, anyway, in the third quarter.

Can you give us some reasons why that was?

You know, Philip, I think we had -- we looked at our allowance for doubtful accounts.

I think the biggest piece of that was we had a couple of tenants in there that, a, are still lease-obligated, still seem to be creditworthy.

They have got multiple locations, but when we looked at, generally, when they closed one of our stores, we've got, you know, working on a replacement for that right now, we opted to go through and reserve that -- increase our allowance.

So that's probably the biggest -- really, a one-time pop is what I'd say -- and maybe we get it back.

And from the ram -- and -- okay, so that's -- and from the ability to re-lease those, do you feel pretty comfortable?

I think that -- again, I don't think we have a lease signed, but I think there's certainly -- the one I'm thinking of, there's a significant tenant we've done multiple deals with looking to take that space.

I think, Philip, just to add to what Rich said is historically in our business, even with incredibly successful assets, you can always have a retailer who, for a variety of reasons, either of their own making or that their concept is passé or they're just not merchandising properly, can have financial difficulties.

One of the interesting things is even though we ask these days for tenant sales, because you're not necessarily always getting a perfect count on tenant sales, we've opted to move away from percentage rent to fixed rent increases.

So a number of retailers can surprise you as historically it happens, you know, when you have thousands of tenants that somebody will run into some financial trouble.

So we're always prepared for that.

We try and stay on top of it through our asset managers but, on occasion, we get surprised when somebody leaves the center.

Okay, now, fair enough.

And the very last question here -- the two ground-up developments does sound like 2008 deliveries or stabilizations, I would say, and each one about $50 million, plus or minus?

Yes.

David Fick, Stifel Nicolaus & Company.

Good morning, congratulations on the quarter.

The questions that I had have mostly been asked.

Dennis, you've got to be the most bullish guy on Detroit in the country right now.

And I guess your statistics bear out that bullishness, but I'm wondering if you can talk a little bit more about relative rent spreads, Florida versus Michigan, and if there are any other markets that you would consider at this point, going into with your expansion plans?

Well, first of all, David, thank you for your compliment.

You know, in life there's the ying and yang, and if I've got to be the yang to everybody's beating up Michigan, basically the difference is, and I think you'd hear from the Taubman Company and other people who are based in Michigan is we're here, and we're seeing what's going on, and most other people are basically just reading the naysayers, the people who always see the glass is half empty.

So, you know, I'm, in a sense, pleased and proud that I can be beating the drum for Michigan.

Just relative to our leasing statistics, we continue to see, number 1, when we put somebody like Target in, in our Lakeshore Marketplace development, when we make a deal with Office Depot like we did in Roseville, we're getting as healthy a rental rate because we just announced now that we made a deal with Office Depot in Milwaukee.

We're getting at least as good a rental rate from the exact same retailer in Michigan as we are getting elsewhere.

And I've kind of shared with you, when we were on our tour, just in general terms, the kinds of rents that we're achieving in Oakland County in several of our developments as compared to Florida.

Our average rental statistic is not much different than it is in Florida.

So if you've got the right center with the right horses and the right location in metropolitan Detroit or throughout the state of Michigan, you'll do just fine.

[OPERATOR INSTRUCTIONS] Rich Moore, RBC Capital Markets.

The first thing is on Heitman.

I mean, is that something that could go bigger?

It sounds like it's really more a venture to just do these three particular properties.

Is it something, Dennis, that you could increase the size of?

The concept certainly could be increased.

When we were working with Heitman, they had, in a discretionary fund, approximately $75 million that they were open to invest, and it had a very short window.

When you see the documentation, you'll see that basically all opportunities have to be identified by November of this year.

And so this venture opens and closes very quickly.

But based upon our ability to find these truly opportunistic acquisitions, it bodes well for our ability to generate more of them, going forward.

There is always a possibility of doing them with Heitman, and there's a possibility of us, as we generate this capital from a variety of sources, to do them on balance sheet.

Okay, I think you guys are good at doing this kind of thing, and I'm curious what you're -- how hard are you looking for these?

Everyone seems to be talking about value-added opportunities.

Are you still able to find these, or are you kind of being overwhelmed by the demand from other shopping center owners?

Well, what's interesting, of course, is that just as cap rates fell because so many people were originally looking for core -- as core cap rates fell to a point where it became very problematic even in your off balance sheet joint ventures to buy some of these, then everybody turned to assets that had more hair on them and, of course, what is the answer?

Then cap rates on those began to fall.

I think the key truly is that when we look at an acquisition -- I'm not saying that others don't look at it the same way -- but when we look at an acquisition not only does our acquisition go but also our development people go, because what you'll find when we really talk about the three centers that will form this venture, we'll go beyond the four corners of those assets in adding value.

So when we looked at these, we didn't just look at the center, but we looked at what are the opportunities to expand the asset beyond just the existing shopping center let alone repositioning the asset.

So whether that distinguishes us or makes us somewhat more aggressive, that allowed us to pay more than some of our peers who were also looking at the same asset because of the opportunities that our entire team were able to generate from these acquisitions.

Okay, very good.

And then looking at same-store NOI for a minute, it seemed that the biggest component of that jump came from other income, and yet when I look at other income on the income statement, Rich, it seems like there's really no change from '06 to '05, but when I look at it in the same-store portfolio, it seemed very high, you know, the jump was very high on a same-store basis.

What you have in our other income line, Rich, is a really interest income, lease termination fees, and temporary income.

So when you look at -- quarter-to-quarter when you look at same centers, it could be off, depending on where the termination fee came from.

Some of the other termination fees may have been in a development/redevelopment project which we wouldn't show on same center.

Okay, so we would probably see that same-store kind of number back down a bit in terms of overall same-store NOI growth?

When you're done, yes, unless there's other one-time type things that come up or would lease up as well.

Okay, good.

And your end '06 occupancy, guys, what are you thinking there?

It will be between 95% and 96%.

And, again, I didn't present that statistic in this call, but you should know that the Best Buy and PetSmart and [Tell 12] have opened in the fourth quarter, and we've got Office Depot at both Roseville to open and in West Allis.

So we have a minimum of four to five mid-boxes that will impact that statistic in the fourth quarter.

Okay, very good, and then did you say where the two new centers might be, Dennis?

I did not.

And you weren't going to do that, right?

Well, again, you know, on the positive side, I want to let you all know that we're working hard on the development end but historically we have never really announced anything until we're a lot closer to having a real development than we are at the moment.

I understand, that's fair.

Then I want to look for a second, if I could, guys, at the balance sheet.

First of all, variable rate debt crept a bit higher.

How are you thinking about that, Rich?

About managing --

We had hedged some of it, Rich.

I think we may hedge some more, or with the second off balance sheet venture, like the ING type venture that Dennis was talking about -- I think we'll have the opportunity to pay some down, so I'm trying to keep a little flexibility in there at this point in time.

Okay, and then, overall, the coverage ratio seems kind of soft.

Is there a thought at all that you might issue some equity, let's say, just to, once and for all, bring that coverage ratio higher?

You've got a couple of things there.

One, would we issue equity in the future?

Sooner or later we issue equity, but right now there is no need to but to pay down debt, there's no real good, accretive use of the funds.

When we do issue equity, maybe we'll issue a little bit more, but I think we've got two preferreds that, one, if we get a little expansion multiple to convert, I think we can force conversion of that in June, and the preferred B, I think we could pay off, I think, it's November.

So I think that, in itself, will help us a little bit in the debt-to-market cap the way people look at it.

It will also help us a little bit with fixed-charge coverage.

It's not the end solution, but it helps move us in the right direction.

Sure.

And you're also -- you're using dispositions, it sounds like, as a source of capital as well.

What are you guys targeting, I guess, as a goal, if you will, for acquisitions -- I'm sorry -- for disposition?

With the joint venture, I think Dennis had talked about this on previous calls.

I think what we plan on doing is in this next venture, seeding that venture with some core assets and generating some cash there.

And I think we'll generate $50 million to $60 million of net proceeds there as a result of that.

Okay, and then, Dennis, you talked a little bit about the IRS issue.

Is there any progress on that, or is it just sort of sitting in their court waiting for them to come back you guys?

Well, we continue to have verbal communication with the appellate officer at the IRS.

We've also had some modest written communication, but there certainly has been nothing formal.

What I can say is all indications that we are receiving is that the IRS really is not going to take any action -- this is just an impression that I'm giving you -- the IRS -- it really isn't going to take any affirmative action prior to the end of the year.

If they do nothing prior to the end of the year, then the statute of limitations will have run, and the case is over.

Although I would have preferred a bang than a whimper, my gut is that this -- we're just going to let the statute run out, and this is a done deal.

We can certainly be hopeful, right?

We certainly can.

And then the last thing is on the guidance -- you guys said at the end of the last call that you guided us to the low end of your 2.53 to 2.58 guidance, and then at the end of this call, at the end of your prepared remarks, you also guided us to the low end.

It's basically the same place.

Again, in our business plan, Rich, for this year, '06, I think we had probably anticipated more acquisitions -- off balance sheet acquisitions and fees than we're generating.

It's just been a tough market for us.

Okay, so, really, getting to that upper end would take acquisitions at this point, is that what you're thinking?

Yes, I think -- or not crazy things but maybe you have more sales than we anticipated in Jacksonville in Q4.

Right now, if you think of it, we're practically in November.

I think that's unlikely, to be honest with you.

Okay, great, and the very last thing was actually on the land sale opportunities.

Were those at Jacksonville, that you were booking the gains?

I think we had Jacksonville, we had White Lake, and we had Norton Shores where we booked the FFO gains, yes.

Okay, and then, going forward, what kind of inventory do you have?

Do you have a number of parcels you can sell?

Yes, I think there's still quite a few in Jacksonville.

I think we probably have another $3 million, $4 million in gains there that we'll probably recognize over the next couple of years.

I would guess most of it next.

Other inventory, we certainly have about 10 acres at Crossroads, some other lots here and there, but nothing on the magnitude of Jacksonville.

[Stuart Estroit], High Rise Capital.

Could you just compare the assets you plan to sell to the joint venture to the recent purchase of Inland in terms of the anticipated cap rates and the underlying lease structures of your leases versus theirs?

Well, let me say this -- I think that the cap rates we're talking about selling into the venture, if we could take at face value some of the things that have been written about the Inland sale and the implied cap rates there, we are in the same general area as far as cap rates are concerned -- certainly in the low sixes.

Our assets will be very stable, good market assets, densely populated, basically metro areas -- some upside in all three or four of the assets that we're putting in, but certainly "A" quality assets.

I don't know that I could directly compare them because with a $6 billion acquisition, you are assured of some outstanding assets and mediocre assets, and there have got to be some problematic assets in that acquisition.

Sure, and, just lastly, how much did the Jacksonville contribute to the JV NOI this quarter?

Yes, I've got them.

Let me just grab that real quick, if you'll bear with me.

Not a significant amount, but hold on.

For the quarter, you're only looking at, say, $140,000 would be our share of -- our 20% interest of.

Okay, and how are the rents looking on this [inaudible].

Stuart, that's in the supplements in the back there.

And how are the rents looking on the small shops based there relative to your pro forma budgets?

The rents that we're achieving compared to our original pro forma and, again, you have to appreciate the original pro forma, was put together at least 18 months ago.

We are 15% to 20% higher on average rental rates than our original projections.

There are no additional questions.

Well, if there are no additional questions, then, first of all, thank you all for your attention.

We are pleased with our performance in the third quarter, and we look forward to continued success in the fourth and your participation in our conference call after the first of the year.

Thank you all again.

Thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Good day.