Rithm Property Trust Inc (RPT) 2007 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the Ramco-Gershenson first quarter conference call.

My name is Maria and I will be your audio coordinator for today.

At this time all participants are in listen only mode.

We will be facilitating a question and answer session toward the end of today's conference.

(OPERATOR INSTRUCTIONS)

At this time I will now 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's 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 attained.

Factors and risks that could cause actual results to differ from expectations are detailed in the press release, and from time to time in the company's filings with the SEC.

Additionally, we want to let everyone know that the information in statements made during the call are made as of the date of this call.

Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.

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

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

Thank you Dawn.

Good morning and welcome.

It goes without saying that we're pleased to have exceeded first call estimates for the quarter.

More importantly, however, we're excited about our plans for the year and our prospects for the future.

In the first quarter we made significant progress in all three of our profit centers.

We acquired three shopping centers, two for our ING venture, Cocoa Commons in Cocoa Florida, which is located in close proximity to Cape Canaveral, and Cypress Point, a great center located on busy Highway 19 North in Clearwater, Florida.

Our other acquisition, Peachtree Hill in Duluth Georgia, a suburb of Atlanta, was purchased for our new [Heightman] joint venture.

These three acquisitions are evidence that we are comfortably able to source product for both of our off balance sheet partnerships.

Each of these purchases provides its own unique opportunity for us to add substantial value to the centers, thus increasing the return on investment well above the cap rates at which these assets were acquired.

Our development team has been hard at work moving two new shopping center projects through the entitlement process.

Although it is our policy not to identify a specific new center development until we close on the land, we wanted to give you a sense of our progress on these two new opportunities.

One center will be 565,000 square feet, and includes two major anchors.

The second center encompasses over 600,000 square feet.

This development will combine power center elements with a mixed use, town center concept, which will be anchored by national major tenants, entertainment, and mid-box retailers.

Our group of professionals is also working on the most aggressive value added redevelopment we have undertaken to date.

This project, located in our mid Atlantic region, will incorporate retail, entertainment, office and residential elements in a town center setting.

The two centers, as well as the major redevelopment, are supported by strong tenant interest and solid demographics.

In addition to these three significant undertakings, we're presently pursuing six value added redevelopments in our core portfolio and joint venture partnerships.

We will also be announcing additional value added projects in the second and third quarters.

As has been our history, we have consistently achieved superior returns of between 11% and 15% on average on new dollars invested for our value added redevelopments.

Our asset management group has also been busy during the quarter.

We extended 43 leases at expiration, 40 of these were non-anchor retailers.

Our average increase over prior rental rates was approximately 10%.

We also opened 27 new non-anchor tenants at an average rental rate of $19.92, a 29% increase over our portfolio average.

Further, we're pleased to report that our same center NOI growth this quarter was a healthy 4.3%.

The substantial increase over portfolio averages for new leases, our double digit increase for lease renewals, the growth in same center NOI, and our ongoing program of adding value to our shopping centers, creates a potent combination for continued growth from core assets.

Over the last several quarters I shared with many of you information which compared Florida and Michigan statistics, including trade are population and income, as well as occupancy rates, center size, and anchors per center.

Lately I've been asked about the impact of the Michigan economy on our rental rates and how these numbers compare to Florida.

For the first quarter of 2007, as one would expect of Florida, new leases signed for vacant space averaged 36.4% above portfolio average, and for lease renewals at expiration we achieved an average increase of 19.7%.

For those of you who have a jaundiced view of Michigan, and discount it as a viable retail market, I'm pleased to report that for the first three months of 2007 new leases signed for vacant space in Michigan produced a 15.3% increase above portfolio average, and for leases renewed at expiration we achieved a 12.5% increase.

Other events of note since the beginning of the year include the lease up of our Jacksonville development to over 96%.

This 900,000 square foot center has only 34,000 square feet of uncommitted small tenant space left.

The River City Marketplace was our most ambitious undertaking since the company went public in 1996, yet we have accomplished a remarkably fast lease up and occupancy of this center.

This rapid and successful completion of River City has allowed us to close a $110 million loan on the project at an interest rate of 5.4% for 10 years.

Subsequent to the end of the quarter, we negotiated to purchase, and have acquired, our joint venture partners' interest in the shopping center.

We also announced, following quarter end, that we would redeem on June 1 all of the outstanding Series C convertible preferred shares.

As of April 20 over 1,200,000 shares of the 1,888,000 Series C shares have been converted.

This will leave only our Series B perpetual preferred shares outstanding, which, if we choose, can be redeemed in November of this year.

The yield on these shares is 9.5%.

Over the last several months, Rich Smith and I have met with a significant number of existing shareholders and prospective investors through the good offices of those analysts who cover our company.

In addition to updating the investors on our recent accomplishments, we also learned a great deal from their feedback.

Most importantly, everyone wanted to understand what we perceived would be the catalyst for future growth.

Let me say first that I trust our actions in this last quarter have set the stage for solid results for the balance of 2007.

Further, we are well on our way to an expanded pipeline of new development projects.

We will be further ramping up our acquisition program as the year progresses, as we are seeing a substantial number of shopping centers for sale that we perceive as value added opportunities.

To that end, we have direction from our joint venture partners to continue to buy.

Also tenant interest in our center is strong, rentals are increasing, and the full year effect of our developments, such as River City Marketplace, are yet to be felt.

You should expect to hear from us, over the next several months, that we have taken certain actions to achieve an increasingly conservative balance sheet.

Although we're not unhappy with our current leverage, we want to be sure that the company will be in a position to seize opportunities as they arise.

Our actions will also improve our fixed charge coverages as we pay down debt and redeem our preferred shares.

Our immediate plans do not include raising capital through an equity issuance, but instead, we will continue to seed ventures with our well valued properties, producing the monies needed for debt reduction and growth.

We expect these transfers will have a neutral or positive impact on funds from operations.

Also in the coming months, we plan to lay out a specific roadmap for FFO growth.

Many of you on this call perceive that REITs in general, and shopping center REITs specifically, are, for the most part, fully valued.

There is one company, Ramco-Gershenson, which is trading at a discount and is a screaming bargain.

We will be working, over the next several quarters, to increase your understanding of our company's growth abilities.

You know us for our quality portfolio, which we constantly improve.

We will show you, through specific plans and results, that we can achieve superior FFO growth on a sustained basis, and at the same time, maintain a conservative balance sheet.

I would now like to turn this call over to Rich Smith, who will delight you with his dazzling financial footwork.

Thank you Dennis, and good morning everyone.

For the first quarter our delivered FFO per share was $0.66, which exceeded first call estimates by $0.02.

This represented a 6.5% increase from the $0.62 reported in 2006.

On a gross basis, our diluted FFO increased $700,000, we went from $13.5 million in 2006 to $14.2 million in 2007.

Some significant changes quarter-to-quarter included increases in our recovery margin, fees and management income, and other income, and a decrease in G&A expense.

These benefits were offset by increases in interest expense, reductions in minimum rents, and contributions from unconsolidated entities.

For the quarter our expense recovery ratio was 99%, compared to the 94.2% last year.

This resulted in a $487,000 positive quarter-to-quarter change in our recovery margin.

Our 94.2% recovery ratio in 2006 was abnormally low due to negative billing adjustments made in Q1 for 2005 accruals.

In 2007 we expect our recovery ratio to be in the high 90s.

Our fee income for the quarter increased $1,362,000; $520,000 of the contribution came from acquisition fees, and $692,000 from off balance sheet development projects.

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

Our G&A decreased $1,068,000 for the quarter.

We went from $4.1 million in 2006 to approximately $3 million in 2007.

Some significant decreases related to a $270,000 decrease in salary and fringes resulting from one time hiring costs incurred in 2006; by a $143,000 adjustment to actual to professional fee expense, which were over accrued in 2006; by a $466,000 contribution in capitalized costs because $115,000 of SBT tax was included in G&A last year and real estate tax expense this year.

Our income from unconsolidated entities decreased $331,000, the majority of which came from CAM recovery adjustments pertaining to 2006 and taking space offline for redevelopment.

Our minimum rents decreased $361,000 for the year, $1,341,000 of the decrease resulted from assets contributed to joint ventures.

This was offset by $380,000 generated from acquisition and by $600,000 from core assets.

Our gain on real estate increased $20.7 million, most of which related to assets contributed or joint ventures and our interest expense increased $448,000 over the same period last year.

$136,000 of the increase was due to higher average interest rates on lower average borrowings.

$139,000 of the increase was due to lower interest capitalized in development and redevelopment projects.

In addition, we had an $83,000 increase in loan amortization fees and an $81,000 loss benefit of mark-to-market debt on assets contributed to joint ventures.

Our debt at quarter end was $641 million, with an average rate of 6.3%, and an average term remaining of three and a half years.

72.3% of our debt was fixed, with an average rate of 6.1% and 27.7% of our debt was floating, with an average rate of 6.8%.

As we continue to contribute assets to joint ventures, we'd expect to reduce our variable rate debt exposure.

Availability at quarter end under our credit facility was $44.2 million.

Our EBITDA interest coverage at quarter end was 2.3 times and for the quarter, our debt to market cap was 44.7%.

As Dennis discussed, we've advised the market we'll redeem our 7.95 series C preferred stock on June 1st.

Because our redemption price is $28.50, we'd expect most, if not all, of our shareholders to convert.

Since the shares were fully diluted starting in 2006, we do not expect any impact or FFO per share.

Our capital expenditures for the quarter totaled $43.6 million.

$23.2 million were spent on development projects; $15.6 million on equity contributed to joint ventures; $3.5 million on expansion renovation projects; $729,000 on recoverable [CAM] and $535,000 on non-recoverable Cap Ex.

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

And lastly, we maintain our guidance on 2007 to be between $2.61 and $2.69 per share.

Marie, we'd like to open the call for questions at this time.

(OPERATOR INSTRUCTIONS)

Your first question comes from the line of Christeen Kim with Deutsche Bank.

Please proceed.

Hey, good morning, guys.

I just had a question for Rich.

I think he may have mentioned this, but could you just comment on why the real estate taxes declined so much sequentially?

Did it have anything to do with the SBT, from the Michigan SBT, or...?

Christeen, I think probably the major reason for the decline in real estate taxes is taking assets and then contributing them to joint ventures.

Okay, got you.

Okay.

And could you also maybe comment on any progress you're making on your new joint venture?

Well Christeen, let me say this.

We continue to make significant progress in working with not just one but a number of prospective partners for a new venture.

We are also in conversations with our existing partners, relative to contributions of additional assets.

We are very focused on the fact that after the end of last year, that there are huge benefits to be achieved by taking well-valued assets and contributing them to joint ventures, which would change certain metrics in our balance sheet and, at the appropriate cap rates, those transactions can be very accretive.

So, we continue to move along on those.

And, obviously, based on what happened at the end of last year, I don't want to have any false starts but do expect, just as soon as we are able, that the investment community will hear from us.

Great and lastly, I appreciated the commentary on your rent spreads in Florida, vs.

Michigan.

But, could you just comment on what the volume of leasing was, comparatively, between the two markets?

Was it up 50/50, or was it more biased towards one or the other?

It was slightly more biased toward Florida than Michigan but not significantly so.

Great.

Thanks guys.

And let me just add one other thing too.

That, you know, in looking at the relative size of the spaces, one of the things that's interesting is the majority of the centers that are constructed in Florida have the ancillary retail space with depths of 60 to 80 feet.

Whereas, the majority of our centers in Michigan were developed, you know, in the 80s and the early 90s and would've had 100-foot depths.

So, a store with 20 feet of frontage in Florida could be anywhere from 1,200 to 1,600 square feet, whereas most 20-foot stores in Michigan would be 2,000 square feet.

So, to a certain extent, that is part of the explanation for having done significantly better in Florida.

But what was important is that the investment community understands that our occupancy remains high in Michigan and then, on a consistent basis, we are beating portfolio averages as we sign new leases and extend leases.

Great; thanks, guys.

Your next question comes from the line of Rich Moore, with RBC Capital Markets.

Please proceed.

Hi, good morning guys.

I also echo Christeen's comments on Michigan and Florida.

Is there any chance you guys could put something in your supplemental to kind of break that out on a regular basis?

We could do that pretty easily, Rich.

Yes.

It's just a thought.

Also, you know when I look down the list and as I see, you know one center in Wisconsin.

South Carolina, I think has a couple; Indiana.

Are these markets you might think about getting out of?

Well, the flip side of that is they might be markets where we could build a greater presence.

But these assets are such that we have on-the-ground maintenance people who take care of them.

We've been very successful in keeping these assets well leased so they're really not a burden as far as ownership is concerned.

But, obviously, states that have just one or two assets are things that we constantly focus on.

So they might end up in one of the joint ventures, possibly?

Either that or, as I say again, at least a couple of states that you mentioned are good stable states.

And we could actually see increasing our presence there.

Okay and Rich, there are four big mortgages, as I look down the list of mortgages that come due over the next year.

The Morgan Stanley portfolio, the [Akwia] mortgage, Mission Bay and one other that I can't read my scribbled writing; how are you coming on those?

And kind of what are the plans?

They seem to represent a pretty big chunk of, you know, of the total debt on the mortgage side.

The Morgan Stanley, the biggest one, is towards the end of the year.

I think that we're looking at options for that now.

I think the one thing we won't do is cross collateralizing.

We didn't add (inaudible) because I think it did present issues if we wanted to sell some of those assets that we looked at.

You know the Akwia one we're looking at doing something with right now and we'll probably announce that down the road.

The other two, as they come due, we'll do something with.

Okay, so no....

Rich, though, as you can see from the interest rate on the Morgan Stanley loan, there's an opportunity there to not only have a significant number of those assets no longer encumbered by debt, but a good refinancing opportunity.

Exactly, yes.

Thank you Dennis; yes, I agree.

Then, out-parcel sales, I had modeled a larger amount of out-parceled sales in the quarter.

What do you say, and I think you actually were slightly negative in terms of out-parcel sale gains, what are you thinking there in terms of the annual number for gains from out-parcel sales?

I still think we're going to end up calling the $3 million to $4 million range.

I think that the majority of that is going to come from River City.

And there's still a lot of interest there, and then, a number of various processes in the stages of closing.

You should look for more in the second quarter than in the first.

Obviously, it's an imperfect art because with each of these, there are certain entitlement issues that you've got to get through with the various communities.

And they just don't seem to cooperate as well having it fit nicely within a 90-day period.

Got you; okay, good.

And then the last thing for me, on the preferred, on the C, I'm trying to think of how much we're going to have in the second quarter, in terms of dividend.

And you're basically saying, I guess, one point about two-thirds of the C is gone at this point, right?

So, there'd be no dividend on that?

No dividend period.

Yes, I think what happens is, if people convert-?

Right.

They end up getting the common dividend.

Right, right.

If they redeem, you'll end up paying a pro rata share of the preferred dividend but the feeling is between now and then most people are going to convert.

And I can't believe anybody's going to leave.

At the converted price, $28.50, no one's going to leave the $10.00 or so on the table.

(Two people talking).

Got you, so then - so, for the quarter then, there's no dividend?

Is that how it works, Rich?

No.

There'll be no - if people (two people talking).

If everybody converts, I mean.

If everybody converts, there'll be no preferred dividend, right?

Right.

(Two people talking) Of course there'll be....

(Two people talking).

...common dividend, right.

Right, I got you.

So there's no preferred.

Okay, very good.

Thank you guys.

Okay.

(OPERATOR INSTRUCTIONS)

Your next question comes from the line of David Fick, with Stifel Nicolaus.

Please proceed.

Good morning.

You've actually answered most of my questions.

The next round of JVs, is it safe to say that this will not take the nature of venturing on your development properties but it will be mature assets that have more limited growth potential?

David, certainly an additional joint venture or an expansion of existing joint ventures will be primarily focused on existing assets.

Our approach to new developments and you've heard about two and we're working on expanding that pipeline; our view of the world is we want to do new developments, not on a programmatic basis but on a one-off basis so that when we're sitting down and dealing with a prospective partner, we will have the land, which is either pretty closely entitled or already entitled.

We'll have a number of tenants, at least, letters of intent to strengthen our hand as far as negotiating a more aggressive deal with fees, etc.

We certainly like the idea of recycling some of that more mature capital.

I guess my last question is, and an observation with a question, is that maybe the reason your multiple and discount is where it is, is that the market is concerned about your need for equity.

Can you just comment on your posture, vis--vis issuing new common?

Or, participating in a convertible market that's become so hot recently for REITs?

You know David, I think that, and I'm not saying we are; obviously, it's a board decision whether we raise equity or not.

But a logical time for us to do it is at the end of the year, when the B comes due.

That's 9.5% money out there.

You can probably almost do anything with that in today's market and make that accretive.

And it will be logical because, you know, that's nearly roughly $25 million.

You may upsize that a little bit, but I think that right now, in the immediate term, I think the goal is to recycle assets, rather than to go out in the market and raise equity.

Okay, great.

I think, you know, any equity issuance below net asset value, however you choose to define that, would not be well received.

Thanks.

And relative to the converts, I think that that - and we have talked that maybe and the pricing certainly looks very attractive, you may end up with some negative accounting treatment on that.

I think it complicates our balance sheet and we're trying to uncomplicate our balance sheet.

But the other thing, an up-20 for us, even if you guy the up-40, but the - an up-20 to us, it may take too, I think we're giving away our stock or, you know, that preferred piece, too cheap.

We would agree with that.

That would not be a good source of capital in our view.

Thanks.

So we'll check that one off, David.

I appreciate it.

Your next question comes from the line of Philip Martin, with Cantor Fitzgerald, please proceed.

Yes, good morning everybody.

Good morning Philip.

Just really one question on the development, the incremental development.

Obviously it sounds like that pipeline is just incrementally getting better and better.

As you look three to four years out, and you've been bringing on roughly $25 million of development/redevelopment a year, what does that ramp up to, in your opinion, in the '08/'09 time period?

Does that ramp up to a $50 million to $75 million, based on what you're seeing in your pipeline right now?

Well start with the fact that we've been averaging $25 million just for our value added redevelopments.

So one would tend to think that you probably could add, on top of that, something in the vicinity of $50 million to $75 million in new development.

Now again, at least at this point, based upon a whole series of things we've discussed in the past, we still see it advantageous to do these in an off balance sheet format.

There will come a time when we'll do our developments on balance sheet, but at the moment we're seeing those as off balance sheet, which is obviously beneficial to our balance sheet as well as the fee income we generate.

With River City as an example, we're thrilled that we've been successful in negotiating with our partners to bring these assets on balance sheet upon completion at relatively good cap rates.

Okay, perfect.

The one other question I have, with River City, virtually none of that NOI -- how much NOI hit from River City in the first quarter?

I know there's some leases that are signed but not yet --

The first quarter, if you look at the supplement Philip, frankly was a negative from operations.

I think we're right on the cusp of saying it's substantially complete, so we are going through and not capitalizing a significant part of the interest expense that we have on there.

That interest expense in the first quarter was at the higher construction loan rate and mezzanine rate; second quarter I think it will be at a lower rate.

But two things you had going, one the interest, and the other, you're starting to see a ramp up in the openings of stores there so your revenues are increasing.

We'd expect it to contribute for the year, but I'd say it was a little negative, and at best maybe neutral, but probably a little negative for the quarter.

Now again that's not counting the fee generation that we had off that project as well.

You add them all together it was a positive, but if we owned it 100% in the first quarter we probably would have had a slight loss on it.

Got you, so incrementally it's going to ramp up through the year obviously.

Yes, and by year end I think we should be stabilized on that.

Got you, okay.

Okay well thanks again and that will do it for me.

Your next question comes from the line of Jeff [Dancey] with Cutler Capital Management, please proceed.

Good morning.

I have a question about the occupancy.

I was looking at a slight decline quarter-over-quarter and I just wanted you to comment on how you think it will grow over the next three months to 12 months?

Well number one, please understand, and I think we talked about this at the tail end of last year, that one asset that we acquired in metropolitan Detroit, in Troy Michigan, at the Troy Marketplace, was an old expo that obviously Home Depot had vacated, but it was really attached to one of our shopping centers in our joint venture and we acquired that, and that was about 110,000 square feet that was empty.

So we immediately hit the vacancy number.

Also in the first quarter is that timeframe when many of our historical leases, because they expire January 31, the tenant would have left and even if we're signing new leases for those tenancies, if we have a signed lease but the tenant is not yet in occupancy we don't count it.

So I think typically you'll see that we'll take a dip in the first quarter and then increased, not only by the Home Depot, but we did make three acquisitions, and in several of those centers they did have vacancies that we see as an opportunity for lease up.

Okay and I think before the Home Depot, I think you guys were talking about 95%, 96% occupancy, or targeting that.

Yes.

I was just wondering what you're looking forward to at the end of this year.

Again a similar number, as you know from "our redevelopments", we continue to tinker with shopping centers that sometimes are 100% occupied, and so there are consequences to those kinds of actions.

But we certainly expect it to be in the mid 90s.

Okay, thanks a lot.

Your next question is a follow up from the line of Philip Martin with Cantor Fitzgerald, please proceed.

Yes, I knew I could think of one other one.

But a question on Detroit, and suburban and metropolitan Detroit; certainly the perception out there, as we all know, not to beat a dead horse, but the perception has been negative about that.

Do you see that creating some potential opportunities for you to pick up some properties in that area, whether redevelopment value add or stabilized assets that -- or is there a lot of competition in that market that isn't allowing you to do that?

I'm just thinking if you know that market as well as you have shown that you do, are there ways to take advantage of some of the misperceptions out there?

Well let's start with this; we have not seen any product of any consequence coming to market in metropolitan Detroit and very little in the state of Michigan.

There are a number of things that we are, we're talking to people for the possibility of some off market deals, and I'd like to think that we'll be able to move those forward in the second quarter.

One of the things of course that is slightly an inhibiting factor on us moving aggressively if we saw some opportunities, is that as hard as I try, and as often as I bring up our positive statistics in Michigan, it's going to be some period of time before the perception changes and we have not an insignificant position in metropolitan Detroit now.

So we will be very selective as we see opportunities where we could add value to move on those.

Because we obviously know that we need to give you folks substantial justification for having made that move.

And one more question on development.

In terms of your development pipeline and the incremental development we're going to be likely hearing about, is this off market?

Where's it being sourced from, etc.?

Because relative to some of the other REITs out there, it's a relatively better story for you on the development side.

I'm just trying to understand the source of that, etc.

Well we source these two ways, one obviously we continue to work with the major national retailers who we've worked with before, who at the end of the day say "We do have a void in a certain market." Or just in general conversation with them we've identified that void.

And the other approach is that we have a very highly skilled professional team who is always looking in both the markets that we're in, as well as several new markets.

And you know we have people in the field all the time looking for these opportunities.

So it's not coincidental that we have a number of opportunities, several opportunities, one that we'll be announcing this year, another that we will more likely than not be announcing either last this year or next year, for a significant development, really is property adjacent to some of our existing shopping centers.

Okay.

And it just speaks volumes about the desirability of the locations, and we have not an insignificant number of tenants who say, "We want into that project", and we can't accommodate them.

So we've gone out and begun to acquire property either across the expressway or in an adjacent parcel, so that we can build a new center.

Okay, thank you very much.

Thank you Philip.

And at this time there are no more questions in queue.

I will now turn the call back over to management.

As always, we appreciate, ladies and gentlemen, your attention and your interest.

We look forward to speaking with you on an individual basis prior to the next conference call, and if not, we'll see you then.

Thank you for your participation in today's conference ladies and gentlemen.

All parties may now disconnect.

Enjoy your day.