Rithm Property Trust Inc (RPT) 2007 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter-earnings conference call for Ramco-Gershenson Properties Trust.

My name is Michelle, and I will be your coordinator for today.

(OPERATOR INSTRUCTIONS) And I would now like to turn the call over to your host for today's call, Ms.

Dawn Hendershot, Director of Investors Relations.

Please proceed.

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

I am hopeful that everyone received our press release and supplement 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 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.

I would now like to introduce Dennis Gershenson, President and Chief Executive Officer, and Richard Smith, Chief Financial Officer, who will be making prepared remarks this morning, as well as Thomas Litzler, Executive Vice President of Development, who is available to answer questions.

At this time I would like to turn the call over to Dennis for his opening remarks.

Thank you, Dawn.

We're pleased you could join us this morning.

I want to report that Ramco-Gershenson's core assets continue to show great strength.

Our three-and six-month NOI and recent statistics demonstrate that existing and new retailers find our shopping centers desirable locations to do business, that our 2007 business plan is on track and our expectations for future growth have never been higher.

I acknowledge that our FFO number for the second quarter did not meet analysts' projections, and although we would hope that our activities could match our analysts' expectations on a quarter-by-quarter basis, our business plan reflects a full year of growth that does not consistently fall across the four quarters as projected by others.

We reaffirm here that we are confident of our 2007 annual FFO guidance and that we will achieve this year's company goals.

Our core portfolio continues to perform extremely well as evidenced by our leasing activity during the quarter.

Our existing tenants who renewed their leases at expiration showed an average rental increase of 12.9%, and renewals for the six-month period was also in double digits at 11.5%.

For new, non-anchored leases with retailers who opened this quarter, rentals were up over 37%, and for the first six months of this year non-anchored rentals were up over portfolio averages by 32%.

Our two largest markets, Michigan and Florida, continue to show substantial strength.

For those retailers who opened in the second quarter in Michigan, which includes Metropolitan Detroit assets and centers on the west side of the state, our average rental rate was $23.28.

In Florida for the same period we opened new non-anchored tenants at an average rental rate of $20.13.

In addition to these strong rental increases that span the first two quarters of this year, we continue to show some of the highest variable cost recovery ratios in our sector.

Although we will most likely not maintain over a 100% recovery ratio for the year, approximating a full recovery of all operating expenses by anyone's definition is quite an accomplishment.

Achieving both superior rental-rate average increases and 100% recovery ratios helped contribute to our same-center net operating increase of 3.4% for the quarter and 4.4% for the first six months of 2007.

As you know, Ramco-Gershenson has consistently uncovered opportunities to add value to centers in both our existing portfolio and new acquisitions.

Currently we have six significant value-add redevelopments underway, impacting 390,000 square feet.

We define significant shopping center redevelopments as the addition or expansion of a mid-box or anchor retailer.

Three of those value-add redevelopments are in Michigan where we continue to see strong retailer demand for our shopping centers.

The Michigan redevelopments include Troy Marketplace, Hunter's Square and Lakeshore Marketplace.

Today our overall occupancy stands at approximately 93%.

As an aggressive value-add redeveloper of our shopping centers, it is a challenge to move that number to 95% and above.

This goal would be much easier to achieve if we left our centers well enough alone instead of moving or terminating tenancies to make way for an improved tenant mix, higher credit quality retailers and a more valuable long-term investment.

Not only are the current six redevelopments important value-add improvements, but I am informing you today that we will commence at least four more substantial value-add redevelopments before year end.

The projects include one in Michigan, Fairlane Meadows; one in Georgia, Holcomb Center; and two in Florida, Pelican Plaza and the Marketplace of Delray.

The inclusion of additional mid-box retailers either as an expansion of the center or in filling existing space will account for over 125,000 square feet of new tenancies.

This aggressive redevelopment program aside, our asset management team is still committed to hitting the 95% occupancy mark by year end.

Their efforts in bringing additional anchor tenants to our centers will help accomplish this goal.

We undertake these value-added projects because it's our responsibility to do what is in the best long-term interest of our assets.

This will ensure the center's continued viability which will translate into greater shareholder value.

Thus, as for asset management our release space and new tenant leases are showing significant increases across the portfolio both for the quarter and the first six months of 2007.

Our recovery ratio of variable expenses eliminates cost fluctuations as a factor that impacts our bottom line, and our same-center NOI growth has remained strong through the first two quarters.

Our 2007 business plan includes the ramping up of our development pipeline.

Led by Tom Litzler, our development group has three new projects in various stages of entitlement and construction which will encompass over 1.7 million square feet with development costs that approximate $270 million.

The first development is really a complete transformation of our Aquia center in Stafford County, Virginia, located on I-95 approximately 35 miles from Washington, DC.

We will demolish a traditional community center of 200,000 square feet to accommodate a new mixed-use development of over 650,000 square feet.

When complete, the complex will include four office buildings with a sum total of over 400,000 square feet, approximately 300 rental apartments as well as retail and entertainment elements including a movie theater and restaurants in a town-center format.

While the overall plan has been submitted to the county for approval, we are already under construction with our first office building of over 100,000 square feet.

We have a signed lease with Northrop Grumman for approximately 50,000 square feet or half of the building.

We anticipate completing plan approval by the end of this year and expect to commence work on the balance of the project in the first quarter of 2007.

Our second project, Heartland Town Square in Heartland, Michigan, is being developed through a joint venture.

It will include over 500,000 square feet of retail space.

The center is located at an outstanding intersection with excellent interstate access and exposure.

The development sits almost equidistant between Metropolitan Detroit, Lansing and Ann Arbor.

We are finishing a sale agreement with a discount department store/grocery superstore in over 200,000 square feet, and we are negotiating a letter of intent with a national home improvement store.

We are also in negotiations with a national electronics superstore to fill one of our three mid-boxes.

We expect to commence actual construction in the fourth quarter of 2007 or the first quarter of 2008.

Our third development is the [North Point Center] in Jackson, Michigan.

This project is the result of numerous requests by national anchors and mid-box retailers who cannot be accommodated in our Jackson Crossing Center which is located on the opposite side of the interstate expressway from the proposed development and is anchored by Target, Sears, Coles, Best Buy, TJ Maxx and Bed Bath & Beyond.

We have an agreement to buy 70 acres for the planned 575,000 square-foot project.

The new development will combine power center components with an additional complex including mid-box retailers and entertainment elements in a town-center format.

Our plans also include a number of freestanding office buildings and out-parcels.

In addition to these three projects we are pursuing a development opportunity in Florida.

We're working on finalizing agreements to control the last several parcels for the project, after which we will announce this excellent opportunity.

During the past quarter we formed a joint venture with a discretionary core fund managed by the Heitman organization.

This transaction is not the significant recapitalization I mentioned in past calls.

Instead, it was a way to raise capital at asset sale prices while maintaining both an interest in the shopping center and generating ongoing fees.

Our 7% partnership participation in an unlevered asset is equal to a 20% interest in the shopping center if it were leveraged.

Future additions to this relationship will be handled on a one-off basis.

The two centers contributed to the joint venture were 100% leased and were considered by Ramco as fully valued.

We achieved a cap rate that approximated 6%.

Our acquisition group has also been busy executing their portion of our 2007 business plan.

As of today we have four shopping centers under contract for acquisition by our various joint ventures.

One center is in Indiana, another in Ohio, a third in Michigan and the fourth in Florida.

The total value of these purchases is $120 million.

The Michigan acquisition will go to our Clarion line venture and will completely fill that allotment at $450 million.

This potential acquisition is a true value-added opportunity in one of the wealthiest communities in Metropolitan Detroit.

The other three candidates will be acquired by several of our Heitman relationships.

We expect to close on the acquisition of these centers upon completion of due diligence.

In addition to the centers under contract, we are working with our venture partners on a number of additional acquisition candidates.

I have just outlined a strong two quarters in asset management.

I have also discussed both our near-term acquisition schedule and our plans to undertake an expanded development pipeline.

The success we've achieved in new lease rental rates, the pending completion of a number of redevelopments along with the opening of the last three mid-boxes in Jacksonville, Florida in the third and fourth quarters, the closing on our acquisitions presently under contract, the sale of a number of out-lots at River City Marketplace, plus the initial fees on our new off-balance-sheet development project will back load our 2007 year in terms of FFO.

Ramco's management team has accepted my challenge to step up the goals of all three of our profit centers.

With the help of our entire organization, I reiterate my confidence in achieving our 2007 business plan and FFO goals.

I would now like to turn this call over to Rich Smith, who will acquaint you with the fine points of our financial statements.

Thank you, Dennis, and good morning, everyone.

As discussed our second-quarter diluted FFO per share was $0.60 which represented a 4.8% decrease from the $0.63 reported in 2006.

On a gross basis our diluted FFO decreased $600,000.

We went from $13.5 million in 2006 to $12.9 million in 2007.

Some significant changes quarter to quarter included an increase in our recovery margin, reductions in interest and other operating expense and an increase in gain on sale of undepreciated lands.

These contributions were offset by a decrease in minimum rents and other income as well as an increase in G&A expense.

For the quarter our recovery ratio was 100.9% compared to 97.9% last year.

This resulted in a $316,000 positive quarter-to-quarter change in our recovery margin.

Interest expense for the quarter decreased $245,000, primarily due to a reduced average borrowing for the quarter at a lower average interest rate.

Our other operating expense decreased $152,000, resulting from a bad debt written off in 2006.

For the quarter our gain on sale of undepreciated land increased $600,000 and our minimum rents decreased $656,000.

$2.1 million of the decrease was the result of contributing assets to off-balance-sheet joint ventures.

The lost revenue was offset by a $1.4 million contribution from acquisitions and the balance from core assets.

The $942,000 decrease in other income was a result of a lease termination fee taken in 2006.

Our G&A expense increased $579,000 for the quarter.

Most of the increase was a result of increases in payroll and fringes offset by reductions in single business tax which was reclassified to real estate tax expense and development costs written off in 2006.

For the six months ended June 30, our diluted FFO per share increased eight-tenths of a percent or one cent.

We went from $1.25 in 2006 to $1.26 in 2007.

On a gross basis our diluted FFO increased $100,000.

We went from $27.1 million in 2006 to $27.2 million in 2007.

Some significant changes for the six months ended consisted of an increase in our fee income and recovery margin as well as decreases in G&A and other operating expenses.

These contributions to FFO were offset by a decrease in minimum rents, an increase in interest expense, a decrease in sale of undepreciated land, a decrease of income from discontinued operations.

Our fee income increased $1.3 million.

$1.1 million resulted from an increase in acquisition fees and $384,000 from an increase in management and other fees.

The increases were offset by a $167,000 decrease in development-related fees.

Our recovery ratio for the six months increased from 96.1% in 2006 to 99.9% in 2007.

This resulted in an $802,000 positive contribution to our recovery margin.

The primary reasons for the increase related to the revenue recognition for Michigan's single business tax which will be billed to tenants and the expansion of our (inaudible) resale program.

For the year we expect our recovery ratio to be in the high 90% range.

Our G&A decreased $489,000 to $6.9 million for the six months.

The primary reasons were a decrease in single business tax which was reclassified to real estate tax expense, a decrease in professional fees and development costs written off in 2006.

These benefits were reduced by an increase in payroll-related costs.

We estimate G&A for 2007 to be between 14 and $15 million.

Fluctuation in G&A will depend on our development structure.

If we do our developments on balance sheet, we'll be in the low end of the range.

Conversely, if we do them off balance sheet we'll be in the high end of the range.

Our operating expenses decreased $354,000, primarily related to bad debts written off in 2006.

For the six months ended June 30 our minimum rents decreased $1,017,000.

$3.4 million of the decrease was a result of contributing assets to off-balance-sheet ventures.

The lost revenue was offset by a $1.8 million contribution from acquisitions and a $583,000 contribution from core assets.

Our interest expense increased $203,000 for the quarter, primarily due to interest capitalized on development projects and the net benefits of reduced average borrowings at higher average interest rates.

These benefits were offset by favorable amortization of debt which was contributed to off-balance-sheet joint ventures during the year and an increase in loan amortization fees.

For the six months ended, our gain on sale of undepreciated land increased $1.2 million and our income from discontinued operations also decreased $393,000 due to the sale of seven tertiary market assets early in 2006.

Our total debt at quarter end was $663.6 million at an average rate of 6.1% and an average term remaining of 4.7 years.

84.2% of our debt was fixed at an average rate of 5.9% and only 15.8% of our debt was floating at an average rate of 6.8%.

This compares favorably to the 28% of our debt that floated at the end of last quarter.

Availability under our credit facilities was $89 million at quarter end, and our EBITDA interest coverage for the six months was 2.2 times and our fixed charge coverage 1.9 times.

For the quarter, our debt-to-market cap was 45.5%.

On June 1 we redeemed our Series C convertible preferred stock.

Prior to the redemption approximately 1,858,000 shares were converted on a one-for-one basis in the common stock.

The remaining 31,154 shares were redeemed at $28.50 plus the accrued dividends of 37.8 cents per share.

If market conditions are favorable, on November 12 we plan on redeeming our 9.5% Series B preferred shares which will improve our fixed charge coverage.

Our capital expenditures for the quarter totaled $18.2 million.

$6.9 million was spent on development, $6.6 million on expansion renovation projects, $3.7 million on equity contributed to joint ventures, $626,000 on nonrecoverable CapEx, and $405,000 on recoverable [CAM].

Our capital expenditures for the six months ended total $61.8 million.

$30.1 million was spent on development, $19.3 million on equity contributions to joint ventures, $10.1 million on expansion renovation projects, $1.2 million on nonrecoverable CapEx, and $1.1 million on recoverable CAM.

We expect to fund our future growth by retaining cash from operations, by continuing to sell non-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.

Lastly, we expect our diluted FFO per share to be between $2.61 and $2.69 per share.

Michelle, I'd like to open up the call for questions now.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of David Fick of Stifel Nicolaus.

Please proceed.

Good morning.

Hi, David.

A couple questions.

Your land-sale guidance was previously 3 to 4 million.

Any sense of timing in third and fourth quarter, and is this still good guidance?

I think it's still good guidance.

Maybe a little bit closer to the lower end of that, but I think that it's all within the third and fourth quarter that it's going to happen.

Okay.

And I guess the big question that we've had and you've been working on for some time is your capital funding requirements for your development pipeline.

The development pipeline only get stronger.

Your need to have capital only gets greater.

The JV with Heitman this quarter was sort of a bite of the apple but it certainly wasn't the overall solution.

How do you expect to deal with that?

I think we'll still continue to look at joint venture opportunities, selling some assets into the joint venture.

I think that's still very viable for us.

And as you know we have some Morgan Stanley assets (inaudible) loan that the assets free up in September.

I think we're evaluating some of those assets (inaudible) tertiary markets for sale that will free up some more capital.

With our balance sheet I think it's not unlikely to do some of these developments off balance sheet which will require less capital on our part.

Let me add something, David, because it's important to be consistent with our prior calls.

And on those prior calls I mentioned that we were working on a number of strategic relationships where we could have put in some of our assets and then been in a position to acquire more.

That would have changed the balance sheet.

We continue to pursue those.

We're talking to several people.

As of this moment conversations obviously are taking longer than we might have expected at the get-go.

There are also other opportunities out there as we've seen by some of our brethren relative to opportunity funds where either assets are ultimately acquired by that fund or some assets are put in at the get-go.

So we know that [righting] the balance sheet and having a tremendous amount of dry powder is something not only that you're concerned about but we're very interested in being in a position to tell you about.

And I'm obviously interested in doing that sooner as opposed to later.

Does the Heitman JV have potential upsizing?

Absolutely.

The Heitman joint venture, this latest one, is a solidly a core venture on their part.

Discretionary funds.

Totally unlevered.

So what they're doing--and that's why this 7% interest as opposed to the other.

And as a matter of fact one of the four assets that I mentioned in my prepared remarks is indeed a potential for that venture.

Okay.

And at one point I think there have been some conversations about some of the Detroit assets going into one or more of the JVs.

Is that still a potential?

Yes.

What I mentioned I think was Michigan assets.

Yeah, I'm sorry, Michigan.

Whether or not they're Metropolitan Detroit or Upstate assets.

That's still live, though?

Yes, it is.

Any leasing movement on the office space in Stafford that was not leased by Northrop?

Actually, we do have some prospects--this is Tom Litzler, David--we do have some prospects for the balance of the space, and we also have interest in some of the old Northrop Grumman space, so we're finding the office market to be fairly vibrant there.

We also have the first floor dedicated to retail in the office building, service-type retail, that is very strong at this point.

Okay.

Last question is as you approach your financing in September, Rich, I'm wondering if you can just comment on what the bond market is meaning to you at this point, if there's any concern about spreads or financing costs, number one.

A number two is is there any implication with respect to cap rates with a tighter debt market?

Again, we haven't seen a lot of movement in cap rates especially for the great properties or even the value-added properties in the good markets.

I think that the widening of the spreads is certainly something that we're looking at.

We're looking at other options as opposed to the traditional conduit deals that we've done.

But it's certain something that we're looking at.

All right.

Thanks a lot.

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

Please proceed.

Hey, good morning, guys.

Hi, Christeen.

Could you talk a little about your occupancy target?

95%, I mean, that's over a 200 basis increase in six months, and I guess maybe what gives you a little bit of comfort in that target?

Well, number one, the numbers that we give you as of today reflects those tenants who have opened.

So there's not an insignificant number of tenants with whom we have signed leases, some who fall into the mid-box category who've not yet opened.

So we're not allowed to claim them, at least the way we approach occupancy, until the tenant has actually opened.

I also reference the fact that we expect to have signed leases with this 125,000 square feet of mid-boxes before the end of the year, and so that will go a long way to satisfying that requirement.

But Michael Sullivan, who heads up the asset management group, has that as one of his primary goals, and I'm holding him to it.

Okay, great.

And in terms of your same-store growth, is there any way--your NOI growth-- is there any way to break out how Michigan performed versus Florida?

We can certain do it.

I haven't done that.

I think we could probably do that.

Do you guys have any rough numbers now or something that--?

The Michigan properties I think are probably 2, 2.5%, and the Florida properties frankly maybe dragging that a little bit.

Michigan is 2 to 2.5%?

Yeah, Michigan, call it around 2 to be conservative.

And I think that Florida's probably about 1.5%.

Okay.

So the rest of your portfolio is taking that up to the (inaudible).

Yes.

Okay.

Great.

Thank you.

Your next question comes from the line of Philip Martin of Cantor Fitzgerald.

Please proceed.

Good morning.

Good morning, Philip.

Along the same lines of the last question, even in terms of the rent growth between Michigan and Florida, the 12.9% this quarter, was that 12.9% pretty evenly split there?

A 12.9% increase in Florida versus Michigan?

Philip, if I'm looking at a renewal space, again if we're looking for the three months ended, for Michigan we were probably I'd say in the 10 to 11% range, and Florida pretty close.

I think Florida may have a little bit of an edge, but not much.

Okay.

And then in terms of the--your development and redevelopment pipeline obviously is ramping up.

Where do you see this?

And you've added $270 million here.

More or less all of these are being done within joint ventures, correct?

At the present time, we formed one joint venture on the Heartland development.

The Aquia project, which weighs in somewhere in the $150 million range, probably makes a great deal of--did I say--I said Aquia?

Yeah, Aquia.

Probably lends itself to a joint venture.

My desire is as we ramp up more and more development projects, and again it goes back to David Fick's question about capital, I am very desirous of having a capital structure where we can do more and more of these projects on balance sheet.

The development that we did in Jacksonville, Florida is a very good example of why I would like to capture all of the real upside benefit as far as value creation in a new development for our shareholders.

Yeah, agreed.

As we've talked about in the past.

I would agree 100%.

Where does this--I mean, obviously you're seeing tremendous opportunities here.

We're seeing that in the incremental ramp-up on the development side.

Where do you--by year end, how much more development or redevelopment could you conceivably put into this pipeline?

Well, again, we probably will be completing--I know we're going to be completing a number of the redevelopments that we presently have underway probably in the third quarter.

At Hunter's Square we're expanding the TJ Maxx store there, and I think we're planning a September reopening for them.

So some of those redevelopments will come off.

And as I've said, we have four more redevelopments that basically we'll start in the third quarter.

And that's about 25--you said 125,000 square feet?

The 125,000 square feet accounts for all of the mid-boxes that I mentioned in the four centers going forward.

Yeah, okay.

So I think it's pretty safe to say that we'll see incremental new development opportunities popping up here over the next couple of quarters, so you're going to be adding to your pipeline.

Tom--and I didn't want to talk about them until a number of them are further (technical difficulty), but Tom is actively working on a number of additional opportunities, some in the Midwest, that have to ripen further before we're actually able to talk about them.

But Tom joined us a little over a year ago, and he has taken the development group to a new level, and we're expecting big things from him.

Okay.

And then in terms of returns, are we expecting to see historically the same kinds of returns Ramco's been getting in that 10 to 12% range?

I'd love to say 12 because that used to be our criteria.

But with all of the factors that we're all aware of, somewhere between 10 and 11% is our bogey.

Okay.

And I think that's--I can follow up with you offline here.

Thank you very much.

Thank you.

Thanks, Phil.

Your next question comes from the line of [Lewis Conforty] of [Stark Investment].

Please proceed.

Thank you.

Good morning, Lou.

Hey, folks.

Just more of a macro-structural question.

I see a lot of uncertainty with respect to just kind of the big picture, exogenous events out there.

And I see a company that continues to layer or attempt to put on joint ventures, which to me are structural impediments to an outright sale.

Development, albeit it can be opportune, has a commensurate risk associated with it and with what I see, and we're seeing that it's real time quite frankly today with respect to consumer issues and whatnot, would it be--and given a private equities today perspective take-off, would you guys consider a strategic alternative via an outright sale at this point?

Are you saying, Lou, that you want to put an offer on the table here in front of 30 or 40 people?

We would be more than happy to hear from you.

No, I'm just thinking from a little bit--indeed perhaps would you consider a strategic alternative just as an investment decision?

Never say never.

I'd like to think based upon a number of things that we've talked about here, especially with the amount of value-add redevelopment that we're doing.

As a matter of fact, of the four acquisitions we have under contract, all four of them have serious upside potential through expansions and redevelopment.

So on the one hand there's a lot more gold to be mined out of both core assets and acquisitions.

The flip side is that I believe I have been a reasonably good steward of our shareholder interests, and if a strategic transaction of some sort makes absolutely the most sense, then I'm not opposed to looking at any alternatives or options that can make money for the shareholders.

Good.

Good.

All right, thank you.

Once again, for any questions that is "*" followed by "1." Your next question comes from the line of Rich Moore of RBC Capital Markets.

Please proceed.

Hi.

Good morning, guys.

Hi, Rich.

On the--Dennis, on the three other assets that you're buying, which joint ventures are you putting those into again?

You said they're the Heitman ventures, but are you--State of Florida, or where are you putting those?

Well, more likely than not you're talking at least two of them for the State of Florida, and because I kind of implied that one of them might go to the stable portfolio discretionary fund, you probably could assume one to that and two to the State of Florida.

Okay.

And then on a broader thought about this, what are you hearing from your existing partners and maybe from other partners about doing additional joint venture type investment?

Are they--I mean, it's a tough environment right now.

Are they pulling away from doing stuff with you, or are they getting more excited?

How do they look at it?

Well, both with our ING relationship and our Heitman relationship, because if you looked at the list of redevelopments both that we're in and that I just articulated as far as new redevelopments, it involves many of our joint venture assets.

So our partners see that we truly have been able to execute to add value to these assets.

So we're not only getting positive spreads relative to cap rate compressions, especially in our ING relationship, but we are adding serious value to each one of those assets.

So we continue to get inquiry from not an insignificant number of organizations who would like to do joint ventures.

One of the questions that we obviously are dealing with here, and in part it's kind of an answer to Lou's question, you can't dance to the tune of too many partners because then you've got the issue of where are you dedicating your energies?

Because you have to make sure that you're dedicating those energies on an equal basis to each one of the people that you're working with.

But our partners at least at this point are excited about the things that we're doing with the assets that we own, and in each one of the acquisitions we have laid out a specific program of what we plan to do in short order once we own these shopping centers.

Okay.

Now, I guess everybody's looking for a crack in the whole real estate foundation, and I'm wondering, do you sense anything from your existing partners that would indicate that maybe they're going to want to do fewer of these in the future?

I don't know about fewer.

I know Rich answered an earlier question I think from David relative to cap rates.

We are seeing some movement in cap rates.

Certainly in our bidding process, we've probably from our view added about 25 basis points to the cap rates that we were quoting before.

With the increase in interest rates, it does make certain types of acquisitions a little more problematic.

The flip side of that of course is if we are able to see opportunities to add significant value, then the ultimate question is can we pay a more aggressive price?

Because at the end of the day when we've added that value, and we go a long way to confirm during due diligence that we can add that value, might we be extremely competitive on the front end and--our partners are not so focused on what's the cap rate we're paying as what is the IRR they feel reasonably comfortable and we can produce in a five-, seven- or ten-year period?

So there's a lot of factors at work, and the initial cap rate that we're going to buy assets at is only one of those factors.

Right.

So now when you say added 25 basis points, you mean you've seen them tick up 25 basis points?

Yes.

I believe in the main, except for [A] type of assets which are extremely competitive, I think we've seen the market probably tick up 25.

Okay, very good.

And then [asset sales], you guys kind of talked about this a bit as one of the funding sources for things you're doing in the future.

How much more should we anticipate in terms of sales in the joint venture?

I mean, can you give us a number roughly for the volume you guys are looking at for the year, either outright sales or sales into ventures?

You should probably look for potentially at least one more in the vicinity of anywhere from 60 to $80 million.

Okay.

And would this continue into 2008?

Well, again, we are focused here about doing something that will have a significant impact on the balance sheet.

We obviously can continue to do these one and two sales into joint ventures, but in order to pursue the types of developments that we're talking about, etcetera, I think we would all on this end of the line feel a lot more comfortable if we had done something that will truly allow us to spread our wings vis-a-vis major redevelopments and significant developments.

Okay, good.

Thank you.

And then when you guys look at the River City project, there's a [TIF] where you guys get a certain percentage, 50% over I think $1.2 million in terms of what they collect, what the City collects.

Yes.

Has that begun to kick in?

I mean, are you receiving anything from that?

No, that doesn't--it doesn't even start until I think the end of '08, and the issue will be what tax year it applies to.

But it's no sooner than '08 because what happens--but we're not paying anything on the TIF.

There was a fund created as an interest reserve, so that the interest reserve is being used relative to the TIF.

And the good part about that is that it allows us not only to finish the completion of our center, which will be done by the end of the year, but a number of these out-lots and the residential that's under construction behind us to get completed.

Okay, good.

So somewhere in '09 you begin to see that, most likely.

Yes.

Gotcha.

And then for the year, and looking into as we go forward, what are you guys thinking in terms of fee income lines?

I mean, are we pretty much at a reasonable run rate?

As far as the income lines?

Yeah, yeah, yeah.

I think that I'd like to see as we make more acquisitions and to the extent--well, we'd probably see more of the development fee generation next year than you will this year.

Maybe a little bit toward the end of this year.

But I'd really look at our acquisition fees and our management fees more likely than (inaudible) fees for a run rate to step up a little bit as we bring more properties into the joint ventures.

So as you start getting full-year effect of what we have and additions, I think you'll see that go up.

And again, in '08 I think you should see development fees go back up as well.

Yeah, that's a good point.

Right.

Thanks, Rich.

Okay.

And then the last thing I have, guys, is on your same-store NOI calculation, do you take anything out of there?

You have six redevelopments underway and you have another four or possibly five that you could start.

Do you alter the same-store pool when you're doing these or (inaudible)?

I think, Rich, [because I know] as we start taking properties offline they're not really comparable, so we take the redevelopments out.

I think we've footnoted that on the bottom.

So even, Rich, when you have just the addition of an anchor box kind of thing or the reworking of a small portion of the center, do you take the whole thing offline?

Is that how you do it?

I think most of it has been--just if it's [retowning], I think that unless it's a major part of the center I think we have not.

If it's like an Aquia for example we have.

That make sense.

Okay.

An example on that, Rich, is at our Lakeshore Marketplace we've torn down about 15,000 square feet of space because we needed that area in addition to a pad to put Target in.

So obviously last year to this year couldn't begin to be comparable.

Yeah, that's fair.

Great.

Thanks, Dennis.

Your next question comes from the line of Philip Martin of Cantor Fitzgerald.

Please proceed.

Good morning, again.

One other item.

When you look at your core portfolio, what in terms of redevelopment opportunities and repositioning opportunities can be generated on an annual basis from that, in terms of a dollar amount or even square footage?

I think historically, Philip, it's been in the call it 20 to 30s, so figure $25 million a year is I think what we've spent.

Okay.

So that--

I don't see that changing much.

Again, I think we're really calling Aquia a development, not a redevelopment.

Okay.

And understand something, Philip, and that is that in many instances what we'll do, and I think you see it if you take a look in the supplement and you see that we have a what we call at least a mid-box with a relatively low rental rate.

And our approach in many of these instances, and that's why it's only $25 million even though you're impacting 390,000 square feet, is if we can make a deal and not put any of our money into the mid-box or into the anchor and let them spend their own money, we're more than willing to take a lower rental rate as long as they're spending their money.

Oh, sure.

And your returns historically, I mean, this is where your highest returns have been historically here.

Right.

So at some point--well, I'm trying to--I can handle that offline.

But in terms of the fee revenue, I mean, certainly development fees are generally going to ramp up more aggressively in '08 I'm assuming rather than third, fourth quarter of '07.

That's correct.

That's correct.

Okay.

So the ramp-up or kind of making up what was lost here this quarter in terms of FFO versus consensus is going to be made up the second half of this year primarily in the form of acquisition and management fees.

Well, don't discount the out-lot sales.

(inaudible) income.

Yeah.

But in Jacksonville, as a matter of fact one could have argued that we had several--we have a number of out-lots under contract in Jacksonville.

One in theory was supposed to have closed in the second quarter.

A precondition in many of these is the achievement of site plan approval and getting certain community consents.

And those things obviously don't happen on any schedule that we necessarily like or that we can control in many instances.

Okay, yeah.

Okay, my last question, as we go into 2008 and you look out going forward, Dennis, this platform at Ramco over the next three to five years in terms of average annual FFO growth generation, not even looking at quarter to quarter, just the annual FFO growth, what is the Ramco platform on average going to be able to generate?

Even a range?

I'm looking for at least 6 to 7%.

Okay.

Perfect.

Thank you again.

And as there are no further questions at this time, I'll turn it back to management for closing remarks.

I just want to thank you all for your attention and your interest.

We look forward to fulfilling some of the things that we talked about on this call in the third quarter, and we'll talk to you in about 90 days.

Thank you again.

Ladies and gentlemen, thank you for your participation in today's conference.

This concludes the presentation.

You may now disconnect.

Have a good day.