Rithm Property Trust Inc (RPT) 2010 Q4 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Properties Trust fourth quarter 2010 conference call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Dawn Hendershot, Director of Investor Relations for Ramco-Gershenson Properties Trust. Thank you, Ms. Hendershot. You may begin.

Good morning. And thank you for joining us for Ramco-Gershenson Properties Trust's fourth quarter conference call. At this time management would like me to inform you that certain statements made during this conference call which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although Ramco-Gershenson believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ from expectations are detailed in the press release and from time to time in the Company's filings with the SEC.

Additionally, we want to let everyone know that the information and statements made during the call are made as of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made.

I would now like to introduce Dennis Gershenson, President and Chief Executive Officer, and Gregory Andrews, Chief Financial Officer, both of whom will be presenting prepared remarks this morning. Also with us today are Thomas Litzler, Executive Vice President of Development; Michael Sullivan, Senior Vice President of Asset Management; and Catherine Clarke, Senior Vice President of Acquisitions.

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

Thank you Dawn and good morning ladies and gentlemen. At the beginning of 2010, we outlined a plan for the year which included a focus on the continued improvement of our core portfolio, the further strengthening of our balance sheet and the pursuit of external growth when appropriate opportunities presented themselves.

While last year included many of the charges that our industry faced in 2008 and 2009, it was a period of real progress for Ramco-Gershenson. As it relates to our core portfolio, our centers experienced a significant increase in tenant interest which translated into 41 new leases in Q4 and 141 new tenancies for the full year. We also renewed 250 existing leases, achieving a retention rate of over 75%.

Included in the new leases signed during the year were 13 mid-box agreements. Eight of the 13 were new mid-box tendencies totaling over 202,000 square feet which filled existing vacancies, helping to improve our overall occupancy rate. The remaining five mid-box users were retailers who replaced uses that word no longer positive contributors to our shopping centers' [sprawl].

Three of the five leases -- for three of the five leases, the Company secured a termination fee from the departing retailer which covers most or all of the capital required to install our new anchor tenant. These major retailer additions strengthened our tenant mix, added to the credit quality of our income stream and improved the net asset value of our portfolio.

While we're pleased with the leasing progress we made last year, our positive leasing statistics were partially offset by the fact that a number of retailers continued to experience difficulties with their business concepts. Our portfolio was most significantly impacted by the bankruptcies of Old Time Pottery, Blockbuster and A&P.

Also, a number of smaller local retailers who held on during the worst of the recession did not achieve the sales volumes they hoped would materialize in 2010 and they vacated their premises. Thus, while we made real, credible strides in new leases, this progress was partially offset by vacancies created by retailers large and small. I'm pleased to report, however, that small shop occupancy has improved for two consecutive quarters by a total of 70 basis points and we feel that this trend will continue.

Overall, the net result of our leasing efforts produced a leased occupancy rate at the end of 2010 of 91%. On balance, our numbers indicate an improving retail landscape.

In addition to a concentrated focus on aggressively leasing up our shopping centers, our management team has been committed to continually improving the quality of our centers. To that end, we are actively involved in eight value-add redevelopments in 2010. By year-end we had completed six of the eight projects, achieving a blended double-digit stabilized return on cost.

The redevelopments included four opportunities to undertakings where we either recaptured space and expanded the shopping center, or where we created new retail space where none previously existed. The other four projects involved a reconfiguring of existing space and the filling of existing vacancies. The two redevelopments still underway at December 31 will be completed by the end of the first quarter of 2011.

In 2010 our efforts to strengthen the balance sheet included a $76 million equity raise in May and the listing for sale of three of our shopping centers. We expect the sale of at least two of these assets to close in the first quarter of 2011.

We are also on the cusp of closing long-term loans on two of our larger shopping centers as we take advantage of the current interest rate environment. The proceeds from the sales and financings will be used to pay off our bridge loan, which was secured to fund our latest acquisition -- The Shoppes at Fox River -- and to reduce our outstanding line balance.

During 2010 we were also able to source two new acquisitions and buy an existing note on one of our joint venture assets at approximately 50% of its face value. We then purchased our partner's interest in the center for a nominal sum. These three centers, each anchored by a dominant supermarket, accomplished a number of our acquisition goals including geographic diversification and an attractive, accretive return on dollars invested.

Before I address our goals for this year, I would like to take a moment to frame our direction for 2011 in the context of our objectives for the next three years. Over this period, our plans include consistently improving the quality of our portfolio, continuing to strengthen our balance sheet and the further streamlining of our organization to ensure that costs are appropriately sized to revenues.

First, as to our focus on portfolio improvement, I'm speaking of the full spectrum of factors that impact our individual assets including demographics, occupancy and rental averages. This means that we will be improving our core portfolio through lease-up and value add redevelopments, as well as selling a number of our existing non-core shopping centers with the objective of recycling capital into new acquisitions.

Our efforts in balance sheet improvement will involve not only the sales of out lots, excess land and several shopping centers. But also we anticipate achieving positive changes to our cost of accessing our line of credit, as well as the lengthening of our average loan terms.

As it relates to our operating expenditures, we are committed to a constant review of our methods and practices to make sure that we are operating efficiently. With these longer range goals in mind, a primary focus in 2011 will be to devote significant effort to the continued lease-up and improvement of our core portfolio.

In 2011 our asset management team plans a 10% to 15% increase in leasing velocity over that achieved last year. In 2011 we'll also concentrate on retaining at even a higher percentage of our expiring tenant leases than in 2010. Thus we expect to renew between 75% to 80% of those retailers whose leases end this year.

It is entirely possible, when comparing our newly signed leases with agreements executed in the heyday of the first half of the last decade, or with trying to retain a significant percentage of expiring leases, that our comparisons to prior rentals may fall somewhat short. On balance, however, we feel that in today's environment a higher occupancy rate with shorter duration leases will benefit us over the long-term. This approach will also afford us the opportunity to revisit and further improve our new rental rates as the economy continues to expand.

Thus, we expect at December 31, 2011 our leased occupancy rate will stand at between 91% and 92%.

Staying with the theme of portfolio improvements we're also working on a number of new value add redevelopments that primarily involve centers where the contemplated changes would include the leasing of existing vacancies. We anticipate between two to four redevelopment opportunities for 2011, producing returns consistent with those we've achieved in the past.

Throughout the year we will also focus on another aspect of portfolio quality improvement. As we proceed through 2011, we expect to market a number of shopping centers in addition to the three assets we are currently selling.

These additional potential offerings no longer fit our definition of core assets going forward. That is, their demographic profile, tenant mix, contribution to our bottom-line or the excessive amount of energy and capital required to improve their current condition makes them candidates for sale.

The proceeds from these dispositions will allow us to recycle capital into new acquisitions that better fit our portfolio profile, with an emphasis on geographic diversification, an improvement in our demographic makeup and a broadening of our tenant roster.

This objective of pruning our core portfolio leads into a discussion of our acquisition plans for 2011. The shopping center sector has seen a healthy acceleration in the number of assets for sale which span the entire spectrum from high quality to seriously distressed. We will continue our quest into 2011 for acquisition candidates that are located in metropolitan markets.

We seek centers that are anchored by the dominant supermarket and preferably include an additional major retail anchor. We are not seeking distressed centers nor those that are fully leased and stable. Instead, we will pursue assets that have a strong tenant mix with upside potential, either in the form of leasing vacant space or where we see the opportunity for value-add improvements.

We would like to acquire an additional $50 million to $75 million of new shopping centers over and above those assets that would be acquired with the proceeds from the sale of centers that are presently in our existing portfolio.

Lastly, as you know, we own land which was initially purchased for tenant-driven new developments. Our prospective development sites are either immediately adjacent to successful core assets or the result of a complete redevelopment at a location where the original center was no longer viable.

We have discussed with you the criteria which would have to be in place in order for any one of these projects to move forward. These requirements include signed agreements with all major anchors, the execution of a joint venture agreement with an unaffiliated majority partner and the securing of a construction loan.

Even with these elements in place, we will still evaluate the alternatives of proceeding with the project or selling the fully entitled land with tenant commitments.

Our management team's time and the Company's capital are not limitless. Thus we will weigh a potential development start against alternative uses of these resources.

Eighteen months ago we set a course to improve transparency, reinvest in our core assets, strengthen the balance sheet and streamline our operations. To the extent that this is an ongoing process, we are pleased with our results to date. However, we feel that 2011 and beyond will be a period of accelerated activity, improved results of incredible growth for the Company.

Our entire management team is energized and committed to making 2011 a most productive year.

I would now like to turn this call over to Greg Andrews for his comments.

Thank you Dennis. On the measure that matters most, returns to our shareholders, 2010 was a success. Our shares posted a total return of 32.7%, which exceeded the average return for our peer group by over 550 basis points.

While it is long-term returns that count most, we believe our outperformance in 2010 reflects the market's endorsement of the actions we took last year including raising $76 million in equity in May, investing $56 million in three high-quality shopping centers and leasing 2.5 million sq. ft. of space aggressively.

We closed two acquisitions in the fourth quarter. The first, which occurred at the beginning of the quarter, was the acquisition of the partnership interest in Merchants' Square. Shadow anchored by a Marsh Supermarket, the 279,000 square foot Merchants' Square serves an affluent, infill trade area of Carmel, Indiana, a suburb of Indianapolis.

We had previously bought the note secured by this center from the lender at a discounted price of approximately $0.52 on the dollar. Bringing this center on balance sheet by buying our partner's interest resulted in a bargain purchase gain of $9.8 million, which reflects the difference between the fair value of the center and our cost. As well as a deferred gain of $1.8 million which reflects a gain on our original sale of the center into a joint venture that could not be recognized until now.

Our second acquisition, which occurred at the end of the quarter, was The Shoppes at Fox River, a 136,000 sq. ft. shopping center located in Waukesha, Wisconsin, a suburb of Milwaukee. Anchored by the market-leading grocer Roundy's and shadow anchored by Target, The Shoppes at Fox River is the top community shopping center in its trade area.

In conjunction with the purchase, we agreed to make a $3 million 7.5% loan to the seller for two years, secured by a parcel of land adjacent to the center. We also agreed to provide the seller an earnout related to the lease-up of certain spaces for which we accrued a $2 million liability at closing. Operating this center will be efficient for us because the property is located close to our West Allis shopping center.

Because of the creative manner in which we approached these two deals, we believe we bought these centers at favorable prices. Just as important is the fact that we are improving the quality of our portfolio. As always, our guiding principle on the investment front is to remain disciplined in the price we pay and the quality we buy.

Turning to the balance sheet, our consolidated balance sheet remained healthy at year-end with debt to market capitalization of 53%, comprised of net debt of $568 million and total market capitalization of $1.1 billion. In addition, our joint venture balance sheet is 43% leveraged on a booked basis with net debt of $414 million against assets of $965 million.

During the quarter we increased our on-balance-sheet borrowings by approximately $34 million. The majority of this increase was related to our acquisition of The Shoppes at Fox River. In addition, we invested a modest amount towards roadwork at our Parkway Shops project in Jacksonville, Florida, and we held somewhat more cash than usual at year-end.

Let me discuss our plans for upcoming debt maturities and our line of credit. First, we have bank debt totaling $60 million that comes due in the second quarter of 2011. We plan to repay this debt with proceeds of approximately $60 million from long-term fixed-rate financings on two Michigan properties. We anticipate these closings in the first quarter.

Second, our pro rata share of mortgage debt that matures in 2011 is $54 million. The majority of this is nonrecourse mortgage debt that is readily refinance-able at favorable terms in today's market. In some instances we may use our line of credit to pay off maturing mortgage debt in keeping with our goal of increasing our unencumbered assets.

Third, our line balance at year-end was $120 million. As previously noted, we anticipate selling several centers in the first half of this year, generating expecting proceeds of $25 million to $30 million available to pay down our line of credit. Additional dispositions of non-core centers and excess land would reduce the line balance even further.

Taken together, these refinancing and asset sale transactions will strengthen our balance sheet by reducing debt, extending maturities, fixing rates and increasing our overall financial flexibility.

Turning to our core operating results, our fourth quarter and year-end operating metrics all reflect the slow but steady improvement in the leasing environment that we have seen recently. We ended the year with a leased occupancy rate of 91.0% and an economic occupancy rate of 89.7%. Both figures were impacted by the loss of an A&P lease as a result of their bankruptcy filing. A&P's lease rejection will also result in lost revenue of approximately $1 million.

Excluding A&P, same center net operating income for the consolidated portfolio decreased by 1% for the quarter and 1.6% for the year. Our operating expense recovery ratio was 95.9% for the quarter and 93.4% for the year. At year-end, our receivables are conservatively stated and we have fully reserved for straight line rent receivable from Borders for their two locations within our portfolio.

Our leasing activity pages in our supplement now include disclosure on tenant improvement costs associated with our leasing. Our definition of tenant improvement includes costs we incur or we pay to the tenant to build out their space, as well as base building costs which may be required to make us a space leasable that are amortized over their useful lives.

As you will note, our tenant improvement costs have been falling for several quarters, resulting in improving leasing spreads on a net effective rent basis.

Turning now to the income statement, as noted earlier, we recorded two unusual gains in the quarter. Pursuant to NAREIT's definition of FFO, the bargain purchase gain of $9.8 million at Merchants' Square is included in reported FFO while the deferred gain of $1.8 million at the same property is not. In addition, we recorded a loss on early extinguishment of debt of $242,000 that is included in reported FFO.

For our purposes, we are excluding all three items as well as impairment charges recorded earlier in the year when discussing core FFO.

Core FFO for the full year 2010 was $1.05 per share, which was within the range of guidance we set in the first quarter of 2010. Core FFO for the fourth quarter was $0.20 per share.

Let me cover three notable items that affected this quarter's results.

Number one, minimum rent was increased by the acquisition of Merchants' Square at the beginning of the quarter but reduced by lost rent from A&P as a result of its bankruptcy filing. It was also reduced by straight-line rents of negative $422,000 as a result of reserving against straight-line rent receivables. Note that shops that The Shoppes at Fox River had very little impact given that the acquisition occurred near the end of the quarter.

Number two, other nonrecoverable operating expenses were impacted by a provision for credit loss of approximately $700,000, which is roughly $200,000 higher than we expect going forward primarily because of provisions taken related to A&P.

Number three, general and administrative expenses came in higher than in recent quarters at $5.2 million. The main reason was we recorded $595,000 in expense to buy out the health insurance benefit provided to former executives. This buyout will result in immediate G&A savings going forward.

Together these items amount to approximately $1.2 million or about $0.03 per share in lower income for the quarter. Also note that this quarter's results included virtually no lease termination fees and no gains on land sales, both of which are recurring if hard to predict parts of our business.

Now I would like to comment on our outlook. As noted in our press release, we are reiterating our 2011 FFO guidance of $0.90 to $1.00 per share excluding any potential impairment charges or write-offs of deferred financing costs. This guidance reflects a ground-up budget combined with high level assumptions related to both operations and corporate expenses.

These assumptions are outlined in our pre-earnings release dated January 25, 2011.

Our FFO guidance factors in neither the potential benefits from future acquisitions or the initiation of development activity, nor the potential cost of non-core dispositions or any incremental deleveraging.

To conclude, we are focused every day on creating value for our shareholders. If 2010 was about laying a foundation for the future, 2011 will be about building upon that foundation and positioning the Company for continued success.

Now I would like to turn it back to the operator for Q&A.

(Operator Instructions) Todd Thomas, KeyBanc Capital Markets.

Good morning. Jordan Sadler is on the line with me as well. Greg, I think I heard you mention Borders in your comments regarding bad debt and what has been reserved. Can you just walk through your exposure to Borders and what you are hearing from them and expecting with regard to your locations?

Sure. At year-end we have three Borders locations, one of which had a lease expiration in the first quarter and we have a letter of intent already signed for a replacement for that space. So that leaves us with two in the portfolio.

One of those is wholly owned and the other is in a joint venture. We have not heard anything with regard to either one of those locations, so we don't know what kind of decision Borders might make if it were to file bankruptcy. But just as a matter of prudence, we did have a modest amount of straight-line rent receivable on those leases and we decided to reserve for that in the fourth quarter.

On the replacement tenant, how did the rents compare?

This is Mike Sullivan. The rents compare favorably. Remember that we engaged Borders to remain at a reduced rent as an occupancy play while we prospected for a replacement. But the replacement rent is favorable to Borders rent.

And it is a very strong credit tenant. We're very excited about that.

Okay. And last quarter it sounded like you were expecting to sign four anchor leases in the fourth quarter. And it seems like I think you signed two in the quarter. I was just wondering if you could shed some light on what may have changed between last quarter's call and the end of the year.

Mike Sullivan here. There was really a timing issue more than anything. We fully expect to pick the two up in Q1. The holidays got in our way relative to the retailer -- both retailers actually.

But the discussions are ongoing. We are actually close to finalizing the leases on both. We expect to pick them up in Q1.

Okay. And then lastly, Dennis, just a clarification. You mentioned $50 million to $75 million of acquisitions over and above the proceeds related to the sales.

Is that above the three asset sales that you discussed? Or is there an additional amount of dispositions that you can quantify? And how should we sort of think about additional asset sales in 2011?

Well, number one, the amount that I mentioned, the $50 million to $75 million is definitely over and above the three assets that we talked about previously. In theory also will be above any additional assets that we would sell during the year that we feel we should dispose of, and then we would recycle that into new acquisitions.

We're not at this juncture prepared to say that that sum is X. But we have identified a number of centers that indeed fit the type of criteria that I outlined during my remarks, where it makes more sense to move those out of the portfolio.

It's not a huge sum. On the same token, it's not a small sum. But I think as we move through the end of the first quarter into the second quarter, I think it will give you a much better feel for what we're looking at.

Okay, all right, great.

Just for modeling purposes, I think if you were to plug in something on the order of $50 million of incremental dispositions and then the acquisitions would be above that, so $100 million to $125 million. That would be a reasonable model. I'm not saying that we're promising to achieve that, but just for the purposes of modeling.

Okay and then actually related to pricing on the acquisitions, you mentioned that you are not looking for stabilized assets per se, or instead where there is value add opportunities or leasing upside. How should we think about the initial pricing? What are you seeing in the market today for those types of assets?

Well, we're seeing what we've been -- being active participants in the bidding process is on the low end somewhere around 7.75. And on the high-end we're probably talking somewhere in the very low 8s. We're obviously not looking at what certain of our peers are pursuing vis-a-vis the coastal properties, but again, major metropolitan markets with strong demographics are an absolute requirement.

Okay, great. Thanks.

Michael Mueller, JPMorgan Chase.

Yes, hi, a couple of things. Greg, I think you mentioned that at year-end the occupancy rate was 89.7%. In the guidance summary from before, you talked about occupancy or lease percentage going to 91% to 92% at year-end. So, flat to up 100 basis points on a lease basis. What are you expecting to happen on an occupancy basis?

I think the spread between our leased and economic occupancy which is currently 130 basis points would likely remain about the same, or maybe tighten a tiny bit. That should put us in the 90 -- I'm sorry, about 90% percentile range for economic occupancy.

Okay, so the 89.7, so up --

So about (multiple speakers) to 100 basis points.

So similar to the leased?

Yes.

Okay. A couple of other things, on the dispositions that you mentioned for the first quarter could be going into the second quarter -- $25 million to $30 million in net proceeds. Can you give us an idea of gross value as well as the debt on those?

Right. I think we've previously disclosed that the gross value is sort of in the $45 million-ish range, so the difference there is explained by the debt.

Got it, got it. Got it. And then last question; I just want to double check I'm thinking about this the right way. So guidance has the acquisitions in there thus far. It has three dispositions in there. But you're saying -- (multiple speakers)

Guidance does not have the acquisitions in there, Mike. (multiple speakers) yes, last year's (multiple speakers) yes, 2010. Yes.

Yes. Prior acquisitions plus the three dispositions that you were talking about that should be closing in the first quarter. But the discussion from today's call where we're talking about an incremental potentially $50 million of dispositions and another $100 million to $125 million, that's not in guidance? I just want to double-check.

That is correct.

Okay. Great, thank you.

Ben Yang, Keefe, Bruyette & Woods.

Good morning. Dennis, in your prepared remarks you mentioned about a 75% retention rate on renewals last year. And I know you talked also about the bankruptcies.

But I'm just curious how selective you guys were able to be in terms of who renewed and who didn't renew in your portfolio. Is there way to talk broadly or maybe quantify which retailer? I know you talked about underperforming, but maybe just elaborate on that a little bit.

Obviously our view of the world is that a tenant in occupancy is certainly -- especially one who was there before -- is certainly better than not having a tenant at all. However, part of our analysis would involve the fact that the retailer has to be a positive contributor to the tenant mix, plus of course that they have not been a collection problem, etc. So, our intention was not closing our eyes and holding our nose, but a very studied analysis of the retailers we wanted to retain. Michael, do you have anything that you want to add to that?

No, I think that speaks full. The tenants obviously need to be a viable, as Dennis said, contributor not a collection issue. A viable business plan, an integral part of the merchandising mix, tenant mix of the center. So there has been actually considerable amount of effort and methodology spent on making sure we do everything we can to repay viable tenets in the portfolio.

So I'm just kind of curious. Of the tenants that did not renew, how much of that was kind of by your choice? Was it a percent of renewals that you said you opted to kind of kick out of your center? And what does that look like for 2011?

That's a good question. We haven't really quantified the expirations that we either permit to expire or those that we [effective] (inaudible). If it's of interest, we can quantify that history for 2010. We can also maybe offer our thoughts based on our projections for 2011. I can get back to you with that.

I'm just kind of curious what type of pricing power you guys have and how much leverage I guess you have over your tenants.

I would just add to Michael's comments that I believe that the percentage that we chose not to retain at lease expiration was relatively low. But there is a rationale for that, and that is that we have got much more aggressive relative to dealing with tenants who find themselves in arrears.

As we have mentioned in past calls, we do a very thorough workup on these individual tenants -- understanding their merchandising plan, their sales, etc. So that if they do fall behind and we do not think that they're viable, we more aggressively move to remove them from the center. So that more often than not, the tenants who are there at lease exploration are the ones we want to retain.

Okay, that's helpful. And then kind of switching topics, you did a good job talking about how you define core properties. And by default it helps us understand what is noncore and what might be kind of on the disposition side of your plans.

Does noncore also include properties where you -- kind of one-off markets were you have a little presence? Is that also non-core? And then you think about growing -- or geographically diversifying your portfolio, how do you enter new markets with just kind of one center with little, really, mass in that particular new market?

Well -- and Greg you can jump in if you want to add anything. But we've mentioned in calls past that we did a very thorough analysis of the markets that we would like to be in, either where we have an existing presence we like to expand that presence, or new markets that we would consider viable.

As to assets that are one asset in the market that we presently own, indeed if we have no interest in adding centers to that market then you might see them as defined as non-core.

As far as buying a shopping center in a new market where we don't have a significant presence, the decision to go into that market with that asset would be followed with a significant effort to beef up our presence in that market. But based upon the type of business that we're in, I'm not saying that you can just buy an asset and turn your back on it. However, a regional office per se in each of the individual markets is not a requirement.

An example, really, of buying an asset in a market and then beefing up in that market would be in the Chicago metropolitan area where we indeed have made one acquisition and then proceeded to buy more centers. That would be our philosophy going forward.

Are there any new markets that you can talk about where you might buy that one asset and subsequently grow?

I'm hopeful that we'd have some news for you on that in the next few months, but that answer will have to wait. (multiple speakers)

Okay, great. Thanks guys.

Rich Moore, RBC Capital Markets.

When I think about this, if acquisitions are going to be greater than dispositions it sounds like for the year, then debt is going to increase. Is that right?

Well, there a multitude of capital sources for financing, Rich. It doesn't have to mean that debt would increase.

Well, I'm thinking, Greg, if you are at 9.0 times debt to EBITDA at the moment, first of all do you have kind of a target for where you would like to get the debt to EBITDA level?

We do. I think we want to stay in that sort of low to mid-seven times area, which we will be at relatively easily once we complete these refinancing and sales transactions that we talked about.

Okay. So, okay, so I'm just trying to figure, because it sounds to me like you guys will probably use some equity maybe, even though you said you were planning on (multiple speakers)

I think the right way to frame it is, if we're going to be in the market for trying to grow the assets as a Company, we will maintain a prudent balance sheet while we pursue that strategy, absolutely. Nobody can grow their assets just with debt alone.

I got you. So would you consider doing it as early as [the] take out the bridge loan which is coming due in April? Or are you already set on paying off that bridge loan?

As I said, we have identified the source of repayment for that bridge loan and the term loan, which is the refinancings on these two Michigan properties. So we've really taken care of that issue. And then the asset sales are also going to provide additional capacity.

So there's not really any need to do anything in the short term. It's really going to more depend on the deal flow over the course of the year.

Okay, good. Thank you on that. (multiple speakers) I think I got you Greg. Thank you. And then Dennis, were you saying you're going to do more short-term leases at this point? Is that what I understood from your comments?

Not necessarily more short-term leases, but in those situations especially with the smaller tenants where we believe that occupancy may trump getting a higher rental rate, but it is a use that we want in the center, then we would err on the side of a three-year lease as opposed to a five-year lease. That is what I attempted to convey.

Okay, all right, I think I got you. And then in those 2 A&Ps that were subleased, who were the users in there again? Maybe you told us and I just don't remember. But the -- who is that in there?

Right, we have two local/regional operators, one of which is Spartan Foods, which is a distributor and operator of grocery stores here in the Michigan area, and then the other of which is more of a local specialty market.

And you're going to put in place longer-term leases for both of those guys? Is that the plan?

I think what we said is we have one where there was a sublease in place that automatically became a kind of confirmed lease between us and the sub tenant. The other one is subject to negotiation and we're in that process right now. But they're operating and have a good history in performance in that store.

All right, good, thank you. The last thing I had is on was on Heartland. Explain to me what happened there exactly. I read the footnote about you guys by 80% of the center for $1 million. I didn't quite follow that exactly.

So Heartland is a development project, a portion of which was owned in a joint venture, the portion related to developing a shopping center that we would build and hold. And we had a partner, an 80% partner who really came into the deal originally because of wanting to be in a development of a shopping center. Because of what has happened in the market place, Rich, just the general economic slowdown, the development here is not imminent and on the cusp. And the partner sought to basically exit and at a fairly substantial loss to his investment.

At the same time, we thought it was going to make our life much easier to be sort of 100% owner in control the property. So we executed that transaction to just move on.

Okay, so we shouldn't think, Greg, of the $1 million as anyway reflective of the $32 million book value that you guys have on it, or that you have spent on it, at least to date? It seems like an awfully small amount of money for a portion of the center.

Well, correct. That was just for equity in the property. There is some debt associated with it. So it's not 80% of the total amount, Rich. It was just of the equity interest, which was subordinate to both bank financing and a mezzanine loan.

Okay, all right good. Great, thank you guys.

Vincent Chao, Deutsche Bank.

Good morning everyone. Just a follow-up question on the occupancy guidance. I'm just wondering -- is that going to be coming primarily from improvements on the small shop side, which you said is showing some traction here over the last couple of quarters? Or is it going to be more of a mix between the anchors and the small shops?

It's Mike Sullivan here. It's really both. We're looking for improvements in both anchor and shop occupancy in 2011.

(multiple speakers)

Just to be clear so that your expectations and everyone's expectations I think are tempered, this -- the progress may not be absolutely smooth during the course of the year. We may, in fact, make more progress in the back half as opposed to the first half of the year. But we do think we're going to end the year where we have indicated.

Okay, thanks. Can you just provide a little but more color on what is driving the improvements in the small shop side of things? Is it -- are you seeing more demand for new space? Is it lower level move outs? Just provide some color there.

It's really both, Vincent. It is in fact a lower level of move outs as things begin to stabilize and the shop tenants, particularly in our stronger markets, are on the rebound. We've stabilized their occupancy costs.

They're capitalized. They have a good plan. And there is in fact a demand for more shop space in two of our larger markets, Michigan and Florida, as more and more people are finding some access to capital and coming back really to the market.

Okay. So you are seeing some improvements on the capital availability for these guys.

Yes.

Okay. And just going back to the comments about maybe looking to drive occupancy perhaps at the cost of rents, it sounds like, we were down mid-single digits this year on a blended basis. Is that how we should be thinking about 2011? Or do you think that gets a little bit worse than the 2010 performance or better?

My gut is that it will -- it should not be worse. There are several factors. And Greg touched on one of them, which is that we've had an emphasis, and then Mike referenced access to capital by the tenancies. We're trying to put less money into some of these retail spaces.

When you don't put in TIs, then that will obviously impact the rental numbers. If you can refer back to a few years ago, lots of landlords were buying up rental rates by providing money to the tenants. So, we are reducing the amount of money that we'll invest in these spaces.

Secondly, we are in a time -- although we're looking hopefully for a transition back to the landlord -- but the pendulum certainly has swung in the direction of the tenants. And they are driving the lease negotiation somewhat more than the landlord is.

We certainly do not subscribe to the philosophy that if we have identified a certain rent for space but the market won't support that rent, that we would leave it vacant. We would have much rather lease it, and again, in those scenarios, on a shorter-term basis.

So there's a whole variety of factors that will be involved, but we do not see any significant drop in our average base rents. I just wanted to set the stage that as we continue to lease space, and in many instances improve our rental rates, there is that possibility that you won't consistently see increases on a quarter-by-quarter basis.

Okay, thank you. And just a question on the reimbursement level; it seems like it went up a little bit here in the fourth quarter versus the past couple of quarters. Was there anything unusual that was driving that this period?

I don't think there's anything unusual. The fourth quarter is a time when you can -- when we try to sort of reassess what the reimbursables are going to be, which really are measured across the whole year. So as we get into the fourth quarter we have a better sense of what the expenses are going to be for the year and therefore what the tenants are going to be responsible for.

I think it was a modest true up to that. If you were thinking about it from a modeling standpoint, Vincent, you probably want to focus more on the full-year number.

True the average for the year?

Yes.

Okay, that is fair. And then just maybe from a longer-term perspective, just in terms of the tenant roster, can you just maybe comment about what your views are or thoughts are? Or strategies around some of your lower credit quality tenants like the office players, and the Jo-Ann Fabrics in there, maybe Michaels? And then also beyond that, just thinking about some of the second-tier grocers and some of the longer-term pressures on that group, what your thoughts there are?

I think it is a question that we concern ourselves with every day. We have I think a little bit of a history of trying to be proactive on this front. I think in previous calls Dennis has talked about a transaction where OfficeMax was in a center that didn't have a lot of office use around it, wanted to leave, and we were proactive in helping them leave and replacing them with Old Navy.

And in fact they paid us a termination; OfficeMax paid a termination fee to do that deal. So, we are mindful of those exposures. It's not something on which you can necessarily change the composition of the portfolio overnight. But we're certainly focused on the credit quality of the anchors that we're leasing to.

On the grocery side, I think we're also focused on I think more than anything market share and sales productivity of the individual stores and tenants operating those stores. So I think you have seen that in our portfolio in terms of the relatively high credit quality of the grocer anchors we have, as well as the sales productivity which I think is averaging about [$465] a square foot. So that continues to remain a focus.

I do think that there is a role for specialty grocers in the market. And again, as long as they're well capitalized and do good sales.

In light of A&P, are there any other smaller grocer tenants in your portfolio that you are worried about at this point?

Nothing that I can think of off of the bat that rises to the level that A&P was.

Okay, thanks.

A&P was -- had left the market here a number of years ago. So when we talk about A&P, we're talking about essentially a store that was already dark and had been for a while.

Okay, thanks guys.

Nathan Isbee, Stifel Nicolaus.

Good morning. Just going back to the same-store NOI guidance. As you look at what you know today, leases coming online, you know about Borders and Blockbuster but you had two months of positive small shop net absorption as well, where would just those knowns put you for a base case same-store NOI?

I'm just trying to figure out how much negative surprises or how much the environment would have to change for you to get to the bottom of your same store NOI growth guidance.

We just gave that guidance a couple of weeks ago, so I don't know that we know a whole lot more than we did at the time. But I think that the events -- the types of things that you just described would be encompassed within that number and would steer us -- Borders would obviously steer down towards the lower end of the range.

But we have a number of things that will I think -- could help us steer to the higher end of the range. We have built in a number of high-level assumptions, as I mentioned earlier, related to unplanned vacancies, related to bad debt reserve and related to recovery rate. And there is a range in there where we could end up at the higher end of the range on any one of those or all of those, and that would steer us to the high end of our guidance.

All right, thanks. And Dennis, I guess this is an age-old topic that we've been discussing in terms of Michigan asset sales. But as you talk about a renewed focus on asset sales, are you even thinking about marketing some of your Michigan assets here? Is there any sense that the Michigan sales market has firmed up a bit to the point where it might make sense?

Certainly as we review the portfolio, Michigan assets -- either that are strong Michigan assets that would make sense to either sell or to put into a joint venture, and then maybe an asset that fits into that criteria for disposition would be considered.

The problem has been that there, for all intents and purposes, have been few to none of asset sales in Michigan, primarily because the good centers people are not prepared to part with because of the leverage that the prospective buyer would have. Michigan has the highest percentage of occupancy in our entire portfolio of a state that has multiple assets in it at approximately 95%. So in the main our Michigan assets, as far as occupancy and performance, are doing very well.

That said, if we could find an opportunity either for a joint venture partner or to sell a Michigan asset at a relatively good cap rate, we would do that, one, to raise capital. And number two to demonstrate to you and the rest of the investment community that those assets should command a better cap rate than intellectually people are giving it.

I mean, is it fair to say on the non-core in Michigan that there is a price where you would be willing to take a lump here just to start that, quote, portfolio upgrade process?

It is a double-edged sword. On the portfolio quality improvement, for sure. The flipside of that, obviously, is that -- I just want to make sure that if we do that, irrespective of how we protest that this would be to cull the portfolio, I want to make sure that people wouldn't say -- if they were willing to let that go, then that must be the cap rate that Michigan assets should sell at.

I get that problem. All right, thanks.

Tayo Okusanya, Jefferies & Co.

Good morning gentlemen. Just a couple of questions. First of all, I just wanted to get a better sense of your overall outlook for the Florida market and what you're seeing out there.

In terms of leasing and occupancy?

Yes. Leasing and occupancy, correct.

We're seeing encouraging signs, as we have stated before, in both anchor and shop. There is high interest in our -- any vacant boxes that we have in Florida, significant interest from national retailers, good credit. And as we mentioned before we're seeing a resurgence really of the shop tenant getting back into the market, better capitalized business plan. So we see improvement in the Florida market.

Okay, that is helpful. And then the second thing in regards to making acquisitions and stronger markets, with looking at assets with lease-up potential, I understand that. But I'm just kind of curious how you weigh that against making acquisitions and maybe secondary markets or even in strong markets that are already stabilized. Why this approach versus that? And what kind of IRR's would you expect with this methodology, with this philosophy versus buying stabilized assets instead?

Well, I think the reason we talk about not really pursuing stabilized assets, stabilized assets is defined as high quality with 95%, would mean that more -- you would see your returns coming from positive spread investing and only from positive spread investing. We would like to think that certainly we are making acquisitions where our cost of money would mean that it would be accretive.

But historically we like to buy an asset where we believe that, based upon our tenant contacts, our insights into the type of merchandising that the trade area commands, or just our ability to see something that the seller didn't see, that we can add a reasonable amount of value over and above the spread we got for buying it. I'm not saying that we're not interested in shopping centers where the occupancy level is reasonably high. But to buy a just a stable asset for a stable asset purpose, that is not our focus.

Got it. And what kind of IRR hurdles are you targeting for these acquisitions?

Well, obviously it depends on the quality of the center, the prospects for the growth and the risk. But I think we would like to look certainly at something north of 9%, and just depending upon the factors I just mentioned, perhaps higher than that.

Got it. Okay, and then a last question, the Wal-Mart space, after the Bealls transaction, how much space is there still to lease up and how is that process going?

The box, the Wal-Mart box itself, we have one deal done. We have another that we expect to execute late Q1, early Q2 latest. And we have a prospect actually at LOI for the third piece that we would expect to execute in Q2.

We have a vacant large format box 10,000 sq. ft. former Goodwill. We have an LOI in for that and then another three or four shops that we expect to stabilize with additional interest once we can announce the lineup at the Wal-Mart box. So things are coming back. (multiple speakers) It's about 17,000 or 18,000 sq. ft. including the 10,000 sq. ft. of Goodwill.

(inaudible) you have 17,000 to 18,000 sq. ft. getting ready to move in, you said?

I'm sorry?

You have 17,000 to 18,000 sq. ft. of tenants -- of space about to be leased up?

Available for lease. LOI, 10,000 sq. ft. Goodwill and then interest on the other 7,000 to 8,000 sq. ft. But no LOIs yet. (multiple speakers)

But relative to (inaudible) size of the Wal-Mart box was about 75,000 (multiple speakers)

But it's 84,000 (multiple speakers) we have -- we'll have that 84,000 (inaudible) (multiple speakers)

We have about 55,000 sq. ft. left in the original Wal-Mart box, and of that original space another 25,000 to 30,000 sq. ft. is this lease that we have out already, which would leave us about 25,000 sq. ft. I think that is the stat you were looking for.

Yes. That is helpful. Thank you very much.

There no further questions at this time. It would now like to turn the floor back over to management for closing comments.

Once again I would like to thank you all for your interest and your attention and we look forward to speaking to you in a couple of months.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.