Rithm Property Trust Inc (RPT) 2011 Q2 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Properties Trust second quarter 2011 earnings conference call.

At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require Operator assistance during the conference please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

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

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

Joining me today are Dennis Gershenson, President and Chief Executive Officer, Gregory Andrews, Chief Financial Officer, and Michael Sullivan, Senior Vice President of Asset Management.

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.

Additionally, 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. Although we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions, factors and risks that could cause actual results to differ from expectations are detailed in the quarterly press release.

I would now like to turn the call over to Dennis for his opening remarks.

Thank you Dawn. Good morning ladies and gentlemen. You'll remember that during our fourth quarter 2010 conference call we outlined for 2011 a number of operating performance goals, capital management objectives, and a plan to improve the overall quality of our portfolio.

To that end, the first six months of this year have been a very busy and productive period for the Company. As a result of our actions over the last 120 days we are delivering on our promise to drive long term shareholder value and with our plans for the second half of 2011 we are laying the foundation for predictable, sustainable earnings growth.

Our objective is to position the Company as one of the top performing shopping center REITs. In order to achieve all of these goals we formulated our 2011 strategy to include one, the improvement of our balance sheet and the generation of significant liquidity so that the Company will be positioned to seize opportunities as they arise as well as to insulate us from future risks as it relates to outstanding debt maturities over the next 24 to 36 months.

Two, our plans include capitalizing on the strategic location and strong tenancy of our shopping centers to push occupancy and thus improve our operating income and performance while containing costs.

And three, through the sale of non-core assets and the acquisition of well located shopping centers with a value add component we will positively reshape our demographic profile and geographic concentration as well as expand the breadth of our tenant mix and further improve the quality of our income stream.

The results of the second quarter and the first six months of 2011 demonstrate significant progress on all of these fronts. Relative to our first goal, balance sheet improvement and enhanced liquidity, I'm pleased to report that with the closing of our new term loan and line of credit, both on significantly more favorable terms for the Company than our previous facilities, and the funding of our perpetual preferred offering, the outstanding balance on our revolving line of credit at quarter end stood at a modest $33 million. This balance has been further reduced by the proceeds from our recently completed sale of the Sunshine Plaza shopping center in Tamarac, Florida.

Our disciplined approach to balancing our sources with our uses of capital will allow us to maintain a positive debt profile through the balance of the year. In a few minutes, Greg Andrews will discuss the details of our financial activities in this last quarter.

Because progress in asset management can produce the greatest return on invested capital, our second goal involves leveraging our shopping center locations to increase occupancy and drive operating income. A review of our Supplement will show that we have made real progress in all aspects of our portfolio operations.

At the beginning of 2011 I challenged Asset Management to accomplish four objectives. First, we were to retain a higher percentage of retailers with expiring leases than our historical average. Second, we should build upon our success in signing new big-box leases with the goal of continuing to reduce the number of vacant anchors each quarter. Third, with the securing of numerous anchor destination draws, our leasing department should be able to achieve substantial progress in the leasing of ancillary retail space. And lastly, I charged Asset Management to further reduce the cost of center operations as a lower CAM charge benefits all of our retailers.

Success in these four areas will also drive improvement in our same center net operating income comparison which is indeed reflected in our second quarter results. Achieving these four objectives is in addition to our ongoing focus to uncover opportunities to add value to our core portfolio. An example of this process is the announcement this quarter of the redevelopment of our Shops on Lane shopping center to include a new, expanded Whole Foods store in 35,000 square feet. Michael Sullivan will address the four goals I have outlined at the conclusion of my remarks.

The third overarching goal for 2011 involves the improvement of the overall quality of our shopping center portfolio through the acquisition of high quality shopping centers in demographically strong markets and the recycling of the capital from the sale of existing assets that we consider non-core are fully valued or are properties that will not grow in value over the near term such as net lease out buys.

In the second quarter we announced the acquisition of Heritage Place, a 270,000 square foot shopping center with four anchor draws including a 70,000 square foot upscale specialty grocer which is producing gross sales well above national averages. This asset met all of our acquisition criteria including the following -- first, a desire to expand our geographic presence into new metropolitan markets. St. Louis is the eighteenth largest MSA in the country.

Second, to ensure that our entrance into a new market would be coupled with an opportunity to expand our presence in that trade area. Presently, we are already reviewing a number of additional St. Louis acquisition opportunities.

Thirdly, new acquisitions must be located in a trade area with a demographic profile equal to or better than our portfolio average. The three mile average household income level for Heritage Place is $95,000.

And lastly, the acquisition target should afford us an opportunity to add value. At Heritage Place there is a significant opportunity to add value by the leasing of available small shop space based on the strength of our grocery anchor as well as the other national credit draws to the center.

The acquisition of Heritage Place was completed at a 7.6% capitalization rate. This center's price should be viewed in light of our second quarter and early July dispositions which include a CDF out lot plus the Lantana and Sunshine shopping center sales. Combined, the dispositions produced an average sales cap rate of 7.02%, generating $24,100,000 in cash and the elimination of $9.5 million in long term debt.

In addition, we are currently marketing a number of additional centers for sale that we consider non-core. The dollars generated and the debt transfer will further improve our financial metrics and provide a source of capital for future acquisitions.

In summary, on the asset management side the mid-box retailers who signed leases in 2010 and in the first half of 2011 will begin to take occupancy in the second half of this year. These tenancies will have a significant and positive impact on our 2012 income and occupancy numbers.

Also, we continue to diversify our tenant mix, reducing our exposure to any one retailer. Our efforts in this area have been rewarded by the limited impact the Borders bankruptcy and liquidation will have on our numbers and relative to acquisitions, we are focused on transactions that will broaden our geographic footprint while increasing the quality of our portfolio.

Ramco-Gershenson is committed to building upon the Company's superior portfolio of large multiple anchored shopping centers that are located in demographically strong markets. Our unique emphasis on multi anchored centers, often with a grocery anchor, sets us apart in the marketplace. These sellers are typically located in the heart of a vibrant trade area as opposed to a center anchored by a supermarket and our multiple anchors insulate our centers from the loss of any one major retailer. Thus, with a portfolio of strong, stable core shopping centers and a commitment to maintaining a strong balance sheet with substantial financial flexibility we are positioning ourselves to achieve our objective of being a top performing shopping center REIT.

I would now like to turn this call over to Michael Sullivan, our Senior Vice President of Asset Management who will briefly provide insight into our operating metrics for the quarter.

Thank you Dennis and good morning everyone. As Dennis mentioned, Ramco's Asset Management Team was presented with four primary objectives designed to demonstrate improvement in our core shopping center portfolio. I am pleased to report that we continue to make progress in these four areas.

Our first objective is to retain a larger number of tenants with expiring leases above our historical average at improving renewal rental scripts. Year to date, we have renewed 80% of our expiring leases and project closer to an 82% retention rate for the full year. Also, we have been able to generate positive growth in renewal rentals for a second straight quarter.

Our second challenge is to reduce our exposure to the number of anchor vacancies. Our Supplement shows 15 anchor vacancies in the portfolio as of June 30. This is down from 18 vacancies at the end of the first quarter. Of these 15, three are already leased but the retailers are not yet opened. Six are in LOI negotiations with actual retailers and six are being aggressively marketed.

As we are all aware, Borders will be closing all of its remaining stores in the second half of 2011. The impact of these closings for Ramco is negligible. At the present time we have one wholly owned and one joint venture store. I'm pleased to report that we currently have identified a national anchor tenant for the wholly owned space at our East Town center in Madison, Wisconsin and feel confident that this lease will be signed by yearend. We are aggressively marketing the joint venture space.

Let me remind you that in January the Borders store at Hunter Square in Farmington Hills, Michigan closed. We were able to immediately re-lease this space to Buy Buy Baby.

The third operating goal is to build upon our anchor leasing progress by filling ancillary space in our portfolio. In the second quarter our small shop occupancy in our entire portfolio increased 30 basis points compared to the first quarter. In five of our shopping centers where national anchor retailers have opened since the third quarter of 2010 we have signed leases totaling over 70,000 square feet, reducing small shop vacancy in these assets by 21%. We believe based on our progress to date that the overall positive trend for shop leasing in our portfolio will continue. National tenancy issues have abated. In fact, we have recently received notification that Blockbuster will now remain open at five of our six locations.

Additionally, we continue to reduce our exposure to local tenancies in our Florida portfolio by increasing our efforts to entice national retailers to our properties.

Asset Management's fourth challenge for the current year is to continue to reduce recoverable operating expenses at our centers. These lower operating costs are a direct benefit to our tenant. In the second quarter we were able to reduce our recoverable expenses versus budget by $572,000. These savings are due primarily to continued success with real estate tax assessment appeals and leveraged outsourcing of property level service functions.

Building on the four aforementioned objectives will remain the primary focus for Asset Management Team through 2011.

I would now like to turn the call over to Greg for his prepared remarks.

Thank you Michael. Let me start my explaining our new disclosure on occupancy. Then I'll discuss our balance sheet, cover our income for the quarter and finish with our outlook for the year.

This quarter for the first time we are reporting occupancy statistics for our core portfolio which is 92.1% leased and 91.3% occupied. We consider our core portfolio to be the stable properties that currently account for over 96% of our annualized base rent. The core portfolio excludes one active redevelopment that we commenced this quarter as well as four potential redevelopments that are in various stages of planning but not yet under construction.

We think this new disclosure will provide for better trend analysis going forward as well as better comparisons to our peers, many of whom report occupancy on a similar basis.

We have also disclosed total portfolio occupancy in the same manner as we always have so that you can make valid comparisons to prior quarters.

Now for our financial position, our balance sheet at June 30, 2011 reflects the capital raised during the quarter including an offering of $100 million of 7.25% convertible perpetual preferred stock, a $75 million unsecured term loan and a $175 million unsecured line of credit. Based upon demand, our offering of convertible preferred stock was upsized in late April from an initial offering of $80 million to the final $100 million.

In addition to these capital transactions we raised approximately $21 million from asset sales during the quarter including $4 million from the sale of land and $17 million from the sale of Lantana shopping center in Lantana, Florida.

Subsequent to quarter end we raised another $15 million from the sale of Sunshine Plaza in Tamarac, Florida. With these transactions complete we have lowered our borrowing cost, enhanced our liquidity and flexibility and unencumbered over $0.5 billion in property.

Let me review our debt metrics as of June 30, 2011. Our net debt to market capitalization was 44.7%. Our net debt to EBITDA was 6.4 times for the quarter and 6.7 times for the first half. The weighted average term of our consolidated debt was 5.9 years. Our interest coverage ratio for the quarter was 2.8 times and our fixed charge coverage was 2.0 times. Our pro rata share of maturing debt over the next 12 months is only $30.7 million. And finally, our cash and availability under our line of credit is currently over $150 million. Going forward we intend to maintain a strong, flexible and liquid balance sheet which is essential to our success.

Turning now to the income statement, our FFO for the quarter of $0.22 per share included three notable items. First, we had a loss on early extinguishment of debt of $2 million or $0.05 per share. This related to refinancing our former term loan and revolving line of credit with our new credit facility. As previously noted, this one time non-cash loss was and will be excluded from our FFO guidance for the year.

Second, we had a non-cash provision for taxes of approximately $830,000 or $0.02 per share. In May, the State of Michigan repealed the Michigan business tax and replaced it with a corporate income tax. This change required us to write-off deferred tax assets of $3.3 million and deferred tax liabilities of $2.5 million for a net non-cash reduction in income and FFO of $830,000. Because the new Michigan corporate income tax allows for a dividends-paid deduction we do not anticipate material state income tax expense going forward.

Third, we recognized a gain on the sale of an outparcel of $2.2 million or $0.05 per share. This sale was anticipated in our guidance at the beginning of the year.

Adjusting for these three items, our core FFO run rate for the quarter was approximately $0.23 per share.

Now let me address several other income statement items. Consolidated property NOI on a GAAP basis was $20.5 million, driven by our same property NOI growth of 1.3% and our acquisition of Heritage Place, partly offset by the sale of Lantana shopping center. Note than an additional $300,000 of NOI from two properties is included in income from discontinued operations.

Our shopping center expense recovery ratio for the quarter was 91.4%, or higher than the 88.7% reported in the first quarter. We anticipate that a recovery ratio will approximate this higher level for the rest of the year. We received virtually no lease termination income this quarter. We continue to anticipate another $1 million or so in lease termination income in the second half of the year, primarily related to plans we have to replace a darkened tank anchor with a new retailer.

Our provision for credit loss which is included in property operating expenses was $352,000 for the quarter. The current quarter's provision is the lowest in some time and reflects what we believe is a modestly improving trend on the collections front.

Our joint ventures continue to perform well with our share of income increasing to $672,000 compared to a loss of $73,000 in the comparable quarter. This increase reflects same center NOI growth at the joint ventures of 3.4% as well as lower interest expense from paying down debt at the ventures.

Lastly, our general and administrative expense for the quarter was $4.9 million. This line item included some modest severance expenses and other costs that we don't anticipate will recur. We expect G&A to run at an annual pace of about $18.5 million in the second half of the year.

Now I'd like to comment on our outlook. As noted in our press release we are revising our 2011 FFO guidance to $0.92 to $0.98 per share which narrows the range from our previous guidance of $0.90 to $1.00 per share. Our revised guidance reflects our confidence in the operating outlook for the second half of the year despite an economy that remains sluggish. As in the past, our guidance excludes any impairment charges for loss on early extinguishment of debt. It does include the one time non-cash tax provision we took this quarter.

To sum up, we are pleased with the progress we have made this year. We have strengthened our balance sheet, improved our portfolio, and aggressively leased and managed our assets. As always, everyone here at Ramco-Gershenson remains keenly focused on creating value for our shareholders.

Now I'd like to turn the call back to the Operator for Q&A.

Thank you. We will now be conducting a question and answer session. (OPERATOR INSTRUCTIONS)

Our first question is from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

Greg, just had a question with regards to the revised guidance, so $0.92 to $0.98, if we look at what you've done the first half of the year, you're at $0.51 I guess on a comparable basis excluding the impairments. I was just wondering if you could provide a little more detail. I know you discussed Borders briefly but can you kind of talk about the impact to earnings and how we should think about the back half of the year in terms of the trajectory here for earnings?

Borders and other tenants like that are a modest factor but not really, I think the main issue when you're comparing the first half to the second half, you have to recall that we had a fairly substantial lease termination fee income in the first quarter and a significant gain on land sales this quarter. We tried to provide all the information, Todd, that can allow you to kind of adjust and normalize a run rate that I think would be consistent with the guidance we've given.

Okay and then Dennis, you talked a little bit about acquisitions in your remarks. You mentioned St. Louis in particular and then you also mentioned that you've identified some non-core asset sales. Previously you mentioned $50 million to $70 million of net investment activity for the year. You'd have to do quite a bit of acquisitions in the back half of the year at least relative to what we've seen in recent quarters. I was just wondering how comfortable you are still with that forecast and perhaps you can remind us, put some detail around the acquisitions that you're looking at and some of the parameters around timing.

Let me say this, our expectations or our hopes at the beginning of the year certainly are tempered by what we've seen in the marketplace that we've all discussed which was that the very aggressive prices on the two coasts began to affect the middle of the country and so we've seen cap rates falling even in those markets that we've identified which are non-coastal. We are looking very carefully at several additional acquisition candidates. Whether or not we'd be able to hit a goal on a net acquisition basis is a question. We do have at least one non-core asset in the marketplace for sale now, over and above the three we had originally planned so we expect to make additional acquisitions primarily along the line of the Heritage center that you've already seen -- in other words, multiple anchors and each with a grocery component but again having multiple anchors. Whether or not we'll be able to actually hit the net number that I identified, it may be somewhat problematic but again we expect dispositions and acquisitions in the second half of the year.

Okay, can you give us a sense of the size of the disposition that's in the market?

We are now out soliciting bids so I prefer to wait until we have something more specific than to guesstimate either high or low on what the value of that asset will be.

Okay and then just lastly, moving over to the balance sheet and thinking about leverage, you mentioned your net debt to EBITDA is now in the mid to high sixes. As we sort of think about your acquisition and disposition activity, I guess leverage will be somewhat of a moving target but should we expect that you'll continue to raise additional capital or are you comfortable with your leverage at these levels more generally now?

We're absolutely comfortable with our leverage at these levels -- in other words, debt to EBITDA in the six times range. It starts coverage ideally at two times or higher. A couple other points I'd make, we reported our stats as of June 30 and subsequent to the quarter end we received proceeds from another sale of $15 million. Dennis referenced another asset that we're in the market with so exactly how we fund future investments will depend on how much activity we have but we certainly have some funds coming from recycling capital.

Okay great, thank you.

Our next question comes from Nathan Isbee with Stifel Nicolaus. Please proceed with your question.

The same-store NOI is 1.3% in this quarter. It's up (inaudible) year to date. Can you just give some color in the second half of the year, where you expect that trending and I guess give a pretty wide range on your full range guidance, negative one to one and given that we're halfway through if you have any -- are you more comfortable towards the higher end of that range yet or are you still hedging your bets?

I guess what I would say Nate, is that what you see in the statistics from the first quarter and the second quarter is that there is some quarter to quarter variability and so year to date we're kind of right in close to the middle of that range of guidance that we gave of plus one to minus one for the year. We do know that Borders may have an impact on us bigger in the second half so I think we're pretty much comfortable stick to the same guidance at this point.

Okay, thank you and can you just give a little bit of an update in terms of leasing activity in your land held for development of Aquia, some of the other two centers in terms of timing as to when you might be able to start those?

Nate, I'll say this, that no project will be commenced in 2011. After saying that, we continue to receive significant tenant interest in our two Florida potential developments. We have moved through the letter of intent stage well into lease negotiations with a number of retailers. We constantly keep our Board apprised of exactly where we're at and they have set some very specific criteria for us relative to level of leasing type of returns, etcetera, that they require before we could even contemplate starting something.

Concerning Aquia specifically because I know that that's one of your favorite topics, the apartment use is not only still very viable but pushing very hard because the need for multi family residential in that area just continues to grow. The theatre is constant in their commitment. We continue to receive additional interest for office building users but not at this juncture substantial enough for the people we're talking to on a joint venture for the office to be prepared to commence building but you can rest assured that we're not going to do anything at Aquia or at any of our other projects that we do not feel very comfortable announcing to the world that these will be incredibly successful projects.

Okay and then I will return the favor then. I'll switch to one of your favorite topics which would be Michigan. If you could just talk a little bit about, you had some success last quarter in terms of signing some new-to-market retailers, if there has been any further progress coming out of ICSC?

We are dealing with a number of new-to-market smaller retailers that we're in negotiations with now but again, if you remember our stats for Michigan which are in the mid-90% level, we are very comfortable with the level of leasing we have here. We mentioned the one Borders use but it's in a very affluent area and it fits in its configuration right up on the road so if I had a box to lease, that would be the most desirable box.

As far as progress in Michigan is concerned, that has historically never been a problem and we continue to feel comfortable that we can lease our spaces in Michigan at the high end of the market rents.

Okay and then can you just update us on the A&P space in terms of potential replacements there?

Nate, this is Mike Sullivan. We have one vacant A&P space in the east Flint Eastridge Commons, 72,000 square foot plus box we are continuing to aggressively market. We thought earlier that we may have had a viable national prospect for a piece of it. That has gotten a little colder than it had in the past. Secondarily, we thought we had a new-to-market grocery concept that is still expressing interest but trying to get their Midwest open-to-buy program together so nothing hot to report but we still continue to aggressively market the space.

Alright, thanks.

Our next question comes from Michael Mueller with JPMorgan. Please proceed with your question.

First question kind of ties into something that was asked before but Dennis, I think you were talking about assets being marketed for sale and you mentioned that there were a number being marketed. Can you give us a rough idea of how big of a pool of assets it is dollar-wise and then the likelihood that something would hit this year on the sale side and also the likelihood that something would offset that on the acquisition side?

As far as magnitude is concerned and leaving aside when exactly an asset might be sold, we're talking about if you look at the total portfolio, somewhere in the 5% to 10% range on a square foot basis is basically what we were talking about that we have identified assets for sale. I feel very confident that a minimum of one more sale will occur and I think we anticipate several more that would be sold this year. As far as acquisitions are concerned and the timing on that, I'm pleased to say that more likely than not we'll have another disposition before we close on a potential acquisition.

And then Greg, when you were talking about the core portfolio percentages, I think you said 92.1% was leased -- yes, that was in the release -- but what did you say the occupied percentage was for the quarter?

91.3% Mike.

91.3, okay and that's not in the Supplemental anywhere is it?

Yes it is. It's on page 20 of the Supplement in the middle of the page in bold.

Got it, okay.

So we continue to disclose, which I think is very helpful to disclose both leased percent and occupied percent so that you can understand the activity a little bit, in a little more detail.

And that was for the core portfolio that you were talking about?

That's the core portfolio.

Okay, got it. And then if we're looking at leasing spreads it looks like they improved a little bit sequentially. Is that a function of one, either being a trend where you are seeing some improvement there, continual improvement or just a function that these things bounce around from quarter to quarter?

Mike, it's Mike Sullivan. We're seeing really steadily improving trends in both new rent spreads and renewal rent spreads. We've always taken the position that for new lease spreads we deal with market rents that really are determined by the trade areas and our assets in those trade areas. We like to think that the quality of our assets, we're either at the top or close to the top of market rents and we're still comparing in those market rents against leases that were generated in the go-go days so we're still seeing some generally improving trends in these new lease spreads but again, we're being cautiously optimistic about that.

The renewals however, based on what we see as the second straight quarter of positive renewal spreads, we're pretty optimistic that we can continue that trend and we're cautiously optimistic that we can end the year in positive territory for renewal rental spreads.

Mike, this is Greg. I just want to add one thing which is that the manner in which we disclose our spreads is very transparent and what we've tried to do is compare the current lease to any prior tenant that we had not limited by when they were in the space. I think you know some peers do limit the comparison to spaces where prior tenant has been in occupancy within the last year and so we went and looked at what that would do to our statistics and if we calculated it that way we would have many fewer transactions that we would call comparable which I think is what you see with some of the peers. They have fewer comparable transactions. But in fact our lease spreads would have been positive, slightly positive, like point plus -- on new leases it was plus .6% instead of the minus 9.7% that we report so I want you and other people listening to understand that there is a lot of diversity practiced in how these are calculated and the analyst community really needs to see through the detail here.

Our next question is from Rich Moore with RBC Capital Markets. Please proceed with your question.

Greg, I like the new disclosure on page 20. That's good stuff, and I'm looking at the potential redevelopments which by the way, I'm a big fan of -- I think splitting stuff out like this is quite good from my opinion but my first question on that is, is that it? Is that sort of all there is in the whole portfolio that you think would fit into that category?

No, absolutely not. There are other opportunities within the portfolio and this was not intended to be some sort of all encompassing list of opportunities. We have vacant land adjacent to certain centers that we could do something with. We have in one instance I can think of, a darkened tank tenant which I think is going to present us with an opportunity over the next few years.

What we did was we focused really on things that today the properties really can't be characterized as stabilized and so they are ones where we're very focused on trying to maximize the value of those assets and let me just add one thing that those four potential redevelopments only account for about 2% of our NOIs so it's not a big piece of our portfolio but it is one where we're very focused on trying to create value.

Let me just add to that that when we categorize it this way as opposed to something like a Shops on Lane that is in an active redevelopment what we're really doing with these is we've identified that we are working on revising the tenant mix. We are seriously focused on reconfiguring the assets and thus, although they're not far enough along to name a specific retailer, we're very focused on these specific assets to make changes of consequence.

Okay, thank you Dennis and then as you look at these, could these also be sold? I mean, is that a possibility? Obviously, anything can be sold but is that part of the plan possibly so that these are non-core in essence perhaps too?

I think part of the analysis that we will go through is always to compare our options and with anything that I think you would call a potential redevelopment, that pretty much tells you that we still have to go through the full analysis of what we think we can accomplish and what kind of return we think we can achieve and we should compare that to what kind of proceeds we could get if we were to just dispose of the assets so I think the short answer to your question is yes.

Okay and the reason I kind of asked that Greg is I'm wondering, do you or would you guys consider putting the other non-core assets you're thinking of I suppose selling as part of that 5% to 10% of the [G&A] that you want to get rid of into that bucket as well and then show your core on what is truly just your core as opposed to non-core?

To the extent that we really haven't identified, quote, what is core and non-core, there are several assets that we are seriously considering selling and we talked about this in the first quarter, that are 100% leased and that we would sell just because they may be the only asset in a state or they are a net lease free standing use, so I'm not sure that we wouldn't muddy the waters by combining things that you'd question well, wait a minute. If it's completely leased why do you have it in the same bucket with assets that you say we're taking a good hard look at, focusing on how we can reconfigure them or release them?

Okay, gotcha Dennis and I do like what you guys have done here. It's nice and by the way, I found the two centers I couldn't find. I didn't see that last night. I thought maybe they had disappeared magically but here they are.

The second question I have is on Hartland. There are a couple small pieces of debt I think Greg, that come due toward the end of the year. Do those just get, since you're not pursuing the development at this point, just get absorbed on to the line of credit? Is that the idea?

We've already broached the subject with the Lender about the possibility of extending or refinancing those loans and depending on what the Lender comes back with we'll compare that to our option under the line of credit but either way, it's a relatively modest sum and recall that we're also trying to sell some land at Hartland, the proceeds of which could be used to pay off one of those loans.

And then the last thing I have is the margin, the operating margin was higher and I think you kind of hit on the fact as you were discussing earlier that the recovery ratio had improved and would probably continue to improve. It looked to me like operating expenses fell and is that part of it? I mean, obviously your effort to look at these, is that something, that margin, that we should continue to see at the same sort of level going forward?

Yes, I think we're very watchful on operating expenses as Michael Sullivan referred to earlier and one other factor in there is probably that our bad debt was somewhat lower than it has been for some time and again, we feel reasonably confident that that reflects some improvement on collection but those things do tend to bounce around a little bit. Those are the factors in the operating expense category.

Okay great, thank you guys.

Our next question comes from Ben Yang with Keefe, Bruyette & Woods. Please proceed with your question.

Can you guys comment on the two mortgages that are currently in default, the Madison center and West Acres? And I'm just wondering, are you guys giving serious consideration to rolling these loans or maybe are these potentially the third and fourth non-core tenants that you could see up for sale?

We're in discussions with both Lenders and each of the properties is anchored and operating so they are operating properties but there are some issues related to the value or amount of the loans and so we're in discussion with the Lenders today about it. It's premature I think for us to describe what the outcome might possibly be from this.

Okay great and then on the potential redevelopments that you separate from the core, you mentioned earlier that they're not stabilized and hence in the redevelopment pool but is the criteria to separate the core pool solely based on the lower occupancy or is, maybe there are timing criteria as well that you think, you put them in the redevelopment pool because you think you will have them stabilized within maybe, say three years or so?

Again, what we're doing is they fit into the redevelopment pool specifically because we're working on a number of concepts to again either reconfigure the center, break up the box into multiple retailers, add to the shopping center -- there is something about each individual asset which has its own story where we are very focused, the construction team, the asset management team, on changing the character of the asset whether it's tenant mix or an actual physical reconfiguration.

I guess I'm just wondering is it possible that two, three years from now that these things just remain in the pool and stay out of maybe the core statistics forever?

I think that our philosophy would be that if as a result of our analysis we cannot come up with something that makes a great deal of sense for us then it would be time to move on and sell the asset. We have made a commitment here to have a high quality portfolio and what's interesting of course is, leaving these assets aside, a high quality portfolio will mean that even though we've significantly moved the portfolio forward then there will always be a lower 5% or 10% no matter how good that lower 5%, 10% would be and we will constantly continue to look at that. On this call 24 months from now I do not expect to see those in the same place.

Okay great, helpful, and then final question, I think Greg, you said same store NOI for the joint venture properties was positive 3.4%. Is that correct and can you just remind us how much of your NOI comes from the JV properties?

Yes, that is correct and it's approximately I want to say 16% or so of our NOI comes from our joint ventures on a pro rata basis.

Our next question comes from Tayo Okusanya with Jefferies & Company. Please proceed with your question.

I just was wondering if you could give some color on your other large market which is Florida?

Tayo, Mike Sullivan here. I can tell you that we are experiencing attraction with our shop leasing in Florida based on the number of national anchored tenants who are open or have signed. In both the wholly owned and the JV portfolio, both physical and leased, occupancy is up Q1 to Q2. As we mentioned before we are in fact being able to moderate the impact of local shop tenancies in new deals there in favor of national retailers. We see that trend continuing. If you look at the list of retailers in Florida with whom we've done deals recently, they really are representative of those national retailers who have pretty aggressive open-to-buy programs and we expect that to continue from mid-box all the way down to shop so in general, Florida is operating very well for us.

Let me just add to Mike's comments and it reflects on my reference to larger, multi anchor shopping centers. The lion's share of centers that reflect very significant, small ma-and-pa stores are the ones that are supermarket anchored. I'm not saying that national retailers don't go into those centers but you have an overabundance of local retailers in shopping centers that are only supermarket anchored. We have a significant number in Florida as well as throughout the rest of our portfolio still with supermarkets as part of many of those centers and those are the centers that attract the national retailers so we have put a very significant emphasis as we've all see more and more of these retailers open-to-buy and coming into existing centers that are well positioned in the marketplace and so we have a very significant emphasis on leasing to those national retailers.

That's helpful. Thank you very much.

(OPERATOR INSTRUCTIONS) And our next question is from Vincent Chao with Deutsche Bank. Please proceed with your question.

Just a question on leasing volume, I think on the fourth quarter call you had talked about seeing an increase of maybe 10% to 15% on leasing velocity but year to date it looks like it's a little bit off of the pace from last year. I was just wondering if you're still expecting that to ramp up in the back half to still hit that 10% to 15% target.

Vincent, it's Mike Sullivan. I'm at a loss in terms of the delta from prior to this year and I guess I'll take a look at that and get back to you but I have to tell you that based on what is in the pipeline now for the second half of the year, we still have as I mentioned to you, a half dozen negotiations going on for our anchors that we have a very realistic opportunity to sign these leases by the end of the year. That will make '11 very comparable to '10 in terms of the box velocity.

I think in general, as we mentioned before we're going to see the leasing velocity for small shop continue as it has and if you give me the opportunity I'll do a projection in terms of overall velocity for the full year '11 versus '10 and let you know where I think we're going to be and if there is any barrier, I'll explain it.

Okay, that would be great. It could be maybe I'm looking at a different set of numbers than you were referencing or that was referenced in the fourth quarter but that would be appreciated.

And then the other question is just a clarification on the guidance. I think that the prior range of $0.90 to $1.00 FFO, I thought that was inclusive of the three dispositions that you had previously mentioned but not any acquisitions and I just want to get a sense of with the new range, what's incorporated in there for investment activity.

I think you're correct that we -- basically, our guidance today as well as at the beginning of the year was excluding acquisitions and dispositions and that remains the case. We've made one acquisition. We talked about some additional activity there as well as some additional disposition activity but none of that is per se, modeled in.

Okay, maybe I misunderstood. I thought that the $45 million of disposable was included but maybe I can follow up with you afterwards. Okay, that was it. Actually, in terms of occupancy guidance, we talked about a number of things but that has not changed, correct? The 91% to 92%, that's the same? I guess the leased rate I'm talking about, the 91% to 92% and I think there was a 90% to 91% for the occupied and that was on a total company basis I thought.

I would say that I think this way which is that, because we're really at this point somewhat more focused on the core occupancy concept and we are currently leased there at just over 92% and our goal is to maintain that at yearend, keeping in mind that we've got the challenge of a couple Borders stores that come back during the year and notwithstanding the fact that we have a tenant ready to take one of those, that probably doesn't actually get filled this year. In other words, it may get leased but it may not get filled this year.

Okay so the new target we should be thinking about is roughly 92% lease rate for the core portfolio?

Correct.

Our next question is a follow up question from Michael Mueller from JPMorgan. Please proceed with your question.

Greg, this is actually a follow up question to the prior one. I would have thought that given that we've seen a couple dispositions actually close and acquisitions close that that would be in guidance. Is the rationale for not including the stuff that is closed already in guidance, is it just that it seems to be immaterial and it's not really moving the needle or --?

No Mike, sorry. I think there was maybe, maybe I didn't speak clearly enough. Activity to date has been incorporated into our revised guidance. Additional activity of either acquisitions or disposition in the second half other than the Sunshine Plaza which is already closed subsequent to the quarter is not included in guidance.

Okay, thanks and I apologize if I got your response from the prior question wrong.

Not a problem.

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

Ladies and gentlemen, as always thank you for your attention. We're here busy working away in your best interest and we will continue to do so -- look forward to speaking with you in about 90 days. Thanks again.

Ladies and gentlemen this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.