Rithm Property Trust Inc (RPT) 2011 Q3 法說會逐字稿

Greetings, and welcome to the Ramco-Gershenson Properties Trust third-quarter 2011 earnings 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, Dawn Hendershot. Thank you, Ms. Hendershot. You may begin.

Good morning, and thank you for joining us for Ramco-Gershenson Properties Trust third-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, and good morning, ladies and gentlemen. In the third quarter, Ramco-Gershenson continued to experience significant improvement in our financial and operating results, as well as our balance sheet fundamentals. We ascribe this success to the strength of our shopping center locations, the quality of our tenant roster, our commitment to an aggressive leasing program and a continued focus on maintaining a strong balance sheet.

We recognize that our advances are occurring at a time when the overall economy remains uncertain and a number of retailers are closing stores as part of a business strategy reassessment. In spite of these challenges, we continue to experience progress in leasing both to national mid-box retailers and to small-shop tenants.

It should also be noted that our success in growing net operating income is occurring at the same time as we are building a higher-quality shopping center portfolio through asset recycling, as well as when we have made significant improvement to our balance sheet. All of these efforts reduce the Company's risk profile as well as produce a more competitive lineup of shopping centers and greater financial flexibility.

Turning to Asset Management, on the leasing front, our efforts to fill existing anchor vacancies, our desire to combine multiple smaller tenant space to accommodate new, larger format retailers and our response to smaller tenant spaces created when a new national retailer does not require all of the prior anchor's premises are paying real dividends.

In the third quarter, we increased overall portfolio physical occupancy during a period when we absorbed the loss of two Borders bookstores. I am also happy to report that our overall leased occupancy statistic continues to rise as well, helped by the signing of three larger-format retailers, including a lease with DSW Shoe Warehouse, who will occupy the majority of one of the Borders vacancies at our East Town Plaza in Madison, Wisconsin.

Further, at a time when a number of shopping center owners are lamenting the slow pace of their small tenant lease-up, we executed leases this quarter with enough small format retailers to advance our non-anchor tenancy, portfolio wide, by over 151,000 square feet, or approximately 100 basis points.

Part of the credit for this progress is the result of Asset Management streamlining of our leasing process. We have shortened our standard lease form, reduced our contribution and involvement in smaller tenant buildouts and achieved a substantial compression of the timeline from securing tenant interest through lease execution to store opening.

We have also placed a significant emphasis on working with existing tenancies whose leases are about to expire, resulting in a retention rate well above our historical average, while at the same time achieving an increase in their average base rental rate.

An additional benefit of our leasing activity, when coupled with our focus on cost containment, is the improvements we are experiencing in our same-center statistic. Thus, as it relates to our shopping center operations, we are very pleased with our results this quarter, and we anticipate a continuation of this improvement through year-end.

At the beginning of 2011, we discussed our plans for a capital recycling program that involved the sale of nonstrategic assets and the purchase of a number of high quality shopping centers that would accomplish several key objectives, including geographic diversification, portfolio demographic improvement, a continued commitment to reinforcing and broadening the quality of our tenant roster, as well as finding shopping centers with value-add upside potential.

The assets we intended to sell as part of the recycling program were a mixed bag, including noncore but fully valued properties, assets that didn't fit our profile for future ownership and centers that would not justify the energy and financial commitment necessary to turn them around. To date, we've sold three shopping centers, achieving a blended cap rate of 6.97%.

On the acquisition side, we purchased Heritage Place, a 270,000 square foot shopping center that met all of our aforementioned acquisition criteria.

Our next round of dispositions will involve properties that will not command as aggressive a sales price. Currently, we are evaluating the sale of a number of centers we consider noncore. The disposition of these assets will take place in 2012. It is our intention, as with the sale of the three shopping centers in Q2 and Q3 and the purchase of Heritage Place, to balance our disposition program with the acquisition of high-quality centers in targeted markets.

Turning to the balance sheet, at the beginning of 2011, we also set out a number of goals that we expected to accomplish during the year. Among them was a substantial improvement in our debt metrics, the elimination of any significant exposure to near-term debt maturities, further increasing our pool of unencumbered assets and maintaining maximum flexibility on our new $175 million line of credit. We have made substantial progress on each of these fronts. Greg will update you on our recent capital activities.

Also as part of our 2011 business strategy, we continued to focus on ways to streamline our organization and reduce G&A costs. To that end, in the third quarter, we made a number of staffing changes, which are in addition to those made in the first quarter. As difficult as these reductions are to the people affected, we feel that the changes made will have a positive long-term effect on the organization, both in improved efficiencies and cost reductions.

All of our efforts over the last 90 days and throughout the first nine months of this year should provide a clear picture of a Company that is taking advantage of its high-quality portfolio to push occupancy and net income. We have made this progress while promoting a sound and improved financial structure.

I am pleased to report that the combination of these accomplishments allow me to project that we will finish 2011 at the high end of our occupancy projections, that we will achieve a positive same-center net operating income result, that our balance sheet will reflect vastly improved debt metrics as compared to 2010 at December 31, and even with the initiation of our capital recycling program that included the sale of three shopping centers, as well as our actions that strengthened our balance sheet by the fixing of rates on our variable rate obligations, we are comfortable guiding you to the high end of our FFO range.

I would now like to turn this call over to Michael Sullivan, who will provide the details for our centers' operations this quarter.

Thank you, Dennis. Good morning, ladies and gentlemen. This morning, I would like to update you on the progress we are making on the four primary objectives we identified this year, designed to promote consistent and sustainable growth in our core portfolio.

Our first objective has been to retain as many tenants with expiring leases as possible, in this case 80% or above, at improving renewal rent spreads. Year to date in 2011, we have renewed 81% of our expiring leases and project closer to 82% retained for the full year. And although generally there is still downward pressure on rents, we were able to generate positive growth in both renewal and new lease rents this quarter.

Our second initiative is to continue with our success in executing leases for large-format vacancies in the portfolio. In the third quarter, we executed three large-format leases accounting for approximately 70,000 square feet, bringing our year-to-date totals to 13 executed leases totaling over 407,000 square feet. Eleven of these new leases are with national retailers, such as Bed Bath & Beyond, Marshalls, LA Fitness, PetSmart and DSW. National retail draws of this caliber provide additional benefit, as they continue to improve the overall quality of our portfolio income and tenancies.

As of September 30, our supplement shows 12 anchor spaces that are not presently occupied in the portfolio. Of these 12, two are leased, five involve active LOI negotiations with national retailers, and five are being aggressively marketed. As of the end of the third quarter, we have re-leased all four vacant Circuit City boxes, six of our seven Linens boxes and two of three Borders spaces.

The third operating goal for Asset Management in 2011 is to build upon our big-box leasing progress and continue filling ancillary spaces in the portfolio, resulting in consistent improvement in leased occupancy. After signing new leases accounting for almost 222,000 square feet in the third quarter, our leased occupancy in the core portfolio is 92.8%, a 70 basis point improvement from the prior quarter.

Anchor leased occupancy increased by 10 basis points to 95% and shop leased occupancy increased 140 basis points to 84%. We see this trend continuing through the rest of the year. In fact, it appears Ramco has what retailers want, multi-anchor power centers with, in many cases, dominant [grocers], excellent long-standing relations with a stable landlord that excels in redevelopment and a supply of well-located existing spaces in metropolitan markets.

Asset Management's fourth challenge for the current year is to continue to reduce recoverable and nonrecoverable operating expenses at our centers. These lower recoverable operating costs are a direct benefit to our tenants. In the third quarter, we were able to reduce recoverable expenses versus budget by over $590,000 and an excess of $1.1 million year to date. These savings are due chiefly to continued success with real estate tax assessment appeals and lower CAM expenses driven by leveraged outsourcing of property-level services.

Achieving these objectives has also improved our same-center NOI performance. Our leasing efforts and improved retention of expiring leases has strengthened our minimum rent and recovery income, while our cost containment measures have resulted in lower recoverable and nonrecoverable expenses. This combination helped us achieve a same-center NOI gain of 140 basis points for the quarter and a year-to-date gain of 70 basis points, which we expect to continue through the end of the year.

Asset Management is committed to producing steady improvement in these four critical operating areas over the entire year and to creating consistent and reliable growth in the portfolio in 2012 and beyond. Greg.

Thank you, Michael. Let me start by noting one change in our financial and operating supplement. Then I will update you on our balance sheet and cover our income statement for the quarter. Finally, I will wrap up with our outlook for the rest of the year.

In our third-quarter supplement, we disclosed that we own interest in 84 shopping centers. This represents a decrease from 89 centers at the end of last quarter for two reasons. First, we sold two shopping centers during the quarter. Second, in three cases, we combined two adjacent properties that had historically been reported as separate centers into a single center. These three centers operate as unified properties, so it made sense to report them that way.

Now, turning to our financials. Consistent with our goal of strengthening our balance sheet, during the third quarter, we availed ourselves of attractive financing in the bank market. At the end of the quarter, we closed a seven-year $60 million unsecured term loan, swapped to a fixed interest rate of 4.2%. We used the proceeds from this loan to pay off $22 million in mortgage debt maturing over the next nine months and to pay off all our outstanding borrowings under our bank line.

We also took advantage of low interest rates to swap our existing five-year term loan to a fixed rate of 3.47%, based upon our current borrowing spread. In addition, as Dennis mentioned, we sold two properties in the quarter, raising approximately $18 million in cash. Finally, subsequent to quarter end, we completed a deed in lieu transfer to the servicer of Madison Center in Madison Heights, Michigan in exchange for release from a loan with a principal balance of $9.1 million.

Our refinancing and capital recycling activity resulted in a strong balance sheet position at the end of the quarter. Leverage is lower, with net debt to year-to-date EBITDA of 6.2 times compared to 7.9 times last year. Coverage is higher, with a year-to-date fixed charge coverage ratio at 2.0 times compared to 1.8 times last year.

Our liquidity is better, with quarter-end cash on hand of approximately $22 million, full availability of our $175 million line of credit and only $15 million of pro-rata debt maturing between now and the end of 2012.

Lastly, our debt structure is stronger, with unencumbered assets increasing to $525 million, a weighted average consolidated debt term of 6.3 years and virtually no exposure to variable rate debt. A strong, flexible and liquid balance sheet affords us greater opportunities to create value for our shareholders.

Turning now to the income statement, our FFO for the quarter was $0.28 per share, and included a number of noteworthy items, most of which were positives for the quarter, but one that was not.

In the plus column and working down the income statement, first, our recovery ratio was roughly 97% for the quarter, or about $0.01 higher than the 92% ratio we expect to average for the full year. This was the result of midyear adjustments to recovery income and related expenses.

Second, we recorded $1.3 million or $0.03 per share of lease termination income. This relates to a dark and paying anchor who agreed to buy out of their lease. We've secured Movie Tavern as a replacement tenant, delivered the space to them and expect rent to commence in the middle of 2012.

Third, we booked $1.3 million of fee income, which is approximately $400,000 or $0.01 per share higher than our quarterly run rate in the first half. Fee income this quarter included a disposition fee related to Shenandoah Square, a joint venture property sold during the quarter, as well as higher leasing fees associated with certain JV lease transactions.

Fourth, we booked $488,000, or about $0.01 per share, of other income related to an easement agreement. In exchange for this cash payment, we agreed to provide a third party with the right to share in the use of a small portion of our land at Parkway Shops' development site in Jacksonville, Florida. Finally, our JV earnings this quarter included a promoted interest income related to the sale of Shenandoah Square.

In the minus column, we incurred approximately $450,000, or $0.01 per share, of severance expense in the quarter. The severance, which is included in G&A, related to a one-time reduction in staffing that occurred at the end of the quarter. Our team is now streamlined to operate with greater efficiency and effectiveness going forward.

Looking through these items, our core operating fundamentals showed improvement. Wholly-owned same-center NOI increased 1.4% for the quarter. The primary driver of this improvement was an increase in minimum rent of 1.2% at these centers. In addition, our overall provision for credit loss was $456,000 in the quarter, less than the $602,000 in the comparable period last year.

At our joint ventures, same-center NOI increased 8.2%. This was substantially attributable to a lower provision for credit loss. Same-center minimum rent increased 1.1% at our joint venture properties.

Finally, our interest expense was $6.7 million this quarter, significantly less than the $7.9 million for the comparable quarter. This decrease reflects primarily our reduction in debt stemming from our convertible preferred stock offering in April.

Now I would like to comment on our outlook. As we noted in our press release, we are now expecting 2011 FFO to be near the high end of our prior FFO guidance range of $0.92 to $0.98 per share. As usual, this revised guidance excludes any impairment charges or losses on early extinguishment of debt.

For the fourth quarter, we expect our core same-property operating results to be generally consistent with our year-to-date results. FFO will, however, be affected by the fact that we locked in fixed interest rates on our term loans and carried meaningful cash balances as a result of our recent dispositions. At this time, we don't anticipate any one-time income items in the fourth quarter.

Looking to 2012, we are working through our budget now, so it's too early to comment on our outlook. However, we anticipate that the moves we've made this year will contribute to higher-quality earnings.

This improvement in earnings quality has been achieved on several fronts. One, by improving the quality of our tenant base through leases with the likes of Bed Bath & Beyond, TJX Corp., Staples, DSW Shoe Warehouse and Ross. Two, by locking in low interest rates and extending the term of our debt. And three, by managing our overhead expenses for increased operational efficiency. These moves have all enhanced the predictability and sustainability of our cash flow.

As always, we are keenly focused on creating value for our shareholders. Now, I would like to turn the call back to the operator for Q&A.

(Operator Instructions) Todd Thomas, KeyBanc Capital Markets.

Good morning. Thanks. First question, Dennis, you provided some detail around your capital recycling program. And I was just wondering if you could provide some additional details about the acquisition pipeline today as it stands.

And then also, I was wondering if you have changed your underwriting standards at all in any way since the summer to be a bit more conservative, given some of the macro headwinds.

Well, we indeed -- number one, we continue to look at a whole host of opportunities. There is an asset that we are focused on. We are conducting some due diligence with that asset, and if we would acquire it, we would acquire it before the end of the year. It would fit, again, the criteria that I laid out, which would define a high-quality center with value-add opportunities.

As far as underwriting is concerned, we have looked at a number of assets as people have become more aggressive in their bidding process, and we've shied away from those. Anything that we would be seriously considering, even if it is of high quality, which all of our acquisitions will be, still need to be in the mid-7s in order to move ahead.

Okay, great. And then can you give us a range in the expected gross proceeds for the properties that you are looking to sell in 2012 at this time?

We've talked about that, and I would say we are in the range of around $25 million in dispositions for next year.

Okay. And then a question for Michael. You provided some good detail on your leasing efforts in the quarter and year to date. The 84% small shop occupancy, I was just wondering where that troughed. And also if you can sort of characterize what kind of retailers are in the small shop space that you are seeing the increased demand from.

Todd, quite frankly, the composition of the small shop leasing is really about 50-50, national, regional versus local. We see that trend continuing. And the original part of your question was the 84%?

Yes, where that sort of troughed at the low point in the cycle.

What would you say -- about 80%, 81%. 80%, 81%, I think, Todd.

Okay. And then just finally, the G&A expense savings, I was just wondering where you made some of those reductions at the end of the quarter.

Well, it included approximately 10 individuals, and there were a number of mid-level executives who were part of the change.

Okay, thank you.

Omotayo Okusanya, Jefferies & Company.

Good morning, gentlemen. Congratulations on a solid quarter.

A couple of questions. The guidance, first of all, with the idea that you guys are going to be at the high end. If I look at what I believe is included in guidance, first quarter you were at $0.25, second quarter $0.26, third quarter $0.28, which is a total of $0.79. And the guidance range goes all the way up to $0.98, I believe. So does that mean in fourth quarter you are expecting to deliver roughly about $0.20 in earnings?

Well, your math is correct, so I can't dispute that. Certainly, I think we are looking to the fourth quarter to not have some of the one-time items or atypical items that we've seen in the three quarters that you just mentioned.

(multiple speakers) Okay. So all the gains are going to be (multiple speakers).

So I think that's point one. You need to make adjustments for those as you look at kind of run rate.

And then I would again emphasize a couple other things. One, that we did -- in conjunction with changes that we think are meaningful in terms of improving the strength of our balance sheet, we do incur a little bit of dilution by having locked interest rates and termed out our debt. And so it is important to factor that in.

And also, the fact that we sold assets during the quarter and ended the quarter with a sizable cash balance, which also by definition is somewhat dilutive, but I think in this environment, positions us with maximum flexibility.

Okay, that's helpful. Then in fourth quarter, I thought last quarter you had talked about doing roughly about $1.2 million in lease term fees in the back half of this year. It seemed like most of it came between through in third quarter. Should we be expecting any more in fourth quarter?

No.

Then small shop leasing, I have to say a big congratulations on what happened this quarter, especially with the whole idea of you guys actually incurring lower TIs and LCs to do it.

And I'm just kind of curious, when you do present those kind of leasing packages to the small shop tenant, who is basically hurting for cash in this environment, how does the tenant kind of go about trying to lease the space when they really don't have that much capital? And most of what we hear is they would prefer for you guys to put in more tenant improvements versus less. But it seems like you guys are going the other way, but still having a lot of success leasing up that space.

This is Mike Sullivan. If you will notice the trending on our TIs, it pretty much follows the pattern of our consistent and aggressive leasing approach. We are doing many of our deals in general national tenants. If you take all the new leases we signed so far in 2011, close to 70% by square footage are national regional retailers.

Another thing you will notice is that we are doing a lot of deals with larger format users, and I'm talking about 5000, 6000 plus feet. So when you combine the national character of the tenancies, you combine the fact we are doing a lot of larger format deals, we are using our TI in those cases mostly to improve the spaces in preparation for the tenancies. And that involves either combining spaces or demising existing spaces to accommodate that.

On the local, small shop tenant end of the spectrum, we are very careful and almost resistant to using landlord capital, for obvious reasons. We don't want to be the bank. We don't want to rely on local entrepreneurs to have to pay back not only what we want from market rent out of the space, but then the capital used as well.

So we've been fairly successful, if you look at the list of the TIs, in avoiding using landlord capital for deals. We can be a little more flexible with our market rent if we are talking about as-is deals. We are pushing more as-is deals for local shop tenants. Dennis mentioned to you that we've modified our lease form to accommodate a much quicker lease-up for local shop tenancies. That includes not using landlord capital, and we are seeing that pattern really throughout the year.

Let me just build on that for a second. When you see the variances that occur quarter to quarter as far as TIs are concerned, and Michael mentioned in his comment just a moment ago, in the third quarter, we experienced not an insignificant number of -- as Michael referenced them, although they are small tenants, 5,000 and 6,000 and maybe even up to 10,000 square feet -- where we are either combining a number of spaces or demising a larger box into two tenancies. And therefore, the landlord involvement in that is more significant. But in each instance, you will find we are doing that with a national tenant.

The local tenants, who are indeed still somewhat stressed as far as access to capital, we find are the more 1,000, 2,000 and 3,000 square-foot spaces, and we've focused on as quick a delivery to them as possible, in spaces that really have required very little CapEx in order to put them into shape for those individual retailers.

So our expenditures are going toward the nationals, and our emphasis on the local tenants are in spaces that they can pretty much move right into.

Okay. That is very helpful. Thank you very much.

(Operator Instructions) Ben Yang, Keefe, Bruyette & Woods.

Good morning. Dennis, question for you. We recently saw one of your peers sell a large portfolio of shopping centers to Blackstone at a cap rate that I think most observers would agree was lower than expected.

So I'm curious if you can share your thoughts on that deal, or maybe even pricing in general, given that several of those centers were in Florida, and obviously you have a big investment in Florida as well.

Well, again, I'm not all that conversant with the quality of the assets that were sold. I'm also not conversant with the way they approached the computation of the cap rate. I certainly applaud them if indeed that was the exact cap rate, based on the NOI.

We did sell our three centers in Florida at just under a blended cap rate of 7. So if you are talking about Florida assets and if you are talking about Florida assets that have a very reasonable anchor and were pretty well leased, then I think a 7.5 cap certainly is well in the ballpark.

The assets, as I mentioned in my remarks, that we plan to sell probably fall at the other end of the spectrum for our 2012 dispositions, and will carry with them a higher cap rate.

I guess what I'm trying to get at is your stock trades at what we think is the highest implied cap rate in the sector. There obviously appears to be a huge disconnect between public and private market pricing. So obviously, there are bidders out there that are getting aggressive. I'm curious if you have been approached by some of them like Blackstone to maybe potentially buy your entire Company.

At this juncture, we are certainly not in discussions with anybody relative to the entire Company. And I am hopeful that as we continue to log these successful quarters -- and as we've indicated, we expect the fourth quarter to be successful as well -- that your glowing reports of us, all of you out there who are in the queue and who have already asked questions, will be able to move us to the stock price that we really deserve.

Okay. Thanks, Dennis.

Vincent Chao, Deutsche Bank.

I just had a follow-up question on the TI conversation. As we think about -- obviously, there are some larger or smaller tenants, I guess, in the mix this quarter that maybe drove the TIs up.

But as we think about maybe model for 2012, what level of TI should we be really thinking about on sort of a normalized basis? Is it more like the average for the year so far, the [416], or is it going to be something higher as you continue to consolidate some of these spaces?

I think you are going to see it flatten. As Greg mentioned, we are working our '12 budget. We still have a number of big-box leases we anticipate executing in '12. We do see a continuation of the larger-format shop users in the 5,000 to 10,000 square foot range. So we think that will continue.

As the boxes and the larger spaces diminish in the portfolio through the end of the year, our emphasis is going to be on the smaller-sized shop spaces, both local and national, as Dennis mentioned, maybe 1000 to 2500 square feet. Toward the end of the year, I think we'll see that moderate.

But I think you are going to see through the beginning part of '12 a continuation of us in our leasing efforts using the TI for nationals going into larger spaces.

Okay, but it sounds like there is still some more of that consolidation of a bunch of smaller boxes coming, at least through the first part of '12.

I think -- Vincent, I think that is going to continue. Based on what we will review in our budget, we will be planning for larger-format shop leases that are in the 5000 to 10,000 square foot range.

And in addition to that, Vincent, Michael referenced the fact that we have five LOIs out on additional mid-boxes. Obviously, as you execute the mid-box leases, they will carry with them a higher per square foot price tag for the buildout.

So we kind of see -- in the beginning of '12, you may see some higher numbers, dropping down in the second half of the year, as you are much more focused on the smaller shop spaces. But something in the $5.00 to $6.00 range, which has been our historical average; at the end, that should all even out.

Okay. That's very helpful. Thank you. And then I guess just in light of some of the macro issues that cropped up over the summertime here, is there anything to read into that, the TIs this quarter, outside of what we've already discussed in terms of the consolidations? And also, maybe leasing volumes, which continue kind of to trend lower. Anything to read into that in terms of the tenants' view of what is going on in the world? Did leasing volumes slow over the course of the quarter, I guess, accounting for normal seasonality?

Vince, we don't see it, no. Yes, there are macro headwinds. There are, as Dennis mentioned, retailers who are aggressively reviewing their store strategy. And quite frankly, some of them are actively closing stores, as we know, with the announcements of Gap and Lowe's, et cetera, et cetera.

But we really -- we see a continuation really of this very frothy leasing market, and in fact, expect through Q4 and really into '12 to be as active as we have been. So we don't see the macro headwinds slowing down the leasing efforts.

Okay, that is very helpful. And I just wanted to clarify one thing. I think earlier, Dennis, you had mentioned a criteria for acquisitions of, I guess no less -- no less than 7.5% for what you are buying, just as kind of a pricing sort of limit. Did I hear that correctly?

No, I said we were looking at acquisitions that would have a cap rate in the mid-7s. So -- but give me a little latitude in that.

Right. Okay. But you wouldn't be looking at stuff in the sub-7 or even 6.5s?

No.

No, okay.

Number one, never say never. But I think if we looked at something with a lower cap rate, it would be because we believe there is significant value-add and that what we are paying for has tremendous upside.

We're not looking to acquire reasonably stable or stable assets in the 6s. We truly understand and appreciate our cost of capital, and we just couldn't justify an acquisition like that.

Okay, very good. Just last question. It sounds like there is no discussions right now regarding the entire Company. But in the past, you've talked about potentially partnering with folks on some of the existing Michigan assets, as you continue to diversify your geographic exposure.

How are those conversations today? Are the JV partners still active in terms of just JVing on some of the stuff you have, outside of an outright sale or anything like that, to the Company?

As a matter of fact, the number of people who are interested in talking to us about joint venture in Michigan assets has begun to grow. Because there are people who, number one, appreciate the fact that, especially with our assets, our occupancy rate is very high, and if anybody is achieving rental rates at the top of the market, it is our Company.

The issue, however, is they chase higher yields and they believe that Michigan should justify a higher yield. The question in our discussions with them is what kind of a price are we willing to accept in order to place some of those assets into a joint venture.

So those conversations are ongoing. However, we are not well down the road, and we are not going to be announcing anything prior to the end of the year.

Okay. Thank you.

(Operator Instructions) Michael Mueller, JP Morgan Chase.

A couple questions, and then I want to circle up on a prior question. First of all, Greg, the JV promote you mentioned, how significant was that?

It was significant enough to mention. I don't think we've disclosed the amount, but it was several hundred thousand dollars.

Okay, got it. In terms of TIs, leasing commissions, I know you've been talking about per square foot. But do you have a gross number for 2011, what secondary generation TIs and leasing commissions came out at -- or expected to come out by?

I don't think we have that at our fingertips, but if you would like, we can follow up with you with that information.

Great. Okay. And then lastly, going back to the -- I guess the fourth-quarter earnings question. If we are looking at -- was it $0.25 in the first quarter, $0.26 and $0.28, getting to $0.79. So to get to the high end implies about $0.19 or $0.20.

And I know you are still working on the 2012 budget. But when we're looking at -- thinking about a base case for next year, it looks like most of the Street is in the $0.95 to $1.00 range. Is that -- why is that $0.19 or $0.20 not a good run rate to think of for heading into next year?

Look, I think a couple of things. First of all, in any given quarter, there is some volatility, let's call it, on all kinds of items, whether it is in the operating side with respect to recoveries, or things like G&A, which might bounce around a little bit. So that is one reason.

Secondly, I think we have a lot of confidence that the leasing that we've done this year and the pickup in occupancy that we've experienced will carry through not only the balance of this year, but into next year as well. So presumably, all of that translates into much stronger NOI going into next year.

So I think that will contribute as well. And I think it is primarily those two things, Mike.

Got it. Okay, thank you.

Rich Moore, RBC Capital Markets.

Great. Thank you. Good morning, guys. The tenant environment, you guys are all making a pretty good case for the strength of tenant demand for space. And I'm curious, do you think that is going to translate at all into more redevelopments or possibly some of the $96 million of land that you have waiting for possible development, I guess? Are we going to see any movement on the development front and maybe some more expansions?

First of all, as far as redevelopment is concerned, we do have real tenant interest in a number of those properties that we are referencing as potential redevelopments. We just don't put them into the active category until such time as we have executed agreements, as with the Whole Foods deal in Columbus. So we are in very active conversations with a number of retailers, mid-box retailers, to indeed do some value-add redevelopment as we move into 2012.

As far as the development side is concerned, again, we are making real progress. We have executed a number of leases on one of our Florida potential projects, and we are in the lease negotiation stage on a second. So that we feel very good about the progress we are making and the desirability of these locations.

But we are neither going to announce nor are we going to the Board for final approval on a project until we've met the criteria we've laid out for you in the past, which is the securing of all of our anchor tenants and a leased occupancy at least above 75%.

So Dennis, if you think about the industry in general, do you think we are going to see a pickup -- a broader pickup in development as 2012 goes on? Or are we still at a point, as you guys look at the tenants, where you don't think they are overwhelmingly going to want to support new development thinking in the shopping center space?

I think that the REITS that have had land on their books -- and I talk to a number of my peers, and we all had a similar experience, which was we had substantial anchor tenant interest, albeit that they began to push back their opening dates, and therefore felt no need to aggressively move to negotiate leases.

Those of my peers, as well as our Company, we made calculated bets on acquiring that properties, or the properties that we have on our books. We continue to ripen the tenant deals. In each of these, we are not just talking about a wish and a prayer, but actual, active negotiations.

And so I would assume that you will see through 2012 a number of us announcing that we will move ahead with developments, but it probably will involve the properties we have on our books as opposed to somebody running out, at least in the strip center category, and starting to option new land at this juncture. We have enough to take care of presently on our books.

Okay, good. That's really helpful color. Thanks. And I want to ask you guys, on the Tamarack sale, when I look at that asset, help me understand exactly why a center like that would be sold. It had a Publix anchor, as I can tell -- or as far as I see here, and seemed to have good leasing going. So what makes that a candidate, for example, to be sold?

Well, there were several reasons. One was that we had just made a mid-box deal on that shopping center, and that income was included in the sales price. There really, for all intents and purposes, was little to no vacancy in the center.

We saw, based on our experience, that the rental rates basically had peaked. And if we were going to be talking about bringing in new tenants or renewals -- because again, as we have often talked, when you're signing leases from 2002 to 2007, you are probably at the high end of the range. And then we took a critical look at the trade area, the demographic shifts. And we believed that we had maximized the value of that asset.

All right, good. That's fair. Thank you. And then the last thing I had for you guys, the new term loan has an accordion feature. Is that right?

Yes.

Okay, so you can actually treat it kind of like a line of credit, Greg? Is that right?

No.

Where you can sort of add to it as you see fit? Or how do you manage that, I guess?

To the extent that other banks -- either banks who are part of that loan or other banks who might be interested in participating want to do so, we could simply grow the amount with the existing terms and conditions of that loan.

With the cash that we ended -- on our books at the end of the quarter, we didn't see any need to make it larger at this point, but that option is available to us if we find banks interested.

Okay, so your first source of debt capital would probably be the line of credit and then you might move over to term loan some of what is on the line at some point. Is that the idea?

Yes. And in fact, the other term loan, the five-year term loan, also could be expanded in a similar way. So we kind of end up having three buckets that exist, the line and the two term loans, that we can sort of place financing into as we see fit.

All right, great. Thank you, guys.

Nathan Isbee, Stifel Nicolaus.

Can you just lay out -- how many signed box leases do you have that have yet to take occupancy? And how many dark but paying anchors do you have (technical difficulty)?

Of the deals that we've signed, the box deals that we've signed in 2011, five of them will open in '11 and eight will open in '12. And the dark and paying piece, I think there are only three or four -- four dark and paying, Nate.

Okay, so you have five that are still yet to open in '11?

Some of them already have. But yes, five of the 13 executed large-format leases will open in '11.

How many of them did open already? Do you know?

I believe that two have opened and the three will open by the end of the year.

And then (multiple speakers).

Or it might be three and two.

And then another eight next year?

That's correct.

Okay. Thanks. Greg, could you just clarify -- I think you had mentioned something about a small land deal in Jacksonville.

Yes.

Can you give us a little more clarity on what went down there?

Sure. As I think you know, because you were just touring down there, there is a road-widening taking place right along our property at Parkway Shops, which is one of our pieces of land held for development. And in conjunction with widening the road, the authorities came to us and said that they needed a place for runoff to go. And since we have a detention pond related to our project there, they offered to pay us to share in the use of that. So it is -- it was really no skin off our back, and therefore, income to us.

Okay. Could you just -- you have two land deals down there in Florida, one in Lakeland and one in Jacksonville. Which of the two is farther along?

I would say if you hear anything from us in the near- to mid-term, it will be on the Jacksonville site. That would be the first you would hear from us.

All right, great. Thank you so much.

Omotayo Okusanya.

Thank you. Just two follow-up questions. With the improvements you are seeing in a lot of your debt metrics at point, could you talk a little bit about what conversations you may be having with the rating agencies and how they are reacting to those changes?

Yes, thanks, Tayo. You are picking up, I think, on some comments I made in previous calls that our intention is to move in that direction of becoming more investment-grade in our credit profile, and ultimately seeking that rating.

We have not had formal conversations of any type with any of the rating agencies. Informally, I know analysts there and talk to them, but we've not had any type of formal conversations.

I would hasten to add that although that is the direction we are going in, I think the big challenges are somewhat less on the credit metrics that we have, which I think are roughly consistent with investment-grade status, and more related to the overall size of the Company and maybe, to some extent, also the concentration of assets.

Got it. Okay, that's helpful. And then just the last question from my end kind of goes a little bit back to Ben's question of when we took a look at the implied cap rate of the Company versus, again, the acquisition targets of kind of doing deals roughly at 7%, 7.5% type caps, how do you manage that process in regards to the initial dilution versus maybe looking at these assets on a longer horizon basis, the type of IRRs you could expect to get from them.

I think we are very cognizant of our cost of capital and our implied cap rate. It makes us very thoughtful when it comes to deploying capital into anything, frankly, whether it is our own portfolio or acquisitions or redevelopments.

And that has to be weighed against, I think, some other goals that we have strategically, which is to try to find opportunities to invest capital in high-quality centers that meet our criteria and in markets that we target. So we weigh all of that in thinking about how we deploy our capital.

Let me just add something to that as well. When we acquired the Heritage Shopping Center, we saw an opportunity because there was not an insubstantial amount of space in one area of the center that had not been leased. We have leases out now for two reasonably sized space users. We're in preliminary discussions with one of the larger-format retailers, who we know their category is downsizing to take some space back, because we've identified a user who would like to go into that area.

So I want to emphasize that when we are making these acquisitions and when you hear from us going forward, in each of them, we are not talking about buying something and then living with the cap rate and seeing 1% to 2% growth on an annual basis. We are looking at buying these and then moving them aggressively in the vicinity of 20, 30, 50 basis points in as short a period of time, 18 to 24 months, as we can. So whatever the initial cap rate is will not be determinative of what we think of that asset.

Okay. That's helpful. Thank you.

Todd Thomas, KeyBanc Capital Markets.

Just had one quick follow-up, actually. I was wondering how you view the dividend today, and if you've had conversations with the Board at all, particularly in light of some of the leasing that you are doing in the larger-format shops, the 5000 to 10,000 square foot spaces that you are talking about, that will potentially require sort of a greater level of TI dollars.

And here I thought you were talking about increasing the dividend. We, both for 2011 and for 2012, have taken a very hard look at the dollars that are necessary to achieve the occupancy that we are projecting, and we are very comfortable with our approach to funding those.

And although we talk to the Board at every Board meeting on a quarterly basis, I've seen no -- let me put it this way -- I see no immediate pressure to reduce the dividend. Whether or not the dividend gets increased, that is another matter. And again, the Board considers all factors on a quarterly basis when we meet.

Okay, great. That's all I have. Thank you.

(Operator Instructions) It appears there are no further questions at this time. I would like to turn the floor back over to management for closing comments.

Well, as always, we appreciate your interest and your attention. If we don't have an opportunity to speak to you before, the entire management team would like to wish you a happy holiday, and we will talk to you after the first of the year.

This does conclude today's teleconference. You may disconnect your lines at this time. Have a wonderful day. Thank you for your participation.