Rithm Property Trust Inc (RPT) 2012 Q2 法說會逐字稿

Greetings, and welcome to this Ramco-Gershenson Properties Trust second-quarter 2012 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, Ms. Dawn Hendershot, Director of Investor Relations. 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 at 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 or 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. I am pleased to acknowledge the efforts and successes of the Ramco team in achieving a solid second quarter and first six months of 2012. Our progress year to date is the result of executing on a business plan that emphasizes increasing quality in all aspects of our business.

Although we must view our achievements in the context of an ongoing uncertain economic environment, a significant factor in our success is the ability to sign leases with those best-in-class retailers who have healthy growth outlooks. Because of our first six months' results and the transactions in our pipeline, we are raising our 2012 guidance for certain important operating metrics, as well as our guidance for FFO, even after taking into consideration the effect of a substantial increase in our share count as a result of our recent equity raise and the acquisition of four shopping centers for $108 million.

With this in mind, I would like to address four topics with you this morning. First, I will outline how we have positioned our shopping center portfolio to be successful in the current retail environment and beyond. Second, I will provide an overview of the progress we've made toward achieving our stated business objectives for the year. Third, I will review our plans for the balance of 2012. And lastly, I will provide a brief outline of our longer-term goals.

We are all aware of the headwinds we face in our challenged economy. In spite of this uncertainty, a number of national retailers continue to perform well and remain focused on their store expansion plans. The reasons these retailers are succeeding is that they satisfy customers' desires for quality, value and necessity items while providing a rewarding customer experience.

The one additional element they require to have a successful store is to be located in a shopping center where they can achieve the greatest customer exposure. Our leasing statistics demonstrate that these best-in-class retailers are choosing our shopping centers for their new locations, which speaks volumes about the quality of our real estate and the dominance of our centers in their respective trade areas.

For our part, filling our vacancies with those national tenants improves the credit quality of our income stream and bolsters the quality of our tenant mix. These factors ensure that our shopping centers are populated by retailers who can prosper in both good times and bad.

Our 2012 business plan included an aggressive leasing program, coupled with a mandate to reduce our risk profile in specific tenant categories. The operating statistics we report today include not only leased occupancy gains portfolio-wide, but also reflect a substantial increase in non-anchor tenant lease occupancy.

Over the last year, REIT investors have become more comfortable with the progress our industry has made in filling anchor vacancies. Their focus has turned toward the progress shopping centers owners have made in leasing non-anchor space, which was particularly hard hit by losses in local tenancies over the last 2.5 years.

At the end of the second quarter, our small shop lease occupancy stands at 86%, and we are projecting that this number will increase by at least 100 basis points to 87% by year end. Thus, based on our leasing philosophy and our continued focus on operational efficiencies, we can report strong growth in same center NOI for both wholly-owned and our joint venture properties.

In order to protect the progress we've made in increasing occupancy in our centers, we have pursued a course of reducing risk in those retail categories we feel are most vulnerable. Michael Sullivan will address this topic in detail as part of his prepared remarks.

During the second quarter, we sold two Florida shopping centers, a portion of one Georgia asset, and we gave a property back to the lender in Michigan. With the sale of those centers we completed in the first and second quarters of 2012, we have disposed of the majority of our most challenged properties.

Also during the second quarter, we purchased four high-quality, multi-anchored shopping centers, more than double our stated acquisition goal. These centers fit our plans for geographic diversification, the expansion of our quality-of-life market profile, the broadening of our top tenant credit quality and, at each acquisition, we identify an opportunity to add value. This last acquisition attribute, the ability to add value, affords us the opportunity to achieve an even higher return on our investment and will contribute to growth in our funds from operations, NAV and shareholder value well into the future.

As we move into the third quarter, we see that our recent momentum will continue. This progress will be complemented by our asset management team's continued focus on controlling and reducing operational costs.

Relative to the development aspect of our business plan, the Company continues to take a conservative approach. Our development strategy is to pursue projects on land we own, where we have secured a critical mass of signed commitments with anchor and in non-anchor retailers which will provide a healthy incremental return. To that end, I am pleased to report a leased rate of 96% at our Parkway Shops development, which is anchored by Marshalls and Dick's Sporting Goods in Jacksonville, Florida.

For those of you have who have followed our progress for some time, you know that we are a significantly different company today than we were several years ago. In late 2009, we made a commitment to first rebuild and strengthen our balance sheet. Our objective was to promote a conservative capital structure which would insulate us from future debt crises and provide the financial flexibility to seize opportunities that arose. We also undertook to transform our shopping center portfolio, the character of our markets and the credit quality of our tenant roster.

We will finish 2012 in a strong position on both of these fronts, with a sound capital structure, significant availability on our expanded unsecured line of credit and a portfolio of large, multi-anchored shopping centers, approximately 50% of which includes a supermarket component.

So what lies beyond the end of 2012? For all the reasons that our core portfolio run rate is rising, including significant rental revenue increases, real reductions in bad debt expenses and improved operating margins, coupled with our progress in signing new leases, which will begin to have a full-year impact in 2013, the Company is positioned to achieve healthy earnings growth next year and beyond.

These drivers of future earnings will be supplemented by the completion of our value-add redevelopments currently underway, the opening of our Parkway Shops development in the spring of next year and the benefits to be realized from the opportunities at our new acquisitions. All of these activities combine to produce a roadmap over the next three years for compounded earnings growth of at least 3.5% to 5.5% per annum.

I would now like to turn this call over to Michael Sullivan, who will provide the context for our operating numbers.

Thank you, Dennis. Good morning, ladies and gentlemen. Our second-quarter results confirm that asset management continues to execute on our business plans for 2012. Ramco's successful leasing efforts form the basis of our improving results. National retailer demand to open stores in quality locations, coupled with limited new developments, have been combined to make for attractive opportunities in Ramco's portfolio.

In the second quarter, we maintained strong leasing volume for both new and expiring leases. Our total lease transactions exceeded 500,000 square feet, with 85% of new lease rental revenue being generated from national or regional retailers. And as an affirmation of the quality of our assets and overall health of our tenants, we are on target to renew close to 86% of all expiring leases in 2012, while continuing to generate positive rental spreads.

The combination of high-quality, well-placed assets, limited big-box availability in existing markets and Ramco's superior retailing relationships continue to afford us significant leasing opportunities. In the second quarter, our anchor occupancy increased to over 96%. The most direct impact of this anchor leasing effort is filling fewer vacancies by executing leases with the likes of Bed Bath & Beyond and buybuy Baby, Ross Dress for Less, Dick's Sporting Goods, TJX Companies, PetSmart, Dunham's Sporting Goods and LA Fitness. These leasing relationships also help us to replace underperforming or weak [mid-box] retailers with more viable, creditworthy operators.

Another benefit of our relationships with strong national retailers is our ability to identify opportunities to either downsize anchors and space or demise vacant boxes to accommodate the increasing demand for space from larger-format, non-anchor retailers in the 5000 to 10,000 square-foot range, with deals at higher rates than their predecessors. Where historically these larger spaces may not have been available in traditional open-air shopping centers, our expertise and creativity have accommodated the needs of this growing sector. These larger-format shop retailers include Dollar Tree, Ulta, Lane Bryant, Kirkland's, Rue 21, Five Below, Dots and Charming Charlie.

An additional important aspect of filling anchor spaces with solid, creditworthy retailers is the positive impact in occupancy and rental rates of our small-shop leasing results. In the second quarter, we improved our small shop occupancy by 120 basis points from the previous quarter. Over 80% of the annual rental revenue generated by these small shop leases is from national or regional retailers. And we continue to produce positive rental spreads in leases signed for spaces previously occupied within the last 12 months.

Much of the incremental small shop demand is coming from national and regional service retailers, such as H&R Block, Verizon and AT&T Wireless, Massage Envy, Aspen Dental and America's Best Contacts, as well as quick service restaurant franchisees, including Qdoba, Panera Bread, Taco Bell, Einstein Bagels and Subway. Combined, our leasing efforts contributed to an improvement in core portfolio leased occupancy from 93.2% to 93.7% in the second quarter.

As the character of our portfolio improves in occupancy, credit quality and tenant mix, we are afforded the opportunity to proactively mitigate risks from underperforming or weak retailers. Of the four remaining Sears Kmart stores in the portfolio, one is in the joint venture asset (inaudible), a lease obligated, and we are working with several retenanting prospects. The remaining three do not appear to be a short-term risk.

We have questioned for some time the viability of the Fashion Bug stores, and recently heard that all their stores will be closed in January 2013. We've been marketing these spaces aggressively. Of the six Fashion Bug stores in our portfolio, we are working with replacement prospects for three and one has term until 2016. We are confident in replacing the balance in 2013.

Our leasing team has also performed detailed portfolio reviews with the major office supply and electronics retailers, and we have concluded that none are short-term risks. In fact, we have secured the renewal of most of these retailers' leases that expire in 2013. We are aware of the uncertainty of these situations and will continue these discussions to proactively identify any opportunities to improve our tenancies in centers that contain these retailers.

Our efforts to improve the quality of our revenue stream while we mitigate risk with certain retailers are bearing fruit. As of the second quarter, the Company has reduced its exposure to Sears Kmart, Office Depot and OfficeMax, and increased its exposure to Bed Bath & Beyond, Kohl's and Ross stores.

Asset management remains focused in 2012 while controlling costs and maximizing margins. In the second quarter, our operating margin for the consolidated portfolio was 71.9%, an increase of 180 basis points over the first quarter and 300 basis points over 2011 year-end. Nonrecoverable operating expenses were down $174,000 year to date versus budget, and exclusive of acquisitions and dispositions, we were able to lower recoverable operating costs in the first six months of 2012 by approximately $2.3 million versus budget, all of this while improving our recovery of shopping center expenses to 95.8% quarter over quarter.

Achieving these objectives has also improved our same-center NOI performance. Our leasing efforts and improved retention of expired leases have strengthened our minimum [recovery] income, while our cost containment measures have resulted in lower recoverable and nonrecoverable operating expenses. This combination helped us achieve a same-center NOI gain of 2.9% for the quarter and 3.1% year to date.

Ramco's asset management team is continuing its commitment to produce steady improvement in all operating metrics, thereby creating consistent and reliable growth in the portfolio in 2012 and beyond. Greg.

Thank you, Michael. As usual, I will start by covering the balance sheet, then turn to our income for the quarter and conclude with our latest outlook.

During the quarter, we maintained a strong and flexible capital structure even as we invested over $110 million in high-quality acquisitions and redevelopment. Through an overnight offering and an asset market equity program, we raised approximately $82 million in common equity. As a result, we ended the quarter with debt to trailing 12 month EBITDA of 7.2 times. Pro forma for the acquisitions and dispositions over the last 12 months, debt to EBITDA was 6.6 times. Our average term of debt is 5.3 years and our debt maturities are staggered to minimize refinancing risk.

At June 30, our interest coverage ratio on a trailing 12 month basis was a healthy 2.7 times, and our fixed charge coverage ratio was 1.8 times. We anticipate both of these ratios will improve by year end as we generate income from our recent acquisitions and lease-up while reducing interest expense and principal amortization.

Our pool of unencumbered properties -- that is properties without secured mortgage financing -- continues to grow. The four high-quality properties we acquired during the quarter are all unencumbered and have been added to the pool. We also paid off the mortgages on two Florida properties, the Crossroads and Coral Creek, totaling $19 million, and added these properties to the pool. As a result, our pool of unencumbered properties now exceeds $720 million. This is more than half our real estate assets.

In addition to being larger, our unencumbered pool is increasingly diversified. Our new markets of St. Louis and Boulder are among the top five markets represented in the pool.

Last week, we closed an amendment to our credit facility. The key features of the amendment included an increased commitment, lower pricing and a longer term. First, we increased the revolving line of credit to $240 million and the five-year term loan to $120 million. Today, we have over $210 million of borrowing availability under our line.

Second, we reduced pricing across the grid by between 50 and 60 basis points. This decrease reflects the recognition by our bank group that our credit profile has improved over the last year. Finally, we increased the loan tender by two years for the revolving line and by one year for the term loan.

During the quarter, we completed a deed-in-lieu transfer of Kentwood Towne Centre to the lender in exchange for release from an $8.5 million nonrecourse mortgage. We recorded a gain on extinguishment of debt of $307,000 on this transaction, of which $239,000 is our share and is included in funds from operations for the quarter.

We also paid off a mortgage on one joint venture property, West Broward Shopping Center, with our share being $2.7 million. Lastly, we executed a short-term extension of a mortgage on another joint venture property, Paulding Pavilion, where our share is $1.6 million.

We currently have no debt coming due for the rest of 2012, other than the loan at Paulding. We are already preparing for 10 mortgage maturities in 2013, of which our share is $73 million. Eight of the 10 loans are on joint venture properties. As you would expect, we are actively engaged in discussions with our joint venture partners about refinancing strategies for these loans.

We estimate the average loan to value on the 10 mortgages to be 68%. Four of the joint venture loans are above a market standard loan to value ratio. In aggregate, we anticipate we will be required to contribute a total of $6 million and our partners the remainder to reduce the principal balances on these four loans to market standard loan ratios. This capital requirement is readily manageable by us and will be incorporated into our 2013 business plan.

Now let's turn to the income statement. Funds from operations for the quarter was $0.26 per share compared to $0.22 per share in the comparable period. FFO this quarter included two unusual items that contributed approximately $0.015. The first was the gain on extinguishment of debt at Kentwood of $239,000. The second was insurance proceeds of $425,000, which is included in other income and relates to a property claim (inaudible).

On the operating side, we had a solid quarter. Cash NOI of $21.6 million was $1.3 million or $0.03 per share higher than in the comparable quarter. The increase was driven by same-center NOI growth of 2.9% and by the contribution of our net investments during 2011 and 2012. Same-center NOI increased primarily as a result of higher rents, but also due to a higher recovery rate and a lower provision for credit loss.

The provision this quarter was $215,000 or less than the $352,000 reported a year ago. The low level of credit loss reflects outstanding performance by our lease administration and collection team.

Our joint ventures are also performing will, with same-center NOI increasing 3.4%. Our income from joint ventures was $580,000 for the quarter, which we believe is a reasonable run rate for the joint ventures in the second half, excluding any one-time items.

Our general and administrative expense of $4.9 million was equal to the amount recorded in the comparable period. Due to the timing of various expenses, we believe that G&A may track slightly higher than this in the second half of the year.

Now, let me say a few words about our outlook. We are increasing our guidance for 2012 FFO by $0.02 at the midpoint of the range. The $0.02 increase reflects several factors that have been incorporated into our forecast. First, our operating results have exceeded our prior guidance. We now expect same-center NOI for the year to be between 2.5% and 3.5%, or higher than the 1% to 2% range previously expected. This increase adds approximately $0.02 to FFO.

Second, we have updated our model for the one-time items recognized this quarter. We expect these to be offset by various one-time G&A expense items, including professional fees, severance and acquisition-related costs.

Third, we have incorporated our recent acquisitions and dispositions, as well as our equity and debt capital raising activity. On a net basis, our capital allocation and recycling activities have substantially improved both our portfolio and our balance sheet without diluting FFO. Over the balance of the year, we will continue to focus on enhancing our portfolio, our platform and our performance for the benefit of all our shareholders.

With that, I would like to turn the call back to the operator for Q&A.

(Operator Instructions) Craig Schmidt, Bank of America.

The comparable TIs per square foot seem to be much lower in the second quarter. I was wondering if this is just a timing and a trend. And I guess conversely, noncomparable TI seemed to be increasing.

Greg, I think -- this is Mike Sullivan -- I think it is really a question of timing. If we look at the leasing activity in the quarter, you see a preponderance of small-shop, larger-format activity, as opposed to some of the bigger boxes that we may have done in previous quarters. And perhaps that trend will continue since the number of vacant boxes reduces in the portfolio, but I think it is just a reflection of the type of leasing that we are doing.

And the TIs, are they more generated towards the big boxes or smaller tenants?

I think we need to take a look at the character of the retailers with whom we're doing business. Nationals, and even in fact now regionals, as they become more sophisticated, require more TI as part of their deal. But they bring with them better-quality revenue. They improve the character of the portfolio. So yes, it is really the character of the national, the regional retailers with whom we are doing deals that require more TI.

Okay, thank you.

Todd Thomas, KeyBanc Capital Markets.

Thanks, good morning. Dennis, you talked about a sustainable 3.5% to 5.5% earnings growth rate going forward. I was just curious, as you've upgraded the quality of the portfolio and the new acquisitions are integrated, what do you think the sustainable same-store NOI growth profile of the portfolio looks like today?

I think that -- now that we are consistently renewing leases in the 80% range and above, as well as signing the kinds of leases that we are with the national retailers, I think our new guidance in at least the 3% range is sustainable.

Okay. And then in terms of acquisitions, it sounded like there is still more in the pipeline. Can you talk about what you are seeing and whether or not that pipeline today is growing and how much capacity you feel you have today to acquire properties?

I think there will be additional acquisitions in the balance of 2012, and that number will come in somewhere between $25 million and $40 million.

Okay. And then question for Michael. You talked about the companies, Kmart and Fashion Bug, exposure. But I was just wondering if you could talk about the six Supervalu leases and maybe give us your thoughts on what your expectation is and what is happening at those six stores. And maybe you can give us a sense of sales and traffic.

I could tell you we are watching the Supervalu thing very closely. And we are really in detailed discussions with all six of our Supervalu flags. I can tell you that sales are strong at each one of them. They vary from $450 to $750 a square foot, depending upon the location.

The three Jewel-Osco's are very solid. Jewel-Osco has excellent stores at our three Illinois shopping centers. All three of them have been renovated recently by them. The Basics/Metro in Southern Maryland is probably one of the strongest ones we have. The Save-A-Lot in West Broward recently renewed. Great store. And then Sunflower at Olentangy. Even though Supervalu pulled the plug on Sunflower, they have some lease term there.

And we've actually retenanted that box with a very strong ethnic regional operator who has been in the Columbus market for 20 years. And all indications are he is not going anywhere. So we are watching the Supervalu thing closely, but all six of these stores are really strong performers.

Okay, great. That's helpful. Thank you.

Nathan Isbee, Stifel Nicholas.

If you can just comment, Greg, perhaps why you tapped the ATM this quarter, given the stock price and the large offering in May.

Sure. I mean, we actually tapped the ATM prior to doing the equity offering. We were, at the early part of the quarter, not 100% sure which acquisitions we were going to get to the finish line on, but we knew that we wanted to maintain a strong balance sheet regardless of what we did. Turned out we were successful at acquiring all four properties, and that requires the need for more equities than we could have raised under the ATM.

Okay, thanks. On the asset sales, how dilutive is that to 2012?

Ultimately, the sales that we have accomplished year to date are hardly dilutive at all, unfortunately, for the simple reason that the centers were extremely challenged. Many of them lacked the anchor box and a number of them had also lost some smaller tenants. And I think you see that really as reflective in the prices that we achieved for these assets, because they were sold on more of a cost per square foot than any type of cap rate that might have been attributed to income. So the actual drop has been minimal.

Okay. And then just getting back to the guidance, the increase, $0.02, I'm just curious as you look at your -- you've done $0.52 through the first two quarters. What gets you to the bottom end of your guidance range (inaudible)?

I think what the bottom end is designed to do, Nate, is to give a little room in a very uncertain world.

Okay.

If the world hangs in there well, we should do better than that. But it gives us a little room there. And conversely at the higher end of the range, if everything fires on all cylinders and there are no issues, then we should gravitate towards that end.

Okay, great. Michael, if you could just -- on the non-comp leasing, what was the breakdown between small shop and box leasing in there?

The non-comp? We had -- we essentially had four large boxes in the non-comp. The rest were pretty much shop. So those four approximately -- it looks about $85,000, $86,000 out of the $200,000 in non-comp.

Okay, thanks.

Vincent Chao, Deutsche Bank.

Just a follow-up on the non-comp leasing activity. I'm just wondering -- I know that changes on a quarterly basis, but as of today, what percentage or how much square footage of the remaining vacancies is sort of in the non-comp bucket?

I'm sorry, I'm not sure I understand the question. The remaining vacancies in the non-comp bucket?

No, of your remaining vacancies, how much would be sort of in that non-comp category?

That is an outstanding question. Why don't you let me do some homework and I will get back to you -- how does that sound?

That sounds great. And if you would, just trying to understand the breakout between non-anchor and anchor within that bucket. I mean, it sounds like it is probably mostly non-anchor at this point, just given the vacancies overall.

We have about 1.2 million total in the portfolio vacant. Small shop under 10,000 is 735,000 give or take, and the remainder is boxes of various sizes. But characterizing the actual vacancies as comp or non-comp will take me a little time to do (multiple speakers).

And just Vincent, so you know, part of that question will be hard to answer because our business is dynamic and boxes don't just sit there and always remain the same size. So one of the things that we are doing is either increasing the amount of space by combining smaller shops into a more medium-sized shop space to fulfill the demand that Michael talked about from so many of the retailers who are looking for sort of 6000 to 10,000 feet. Or adversely, taking a larger box and subdividing it to accommodate that. So just in the process of doing that, it makes it hard to make those comparisons.

I understand. I'm just trying to get an order of magnitude kind of number. And I guess -- I know you are tracking it on a greater than 12 month basis at this point, but just wondering if you have the calculation for the new lease spread inclusive of all new leases that was in the quarter.

Actually, we do not.

You don't have it -- okay. And I guess just following up on the guidance increase for same-store NOI specifically, I think in the initial guidance, the expectation was that the second half would pick up versus the first half. And I'm just wondering -- it looks like the implied second-half same-store NOI would be similar to the 3% that you've been doing so far in the first half. Just wondering if there is something that has changed there in the thinking, because I think the lease commencements were supposed to pick up in the back half, which would have driven the NOI a little bit higher.

I don't think that we -- I don't think based on our guidance that we continue to view the back half as being ahead of where we've been in the first half. If you look at the first half, we are at, I think, just over 3%. And our guidance now for the full year is essentially right around 3%, 2.5% to 3.5%. So I think that pretty much tells you what we are looking at for the back half.

Understood. I would have expected the commencements would have picked up in the back half regardless of sort of how the first-half performance was. But are you saying that some of that was maybe pulled forward a little bit?

That's exactly right.

Okay, perfect. And then just the last question on the -- I guess the pro forma debt to EBITDA I think you said was 6.6 times for the acquisitions.

Right.

Just wondering if you could just remind us, is that a level you are comfortable with? Are you looking to drive that even lower? And I guess sort of in line with that question, obviously, this recent deal was a bit overcapitalized in terms of equity to try to bring the overall debt number down. Just want to get a sense of, one, if you're looking to drive it lower; and two, should we be thinking about acquisitions in the future sort of on the same sort of mix in terms of cap structure?

I would start by saying that it is a level we are very comfortable at. We don't feel that our ability to raise capital is in any way constrained with debt-to-EBITDA of 6.6 times on a pro forma basis. We also look at where the peers are, and I think that kind of ratio certainly puts us no worse than the middle of the peer group and maybe even better than that.

So it is a level we are comfortable with. If there's an opportunity to drive it lower in a manner that allows us to perform consistent with our overall business plan going forward, we may avail ourselves of that opportunity. But we don't feel compelled to have to drive it lower, because again, we have plenty of liquidity, capital availability and well-staggered maturities.

Okay, thank you.

Michael Mueller, JP Morgan.

A couple questions. Greg, I think you said the pro forma 6.6 for the prior question for debt-to-EBITDA, the 1.8 fixed charge coverage. Is that a trailing number or is that a pro forma number?

No, the 1.8 for fixed charge coverage is a trailing. And again, that is why I said we think we will get that number higher through a combination of more income and reduced interest expense, and to a small extent, reduced principal payments, as we pay down some of the mortgages that require principal amortization.

Got it. So if you get into year-end, what is your best estimate for -- you are doing the look for? Or I guess a better way to put it is more on a pro forma basis, where is that after the acquisitions and everything that is in place today? Is it 1.9, is it 2, or is it still kind of in the 1.8s?

I didn't calculate it on a pro forma basis as of today. When I say drive it higher, I think where we would like to go is to get that ratio to 2.0 times. I think that may be achievable by year-end. I'm not promising that we will absolutely get there. But directionally, that is where we want to go with that.

All right, okay. And Dennis, I think you mentioned $25 million to $40 million of acquisitions for the rest of the year. What are you thinking about on the -- what does it look like for the disposition side?

Interestingly enough, Michael, we had been looking at making several dispositions with assets where, let's, say an anchor had a shorter term, et cetera. We are still committed to selling those assets, but interestingly, enough based on the timing and at least improving economic situations in the trade areas that they are in, we are working with those retailers now either to extend their term or we have replacements for them. So even though we will ultimately sell them, the timing of those dispositions have been moved out some so that we can strengthen the assets and thus get better pricing on it.

Okay, and does guidance reflect the acquisitions, or is that separate from it?

The guidance that we gave includes the effect of the $25 million to $40 million of acquisitions that Dennis referred to earlier.

Okay, and nothing on the disposition side, though? Okay. And last question -- Dennis when you were talking about seeing 3.5% to 5.5% FFO growth annualized over the next few years, is that more of a core in-place number just with the existing portfolio, same-store NOI levering it? Or in your mind do you have new properties coming in the mix and maybe some offsetting dispositions?

I think it is all of the above. But the primary driver of where we are going is indeed our core portfolio and how well we are doing in filling those boxes with tenants who will be there for the long-term.

Okay, thank you.

(Operator Instructions) Wayne Archambo, Monarch Partners.

RadioShack is a retailer that has been struggling, and I know it is not a big box, but their stock is down 26% this morning. The stock has been destroyed the last year. Do you have much exposure there? They have 7300 stores in the country. Do you know offhand how many stores you have exposure to there?

We have around 16. And 16 of the stores, they average anywhere between 2000 and 22,000 -- I'm sorry -- 2000 or 2200 square feet. Our exposure in terms of annual base rent is just around 4/10 of a percentage point.

We keep a very close watch on RadioShack. They are on our tenant watchlist. I can say most of the stores (inaudible) who report sales, are pretty healthy, but we are watching them closely.

Also, I might just add that about five to six of those are in joint ventures, as opposed to in the wholly-owned portfolio.

Very good. Thank you.

Nathan Isbee, Stifel Nicholas.

Quickly, as you look at the box leases that you have signed but not yet opened, how many of them are going to lag into 2013 before opening?

How many of the boxes that we have signed are going to lag -- excluding development, I think we have about two or three. I can get you the detail on that, Nate, if you like, but I think it is about two or three that are kind of slated to open in '13.

Okay, thanks.

And we would add to that, Nate, that there are several in the pipeline that will be signed before the end of the year that will be 2013 openings as well.

Okay, thank you.

Vincent Chao, Deutsche Bank.

Sorry if I missed this earlier, but just given the success you've had at Parkway, I'm just wondering how that has shifted or changed your thoughts on Gateway Commons.

It hasn't changed any of our approach at Gateway Commons. We continue to make very solid progress in executing not only anchor leases, but some of the larger format boxes of anywhere from 8000 to 15,000 square feet.

The key here is that we will not go to the Board for approval of that project until, as I said in my remarks, we have achieved a significant critical mass. We have all of our costs. We can achieve a very nice return on incremental costs. However, taking the conservative posture that we have, we are not prepared to announce that until such time as the Board has approved it, and we are not going to the Board until we are well over the 70% -- at least the 70% leased market, if not even higher.

Okay, 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 any closing comments.

Ladies and gentlemen, as always, thank you very much for your interest and your attention. We are excited about the balance of the year and look forward to talking to you in approximately 90 days. Have a good day.