Rithm Property Trust Inc (RPT) 2012 Q3 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Property Trust third-quarter 2012 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. (Operator Instructions) As a reminder, this conference is being recorded.

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

Good morning. And thank you for joining us for our third-quarter conference call. With 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 the date of this call.

Listeners to any replays 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. Once again, I'm pleased to report another excellent quarter, during which our operating and balance sheet metrics moved in a positive direction. The successful execution of our business plan has for a second time this year enabled us to increase our FFO guidance, this time by an additional $0.02 at the midpoint. These increases are the result of our ability to generate predictable, sustainable growth in our reoccurring net operating income.

The success we've experienced in driving our operating metrics is the result of our focus on -- one, the ownership of high-quality shopping centers; two, the leasing of our properties to best-in-class retailers; and three, our ability to generate creative solutions for an evolving retail landscape.

Taking these in order -- first, we believe that owning high-quality, multi-anchored shopping centers, over 60% of which have a food component, creates a diversified shopping experience. Assets of this type are typically located at major intersections in primary retail hubs. Because of the location, size, and tenant mix of our multi-anchored shopping centers, we're able to attract the entire range of national and regional retailers, as compared to centers anchored only by a supermarket, which tend to rely much more heavily on local merchants.

Our ability to attract these credit tenants is demonstrated by the fact that in the last several quarters, we have signed approximately 90% of all of our non-anchor leases with national and regional retailers. A significant advantage for these tenants is that they have far less problem accessing the capital they need for their expansion plans, as compared to local operators.

Secondly, with a focus on leasing to best-in-class retailers, we are realigning the list of top tenants in our portfolio, both large and small, with merchants who are creditworthy, who have strong merchandise concepts, and who will be significant draws to our shopping centers. The personal relationships we've established with many of these retailers has allowed us to sign multiple leases with the strongest and most desirable members of this group. These expanding relationships have resulted in a significant increase in non-anchored lease occupancy; they have reinforced our shopping centers' dominance in their respective trade areas; and they have helped ensure that our revenue stream will be a consistent sustainable platform for future earnings growth and value creation.

The third driver of our accelerating operating metrics is our ability to take advantage of our larger centers to accommodate the needs of today's successful retailers who are beneficiaries of an evolving retail landscape. So, just at a time when a number of anchor tenants were failing to remain competitive in a challenging retail environment, and a significant number of small shop users were closing their doors as a result of being undercapitalized in difficult economic times, the dynamic nature of the retail marketplace generated opportunities for a number of exciting retail concepts, categories, and merchants.

Thus, in addition to new anchor retailers, like Buy Buy Baby, many of the smaller format users, like Ulta, Five Below, Shoe Carnival, Torrid, and Charming Charlie's, initiated aggressive expansion plans. All of the aforementioned tenants have little direct competition, and sell competitively-priced products in experience-based stores.

These retailers have been an answer for landlords who found themselves with too many small shop vacancies. This group of retailers are taking larger format spaces of 5000 to 10,000 square feet, enabling owners of multi-anchored shopping centers to counterbalance a shrinking pool of users who occupy 1000 to 3000 square feet. Thus, we have been combining a number of smaller vacancies to accommodate these expanding retailers at rental rates that generate returns, which justify the costs associated with these transactions.

Complementing the advances we've achieved in operating performance are the high-quality acquisitions we've made, the dispositions of the vast majority of our most challenged properties, and the continued improvement in our balance sheet and debt metrics. As we look out at the last quarter of 2012, we feel confident that we will finish the year in an even stronger position.

In summary, our two increases in FFO guidance, our consistent posting of improved operating and debt metrics, as well as our attractive and secure dividends, all support the conclusion that Ramco-Gershenson is well-positioned to drive earnings growth and enhance shareholder value.

I would now like to introduce Michael Sullivan, who will speak to the specifics of our operating performance.

Thank you, Dennis. Good morning, ladies and gentlemen. Our third-quarter results confirm that we continue to execute on our aggressive leasing and asset management plan, designed to drive the value of our shopping center portfolio.

In the third quarter, we maintained strong leasing velocity at positive spreads for both new and expiring leases. Our total lease transactions exceeded 300,000 square feet. On a comparable basis, the cash rental spread was up 5.4%. Also, in the third quarter, we've renewed over 87% of all expiring leases at rental growth of positive 4.4%, and are on target to renew over 80% of all expiring leases in 2012. This high renewal retention percentage is yet another clear indication that our tenants continue to thrive in Ramco's high-quality, multi-anchored assets in prime locations.

We maintained anchor occupancy of 96%, and continue to reduce the number of vacant anchor boxes in the portfolio. We expect only five vacant boxes at year-end, down from nine at the end of 2011. Demand for existing anchor spaces is still strong. Capital requirements and rents associated with these transactions remain at market.

Our shop occupancy increased to over 87% leased, a 130 basis point improvement over the prior quarter, and a 300 basis point increase year-to-date. The greatest impact of this activity can be seen in the emerging retailers' demand for spaces in the 5000 to 10,000 square foot range, as leased occupancy of spaces in this category increased to over 89%. The 8 releases executed in the quarter for these spaces generated average rental in excess of $15.30 per square foot, significantly above the portfolio average for this segment. Five of these transactions required either the demisement or combining of existing vacancies.

A great example of our team's approach to creating opportunities for these retailers is shown in our Millennium Park property in Livonia, Michigan. Although already considered an A asset, being well-occupied with Home Depot, Myer, Costco, Marshall's, and Michael's as anchors, we were still challenged with an empty Linens n Things box. Responding to retailer demand, we demised the space to accommodate Ulta, Five Below, and Lane Bryant at an average base rent 30% higher than Linens.

Much of the roughly 50,000 square feet in executed leases were truly small shop retailers in spaces less than 5000 square feet, reflecting continuing demand from national and regional retailers in the quick service and fast casual food sector, destination health service providers, men's ready-to-wear, and telecom vendor segments. Combined, our leasing efforts contributed to improvements in core portfolio lease occupancy of 70 basis points to 94.4% in the third quarter. The team's focus on driving core portfolio average rent continued, with an increase from $11.41 a square foot last quarter to $11.54 a square foot in the third quarter.

Even as the character of our portfolio improves in occupancy, credit quality, and tenant mix, we continue to proactively mitigate risks from underperforming or weak retailers. Of the four remaining Sears, Kmart stores in the portfolio, to recently exercised their options, one had term, and none of these three are judged a short-term risk. We are negotiating with re-tenant prospects for the fourth.

Ramco's team has committed in 2013 and beyond to reducing our exposure and store count with the three national office supply retailers, as well as a national electronics retailer. As a result of our persistent portfolio reviews, not only have we been able to replace naturally expiring leases with creditworthy national retailers, we are currently negotiating store-specific opportunities to either downsize them in place or replace them completely before the end of existing term. We expect a number of these negotiations to close in 2013.

The team has taken a similar approach to Supervalu. We have a number of Supervalu brands in our portfolio, but they reside in high-quality service centers and they perform well. The Jewel Osco stores generate approximately $600 a square foot in sales, and the other stores, including Save-A-Lot and Shoppers, approximate $400 a square foot. In any event, we're watching their performance closely, and remain confident in our ability to replace them, should the need arise.

Asset management remains focused in 2012 with controlling costs and maximizing margins. In the third quarter, our operating margin for the consolidated portfolio was 72.5%, an increase of 100 basis points over the second quarter. Recoverable operating expenses are trending down -- $875,000 versus full-year budget; and recoveries are trending up 100 basis points versus prior year. Nonrecoverable operating expenses are trending down $150,000 for the full year.

Achieving our leasing renewal, income and cost containment objectives has also improved our same center NOI performance. We posted a same center NOI gain of 3.4% for the quarter and 3.1% year-to-date. Ramco's asset management team continues in its commitment to producing steady improvement in all operating metrics, thereby creating consistent and reliable growth in the portfolio in 2012 and beyond.

With that, I'll turn it over to Greg.

Thank you, Michael. Let me start by covering the balance sheet. Then I'll turn to our income for the quarter before concluding with our latest outlook.

During the quarter, we purchased the Shoppes of Lakeland, a 97.3% leased community center in Lakeland, Florida from (technical difficulty) -- one of our Heitman joint ventures. The purchase price for our partner's 93% interest was $26 million. This center is directly across from Lakeland Square Mall, and we are pleased to be adding T.J. Maxx to our center's lineup.

We also invested approximately $3 million in a construction loan for a second phase at Shoppes at Fox River in suburban Milwaukee, Wisconsin, where we owned the first phase, anchored by Roundy's and shadow-anchored by Target. This 47,000 square foot second phase is 100% pre-leased to T.J. Maxx, Ulta, Charming Charlie's, and Rue 21. We've entered into an agreement to acquire this project upon completion in the fourth quarter.

The modest expansion of our balance sheet during the quarter was accomplished with a combination of borrowings under our line of credit, and the issuance of approximately $12 million in common equity through our aftermarket equity program. During the quarter, we closed an amended credit facility with our syndicate of 10 banks. The new facility expands our line of credit to $240 million and our five-year term loan to $120 million. In addition, we extended the terms of these loans, reduced the interest rates we pay, and improved our borrowing capacity.

As a result, we have maintained our strong and flexible capital structure. At quarter end, net debt to EBITDA was 6.7 times. Our average consolidated debt term was 5.5 years. Our debt maturities were well-staggered, and cash and availability under our line of credit exceeded $200 million. Our pool of unencumbered properties continues to grow with the addition of Shoppes at Lakeland, and now exceeds $725 million, or more than half our real estate assets.

We also made meaningful strides in improving our coverage ratios by generating more income through aggressive leasing. For the quarter, our interest coverage ratio was 3.1 times and our fixed charge coverage ratio was 2.2 times. These are the highest coverage levels we have reported over the last three years. And they put us at a level that is consistent with an investment-grade credit profile.

We currently have no debt coming due for the rest of 2012, other than one small joint venture loan at Paulding Pavilion. We have 10 mortgages that mature in 2013, of which our pro rata share is $72.4 million. Two of these 10 mortgages are secured by only-owned properties.

We anticipate repaying the $13.5 million balance on these two loans with borrowings under our line of credit. The other eight mortgages maturing in 2013 are secured by joint venture properties. We have initiated refinancing discussions at five of these, and expect to be able to announce the details of at least three new loans next quarter.

The current mortgage market is accommodating for our type of asset -- high-quality, multiple-anchor shopping centers. The proposed loan amounts, interest rates and loan terms that we have been quoted so far have met or exceeded our expectations.

Now let's turn to the income statements. Funds from operations for the quarter was $0.26 per share. Let me run through some of the key items driving this result. On the operating side, we had a solid quarter. Cash NOI of $23.4 million was $2.9 million higher than in the comparable quarter. The increase was driven by same center NOI growth of 3.4%, and by the contribution from our net investments during 2011 and 2012.

Importantly, our same center NOI increased primarily because of a 3.0% growth in minimum rent. In addition, we posted a modestly lower provision for credit losses, which was $333,000 this quarter compared to $456,000 in the comparable quarter.

In keeping with our previous guidance, straight-line rent was negative this quarter. On a pro rata share basis, we reported a reduction to income of $517,000 or $0.01 per share, due to the straight-lining of rents. It is important to bear in mind that straight-line rent is a non-cash adjustment. We are actually receiving more cash than we are allowed to recognize under GAAP. We expect this trend to continue for the foreseeable future, although the amount recorded in any given quarter will fluctuate, based upon leasing and reserve activity.

Our income from joint ventures was strong at $1 million for the quarter, generated partly by an increase in same tenant NOI at our joint-venture properties of 4.7%. Included in the $1 million share of joint venture income for the quarter are gains on land sales at two joint venture properties of $206,000. We don't anticipate additional land sale gains at joint ventures in the fourth quarter.

General and administrative expense of just under $5 million was approximately $350,000 lower than the amount recorded in the comparable period. For the full year, we expect G&A to be roughly $19.6 million to $19.8 million, or approximately even with the expense recorded in 2011. Keeping G&A roughly flat, even as we have increased our asset base, reflects a conscious effort on our part to control the costs of running our organization.

Now, let me say a few words about our outlook. We are increasing our 2012 FFO guidance to a range of $1.01 to $1.03 per share, or $0.02 higher at the midpoint in our prior guidance. The main reason for the increase is that our operating results, including our year-to-date same center NOI growth of 3.1%, continue to be toward the higher end of our expectations. At the same time, we have reduced our borrowing costs and controlled our corporate expenses.

Although it is too early to provide a detailed outlook for 2013, we expect our core FFO to continue to grow next year. Our leasing efforts are bearing fruit, and rising occupancy is providing more leverage in negotiations with tenants. Our acquisitions are giving us additional opportunities to add value, while our Parkway Shops development is on track to open next spring. Our team is excited about the opportunities that lie ahead of us.

With that, I'll turn the call back to the operator for Q&A. Operator?

(Operator Instructions) Todd Thomas, KeyBanc Capital Markets.

Just wanted to stick with 2013 and touch base on internal growth. You know, leasing spreads have been positive and there's still some occupancy upside, but that upside's lower today. And I know you haven't provided any formal 2013 guidance, but I was just wondering what your thoughts around same center growth in the coming quarters would maybe look like, as you face some of the fashion foreclosures and the Kmart closure early next year? Just trying to get a sense whether we might see growth moderate or if you think all the leasing will keep the pace of same-store NOI growth consistent.

Hey, Todd, this is Greg. So, we haven't provided guidance for '13, and that's because we're still going through our budgeting process at this time. And we do anticipate providing that guidance, at least on the schedule we have in the past, meaning prior to the fourth quarter results, if not earlier this year.

But let me just say that some of our -- obviously, our leasing activity, which has been very strong throughout the year, is contributing not only this year, but what will carry over into next year, whether it's because some of the leasing is only partly reflected in 2012, or because some of the activity that we announced even this quarter will only begin rent commencement, either later this year or in 2013. So, we feel very good about the underlying strength of our internal growth when we get into 2013.

Let me just add one thing to Greg's comment, Todd, is that when you look at a retailer such as Fashion Bug, as they continue to struggle in '11 and then into '12, they wanted to keep their stores open. And in an attempt to do so, the rental structure that had been in place before, began to deteriorate some.

So the comparisons between what they were paying in '12 and what we won't get from them going into '13 is not significant. And we will more than compensate that loss with some very significant increases that we've been able to achieve, both in anchor and small tenant leasing.

Okay. And then question maybe for Michael. I was hoping you could comment on the leasing environment and sort of CapEx. Tenant improvements spiked higher. It looked like it was mostly in the noncomparable bucket. Is it becoming more difficult to lease the spaces that are left to lease at this time? I mean, should we expect to see leasing, I guess, particularly that noncomparable bucket require more landlord capital at this point?

Well, Todd, I think you see -- you stated that the PIs are high in the quarter and that's absolutely accurate. You know it does in fact, and has in fact, varied quarter-to-quarter based on the leasing environment. I think what we're seeing now with this dynamic, the retailer demand in the market plus Ramco's preference to lease to national creditworthy tenants, who provide the kind of quality rental stream, stability and tenant diversity that we're looking for, when you couple Ramco's reference -- preference with this retailer demand, you see larger format shop users of a national creditworthy basis, that require, at least in shopping centers, either the demisement or combining of spaces in the shopping center.

That, by nature, is going to be more expensive than a traditional deal. I think the use of landlord capital in these instances represents a broader spectrum of work being done in the centers to accommodate the reconfigurations. And Ramco is fortunate enough to have centers large enough and the expertise to reconfigure them to accommodate these deeds. So if we continue to see retailer demand in this particular segment, I think we can anticipate continued use of landlord capital to achieve the kind of quality tenant line-ups that we desire.

And if I could add just something to that, Todd, and I think you'll see it as a quick note in the supplement -- is that for whatever reason, we all use this reference to TI, what you're really seeing is a significant percentage of those dollars spent R&D, pursuant to Michael's comments, either to combine smaller spaces or, as Michael gave the example with Millennium, to break up a larger space.

So what you're really seeing is costs not necessarily associated with any tenant improvements, but to make the spaces desirable for retailers we find in the marketplace today. What's interesting is, if you have a longer perspective and you've been in the industry as long as I have, with the centers that were built in the '80s, the centers that were built in the '90s, and even into the early 2000s, all had a significant number of 1000 to 3000 square foot spaces.

As I mentioned in my prepared remarks, we've seen that pool of retailers shrink significantly. So you have a choice. You're either going to go ahead and deal with these 5000 to 10,000 feet square retailers, which bring a whole new dynamic to the marketplace, or you can sit and wait, at least to your second and third nail shop or another haircuttery, or local users who decide, well, the economy has improved; I'd like to get back into business. And then you have to wait for the next downcycle.

Here where we've chosen, and as Michael said and as we've emphasized, when you have the larger format shopping centers, you have the ability to combine two or three 1500, 2500, 3000 square foot spaces to lease to very good creditworthy retailers, who indeed are very good draws to the shopping center, because they're providing something that you're not going to find in another center in your immediate trade area.

Okay. That's helpful. Just one last quick one maybe for Greg. You know you mentioned that Ramco -- your debt metrics are consistent with investment-grade rating. I was just wondering, have you had conversations with the rating agencies? And sort of what's the timeframe that you have in mind where you might like to obtain an investment-grade rating?

Yes, Todd, actually it's [appraised in] investment-grade profile, and I did so actually quite consciously. Because as we've said before, we're trying to adopt the mindset of an investment-grade company, but we have not yet undertaken any kind of formal or informal conversations with rating agencies to seek the rating. And that's really because we think it would be a little bit preliminary to do so at this time.

There's several other things that we want to accomplish before we proceed down that path. But the important thing is, from a metric standpoint, I think we're at the point where we have established ourselves as well within the guideposts that would apply to a low investment-grade rated REIT.

Okay, great. Thank you.

R.J. Milligan, Raymond James.

Just a follow-up on Todd's question. For the 500,000 square feet for the first three quarters of the year that were noncomparable for the leasing activity that you guys did, what percentage of that is sort of recut boxes? And what percentage of that is just space that's been vacant for more than 12 months?

R.J., Mike Sullivan. You know, we haven't really taken the totality of the year-to-date transactions -- noncom transactions. But I can tell you, as I mentioned in my speech, if you take just the 5000 to 10,000 square feet range, you know eight executed deals, you have five of them involving demisement or combining of spaces. If you expand that, if you expand that group to maybe 4500 to 13,000 square feet, you're up to 10 deals, you're still talking six or seven of those 10 deals involve demisement or combining.

So in the six, and in many cases some of the larger -- the mid-box deals, specifically the third quarter, the experienced fitness deal that we did required combining several spaces. I think you'll see above a certain line of demarcation, the larger format shop users and above, you'll see a significant number of them that require combining or demising. It's the smaller ones, the 1000, 1500, 2000, that are sort of shoe fits. But you're seeing a large number of the really -- the thick of our noncom executed leases involving demisement or a combination.

So it'd be fair to say that the larger spaces are requiring the most amount of TI's year-to-date and the smaller shops are requiring significantly less?

That is correct. I think if you look at the 4000 or 4500 and above, we'll be up to [6, 13, 5] especially in Q3. We've seen a large number of these that involve demisement or combination. And again, it's Ramco's preference to deal with a certain type of national creditworthy retailer plus the demand of the marketplace coming together in our quality assets, you're going to see a greater use of landlord capital, not only for TI but for landlord work to reconfigure these spaces.

Thanks. And can you guys just talk about what you're seeing in terms of the transaction market? In your specific markets, have you been seeing an increase in sort of the number of properties that are coming to market? What are you seeing in terms of cap rates?

This is Dennis, R.J. What we're seeing is a -- an ever-increasing flow of opportunities for acquisitions. Interestingly, in the Michigan market, I think you're going to see a number of phrase happening in the next couple of quarters. And that's going to give some clarity to cap rates in the state of Michigan. I think we're all going to be reasonably, pleasantly not surprised but happy with the cap rates that will result from these sales.

In all of the markets that we are in and the markets that we'd like to be in, we are seeing product and at cap rates that are beginning to compress some from the mid-7s that we would like. We bid on a couple of assets in St. Louis that, after buying in the mid-7s, they were at more aggressive capitalization rates, and so we passed on those acquisitions.

So, it's still a reasonable reasonably frothy market, and we are just picking through the various opportunities to find those centers that we believe have the proper tenant mix, the right amount of credit, and once again, as with all our acquisitions, have a value-added component.

Thanks for that color Dennis. In your specific markets, who are the bidders out there? And do you -- do they have a preference for grocery anchor versus power centers? Are you seeing any sort of difference in cap rate compression for those different types of assets?

Well, we certainly are seeing an interest for both types of acquisitions. Grocery still is somewhat of a favored type of asset. I think that based upon the problems that some of the supermarkets have had, maybe a little bit of that blush will be off the rose. But the ones that we have talked about or that I've mentioned specifically as it relates to Michigan are multi-anchored shopping centers. So, they are also getting their play.

The reason we like the multi-anchored assets is that if, as we've seen in the last four or five years, you lose an anchor in a multi-anchored shopping center, your asset is still viable. And your choices of replacement tenants are significantly broader than if you only have a supermarket, and for any reason they get -- the supermarket decides to leave. But once again, let me remind you that over 60% of our assets do have a supermarket component. So for us, the ideal asset would be a shopping center that is multi-anchored and has some type of food component in it.

Great, thank you, guys.

Vincent Chao, Deutsche Bank.

I just wanted to follow-up on the credit rating discussion. Just one of the barriers I think that's been discussed in the past is sort of the size of the balance sheet metrics are is the geographic diversification, I think you guys are targeting or have a goal of having no greater than 25% of your NOI come from any specific region. Just wondering if you do achieve that mix, is that going to be good enough from a credit rating agency perspective, from a diversity perspective? And then to what kind of timeframe do you think it will take to get to that mix?

I think what we've said, Vincent, is that we didn't want any more than 25% of our base rent to come from any one state. And that is a goal that -- the timing which will depend on a variety of things, both on the acquisition front and on the disposition front, so it's very hard, I think, to put a timeframe on it. But I think it is important to identify it as an objective as a Company, because it is, I think, the one feature that would be, today, an impediment to getting a rating. And I think if we get to that goal, we're certainly a lot closer if not right there in terms of the ability to get a rating.

Okay, thanks. And then just another question on the sort of the small shop spaces being reconfigured. If you look at the portfolio today, do you have -- what percentage is sort of less than 5000 square foot tenants?

Tenants less than 5000 square feet, we're close to 81% occupied.

Right now I'm just wondering what the percentage of total square footage in the portfolio? Not the actual.

It's about $2.8 million out of (technical difficulty) $15 million.

$2.8 million, okay. Then I guess, ideally, where do you see that mix going to? It's sort of this transition seems to be towards bigger boxes combining in some of these smaller spaces, maybe you're still getting good rents. You do have to pay a little bit of TI's upfront but you're getting a little better credit quality. I'm just wondering what you think that $2.8 million goes to over time?

Well, again, we're currently at the end of Q3, 81.7% leased in that sector under 5000 square feet. Our goal quite clearly, this segment of our portfolio represents the greatest value to us in terms of unlocking rents. So our goal clearly is to approach 90% as much as we can in the upcoming quarter.

And then, if I may, let me just add one thing, and that is that hopefully, we don't leave the impression that there are still a significant number of opportunities in the, let's say, the 0 to 5000 square foot area. An example is America's Best, where we are making multiple deals with them. They take anywhere from 3500 to 4000 square feet. And there's Carter's, there's a variety again, of national and regional tenants.

And we're not turning our back on local retailers, especially those who have multiple locations and are reasonably well-capitalized. We see that approximately 2.3 million square feet of under 5000 square feet as a real opportunity for us to drive our NOI going forward. So, we are emphasizing that area, and I think we're making great strides in it. And we'll give you an update on that, come next quarter.

Okay, just trying to get a sense if you think that 2.8 million square feet of less than 5000 becomes smaller over time, just given the trend that you're seeing today, but maybe we can circle back on that another time. Just the last question just on the guidance at the midpoint, the [102]. If I look at the -- I think [you're up] (technical difficulty) [$0.78] year-to-date sort of implies a $0.24 for the fourth quarter. Just wondering if there is -- is there something in the run rate that should drive it lower from the [$0.26] in third quarter?

Well, I mean, we talked about a couple of items that either were in my prepared remarks or shown in the supplement that were pickups in the quarter in other income. I think we had a couple hundred thousand dollars of insurance proceeds that hit this quarter. That's not a usual item. And then we talked about the gain on land sales at the joint venture, and I said that we did not anticipate further gains on that sales from joint ventures in the fourth quarter. So, there's always just moving pieces, and of course, at year-end, you're reviewing all of your accruals and things. So, it's on that basis that we've given the guidance.

Okay, and just as a reminder, on the accruals on real estate taxes, would you book those true-ups in the fourth quarter? Or would that come in the first quarter next year?

We would book back that in the fourth quarter.

Fourth quarter, okay, thanks.

Craig Schmidt, Bank of America.

I guess, guys, just longer term, what are your plans regarding the land held for development or sale?

Hi, Craig. We continue to be very focused on that specific area, especially because it's not income producing and therefore it deserves our attention. We have in past calls talked about the land that we own in Lakeland, the progress that we have made relative to executing leases with anchors.

We do not have a board Approval as of this date, but it is management's intention to continue to move that project forward, and ultimately secure Board approval. But I'd like to think we may be able to get in the fourth quarter or the first quarter. Being mindful of at least 75% of pre-leased for the entire shopping center and producing a return at least on new dollars invested, which will show a double-digit return on income in place.

There are also a number of sales for land parcels that we own that we're in negotiations now with. However, we have never really talked about any of those until the transaction is complete. But there are very interested parties in a number of our parcels and we're in negotiations on those now. So we will remain focused on our non-income producing properties.

And what percent would you say of that land could be produced or converted to from pads that are maybe surrounding existing centers?

Sorry, Craig, this is Greg. Are you saying what percent of (technical difficulty) (multiple speakers) --?

Yes, I'm just curious is some of that land contiguous to an existing center that at some point you could sell to a pad? Do you have a sense 10% of the land or --?

Yes, I mean it's something on that order of magnitude. It's not a huge number. We, for example, at Colorado when we bought Harvest Junction north and south, we acquired some additional land adjacent to that for future development, about, I think, 14 acres.

I mentioned on the call that we're funding a construction loan at Shoppes at Fox River. And when we buy Phase 2 there, we'll acquire also a little bit of incremental land there. So, there are cases where we have land adjacent to shopping centers. Certainly, at shops at Parkway, there's a (technical difficulty) we're building Phase 1. There's a Phase 2 to come, which might include sales to a major (technical difficulty) user or anchor. But it's -- but the majority of it was acquired with the intent to develop, so the portion that might be sold is probably -- to other retail users, is probably less than half.

Okay, thanks a lot.

Michael Mueller, JPMorgan.

A couple of quick questions. Dennis, when you were talking before in your remarks, I think you mentioned a couple of -- you may see some assets trade in Michigan sometime soon. Were those assets that you folks would be involved in? Or just other parties?

These are assets owned by people other than ourselves. However, just relative to going forward, to give you just a little bit of clarity on dispositions in 2013, we will be talking about somewhere between $20 million and $50 million of dispositions. And because of the statement that Greg made relative to our interest in reducing our minimum rent exposure in any one state, you can expect that there indeed may be Michigan assets that fall into that category.

Okay. And it's probably not an unreasonable assumption to assume whatever you sold just gets recycled into other geographies?

That would be correct.

Okay. And then switching gears for a second and thinking about going back to the small shops leasing. Are you seeing any differences in terms of the demand or activity levels when you move around to different geographies throughout the portfolio?

Mike Sullivan here. No. We're seeing it across all of our trade areas, all of our regions. Obviously, individual retailers have their own -- open to buy their own new markets that they're going into. We keep pretty close track of what new markets, how our retailers are moving into. But in general, we're seeing the same type of activity across all of our trade areas.

Okay. And then if you boil that down further to not just small shops that can include national and regional tenants, but just thinking about more of the local tenants, is there any disparities there?

I think we're seeing a similar parallel increase in the part of locals or mom and pop's. Those with multi-units or are looking to get into multi-units are finding the capital. They're creating business plans that are sustainable. I think, in general, people are, as the economy inches along in increasingly positive ways, these local entrepreneurs are looking to get either into business or back into business. So we're seeing some movement in that segment as well.

I would just add, Michael, that our preference relative to the local retailers are defined those who have a reasonably unique concept. So that when they come to our center, and many times it's either an expansion, as Michael referenced, or a relocation, we have a running store that we added to one of our shopping centers, which is basically unique in Metropolitan Detroit.

We have worked with some upscale white goods operators who have a reputation for carrying the types of white goods that you just are not going to find in the mass merchants. So these are the type of people that we like to lease to who fall more into the local category, i.e., that they have some unique product mix that they're promoting.

Got it. Okay. Thank you.

Nathan Isbee, Stifel Nicolaus.

Michael, when you look at those five boxes that are remaining in the vacant column, can you talk a little bit about the activity that's going on there and where those boxes are located?

Sure, Nate, we have several of them in Florida, particularly in the Lakeland area and the Pascoe County area, at our Village Lake, the Village Plaza. The Village Plaza box is a corner spot, a former Staples. We actually have interest in that, even though it's a challenging corner; we have an interest in some larger users to maybe take that box and some other additional shop space in that corner. That's a very good center for us.

Village Lakes is actually -- if you'll remember, a demised Wal-Mart and a former Sweetbay. One of the spaces is in the demised Wal-Mart that remains. We have Belk's and a gym use in there. We're actually getting some heated interest from smaller anchor users, really in the 15,000 square foot range. So we might be presented with the opportunity to further demise that 40,000 square feet.

The Sweetbay, which was 40,000 square feet, we just, in October, delivered to a Ross store and we have a prospect to fill. We're actually in final lease negotiations to fill the balance, which is about 16,000 square feet. Another box is here in Michigan in Winchester, a former Borders space right on the road, great space. We have good interest. And in fact, we have been putting some pressure on our mid-box people really to get that box leased. We're confident we can get something done there.

The last two really represents a rather large former Old Time Pottery box in Gwinnett County in Metropolitan Atlanta. We actually have a -- an ongoing redevelopment plan with interest from national box users, that we feel confident we can get something done there.

And then in Stuart, Florida, Martin Square, we have a 24,000 square foot box that was a former Interior Decorator Shop that -- again, based on some dramatic improvements in the trade area, particularly some infrastructure and road improvements that are going to actually empty out at our front door at Martin Square, we're seeing significant increase in retailer interest in doing stuff at Martin Square. So we're comfortable that we're going to be able to continue in '13 reducing the number of vacant boxes in our portfolio.

Okay, that's helpful, thanks. And then just focusing on the office and electronics space. Can you give us a little sense of what the lease maturity schedule looks for those two categories over the next few years?

Sure. If -- we can take them pretty much, if you want to take it by use, you look at the office sector, and we have very few, if any -- maybe one or two in '13 that expire -- the one that will naturally expire in '13, one of our Florida properties, we've already found a replacement tenant for that.

The second one, in Michigan, we had specific discussions with the office retailer, and they obviously are interested in staying, absent any specific reconfiguration or downsizing project that we have for them. It may involve sort of a short-term renewal while we ripen the interest in some of the movement there.

And then if you look in '14 there, maybe three or four in 2014. The majority of them I think you'll see '16, '17, '18, and later. So we're not really any under any pressure in terms of expiring leases. We're taking these individual situations, approximately 24 months out, and speaking very specifically with these retailers about what their preferences are, what their approach to the markets are, how are they going to participate in any downsizing. If we get a sense that they're absolutely leaving the store, leaving the market, then obviously, we're going to ramp up our leasing machine to try to replace them.

As it relates to electronics, again, nothing in '13; one in 2014. The one in '14 is a great store here in Michigan. We've been speaking with the electronics retailer about it. They're obviously pleased with the sales. The store is only slightly oversized, but the remaining expirations really come much later -- '16, '17, '18.

And again, the electronics retailer is sort of fine-tuning its own approach to existing stores. We know we would hear about what their new sweet spot is in terms of 30,000. That's really the current generation of what their plans are. They have not been inclined to date to participate in a capital sense in these downsizings.

But again, very store-specific discussions about their approach to the market, how the store is doing, and testing their or taking their temperature for what kind of participation we can get from them in downsizing. And the charge to our leasing team is to not only keep up these portfolio reviews to be persistent, but to report progress back on each of our stores for all four of these retailers. And as I mentioned in my speech, I mean, I think we're going to see a number of these negotiations close in '13.

All right, thanks. And then, Dennis, you had mentioned earlier about selling 20 to 50 in 2013. Is it safe to assume that you're going to remain on the sidelines for the rest of '12?

We have nothing specific planned as far as dispositions are concerned, you know, for 2012.

And has -- are you actively working on any acquisitions now?

Well, we are actively investigating opportunities that we see ripening in 2013. The only acquisition that will occur in 2012 is the one Greg referenced, which is a reasonably small acquisition of the addition to Fox River.

Okay, thanks.

Todd Thomas, KeyBanc Capital Markets.

Just one quick follow-up on the acquisitions. Just wondering then, as you look out to 2013, sort of without taking leverage up from where it's at today, how much dry powder do you have? And how would you fund investments today? Would you accelerate issuance under the ATM? Or depending on the size of the deals, would you want to have capital raised ahead of time?

Well, no, I mean, as I mentioned in our prepared -- my prepared remarks, Todd, you know, we have $200 million available to us today between cash and our line of credit. Now obviously, that would have an impact on leverage depending on other things that Dennis mentioned.

You know, another source of capital will be our disposition activity. And then all of it has to be measured against what our budget for 2013 indicates our income will be. And therefore what sort of leverage we can use without impairing the progress we've made in improving our credit metrics.

So I guess the short answer is, we want to maintain our credit profile roughly where it is. And to the extent that we identify investments that interest us, we will fund them appropriately to maintain the current credit profile that we have.

Okay, thank you.

(Operator Instructions) I have no further questions at this time. I'd like to hand the floor back over to management for closing comments.

As always, ladies and gentlemen, we thank you for both your interest and your attention. We look forward to talking with you in approximately 90 days.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.