Rithm Property Trust Inc (RPT) 2013 Q3 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Properties Trust third-quarter 2013 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, Director of Investor Relations. Thank you, Miss Hendershot. You may begin.

Good morning and thank you for joining us for the third-quarter 2013 conference call for Ramco-Gershenson Properties Trust. 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 press release.

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

Thank you, Dawn. Good morning. The positive third-quarter results which we are reporting today, adds to our string of multiyear, quarter after quarter successes in driving our operational and financial performance. These metrics coupled with the strong balance sheet we have built over the same period have established a solid foundation upon which we will grow superior, sustainable earnings increases for the foreseeable future.

Thus far in 2013 we have first, grown our total capitalization from $1.3 billion at the end of 2012 to $1.8 billion today. Second, at the midpoint of our guidance we are on track to produce an increase in funds from operations of 12% over last year's number.

Third, to date in 2013, we have acquired approximately $446 million in shopping center assets, all on an accretive basis. And we have sold two non-core centers as part of our capital recycling program. We are also in contract to sell at least one additional property before the end of the year.

Fourth, we have achieved real increases in occupancy portfolio wide. We have driven anchor leasing to a point where we have only four large-format vacancies. Two of the four are at our most recent acquisitions, Mount Prospect Plaza and Deer Grove, both in Metropolitan Chicago. Mount Prospect was acquired in the second quarter and Deer Grove was just purchased in the third quarter. We have already identified national retail prospects for each of these locations.

We have also filled one of the other two remaining anchor spaces with a temporary use as we work to secure the appropriate retail draw. Further, we continue to make substantial progress in shop leasing. Our shop occupancy is on track to hit approximately 90% by year-end.

And fifth, we have expanded our list of named value add redevelopment projects and we have announced the commencement of our Lakeland Park Center development in Lakeland, Florida which is preleased to 96%. Lakeland Park along with our 314,000 square foot shops at the Lakeland Center will combine to create the dominant shopping destination in the North Lakeland trade area.

All of these activities and accomplishments from acquisitions to anchor and ancillary tenant leasing as well is our redevelopments and the new development projects have a common theme. That is to continue to grow a portfolio of high quality multi-anchor shopping centers tenanted by credit quality national and regional retailers.

Even with the progress we have experienced over the last 24 to 36 months, our prospects for growth over the next several years are significant. This growth will be generated from both external and internal activities.

On the acquisition front, we are in contract to buy one additional shopping center this year. And although the market for shopping center sales hesitated during the summer months due to the uncertainty surrounding interest rates, we are again seeing both single asset and portfolios that are of interest.

Growth will also be generated by adding value to our recent shopping center purchases. Many of the acquisitions we made over the last several quarters included the purchase of adjacent land upon which we are already undertaking expansions. Other shopping centers were acquired with anchor and small tenant vacancies where we identified national retail prospects during the due diligence process. We are presently in active negotiations with many of these retailers.

This ability to secure acquisition opportunities with value add potential is a key component in our approach to the expansion and refinement of our asset base.

In our existing portfolio, a significant number of leases that were signed during the more challenging economic times at rentals below current market rates will continue to expire over the next 24 months. Our success in renegotiating these leases at higher rentals can be seen in the lease renewal metrics we have been reporting over the last several quarters.

Also with our ability to retain approximately 83% of those tenants whose leases expire we are in a position to critically assess which retailers we wish to retain giving us the opportunity to further refine our tenant mix, add the latest exciting retail concepts, and push rents for those tenants we choose to renew.

An interesting aspect of our releasing experience over the last 12 months has been our ability to combine a number of smaller spaces for new larger format retail concepts at rental rates comparable to those paid by local users for the smaller individual spaces.

Also adding to our ability to drive net operating income over the next several years is our value add redevelopment program. In addition to our active redevelopments which are projected to cost approximately $33 million, we have identified a pipeline of six to eight shopping center expansions and major re-tenantings which we will include in our supplement as leases are sign. We project that the capital expenditures for these projects will approximate $70 million to $90 million and will produce a stabilized return on investment of between 10% and 12%.

Over the last three quarters we have undertaken a very aggressive business plan. I am pleased to say that not only did our balance sheet not suffer from this growth but instead, we have further strengthened our capital structure as evidenced by our debt metrics.

Our business plan for the next several years is filled with growth opportunities. These opportunities will position us to generate above-average FFO growth while driving shareholder value.

I would now like to turn this call over to Michael Sullivan who will address our asset management activities.

Thank you, Dennis. Good morning everyone. Ramco's asset management team is pleased to report our third-quarter operating results. Our ability to post consistently superior results validates not only our operating strategy but also the quality of our shopping center portfolio. We have created momentum that should provide for sustainable growth in 2014 and beyond.

Leasing continues to drive our portfolio productivity. In the third quarter, we generated strong leasing velocity at positive rent spreads for both new and expiring leases. Total lease transaction volume was approximately 525,000 square feet and on a comparable basis, the cash rental spread was up over 6%.

We continue to take advantage of an active retail leasing environment at several levels. Shop leasing velocity was strong in the third quarter accounting for approximately 115,000 square feet. We note here continuing trends from the prior quarter. First, we continue to benefit from high interest from national and regional small shop retailers that are expanding their stores as leases executed in this category accounted for almost 72% of total shop leasing activity.

Second, large-format shop users or those over 5000 square feet, continue to be an important element in maintaining our shop leasing momentum. For the quarter, we signed almost 45,000 square feet of these spaces or 40% of total shop leases executed with expanding retail concepts including Old Navy, Hancock Fabrics, Kirkland's, and Dress Barn.

Third, local small shop tenants who are expanding and opening new stores in a trade area are focusing on the highest quality assets which in many cases bring them to Ramco. It is important to note that we select only those local merchants with strong credit and uses that will improve the character and tenant mix at a particular center.

The ongoing success of our shop leasing program demonstrates that we continue to improve the quality of our shopping center portfolios and that it is a prime contributor to the increase in our core average rent to $12.15 a square foot from $12.04 a foot last quarter and $11.54 at the beginning of 2013.

Additionally, anchor leasing continues to bolster our leasing results and again confirms that high-quality national retailers are expanding and relocating to the best positioned shopping centers. We executed two anchor leases in the third quarter with leading national tenants in Marshall's and Hobby Lobby. Both leases filled existing vacancies in the portfolio.

We attribute these leasing trends to two factors. First, many leading national retailers continue to grow through expansion including Alta, VFW, Advance Auto, Route 21, Five Below, Old Navy, Floyd's Barbershop and Buffalo Wild Wings.

As Ramco leverages its relationships with these retailers, we see more opportunities for multistory deals.

And second, that the lack of new development places a premium on existing spaces and well-positions high-quality multi-anchor shopping centers.

On the renewal front, we renewed over 83% of expiring leases with a rental growth of 5.9%. We see this trend continuing. In fact, we look to our selective renewal strategy as an important path to drive rental increases and provide for greater internal growth.

As a result of our successful leasing program, occupancy in our core properties continues to increase. In the third quarter, we posted a lease occupancy rate of 95.6%, a 50 basis point increase over the second quarter.

Ramco's team continues its focus on driving income and reducing costs with positive effect. In the second quarter, our operating margin was 73.7%, a 30 basis point improvement over last quarter and a 130 basis point improvement over the comparable quarter of last year.

Achieving our leasing renewal income and cost containment objectives contributed to improvements in same center NOI performance. We posted a same center NOI gain of 3.1% for the quarter. Our asset management team is committed to generating superior operating results quarter over quarter across the entire portfolio which in turn will produce predictable and sustainable internal growth for the long term.

With that, I will turn it over to Greg.

Thank you, Michael. Let me begin by covering our activity during the quarter and our financial position at September 30. Then I will review our income statement and conclude with our outlook for the balance of the year.

We ended the quarter with gross assets of $1.8 billion. In August, we acquired Deer Grove Centre in Palatine, Illinois, and infill suburb of Chicago for $20 million. Deer Grove is the second center we acquired this year in Chicagoland and is only seven miles from Mount Prospect Plaza which we bought in June. We plan to add value to both properties primarily through the lease-up of over 90,000 square feet of vacant space. (technical difficulty).

In September, we sold one non-core property in Lansing, Michigan for $5.5 million. This was a smaller property anchored by only OfficeMax so it did not meet our criteria for owning larger centers with multiple anchors in major metro markets. As Dennis mentioned, we also commenced construction of Lakeland Park Center in Lakeland, Florida during the quarter. Work is progressing on pace and we are targeting opening in the fourth quarter of next year.

We funded our asset growth for the quarter with the issuance of $17 million in common equity and $7 million of new borrowings under our line of credit. Against the background of economic uncertainty, we sought to steer a conservative course in the capital markets while remaining cognizant of our cost of capital relative to our investment returns.

Let me sum up our quarter-end financial position in three areas. Number one, leveraging coverage. Our key credit ratios include debt to EBITDA at 6.2 times, interest coverage ratio at 3.6 times and fixed charge coverage at 2.6 times. These are solid credit metrics and they reflect our commitment to maintaining an investment-grade profile.

Number two, add structure. Nearly 90% of our debt has a fixed rate. Our weighted average term to maturity is a healthy 5.7 years. We have only $35 million of loans coming due between now and the end of 2014 and our debt maturities in 2015 and 2016 are quite manageable as well.

And number three, liquidity and flexibility. We have $222 million of borrowing availability under our existing line of credit. In addition, our $1.1 billion of unencumbered operating real estate can support an incremental $100 million in unsecured borrowing above and beyond our line commitment.

In short, our financial position remains excellent. Our focus over the next year will continue to be reducing mortgage debt, increasing and diversifying our unencumbered pool, terming out debt opportunistically and maintaining a high level of liquidity to support our business plan.

Now let me turn to the income statement. FFO for the quarter was $0.29 per diluted share or 12% higher than the $0.26 reported in the same quarter last year. Here are some of the key items driving FFO this quarter.

On the operating side, cash NOI was $32.2 million or $8.8 million higher than in the comparable quarter. The increase reflects primarily the addition of $446 million in real estate to our consolidated balance sheet this year. As Michael noted, same center NOI increased 3.1%. As of quarter end, our percentage leased in the same center pool was 95.8% for an increase of 190 basis points over the comparable quarter.

However, some of this lease-up has not yet resulted in cash (technical difficulty) commencement which we expect to occur over the next three quarters. Nonetheless, higher occupancy together with contractual rental increases and positive releasing spreads contributed to an increase in minimum rent of 3.0%.

For the full year, we now expect same center NOI to increase approximately 3% which is the high-end of our prior guidance range.

During the quarter, we recorded a provision for credit loss of $140,000 or nearly $200,000 better than in the comparable period. We also booked a lease termination fee income of $793,000 compared to $104,000 in the third quarter of 2012. Lease termination fee income is a recurring aspect of our business albeit one that can fluctuate quarter to quarter. The majority of the fees earned this quarter related to the early termination of a lease at Lakeshore Marketplace with Elder-Beerman, whose space was immediately turned over to Gordman's for a buildout of a new department store.

General and administrative expense of $5.4 million for the quarter was higher than the $5 million a year ago. The increase is explained by higher accruals under the Company's long-term incentive plan reflecting the Company's strong performance over the last year. Also note that we booked $103,000 of acquisition costs this quarter.

Our forecast for G&A expense for the full year is approximately $22 million which includes the impact of both our incentive plan and our acquisition costs.

Lastly, our 14 joint venture properties performed well with our share of NOI running at approximately $5.7 million on an annual basis. On a same center basis, NOI increased at the joint venture properties by 4% over the comparable quarter on solid rental growth and lower bad debt expense.

Now let me say a few words about our outlook. We are increasing our 2013 FFO guidance to a range of $1.15 to $1.17 per diluted share compared to $1.10 to $1.16 previously. The increase is attributable to internal growth at the high-end of the prior range as well as our recent acquisitions.

We have also included in our forecast one more acquisition and one more disposition in the fourth quarter for a net asset growth of approximately $20 million.

In closing, our financial position remains strong, our redevelopment opportunities are growing and we continue to identify compelling investments. We look forward to updating you with our outlook for 2014 on or before our fourth-quarter earnings call.

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

(Operator Instructions). Richard Milligan, Raymond James.

Good morning, guys.

Good morning R.J.

So with the portfolio now almost 96% occupied or leased, I'm just curious where you think you can push that or at what point do you think you get to peak occupancy? And then where do you think you can get rental lease spreads maybe in 2014 or how do you see that trending over the next couple of quarters?

Well, let me start and then some of the other guys can chime in. Relative to our anchors, there will always be potentially once everything has reached stabilization one or two anchor spaces that might be available but at this juncture, we really have identified in three of the four boxes retailers with whom we are actively working to fill those. As far as the small tenant is concerned, we believe that we can get to somewhere between 92% and 93% over the next 12 to 18 months.

So I think that we can push occupancy further and we are averaging at least on the small tenant space between $15 and $16 a square foot. So just on the internal side working not concerning redevelopments but just on the lease-up, we think there is some real internal growth left in the portfolio.

Okay. So you would assume that maybe you have got another 100, 150 basis points for the overall occupancy before you reach sort of that stabilization?

I wouldn't necessarily speculate that it is 100 to 150. I think when we come out with our guidance for 2014, I think we can give you a little more clarity at least where we think we will be relative to occupancy at that point.

R.J., this is Greg. I would just add that cognizant of the fact that we have filled up a lot of space, we are doing a couple of things. One is and we referenced this in our prepared remarks, we are acquiring centers that have an opportunity to add value. The two properties we bought in Chicago were low 80% occupied but they are fundamentally sound centers in good locations, high income trade areas, good access and visibility from the roadway and we think that bringing our expertise to the table we can boost that occupancy and create value.

So we are looking for those kind of opportunities in things that we acquire and then also as Dennis mentioned, we are ramping up what we call our redevelopment pipeline but it also includes expansion. So in a number of centers, we have land available adjacent to the centers where we are accommodating demand from tenants by building additional space.

So we think both of those tactics are ways of supplementing our growth on a go-forward basis in addition to maximizing the value of the existing property.

That's helpful. Thanks, Greg. Thanks, guys.

Vincent Chao, Deutsche Bank.

Hey guys, just want to follow up on the anchor side with four boxes sort of empty and activity on three of them it sounds like good progress there. Just curious on the three that are left to roll in 2013 and the eight that are coming due in 2014, any of those concerns for you in terms of move-out?

This is Mike Sullivan. No, we are on track to retain them.

Okay. Thank you. And then just, Dennis, maybe if I go back to your comments earlier I think you said there was a summer lull in sort of the investment activity just given what was going on but now you are starting to see some portfolio and single property deals out there. Just curious if you could provide some more color on the acquisition market today and if they are is more sellers coming to market, more opportunity and that kind of thing? And then also, how you are balancing sort of rising cost of financing versus cap rates which seemingly are holding steady.

Well, as I mentioned, we saw a very distinct drop-off in opportunities as sellers certainly pulled back because a lot of us were making noises about the rising cost of making these acquisitions. I think with some degree of comfort and stability that has been established in the relatively recent past, you are seeing these assets coming back on. And the reason that the cap rates really haven't moved much or the type of assets that we have been looking at is because they are primarily institutional quality and the institutions are so focused on financing these at least on the short run.

What we are seeing is with the private clients and the B type of assets, where financing is really required, that (technical difficulty) seen an increase in cap rates. Pursuant to some of Greg's earlier comments, what we have been balancing, accessing the ATM program as we make the acquisitions that we did, we remain focused on the balance sheet but relative (technical difficulty) to rising debt but we think that because of the type of assets that we are acquiring and we could go through asset after asset. Greg talked about the latest two and the lease-up potential.

What we really see is significant upside in the acquisitions that we are making and thus maybe the upticks in the interest cost will not have the same kind of impact on us as it may for those who are buying stable and fully leased assets.

Okay. That is helpful. And could you quantify and so the private B assets that you are seeing some increase, I mean what level of increase are you sort of seeing out there?

I think up to 25 basis points, 25 to 50 basis points.

Okay. That is helpful. And then just a last question for me just on the redevelopment, the shadow pipeline that you highlighted, $70 million to $90 million which I think is expected to commence over the next year and a half or so, just curious if you think about the longer-term opportunity within the portfolio just trying to get a sense of how much more or is that number something that can be replicated going forward?

Maybe if we think about what percentage of the portfolio has been redeveloped over the past maybe five or 10 years to get a sense of how much potential is remaining?

I think that if you look at our history, you will see that we have easily averaged anywhere from three to five assets a year where we have been able to add value even to shopping centers that we have owned for some time that were 100% leased but because of the desirability of the assets, we have been able to bring in uses of a national character and rework the shopping center. That is one of the reasons that we like buying properties with land adjacent so that we are not anywhere near as challenged in trying to find a solution where we have to take out some of the smaller tenants to accommodate larger ones.

So we certainly have a pipeline now that we are very comfortable with and we absolutely see that growing. We are working on a number of things that haven't matured to the point where we would include them beyond the eight that we are already talking about but they are out there.

Okay, thanks, guys.

Craig Kucera, Wunderlich Securities.

Yes, hi, good morning. The macro retail environment seemed to decelerate throughout the quarter and I was curious did you guys see any trends or hear of any trends from your agents in leasing spreads on sort of a month to month basis? Were people kind of getting into September a little bit more hesitant to maybe raise rents where you were maybe more of a 9% range in first and second quarter?

This is Mike Sullivan. No, Craig. I don't think we really see that. You might take a position that the universe of say local shop tenants might be contracting a little bit. We are in a decent position because those locals who are expanding, opening new stores in a particular trade area are focusing on the highest quality assets of the trade area. That helps us. But we haven't seen any downward pressure that you are describing in rent spreads although obviously leasing is cyclical, every quarter is different. We are not getting that kind of report from the agents.

Got it. So you didn't start out the quarter and were kind of hitting 9%, 10% and wound up lower. It was fairly even throughout the quarter is what you are saying?

Throughout the quarter it was. Again, we stress that every quarter is different and the character of the transactions is different I think you can see that from quarter over quarter what our spreads are. I think in general full-year we are going to end up pretty strong not only for new leases but for renewals as well.

Got it. And with the lease termination income that you had, I know you said that you booked most of it this quarter. Kind of what is the expectation? Are we going to see more of that in fourth quarter even on into first quarter or should we kind of be out of that by the end of the year?

I think we are pretty much out of it. We may have some smaller one-offs in the fourth quarter not really material. Again, this is something where it varies year-to-year based on opportunity, based on quarter. We always sort of put a little placeholder in our budget for some anticipation. It is not always identified at the beginning of the year.

So we have a history of booking these in various amounts and the final answer to your question is I think we are through that mostly for the rest of the year.

Okay. And when you look at your tenant improvements, what is kind of the expectation kind of longer-term? It seem to be -- had kind of trended down for about three quarters and then now we are back at $11.70s. Is that kind of a good run rate kind of for a last 12 months look-back?

Well, on the face of it, Craig, if you take the average of the last four quarters it is almost identical at $11.55. So I would say that it is going to vary based on the deals that take place in any given quarter but in general having dealt with a lot of the box leasing over the last few years and reducing the number of vacancies there, we actually anticipate that the CapEx required in the form of tenant allowances will be trending down just because there are less of those deals likely to be taking place each quarter going forward.

And I don't have a specific number to guide you to on that.

Okay, no, that's fair. I just appreciate the color. And finally, I think your G&A was down a little bit from not down year-over-year but down sort of from first and second quarter. Is that kind of where you see things trending going forward?

Yes, I think we said approximately $22 million for the full year which would be fairly consistent with where we are this quarter. In the beginning part of the year, we tend to incur a little bit more in G&A related to for example the ICSC Convention in Las Vegas which takes place in May.

Okay, great. Thanks a lot.

Michael Mueller, JPMorgan.

Yes, hi, quick question. I think I heard you say that you thought cap rates had moved about 25 to 50 basis points up. Is that correct?

Michael, I was referring specifically to those assets that were more private client type of shopping centers that required some degree of financing in order to actually make the acquisition. That as opposed to institutional quality where we really haven't seen any real movement at all in cap rates.

Okay. So basically the stuff you are selling you have seen a little bit of a backup compared to the product that you would end up buying. Is that a fair assessment?

Correct, yes.

Okay. And then, Dennis, I think you said something in your prepared comments about you thought you would be in a position to generate above-average AFFO growth or earnings growth over the next few years and just curious what do you see as average growth for the industry that you think you would come in above?

Well, I think probably 5% would be a good number.

Okay.

For the average.

For the average. Got it. Okay. And then I know you walked through the shadow pipeline for the redevelopment. Is there anything new on the horizon I guess related to other new ground up developments as well or is that still further off aside from the one that is in process now?

Well, beyond that, we have the two sites that we own. We continue to make reasonable progress in attempting to put together development condos. And then what you are going to see as far as quote -- development to redevelopments is -- and I think we have talked about this directly with you is the shopping center expansions at places like Fox River, Harvest Junction, Town & Country. So the major thrust of what we are going to do in the area of actually building new will really be expansions to our existing shopping centers.

Okay. (multiple speakers)

Just to build on Dennis' comment there. I think it is important to state that we are not actively seeking new greenfield sites to do ground up development. The land that we have acquired has always been adjacent to a center that we either bought or already own.

Got it. Okay. Thank you. That was it.

Thank you, Michael.

Thanks, Michael.

Benjamin Yang, Evercore Partners.

Hi, thanks, guys. I think, Dennis, you have previously talked about same-store NOI accelerating in the back half of the year. And maybe based on where you stand in your current same-store guidance, it looks like maybe that is no longer the case. So just curious what may have changed since last quarter. Is it the government shutdown? Anything else? And maybe tempered your outlook a bit or do you think you guys are just maintaining some conservatism heading into the holiday season?

Well certainly we like to think that we are always conservative. You know when you had the mid-2% growth earlier in the year, you need some kind of -- some oversize growth to compensate for that. So I think by telling you we are in the 3% range, we are very comfortable with that number and we will be more than pleased to come in at a higher figure come year-end.

Great. And maybe for Greg, just curious if you had any update on that investment-grade rating equivalent for your recent private placement and maybe talk about maybe how that market has changed since you did that deal like maybe what the terms would be if you were to do that same deal today versus back in June?

Yes, so the process works this way, Ben. We don't go out and seek the rating from the NAIC. The debt investors who line up the money go out and seek that and the NAIC has a valuation office that will prepare that rating. They have it on their plate so to speak. It is something that they have acknowledged that they are working on but we don't have a reply yet as to what that is.

As to the second part of your question, I think in general the spreads for that type of paper as well as for refi have been stable to maybe a little bit wider than they were at the time that we did that deal but not significantly different. What is different obviously is the underlying treasury rate.

Sure, sure. Okay, makes sense. And then maybe a final question, I am just curious what the catalyst might be for tapping that private placement market again. Is it kind of you to pay down maybe some secured debt as it comes due or is there anything else that you have in mind?

Well, we have relatively little debt coming due as I mentioned so there is not really a need to do that. What I think it will be helpful towards is if we acquire a significant amount of property over a period of time and then have again -- call it $100 million or more of debt to place related to that. It is not a market we will tap I think in small increments but if we have bigger needs then that is something we would look at.

That's helpful. Thanks, guys.

Nathan Isbee, Stifel.

Hi, good morning. Just going back to the discussion about the redevelopment that you are about to embark on, you touched on it briefly in terms of the disruption that it would cause the existing portfolio. If you look at the $90 million, how much would you expect that to weigh on growth? Clearly it was an issue in previous years with some of the redevelopment that you did and I am just curious on that $90 million, how much you are penciling in right now?

Well, if I understand the thrust of your question, Nate, in the past, a number of the redevelopments that we did really required taking some significant income off-line such as in our [1212] redevelopment we did a number of years ago where you actually closed down and enclosed mall in an attempt to convert it into a much more viable asset.

The beauty of the redevelopment projects that we are talking about here because we are lumping together expansions and retenantings really will not have any impact of consequence on our growth story because these indeed do relate to enlarging the shopping centers or expanding an existing tenant or tenants.

So we are very excited about the opportunity and certainly are very aware of the fact that we will stage these in such a way that we do not see them impacting and interrupting the growth of our net operating income.

Okay, thanks. Then on the two Chicago assets you bought in the low 80s, when would you expect those to be leased up to your portfolio average?

Well, and I mentioned earlier during the due diligence process because of the relationship we have with our stable of tenants, we know that there are a number of retailers who would like to be a part of each of these centers. As a matter of fact, an interesting aspect of it is that the population in this area of Metro Chicago is so dense that there are several retailers who really were located in between these two locations who concluded that they are really not garnering enough interest from the people who live on the fringes of what one location would do for them. So we are in the process of negotiating with them to close that one location and take locations at both Deer Grove and Mount Prospect.

So I would like to think within 12 months we certainly should be in a position where they have moved well into the 90% plus.

Okay, thank you. And then Michael --

Again, I would emphasize, Nate, that this is not speculation and that we just feel good about the center. We have identified tenants that we are specifically working with.

Okay, great. And then Michael, you mentioned the expiring anchor leases over the next year. Can you talk about how many of those expirations have tenant options on them?

I think to be honest, Nate, I can't give you an exact number. We have 15 anchors expiring in 2014. As I run down the list, it looks like almost all of them have options and again, barring any unforeseen circumstance, it appears that we are going to be able to retain almost all of them.

Okay, what type of growth are built into those tenant options?

Let's see, it looks like some of them especially if it is a grocery may be flat. The soft goods which looks to be more than half between maybe $0.25 and $0.50 a foot and there is really only one here now that you mention it that does not -- two of them do not have options. But we are negotiating to retain them. So I would say flat with grocery and for the soft goods, it is $0.25 to $0.50 a foot.

Okay. And would you say the two that don't have options are below market?

No. I do not. They are in fact -- one is office and one is furniture. I think they are both at market.

Okay. And then I know it is a small deal. Can you talk about pricing on the Lansing asset?

What you have to appreciate -- I mean between let's say 9 and 9.5 was the cap rate. But what you have to appreciate is that it was an office use. There was only two years left on the lease and then a bunch of small tenants. So there was not a lot of leverage on our side of the table but it absolutely did not fit into the type of asset that we wanted to own.

All right. Thank you so much.

Todd Thomas, KeyBanc Capital Markets.

Hi, good morning. Thanks. Dennis, going back to the transaction environment again, I was just wondering two questions -- first, how big is the Company's appetite right now? And then second, does it seem like the competition has decreased a little bit since before the summer and spring?

Answering the second part of it first is that I think that the players that we typically were facing as our competition have remained about the same. Private REITs have been very active in the assets that we have been looking at and institutional buyers through their client representatives were the people that more often than not we saw.

As far as our appetite is concerned, we have said over the years that the organization is set up so that we believe we can handle a significant number of additional shopping centers without major increases to our G&A.

We still feel that way. I think we are as lean and mean as we need to be. We over the last several years did cut our G&A and I think with the new systems we have in place and with the highly skilled professionals we have, I certainly think that at least repeating what we did in this year is well within our grasp.

Okay. And then have you changed your underwriting criteria at all in the assets that you are targeting here in the value add segment of the market? And what kind of market rent growth are you underwriting today in acquisitions that you are looking at?

Well on a conservative basis as far as rental increases are concerned, two things happen. One we go into the market where we certainly check to see whether or not the rents that are currently being paid are at or below market. But if we assume that they are at market then it is usually 2% to 3% rental growth.

And as far as our criteria is concerned, once again, it really hasn't changed. We are looking for healthy demographics, a growing community, outstanding location, multi-anchored shopping center, metro markets and most importantly, that ability to add value and in many cases that value add is not necessarily something that is obvious to everybody. In many instances, we see opportunities to add something to the shopping center either because of the people in our organization who truly understand value add or in checking with a number of the tenancies who are either in the shopping center or would like to come into the shopping center who would have preferred to expand but weren't getting the kind of response from the existing owners that they would have liked.

Okay. And then just a question on Deer Grove. You mentioned so for Mount Prospect and Deer Grove you would expect over the next 12 months or so to see occupancy in the 90% range. I was just curious, the Dominick's at Deer Grove, is that one -- they have announced that they are planning to exit the Chicago market. Is that one that you expect to recapture? And it sounds like demand you have already identified a number of tenants that would be interested in both of those centers. How does that sort of factor into your calculus for that property?

We had always assumed that Dominick's would leave and their lease was up in 2016. We did not wait as we looked during due diligence for the kinds of tenants that might be interested in the shopping center.

If you look at the demographic profile, very densely populated. Now that doesn't mean that we are going to turn around and put in another supermarket because if you look at the trade area, there is certainly, they have the whole spectrum of markets all the way from the highest quality to very promotional.

But we had at the outset identified three users, each who wanted for all intents and purposes the entire box. We are also looking because we have a soft line retailer that we we're talking for one of the existing boxes that maybe we could even alter that approach, put in a number of soft line retailers in the 65,000 square foot Dominick's and really change that whole character of that end of the shopping center.

So we see this as a very exciting opportunity and with Dominick's really being obligated under their lease until 2016 although we would like to move immediately, we will pick our time when we would like to terminate that lease.

Okay, great. Thank you.

Craig Schmidt, Bank of America.

Thank you. In the second quarter conference call, you sort of had dispositions in the second half of the year to be between $25 million and $35 million. Where do you think those dispositions will come in at this point?

Craig, I think that we will be lower than that some. What is happening is that we have a number of assets that for a variety of reasons that we were looking at selling. I referenced one; there are presently two under contract. So I think in addition to the $5.5 million, I think we are talking about maybe another anywhere from $12 million to $15 million in sales.

And do you think that will come from Michigan?

Typically we don't identify where the sales are until such time as we close but I think that there is a good possibility that at least one Michigan asset will be in that group.

Okay, thank you.

Craig, just to make a point about that, the focus on our disposition program is on things that don't fit our ongoing criteria which we talked about multi-anchored, larger centers, major metro markets. So it is not about particular states as much as it is about the type of asset that we want to own in the portfolio for the long-haul.

Chris Lucas, Capital One.

Good morning, guys.

Good morning.

Two quick questions for you. On the supplement the redevelopment projects at both Fox River and Harvest Junction, the stabilization was pushed back. Could you provide some color on what was going on there?

You start off with these projects with the most optimistic schedule as far as community approvals are concerned. And then as you move into the process and things will happen, the approvals typically are a little more complicated than you would like. But it has nothing to do with the amount of tenant interest nor the progress that we are making in negotiating with the retailers.

So I would lay any timing changes at the feet of entitlements.

Okay, and then leasing volume in total was very solid for the quarter. I guess the question that I had was just understanding the non-comparable space lease volume. What does that consist of and if you could maybe break it down between the development, the redevelopment and any sort of space consolidations or space changes that that non-comparable space includes?

Chris, it is really more of a function of the character of the transactions in the quarter and every quarter is different but conceptually as we approach 96% leased, we are working on that last 4% in the portfolio that in some cases may have been vacant for longer than the year. And therefore by definition becomes non-comp.

So I think you will see that sort of even out quarter over quarter but the relationship between comp and noncomp is really definitional and it is mostly whether it has been vacant longer than a year. We do have some conversions in our deals where we may be converting to a net lease with fixed (inaudible) stuff like that which may again by definition call it a comp. But I don't think there is any perceptible or important trend in this quarter over quarter.

Okay, great. Thank you.

Yes, Chris, just to add, there is about 100,000 square feet this quarter related to development at Lakeland Park. So again, since that is not new or since that is not existing space, there is nothing to comp it to.

Thanks a lot.

(Operator Instructions). There are no further questions in queue. At this time I would like to turn the call back over to management for closing comments.

Ladies and gentlemen, as always we thank you very much for your interest and your attention. We look forward to communicating with you in the near future. Have a great day.

Thank you. This does conclude today's telephone conference. You may disconnect your lines at this time and thank you for your participation.