Rithm Property Trust Inc (RPT) 2015 Q2 法說會逐字稿

Greetings. Welcome to the Ramco-Gershenson Properties Trust second-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Dawn Hendershot, Vice President of Investor Relations and Corporate Communications. Thank you, Ms. Hendershot. You may now begin.

Good morning. And thank you for joining us for the second-quarter 2015 earnings conference call for Ramco-Gershenson Properties Trust. With me today are Dennis Gershenson, President and Chief Executive Officer; John Hendrickson, Chief Operating Officer; and Gregory Andrews, Chief Financial Officer. 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 second quarter press release. I would now like to turn the call over to Dennis Gershenson for his opening remarks.

Thank you, Dawn. Good morning, ladies and gentlemen. The last 90 days has been a busy period for our Company. Our acquisitions, dispositions, announced value-add redevelopments and re-tenantings all helped to streamline our portfolio and improve its quality. In this last quarter, in addition to announcing the acquisition of the majority of the shopping centers in our Heitman 450 joint venture, in one of the two remaining centers in the Clarion venture we acquired two small income-producing partners that are a part of two of our shopping centers. Both of these purchases were pursued to ensure our control of their tenancies as we continue to upgrade the retail mix at all of our properties.

The acquisition of our partner's interest in seven high-quality shopping centers simplifies our capital and ownership structure. These acquisitions support our strategy of owning centers in strong metropolitan markets and our goal of diversifying our geographic footprint. Further, each center includes a grocer, which is either a leading supermarket in its trade area, or a specialty grocer like Whole Foods at The Shops on Lane Avenue in Columbus, Ohio. Additionally, the individual centers acquired present an opportunity to add value through redevelopment, re-tenanting and expansion, which is consistent with our historical acquisition criteria. We will be funding these acquisitions through our capital recycling program, which is a very efficient source of capital to effectuate our business plan as we simultaneously dispose of those assets we consider non-core.

To that end, during the quarter, we sold two land parcels, generating approximately $13 million. These sales constitute all of the land in Aquia, with the exception of the office building and one valuable outlying. We will also sell to our partner in the 450 venture an interest in The Plaza at Delray in Delray Beach, Florida. And we are jointly marketing the Chester Springs Shopping Center in Chester, New Jersey. These two properties, along with the Florida joint venture center that was previously acquired by Clarion, were priced at aggressive capitalization rates. We'll benefit by their disposition at share.

It is also our intention to sell a number of additional non-core properties, with the objective of raising $60 million to $75 million. During the quarter, we also announced a number of re-tenantings and retailer expansions. These changes to our tenant mix, along with Nordstrom Rack, Stein Mart and other previously announced additions to our tenant roster, as well as additional high-quality, credit-worthy retailers who will be signed in the third and fourth quarters, are ongoing validation of the desirability of our trade areas, and our shopping centers specifically. Thus for the foreseeable future, redevelopments, re-anchorings and shopping center expansions will be critical elements in our growth plans. As it is the strength of our shopping center locations and the ever-improving qualities of our tenant mix which will ensure that our properties remain the dominant retail focus in our trade areas.

During the second quarter, we also announced that John Hendrickson would be joining the Company as our Chief Operating Officer. John brings years of experience in the shopping center industry, and his ideas and organizational talents are already having a positive impact on our operations. We are pleased that John has been able to integrate himself so rapidly into our organization, so that he is able to speak with authority as a participant on this call.

In summary, our actions during the first half of 2015 reinforce our commitment to focus our energies on constantly upgrading the quality of our trade areas, our shopping centers and our tenant mix. Although we appreciate the desirability of a healthy demographic profile and high average base rents, these metrics speak more to the market where centers are located and not necessarily to the specific quality of one shopping center nor its tenant mix. We believe that it's the ability to attract, retain, expand and right-size those retailers who are at the top of their game, along with the ability to consistently increase average base rents that are the best indicators of quality. Our proven track record of success in attracting these retailers and driving average base rents speaks to the quality of our shopping centers and our Management team.

Our goal is to ensure that our assets are responsive to the needs of the consumer in our trade area. That we constantly refresh our tenant mix with the most relevant and exciting new retail concepts, and that our properties are attractive, inviting and create a sense of place. Our ability to succeed with each of these elements generates ongoing demand from retailers to locate in our properties and interests in consumers to shop at our centers. These results produce ever increasing rental rates, driving growth in both net operating income and net asset value, which in turn advances our overarching goal of growing shareholder value. I would now like to turn this call over to John to provide color for our operating results.

Thank you, Dennis. Good morning, everyone. I just finished my second month at the Company. Now that I've visited nearly all of our shopping centers and I've got to know most of our team, I couldn't be more excited about the quality of the platform that we have, in terms of our markets, our assets and our personnel. All of which are important elements in continuing to drive value for our shareholders.

As Dennis mentioned, our focus remains on continuing to transform the portfolio. The [steep] changes we are implementing in the organization now and over the next few months will enhance value through smarter execution and a more streamlined business model. I will discuss some of these initiatives we have already started to implement, but first want to talk about this quarter's operating results. We continue to see strong tenant demand for our portfolio. This is reflected both in the consistent number of lease transactions completed this quarter and the comparable cash flow overspread of 9.1%.

We also continue to see demand from best-in-class retailers, which are helping to transform our portfolio. Recent examples of those include additions to Hunter's Square of Saks Off Fifth, one of only two in Michigan, and DSW. At Mission Base Plaza in Boca Raton, Florida, we are expanding LA Fitness and we're releasing an underperforming anchor space to another best-in-class retailer that we will soon announce. Also in the works is a lease with a unique, high-quality, new to Michigan retailer at our West Oaks property. Look for announcements on both these tenants in the next 60 days.

While these property transformations may have a short term impact on occupancy, we believe it is most important to drive long-term value. At our current overall lease occupancy of over 95%, near term we are focused on driving growth through upgraded tenant quality, pushing rent to deliver rollover spread in the high single digits, and smart lease terms, which includes strong annual rent increases during the term and granting fewer tenant renewal options which gives us better control of our real estate. As the portfolio improves, we also continue to believe over the next couple of years we will be able to restore small shop occupancy back near historical high levels.

Same-center NOI growth year-to-date was a solid 2.8%. We expected a dip in the second quarter growth, compared to the first quarter, [because our preservability] and due to the fact that we are not pushing an increase in occupancy over 2014 levels, as we focus even more on bringing high quality tenants and rents to our centers. We are now tightening our same-center growth [average] for the full year to 2.5% to 3%, without the impact of our redevelopment pipeline or, of course, the impact of new acquisitions, like yesterday's purchase of the Heitman portfolio.

While not included in same-tenant specifics in fall 2015, the Heitman portfolio has significant embedded growth opportunity. Within the portfolio, there is 1.39% of potential annual value in the current vacancy, and an additional $300,000 of annual growth just from small shop tenants expiring over the next three years, assuming our typical rent rollover. This $1.6 million of potential increase through the portfolio's annual NOI does not include any contractual [rentals], any below market anchor leases, including the Kmart at Crofton Centre, or any [sub value] add up opportunities within the portfolio.

We are currently working to advance two of these opportunities. A multi-tenant add up addition at Shops on Lane, and a 1.7 acre vacant development parcel at Peachtree Hill. Regarding value-add, these projects are a important part of our future growth, and further identifying and implementing our opportunities has been a priority for me during these last couple months. As you can see on page 22 of our supplement, we added three active projects this quarter, and we are currently implementing $72 million of value-add projects that are expected to stabilize over the next six quarters. These active projects are only a small portion of a significant pipeline identified within the entire portfolio.

Nearly half of all properties in our portfolio have some form of identified value-add opportunity. In fact, many of our acquisitions during the last 18 months have redevelopments that we are close to starting. So you should expect to see more of these added to our active project list in the next several quarters, including projects at Deerfield Towne Center, Front Range Village and Woodbury Lakes. While the Company value-add pipeline will evolve and many of these opportunities are subject to feasibility, review and approval, I certainly believe our platform can support more than our recent range of $50 million to $75 million of active projects. Therefore, we will work to grow activity in the near term.

Continued smart execution will be necessary to get after these opportunities and produce measurable NOI and NAB growth. So starting this week, we have made a significant change to how we operate our properties. As part of an effort to streamline our decision-making process and further drive the business, we have aligned our operating platform to create two integrated portfolio teams. Each of these two teams are lead by a portfolio manager experienced at creating value at the property level and supported by a strong bench of leasing, property management, development, marketing and financial personnel, with full ownership over the success of their teams and property portfolios.

We have built these teams largely with personnel already in place, and do not expect our G&A to be outside the guidance we previously gave for the year. Each of these teams will be aligned around shared goals and would be judged by their success in achieving growth and cash flow and net asset value. I'm very excited about this restructure, because I believe the best way to drive real estate value is to eliminate battle between disciplines and to push decisions close to the ground. I certainly expect that we will begin to see the benefits of this restructure in our operating results within the next year.

In conclusion, I'm energized by the long runway of opportunities we have here at the Company that continue to drive value. Thanks partially to being such a nimble company, I'm certain we will be able to move the needle in a meaningful way over the next couple years and create significant value. That's all I have for the moment. Now let me turn it over to Greg, who will provide more color on this quarter's numbers and discuss the balance sheet.

Thanks, John. Good morning, everyone. Let me start by discussing our balance sheet. Assets, liabilities and equity each changed modestly in the second quarter. In terms of assets, we sold our Town Center at Aquia, which was purchased primarily as developable land, for $13.4 million. We used $10.5 million of the proceeds to acquire previously non-owned portions of two of our shopping centers. We will benefit not only by generating income on our capital, but also by better controlling the markets at these two centers.

On the debt front, we paid off $18.1 million of mortgages, where the interest rates were scheduled to reset to higher levels. We also negotiated a one year extension to the mortgage on our Town Center at Aquia office building, while we lease up vacancy there. We expect this loan extension to close in the third quarter. Finally, on the equity front, we converted approximately $7.5 million of our convertible preferred stock into common stock. Our balance sheet ended the quarter in strong shape, with low leverage, high coverage and ample liquidity.

As previously mentioned, we are acquiring interest in seven shopping centers for $186 million. We will fund the acquisitions as follows. Number one, $48 million of assumed mortgage debt, bearing a weighted average interest rate of 4.8%. Two, $50 million of newly issued 10-year unsecured senior notes at 4.2%. And three, approximately $88 million of borrowings under our line of credit. We expect to pay down the borrowings with $60 million to $75 million of disposition proceeds in the second half of the year.

As a result of this transaction, our leverage will increase modestly. Pro forma net debt to EBITDA will be approximately 6.5 times. As I mentioned on previous calls, leverage at this level is well within our comfort zone, particularly given that we maintain ample liquidity, majority fixed rate debt, staggered maturity and an above average term of debt. In addition to funding these transactions, we also have $68.5 million of mortgage debt to refinance through the rest of the year, with an average rate of 5.2%. The debt markets in all forms remain accommodating. We will update you with our progress in this regard later this year.

Now let me turn to the income statement. Operating FFO for the quarter was $0.31 per diluted share, compared to the same amount for the comparable period. Operating FFO this quarter excludes a $1.4 million gain on extinguishment of debt, $0.3 million of acquisition cost, and $0.5 million in preferred share redemption cost. Turning to the core, line items driving operating FFO this quarter. Overall, cash NOI was $40.6 million, or $6 million higher than in the comparable quarter. This increase reflects our 2014 acquisitions, our development of Phase I of Lakeland Park, and our same-center NOI growth, all partly offset by our dispositions over the last year. Same-center NOI increased $0.7 million or 2.3% this quarter, driven primarily by 2.2% growth in minimum rent.

Our same-center recovery ratio dipped slightly on both a comparable and sequential basis. This reflects lower recoveries on electricity, due to some anchor downtime. For our wholly-owned portfolio, our provision for credit loss in the quarter was $270,000, compared to $307,000 a year ago. General and Administrative costs were $5.5 million, or approximately $300,000 higher than last year, primarily due to recruitment and training fees. We expect G&A to be higher in subsequent quarters, as the cost of recent hires is fully reflected in our run rate. For the year, our expectation of G&A in the area of $23 million remains unchanged from our original guidance. Finally, interest expense was up $2.4 million, which simply reflects our asset growth over the last year.

Now let me say a few words about our outlook for 2015. We are now earning our guidance for 2015 operating FFO to a range of $1.28 to $1.32 per diluted share. Consistent with our prior guidance, we anticipate receiving another penny or so per share of land sale gains in either the third or fourth quarter of this year. In closing, our mission remains consistent. To drive income quality and income growth in our core portfolio, while maintaining a rock solid balance sheet.

I would now like to open the call for your questions. Operator.

Thank you.

(Operator Instructions)

One moment, please, while we poll for questions. Thank you. Our first question is coming from the line of Todd Thomas with KeyBanc Capital.

Please go ahead with your questions.

Hello, thanks. Good morning.

First question -- can you provide a little more clarity on the cap rates you might expect on the asset sales that you're planning to fund the disposition of the seven properties at a 6%, 7% cap rate? I'm just trying to understand the delta between what you're selling and what you're buying.

Yes. Good morning, Todd.

They're going to be -- some of them, all over the map. Obviously,, as I referred to in my prepared remarks, The Plaza at Delray, the Chester Shopping Center, and the other Florida assets that we've sold earlier in the year went off at very aggressive cap rates. I think the majority of shopping centers that we will sell later in the year will command cap rates, well in the 7%s. So I think that for modeling purposes, if you picked something in the very low 7%s, you probably would be on target for an average of all of those dispositions.

Okay. And then with what you're planning to sell, you talked about $60 million to $75 million of proceeds. I mean, can you maybe book end the gross value of the real estates that you expect to sell? And then maybe a little more specific with regard to the timing would also be helpful.

I certainly can talk to the timing. We are in contract on several sales now. The buyers are going through due diligence; so I expect to be able to articulate, at least in our next call, a number of those and some information around them.

When we talk about the $60 million to $75 million, the first centers that we've sold, the ones that I've talked about, obviously those were just centers where we owned a portion of them. But the balance of the year, if you wanted to take those out, we're probably talking somewhere in the $45 million to $55 million range for the value of the centers that we'll be selling.

Okay.

And then, Greg, maybe a question for you. Just aside from the dispositions and the proceeds that the sales will generate, are there any additional financing or capital-raising assumptions baked in the guidance from here on out?

Well, we continue to evaluate, as I said, a plan for refinancing some of the mortgage debt that's coming due in the second half of the year. And the markets are very accommodating, whether it's the bank market or the private placement market. Our bias generally is to maintain a fairly long-weighted average term of debt. So I think it's not unreasonable to assume that there might be some additional activity to term out debt in the 5- to 10-year range.

Okay. And the 6.5 times net debt to EBITDA ratio that you mentioned. Is that where you expect leverage to be at year end, after completing the dispositions that you're anticipating?

That's a pro forma for the acquisitions, adjusted for the dispositions we've described. So I don't want you to take it as a guidance for year end, as much as it's just a pro forma calculation. There are other pieces of our business, including investment and redevelopment and so forth. So we don't typically give a specific guidance for where leverage will be at a point in time.

But it is a pro forma. So it will be a little higher with the acquisitions, and then come down a little bit, as we sell properties and pay off debt.

Okay. Got it. All right. Thank you.

The next question is from the line of Craig Schmidt with Bank of America.

Please go ahead with your questions.

Thank you.

How much money was raised through the asset sells of Plaza Delray and Chester Springs?

Hello, Craig. It's Greg.

Our partners have asked us not to disclose those numbers to you. So I think, unfortunately, you'll have to get creative in maybe looking at other ways to estimate those numbers.

Okay. And is that part of the $60 million to $75 million, or is that in addition to these sales?

Yes, it's part of that number.

Okay. And what is your same-store NOI guidance? Are you staying with the previous guidance?

Hello, Craig. It's John Hendrickson.

We've actually narrowed our guidance, as I mentioned in my prepared remarks, to 2.5% to 3%.

Okay. I'm sorry. Thanks.

And as I mentioned, the reason for that is that we're not driving occupancy gains probably above 2014 levels. So that's because we're choosing now to take quality over quantity really.

In terms of tenants?

In our tenant quality. Exactly.

Okay. Thank you.

The next question is from the line of Michael Mueller with JPMorgan.

Please start with your questions.

Hello. Just following up on that answer about occupancy. Should we be thinking of occupancy as just not going up from here? Or do you see a little bit of disruption through this process where we're going to see a little bit of a pullback?

Hello, it's John Hendrickson again.

No, I think you should expect that by the end of the year that occupancy probably will have some gain, but not materially more than 2014 leveled off at the end of the year.

Okay. That was it. Thank you.

The next question comes from the line of Vincent Chao with Deutsche Bank.

Please go ahead with your questions.

Yes, hello.

John, a question for you. You had mentioned in your prepared remarks that you feel like the infrastructure there is able to support much higher than $50 million to $75 million redevelopments, which is a number that's been tossed around on an annual basis. Just curious, how much you think could be done a year? Obviously, you have to find the projects. But just trying to get a goal post here for what the current structure can support.

I don't know that I can give a specific number. I certainly think there's more opportunity here as we work through the portfolio. So at this point, I don't think I'm ready to give a specific number. But certainly we'll be pushing to drive that over the next year, really.

Got it. And I guess relative to -- prior to you getting there, was this just not as much of a focus as you're going to place on it? I guess, why haven't we seen a little bit more aggressiveness on the redevelopment side here so far? Just curious what your thoughts are on that.

Yes. I don't know that it's necessarily -- I think it's more of an opportunity to having a new focus, a new perspective coming in. Also, I think it kind of ties into why we're doing our reorg, from a standpoint of providing new focus. I think we'll be able to get to things quicker, make decisions quicker, and execute quicker; and that will help demonstrate that pipeline.

Got it.

Yes, this is Greg.

If I might just add to what John said. Some of the projects that he mentioned in his opening remarks are the centers that we bought over the last year. And so those are relatively new properties in our portfolio. And it's taken us a little bit of time to integrate them and then develop the plans that we want to go forward with. So I think a part of it is also just the recency effect of those properties.

Okay. That makes sense.

And maybe just one last one on the organizational side. When do you think the organization will be fully ramped up and at full productivity under the new structure?

Under the new structure? I would hope by the end of the year we could really be starting to be pretty much everybody organized in a direction and know their roles and are working together as a team. That's kind of my target for that.

Okay. Thanks. And sorry, just the last one.

Greg, maybe for you on the G&A side. I know the guidance is unchanged for the year. But I guess do you think the third quarter will reflect the full run rate for what G&A will be going forward, given the new hires? Or do you still think it will be ramping up in the fourth quarter?

No. I think that's correct in that the third and fourth quarter will be about the same and be fully ramped up. And we may come in just slightly under that guidance if we manage it well. But that's still our working assumption right now.

Okay. Thanks a lot.

Thanks, Vin.

Our next question is from the line of Vineet Khanna with Capital One Securities.

Please start with your questions.

Yes. Good morning.

Would you mind talking about cap rates and just acquisition trends in your market. Are you seeing more competition now than you were 3 months ago, 6 months ago, 12 months ago?

Good morning, Vineet.

I think that the cap rates are certainly every bit as aggressive as they were before. You still have significant institutional money that is looking to be placed. And although we continue to keep our toes in the water as far as understanding not just cap rates but opportunities in the markets that we find most desirable. We certainly are seeing that the vast majority of properties that we would have an interest in are priced at numbers that are more aggressive than we would consider paying.

I think that the acquisitions that we made with our partners, and truly understanding the upside potential for them, and then at a blended cap rate of 6.7% was an opportunistic purchase for us. And we're not finding too many opportunities anywhere near those numbers.

Thank you.

And then, John, I know you gave us your impression of the portfolio and announced structural changes. But more broadly, could you speak to any surprises you had, positive or negative, since your arrival?

Well, honestly coming from my background, I guess I was probably more surprised positive than negative. I certainly feel like the portfolio has opportunities that may not be widely appreciated. And I didn't, from an outsider's standpoint, didn't appreciate the standpoint of the opportunities to both push rank and drive those net asset values to redevelopment in those properties. Both because of the position of where they position within the markets, but also our teams in place to execute on those.

And I can't think of any specific negatives at the moment, but that's really been the overall impression so far.

Sure.

And then just finally, can you give an update on the Community First initiative? How that's going, if you're thinking about rolling that out in more centers?

Well, yes. We have a number of specific events going on at several of our shopping centers, specifically six centers. And the reception is not only great, with literally hundreds of people showing up.

Our Walking Club program is going extremely well. We're making outstanding use of technology in really being able to track the number of people who are registering for our events and their opportunity to actually earn either prizes or gift certificates, et cetera, through the Internet.

I think one-year results will really tell the tale on how successful we've really been. And we're looking forward to that right around the first part of next year. But so far, all indications are that this is a very successful program.

All right. Thank you. That's it for me.

Thanks, Vineet.

Our next question is coming from the line of Jennifer Hummert with Stifel.

Please go ahead with your questions.

Hello. Good morning. It's Nate here with Jennifer.

Just going back to the adjusted same-center NOI range. You attributed the limited occupancy gains due to, I guess, more of a hardline approach on tenant quality. Would you say that was 100% of the adjustment, or has there been any increase in unplanned move-outs?

Hello, Nate.

Was there slow down in leasing velocity for that matter?

No, I don't think there's slow down in our tenant demand. What I've looked at historically compared to our tenant move-outs has been basically in line. So I think you're seeing the near-term occupancy change. You're seeing it's a bit of a timing issue.

But really, it's about our focus on trying to drive value besides through occupancy gain is really what's driving it. I don't see it any place else.

Yes. I would add, Nate, that because certain changes in tenancies where we have been more than willing to not renew certain individual tenants when their leases come up or with some of the opportunities in re-tenanting that we do not consider a significant enough to call them --quote-- a redevelopment. We're going to see a gap between the income that we had with certain of those tenants and then putting in the new retailer.

Whether it's an ULTA or a Kirkland's, retailers who fall into the -- anywhere from 8,000 to 10,000 square feet. You've got downtime for those people. And therefore, that's going to impact same-center. And we thought it was prudent to revise that guidance.

All right. Thank you so much.

Thank you.

The next question is from the line of Collin Mings with Raymond James.

Please proceed with your questions.

Hey. Thanks. Good morning. A couple quick questions from me.

First, just during the quarter, it looked like there was an increase in TIs. Maybe I missed it, but could you put a little more color on that?

Yes, Collin. It's John Hendrickson.

Yes, there was an increase showing. It's really just a product of the leases that are signed during the quarter. We had several high-quality junior and anchor boxes and restaurants that are driving that. I don't think it's an indication of really anything of the future necessarily, but I think over the next -- our12-month run rate is probably a good guideline of future levels.

Okay. That's helpful.

And then just going back to the JV buyouts. As you think about the opportunities from here, how do you think about the opportunities of that as far as continue to simplify the portfolio? Or do you think most of the heavy lifting at this point is done?

Well, we have one asset left in the Clarion joint venture. And that really is waiting -- just leasing some additional space that was left over when the original big box was vacated. And we leased approximately half of that. So our partner wanted to wait sometime to see if we could realize on that.

And then we have several additional assets in a Heitman relationship, where it was not associated with the 450 joint venture. And those were much more opportunistic. And as we execute on those or complete execution, then I would assume that you could expect those to be sold as well.

Okay. All right. But those being sold, is that an asset that you would want to take on to your balance sheet or just dissociate those relationships?

Well, in looking at the several that are in the ventures, there certainly is at least one that we would find desirable that has a Whole Foods as an anchor. The others will have to be considered as we look at the situation when our partner feels that it is appropriate to sell it. We have very small interest in those because our interest is really only about 7%.

Okay. Fair enough. And then, just one last one.

Just going back, I guess, John, to the conversation around the tradeoff between pushing occupancy and focusing on better tenants and pushing rent. Can you just maybe speak to, are there any geographic or other characteristics on where you don't feel like maybe you are more focused on occupancy and still lease up versus pushing on pricing power and tenant quality and all those other aspects? Or is it pretty much across the board where you feel like it's now really shifted more to that quality and pricing?

Well, I would think generally it's across the board, that pushing on quality over quantity. As I say, the one opportunity obviously. The portfolio we just bought still has opportunity. The Heitman portfolio will have opportunity, as I mentioned in my prepared remarks. That will help that we're certainly should be able to gain some small shop occupancy there. But I don't think there's enough geographical distinction in that goal at the moment.

Okay. Thanks.

Our next question is from Todd Thomas KeyBanc Capital Markets.

Please go ahead with your questions.

Hello, thanks. Just a couple quick follow-ups.

John, you mentioned the 2.5% to 3% same-store NOI growth does not include redevelopment. Just looking at the footnotes in the re-development pipeline. Just want to confirm whether or not the Ross at Deer Grove, the Stein Mart at Winchester, whether those leases will be included in same-store NOI when they come on line?

And then also the timing. I was just curious relative to last quarter, you removed when they are expected to be completed. Are they still fourth quarter 2015 lease commencements?

Yes. First off, to confirm, yes. As our footnotes have indicated on development pipeline, the Ross at Deer Grove and Stein Mart at the Winchester will be included at the same time as they come off. I believe the timing is still fourth quarter for that.

Okay. And then also the yields. If we look back to last quarter, you had yields broken out for each project. Now you're showing a weighted average of 9% to 10%, which is consistent. Just curious, there's ten projects there. Any changes to the individual projects relative to last quarter?

Hello, Todd. It's Greg.

No, there really isn't. I think just from a competitive standpoint and as a preference of some of the retailers that we do business with, we're now providing that guidance on an aggregate basis for the portfolio. Which is really how you're going to model it anyway.

Okay. And just lastly, you talked about the retail and the land that you sold at Aquia. Just curious if you can provide us with an update on the office portion, and whether or not there's any progress thus far to backfill the vacancy or any indication on when that might fill up?

Yes, Todd. This is Greg again.

I think we mentioned last quarter that we had leased a portion of what was vacated at year end. And that tenant took occupancy, I believe, and started paying rent in May. And we have a number of prospects in the queue, some of whom are waiting to see how their business fares. Some of them are defense contractors and are dependent on getting awarded contracts. But they're in the queue, and we're very optimistic that we'll sell more space there.

And in the meantime, we are negotiating this one-year extension with the lender, so that gives us time to get that building leased up. Ultimately, I think you and others understand we're not in the office business. And this asset is really not part of the core type of investment that we want to own. But we do want to extract value from it by getting it leased up and paying good NOI.

Okay. Thank you.

Thank you.

(Operator Instructions)

Thank you. It seems you have no further questions at this time. I'll turn the floor back to Management for further comments.

As always, we would like to thank you for your interest and your time. We're bullish about our prospects and executing on all of our plans. And we look forward to talking with you in approximately 90 days. Have a good day.

This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.