Rithm Property Trust Inc (RPT) 2016 Q2 法說會逐字稿

Greetings and welcome to the Ramco-Gershenson Properties Trust Second Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (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. Thank you. You may begin.

Good morning and thank you for joining us for the second quarter 2016 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 Geoff Bedrosian, 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 for his opening remarks.

Thank you, Dawn. Good morning, ladies and gentlemen, and thank you for joining us today. We're very pleased to report a healthy second quarter, the continuing evolution of our high quality shopping center portfolio to dispositions, value-add redevelopments, and retetantings as well as the continued strengthening of our already conservative balance sheet.

We posted solid operating results across the board this quarter, including same-center net operating income growth, an increase in renewal and new tenant rents and an improvement in small tenant occupancy. John will provide insight into all these metrics. As I said, our shopping center portfolio quality is enhanced by a number of factors including the sale of non-core assets that are not consistent with our strategic direction of owning market-dominant, multi-anchored shopping centers that are most relevant to the communities they serve.

In support of these objectives, as of the end of the second quarter and as part of our capital recycling program, we sold a number of shopping center assets, generating proceeds of just over $70 million. For 2016, we indicated that we intended to sell between $100 million and $125 million of non-core properties. Through the first-half of the year, our sales put us over the 60% mark in achieving the midpoint of that goal.

Our sales for the second quarter included four centers; one from the Heitman joint venture, one in Georgia, one in Florida, and a large asset on the west side of the state of Michigan. All four of these properties had fit our definition of non-core centers, with low risk-adjusted growth prospects, while also reflecting a low average base rents and demographic profiles lower than our overall portfolio average.

In addition to the properties sold, we presently have two shopping centers in the market, both are in Michigan. With the sale of these additional centers, we reasonably expect to reach at least the midpoint of our disposition guidance by year-end. The average cap rate for all the centers sold to date is in the low 7% range.

With these sales, we now own interest in 69 shopping centers with a total enterprise value of $2.7 billion, compared to 2010, where we owned over 90 centers, with an enterprise value of just over $1.3 billion. This 5-year transition demonstrates our commitment to constantly drive the value and dominance of our retail assets. The evolution of our portfolio is ongoing and we will continue to source destination-oriented centers with value-add potential while we sell low or no-growth properties.

Our value-add redevelopment pipeline remains healthy. We've added an additional project this quarter. It is the beginning of a multi-phase strategic expansion of our Front Range Village Shopping Center in Fort Collins, Colorado. We anticipate announcing a number of additional value-add projects at several of our properties by year-end, thus maintaining a solid pipeline of redevelopments.

Lastly, we have secured a commitment for very attractively priced 12-year financing, which will close at the end of the year, completely eliminating all refinancing risks to 2017 and further extending our already conservative debt maturity schedule. The refinancing of our 2017 obligations and the financial flexibility we've achieved positions us to seize whatever opportunities may arise.

Our focus over the last several years on owning high quality, multi-anchored, dominant-retail destinations that lend themselves to placemaking and community-oriented activities. We feel customer loyalty positions our portfolio for success in an ever-changing retail landscape, which includes the growth in e-commerce. Our consistent pursuit of best-in-class popular price tenants reduces fallout risk, as these retailers continue to perform very well, as evidenced by their ongoing expansion plans.

In summary, we're on track with our 2016 business plan to drive income growth in our core portfolio, as we also pursue a number of high return redevelopment projects funded by our capital recycling program. We will accomplish both of these goals, while improving our debt metrics and building a solid foundation for future growth.

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

Thank you, Dennis. Good morning, everyone. The second quarter for us continued to be about executing our internal growth business plan, and the fruits of our efforts are reflected in this quarter's results and also have set us up well for success in the remainder of this year and next. Same-center NOI grew 4.8% during the quarter with 90 basis points of growth coming from the $360,000 reversal of bad debt from Sports Authority related to a recovery we reserved in the first quarter.

Reflecting our healthy and productive operating portfolio year-to-date, same-center grew 3.1% over 2015, driven by our redevelopment pipeline, higher rents, lower operating expenses with higher recoveries, increased ancillary income and improved small-shop occupancy. Our regional team initiatives started at the beginning of the year are continuing to demonstrate results with operating expenses lower by 1% same-center, and a year-over-year increase in ancillary income of $700,000 projected for all of 2016.

We ended the quarter at a physical occupancy of 94.4%, 50 basis points better than last quarter. Leased occupancy increased 10 basis points for the quarter to 95.1%, driven by 60 basis points increase in small-shop leased occupancy. With demand remaining strong, we are well on our way to achieving the top end of our goal of increasing small-shop leased occupancy by 100 basis points to 200 basis points during the year.

Not only are we able to drive occupancy but we're also improving the quality of the leases with small-shop rollover spreads during the quarter of 10% excluding option. The average term of these leases was more than five years, and a vast majority of these leases have annual fixed rental increase, which further enhanced their value over time.

Our small-shop occupancy continues to be helped by improved anchor merchandising, including the 15 anchor leases totaling 375,000 square feet that were signed prior to the end of 2015. Of this group, seven have opened year-to-date with Hobby Lobby at Deer Grove in Illinois, DSW at Hunter's Square and the first Michigan Container Store at West Oaks, each opening during the quarter.

Additional anchor upgrade will also be facilitated by The Sports Authority bankruptcy. The bankruptcy process is coming to a close and we now have much better visibility regarding the status of our four leases. Our one Michigan location closed in June and two other locations in Colorado and Wisconsin just completed liquidation sales and closed at the end of July. Including potentially splitting the boxes, we have solid leasing traction at these three locations, that will allow us to upgrade and diversify the merchandising of each center, while replacing or exceeding the $12 per square foot average base rents The Sports Authority had been paying. It is our expectation that the income downtime will be approximately 6 to 12 months.

For our fourth location, Treasure Coast in Jensen Beach, Florida, Dick's Sporting Goods had bought the designation rights to the lease and we are currently negotiating an amendment, which will allow them to assume the lease. In the end, the decline of Sports Authority has created an opportunity to further improve our portfolio. In fact, we believe all of our anchor upgrades coupled with our other redevelopment activities offer accretive investments and also help drive value at the properties for years to come.

Regarding redevelopment, our current pipeline of projects is $80 million. As Dennis mentioned, during the quarter we added $4.6 million, with the first phase of property densification at Front Range Village in Fort Collins, Colorado, which will add 15,000 square feet of retail that should generate rents of between $35 per square foot to $45 per square foot, at the front of the property. We expect to announce further activity at this property in the next couple of quarters as well as progress on the redevelopment of Woodbury Lakes in Minneapolis, River City Marketplace in Florida, and Troy Marketplace in Michigan. These additional projects added will offset the $36 million of projects that will be complete later this year.

Our redevelopment pipeline is an important part of our internal growth plan and we expect to maintain a consistent pipeline in the near term. Longer term, as our portfolio evolves, we would like to maintain an even higher level of redevelopment, to further capitalize on our expertise and generate higher risk adjusted return, without creating excessive earnings fluctuations.

So in conclusion, the portfolio is performing well within this dynamic environment and I'm still confident we will be able to achieve the range of goals we have laid out for the year. Geoff will now give more details about our operating results and current guidance. Geoff?

Thank you, John and hello everyone. Operating FFO for the second quarter was $0.35 per share, up 12.9% from $0.31 per share in the second quarter of last year. The year-over-year increase in operating FFO of $0.04 was primarily driven by a $0.06 increase in our cash NOI from our JV acquisitions, contractual rent increases, new leases coming online and the positive bad debt recovery previously reserved in the first quarter from The Sports Authority, offset by $0.02 per share from higher interest expense, lower management fee income and lower earnings from unconsolidated joint ventures. G&A was relatively in line with our previous two quarters and is currently at a run rate within our guidance range.

Turning to capital recycling, we had a successful quarter on the capital raising front. We sold three wholly owned operating properties, Lakeshore Marketplace in Norton Shores, Michigan; Center at Woodstock in Woodstock, Georgia; River Crossing Center in New Port Richey, Florida, and the land parcel at Conyers Crossing, Georgia, generating net proceeds of $55.8 million.

We also sold on behalf of our joint venture partner, a property in Kissimmee, Florida, generating net proceeds to the Company, representing our 7% interest of $1.3 million. The total net proceeds from these transactions of $57.1 million, was used primarily to repay our revolving credit facility and fund our redevelopment pipeline.

We would like to take a moment and update you on our disposition of the acquired office building. As we work through the process, we determine the best execution would be to convey the property to the lender via a deed-in-lieu. The decision to pursue this path was not easy, but ultimately became a risk-reward analysis. So we chose to allocate our capital and resources to our core retail operating portfolio, rather than this non-core office property. We expect this transaction to be finalized within the next couple of weeks.

On the balance sheet front, our net debt to EBITDA at the end of the second quarter was 6.3 times, which represented the midpoint of our guidance outlined earlier this year, an improvement from 6.6 times at year-end 2015. Our coverage ratios remained strong as our interest in fixed charge coverage ratios ended the quarter at 3.8 times and 3.1 times, respectively.

Turning to our capital market activity. Subsequent to quarter end, we entered into an agreement to issue $75 million of senior unsecured notes in a private placement with two high quality institutional investors, including one new relationship. The notes have a 12-year term and they are priced at a fixed interest rate of 3.64%. The sale of the note is expected to close in November of this year. With this financing and the asset sales we have completed and plan to complete for the remainder of the year.

We've identified the capital needed to retire both our River City Marketplace and Crossing Center mortgages totaling $126 million in the fourth quarter, which addresses all of our 2017 debt maturities and will reduce our weighted average cost of debt at year-end to approximately 4.1%. So as we look beyond 2017, our balance sheet will be in very solid shape, with manageable debt maturities of $37.7 million in 2018 and $29.5 million in 2019, a majority of which is represented by the current balance on our line of credit.

Turning to guidance, as we reviewed our year-to-date and expected performance for the remainder of the year, the Company is narrowing its 2016 FFO guidance to a range of $1.33 to $1.37 per share from our previously issued FFO guidance of $1.32 to $1.38 per share; and we are maintaining our same-store NOI guidance of 3% to 4%. While Sports Authority has a short-term impact on our results, we expect continued positive momentum in our overall shopping center portfolio in the second half of the year.

Finally, as part of our continuing goal to provide more transparency, we made one addition to our quarterly supplement released last night. On page 13, we added a consolidated capital expenditures table that summarizes all of the Company's capital expenditures, including a new line item highlighting non-revenue generating CapEx.

So with that, I would like to turn the call back over to the operator to open the line for questions.

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions). Mike Mueller, JPMorgan.

Should we think of, on a go-forward basis you talked about a redevelopment pipeline in place of about $80 million, should we think of asset sales is generally matching the redevelopments, and then, if you're going to have asset sales above and beyond that, such as you're going to have this year, it's really going to be tied to acquisitions, is that kind of how internally you think of a base case for recycling?

Michael, that's exactly right. We look at, at least at this juncture, funding the majority of both our redevelopment CapEx requirements as well as the potential for acquisitions with the dispositions that we see going forward. Again, consistent with our overall plans, we are constantly pushing the quality of our assets and the type of assets that we want to own, so there will be transitioning in the portfolio; these are the acquisitions and dispositions, and we look for sales to also fund what we see as very healthy returns on our redevelopment.

Okay. And just a follow-up. I think John mentioned that $80 million pipeline over time, having it get bigger. I was wondering, can you put some parameters around that. Just -- if you're running at about [$75 million or $80 million] today over say three years or five years, what sort of visible time period over the near-term? Would you see that pipeline size increasing to on an annual basis would you say?

So Mike, it's John Hendrickson. I've to tell you in short-term -- I mean we look at the opportunities in our existing portfolio, and I certainly think there are opportunities to increase it in the near-term, maybe over $100 million for a period of time -- falling back in that range of [$65 million to $80 million] that we talked about in the near-term. Over time, would we like to see it, maybe over the $100 million range as the portfolio evolves, absolutely. Just from a standpoint we think that's a good use of capital -- good risk adjusted returns and utilizes the expertise that we have.

Okay. It doesn't sound like over the next couple of years it's going to change all that dramatically from roughly where it is now, maybe it'll creep up a little bit, is that fair?

I think that's fair. Again with our existing portfolio and -- opportunities present themselves over time, so it's hard to perfectly predict, but I think that's a fair assessment at the moment.

Todd Thomas, KeyBanc Capital Markets.

Hi. Thanks. Just first question regarding Sports Authority. It sounds like you're optimistic about getting those boxes back and creating some value, and you maintained your same-store NOI growth for the year, but in terms of the impact that getting those boxes back will have on operating metrics, I guess it sounds like the anchor leasing and some other leasing complete over the last few quarters, that's coming on line will be enough to fully offset the downtime there from Sports Authority. Is that the right read or will there be an impact from those boxes?

Well. Todd, this is John. So I'll just start off and then I think Geoff will jump in, but I think it's -- first-off absolutely we're optimistic about creating value over time from the four boxes, certainly had very good leasing momentum right now. I expect hopefully before our next call that we'll be talking about announcing some of the replacements there. But there will be a short-term impact, they're worth about 120 basis points of occupancy in total. So, especially from the three -- I mentioned the one down in Florida has -- [takes a second] designation right, so we're working through an assumption agreement with them there, but certainly the other three, there will be a downtime this year from it. Now, we do have good momentum elsewhere. I mentioned about small-shop occupancy has been good. Our reserves outside of Sports Authority has been very good, also ancillary income has been making it up. So we are making it up, but there certainly will be some kind of impact.

Yes. Todd, its Geoff. I think just to summarize what John was saying, think about in the context of what we were kind of losing from Sports Authority, we're making up on the operations side right now. So that's kind of where we get to from holding same-store in guidance.

Okay. And then from -- you had talked previously about 15 anchor leases that you signed last year. I think last quarter you had 12 -- that still were to commence. Can you just give us an update there and maybe talk about how much annualize rent is expected to still come online from the remaining anchor leases that were signed?

Sure. So there -- we have eight remaining to still open, which we obviously will feel very good. We're in the process of getting them open, but that creates a little variability exactly the timing next -- in the next two quarters, I guess on that. And so -- I don't know that we have yet specific numbers about those 15. I think Geoff may have some general guidance.

Yes. So, Todd, just think about the impact of those [15 for 2016], think about in the context of about a penny impact -- half a penny to a penny depending on timing, because we still have eight to take occupancy and pay rent for the remainder of the year, and then the full year impact of those is approximately $0.02 for 2017.

Okay. Great. And then just Dennis, you mentioned that the cap rate for the dispositions was in the low 7% range, I think that was for what was completed. Is that consistent with the two assets in Michigan that you have in the market right now? And then maybe how would you characterize the pool of buyers, that's looking at these assets?

Well, the cap rate that I referenced, Todd is -- does include several assets outside of the State of Michigan, one in Florida and one in Georgia, so that obviously influenced the valuation. The two centers that we have in the marketplace now, we'll probably sell somewhere in the 8% range. Again, the centers that we're selling are not representative of our metropolitan Detroit very strong assets, so the cap rate obviously reflects the quality of the tenant mix, as well as the positioning of the assets in the Michigan market; specifically the one on the west side of the state was in a tertiary market, even though it had reasonable anchors. As far as the interest is concerned, we received very strong interest especially on the two that are in the market, and we would expect one of those to sell in the sixes, although the other probably will sell in the eights. So again, it depends upon location, it depends upon the quality of the asset and the trade area that it's located in. But I think we can give you much better visibility on those last two, at the end of the third quarter.

George Hoglund, Jefferies.

Hi. Good morning. I was wondering if you can give an update on your overall tenant watch list and also maybe if you have any comments on Gander Mountain and how they're performing?

Sure. George, this is John Hendrickson. So overall watch list -- I mean there are a few tenants we're keeping an eye on -- as I mentioned outside of Sports Authority we generally had a very good run rate from a bad debt standpoint for sure, but a couple of tenants -- we keep an eye on Logan's Roadhouse for instance, we only have four locations about 400,000 annual base rent, but they've been having financial issues, especially with their lenders, (inaudible) somebody were watching, but for us we only have like 6,000 square feet total in five locations with them. And there's a couple of regional players, currently there is a small regional player called Total Hockey, that's 14,000 square foot space that we have here in Metro Detroit, but they -- our expectation as they get bought out of bankruptcy and the assumption, [this happens there]. And on Gander Mountain, it's something we're certainly keeping an eye on. I tell you from -- we have two locations that's a 140,000 square feet for us, but the -- with our two locations -- I can tell you at the store level, we're not seeing any indication that there is any concern there. Obviously there's been chatter about them generally, especially in light of Sports Authority. I think personally they have a good niche and so I hope -- I believe especially our two locations that they have a customer base that in long-term that they'll be successful, but something we're keeping an eye on.

Collin Mings, Raymond James.

Hi. Good morning. First question from me. Just given the recent move in the stock price, so how are you thinking about maybe using the ATM here to ratchet down leverage or maybe take a harder look at some acquisitions?

Hi. Collin, this is Geoff. I think we are watching our stock price, but we are going to be disciplined that how we access the ATM from a capital allocation standpoint. So, accessing equity was not in our guidance, and so, we're going to use our existing portfolio from a capital recycling to access equity first, if there is an acquisition that comes up, we'll evaluate it at that time. But the ATM gives us optionality from a funding standpoint right now in our minds, but we certainly included in the mix, when we look at our cost of capital as it relates to any investment options.

Okay. Does it change the dynamics at all as you think about potential acquisition opportunities, clearly that's not been your focus as of late, but does it maybe make acquisitions up a little bit more appealing?

Well. I mean, I'll turn it over to Dennis, but it gives us an opportunity, right. We have a lower cost of capital at our disposal. It does broaden the opportunity set, but again I think we're being very disciplined and we'll be very strategic about how we do that, but I'll let -- may be Dennis add to it.

Yes. The only thing I would add, Collin, is that we have in the portfolio a number of assets that we still would consider non-core just based upon their tenant mix that we know which sell at reasonably aggressive cap rates, maybe even into the [5's]. So we might actually get a positive arbitrage spread if we made an acquisition that approximated the value of some of the assets that we might sell. So again, we'll look to capital recycling as Geoff has just said as our first option before we would consider coming back to the market.

Okay. That's helpful. Thanks, guys. And then maybe, John, just as it relates to the redevelopment pipeline, can you maybe just update us on what you're seeing in terms of construction costs out there now and maybe how that's impacting potential projects you look at?

Yes, absolutely Collin. I tell you, it's very -- and this has been the case for a while, it's very market specific. But at one point earlier in the year and last year we had concern -- there were issues in the Denver market [on retail] pricing, something just from a contractor standpoint being too busy, so it really had a significant impact on pricing. We've seen that come back down, elsewhere in portfolio where we priced a few things, we've actually seen a reduction in costs, most recently. But again, I don't want to tell you that that's certainly a trend, because it's very market-specific and it's really based on the timing here in and out of the market. Obviously, people are -- have warned us about still near-term and something that we don't see a big impact on what we're working on right now, but it's something that we'll certainly keep in mind as we price out the things over the next six months or so.

Okay. That's very helpful. And then I guess just another big picture question for you Dennis. Just strategically do you think about the positioning of the portfolio, I'm just curious, your latest thoughts and making about -- can you touch on it a little bit on the cap rate question earlier, but just what you're seeing as far as tenant demand as we go out at some of these secondary, tertiary markets for retail space, maybe how that's evolved over the last 6 to 12 months, just given the lack of new supply across the board?

Well. I would answer it this way that if you have the dominant center in a specific trade area indeed with the type of retailers that we lease to, there is still reasonably strong demand -- people like TJ Maxx, they've taken a number of additional stores recently in their home goods, and now with the rollout of the [CR] trading. We are seeing certainly a reasonable interest, but as you can see from the dispositions we've been talking about, we are going to be almost exclusively focused in those metropolitan markets where we can not only get retailers who are new to the marketplace, but retailers, whether it's based on e-commerce, who want to reduce their store counts or retailers who want to move from secondary to primary locations, we're getting a tremendous amount of tenant interest in all of our metropolitan shopping centers.

Vineet Khanna, Capital One Securities.

Yes. Hi. Thanks for taking my questions. Just a couple of quick ones from me. Can you talk about sort of what you're seeing in the transaction markets, any changes in buyer pools and their product availability?

Well. Vineet, we're seeing a healthy stream of opportunities that are in the marketplace. One of the issues of course is that if there are -- that typically of the kind we like, which is kind of institutional quality that people are still bidding those to really pretty incredible cap rates as far as we're concerned. So, you have to really -- at this juncture for us -- dig through a significant number of opportunities before you find something that makes sense for us. And again in each of those instances, they've got to have an opportunity where we see we can add value. But as far as the buyer pool is concerned, we're finding the traditional group of institutional buyers, as well as with the centers that we're trying to sell, not an insignificant number of private buyers who've come back into the market, I know last quarter Geoff talked about the CMBS market kind of beginning to settle out, and so [debt] is available to them and they've gotten more aggressive at least in looking at the opportunities.

Okay. Great. Thanks. And then just, can you talk about your plans for the remaining few JV properties that you have in the portfolio?

Well, we only have two now still remaining in the portfolio and as far as the one in which we call Martin Square in Florida, we continue to -- to maximize the value of that asset, but both ultimately will be sold, but we'll do it in an orderly fashion.

Vincent Chao, Deutsche Bank.

Hi. Good morning, everyone. Just want to go back to the same-store outlook. It sounds like there's some offsets to The Sports Authority, move-outs are going to happen later this year. Just given where you're starting sort at the low end of the range, I guess, would you say that you're tracking towards that low-end or do you think that the offsets are sufficient to get your back to the midpoint at this point?

Vin, right now where we stand I think where the midpoint is what we're shooting for, and as we progress further in this quarter, we'll get a better sense. We're working on, as John mentioned, Treasure Coast with Dick's and there are some other things that we're working on in the portfolio that at this point -- we're working hard to hold that midpoint.

And Vin, just add to that, this is John. I mean, keep in mind that a lot of the growth we felt was back-end loaded, especially skewed to the fourth quarter, more so than the third quarter, so that has always been our expectation, now of course that helps offset -- when I say back-end loaded (inaudible) is a big part of that. So I think we're -- I think that helps to offset the fact that we will take a hit in the third and fourth quarter from Sports Authority.

Okay. And then just for the quarter, it looks like the recovery ratio was up pretty significantly from last year, I think some of the OpEx was down (inaudible) I think we're still up, was there anything -- any recovery this quarter that helped?

Actually that's more about last year than about this year. We were under accruing in the first half of the year to partial degree, which will actually be a little bit of a drag in the third -- specifically in the third quarter for us going this year, as we did a catch-up.

I'm sorry, you said there will be a drag this year in the third quarter?

Well, a little bit -- from a standpoint from a recovery ratio. But it's not significant, but you'll see that comparison of recovery ratio go back to more normalized in the third quarter.

Got it. Okay. And then, sorry, probably sort of guidance type questions, but just you're sitting at $0.69 year-to-date midpoints 135, so it sort of suggests a slowdown to sort of $0.33 a quarter. Obviously, you had some disposing there that will weigh on that. But just curious, is that the right way to think about it coming out of the fourth quarter in that $0.33 range?

Yes. And that's exactly the way you should think about it at this time.

(Operator Instructions). Floris van Dijkum, Boenning.

Great. Good morning guys. Question on the asset sales, it looks like you're obviously disposing some of your smaller NOI assets. Do you guys have a target in mind say, you don't want to own assets less than $1 million in NOI or how do you look at it strategically?

Well, to the extent Floris, many of our centers are certainly larger in nature. We are really putting a dollar threshold on it. What we're looking at more is, what is the relevance of the shopping center to the market in which it is located. So if we're the dominant property, that's going to be the telling factor. So more often than not something lower than $1 million doesn't really weigh in for that type of an opportunity or an asset. But it's much more driven by tenant mix and how the community will respond, how the retailers who are coming into the area who want to relocate will respond, those are the factors that will really influence us.

Right. I mean, because there's one way to think about it as you've alluded to in the beginning, Dennis, I mean you went from 90 properties to 69 assets and basically have doubled your enterprise value during that time. I mean, would it be reasonable to expect a further reduction -- I think, of the top of my head, you've got another 10 assets or so that qualified for less than $1 million of NOI contribution to the Company? Obviously cutting that in half and buying one asset that does $10 million in NOI, obviously simplifies the portfolio and simplifies the strategies, is that the right way to sort of think about how you guys are thinking about allocating capital?

For sure. Once again, we've talked extensively and I know you and I've talked about with an evolution in retailing with e-commerce with trying to be the shopping center that the bricks and mortar retailers want to be located in. That whole concept of dominance has to be the watchword at least for our organization. So I think that the small or less relevant assets and they certainly could fall into the category of lower than $1 million and maybe even somewhat higher than that would probably not be part of our long-term future.

Great. And one other question, maybe this is more for John, but your fixed rent bumps. You talked about -- the majority of all of your new leases have fixed rent bumps. Is there sort of a percentage that you're targeting for your portfolio and are you looking to grow that over time, I believe your current percentage is somewhere around 1.25% or somewhere in that range, are you looking to raise that?

Well. Specifically, we're focused -- it's more focused on small-shop transactions, and generally what we push is 2% to 3% annual increases on those, and we've been fairly successful -- actually very successful these days of achieving that.

And then on the anchors, you're getting -- you're typically getting a slightly lower fixed bump?

Yeah. I mean the anchor transactions haven't really changed from the structure. Typically you're trying to get 10% every five years, is a typical bump, that's even been strained to some degree to be honest with you these days, but that's generally been the rule.

(Operator Instructions). Craig Schmidt, Bank of America.

Thank you. I'm sorry I just came up earlier, but of Office Depot just announced this morning, they're closing 300 more stores. I just wondered if you could describe your exposure and some thoughts about what you might do for retenanting if you do get closures?

Sure, Craig, it's John. So, I mean, office in general we have between the Staples and the Office Depot category, we have 18 locations, and keep in mind that's been going down high 20s, over the last couple of years down to the 18s. And so what we've been doing now is actively -- just to break that down Office Depot is 11 of those locations. So, we've been actively working with them to right size them and to work so that their -- right size them or replace them, and that -- we've been doing that over the last few quarters and I'll tell you since the whole pending merger for talks it's been -- we've had a lot more activity, actually being able to work through items with them to do exactly that.

And you're saying you have 11 Office Depots under that total 18?

Right.

There are no further questions at this time. I'll now turn the call back over to Dennis Gershenson for closing remarks.

As always, ladies and gentlemen, we appreciate your interest and we look forward to speak 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.