Rithm Property Trust Inc.
Q1 2018 Earnings Call Transcript

Published: 4 May 2018

[Operator:]

Greetings and welcome to Ramco First Quarter 2018 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] And as a reminder, this conference is being recorded. I would now like to turn the conference over to Dawn Hendershot, Senior Vice President of Investor relations. Thank you. Please go ahead.

[Dawn Hendershot:]

Good morning and thank you for joining us for Ramco's first quarter 2018 earnings conference call. At this time, management would like 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 quarterly press release. I would now like to turn the call over to Dennis for his opening remarks. After which, we will open the call for questions.

[Dennis Gershenson:]

Thank you, Dawn. Good morning and thank you for joining us. This is my last earnings call with the company, and I'm excited to talk about the changes that are taking place at Ramco. But first, I have the responsibility of providing information about our first quarter results. Our operating FFO was $0.32 per share, which includes $0.06 dilution from asset sales in 2017, a $0.02 positive impact from the acquisition of both Webster Place and Providence Marketplace last year, and a $0.01 contribution from the lower G&A and lower interest costs. Our same property NOI growth including redevelopment was 0.5%. Our growth during the quarter was impacted by bankruptcies in 2017. As mentioned on our last quarter, we anticipated a dip in same property growth. During the first and second quarters of 2018 with an acceleration of this number in the second half of the year, as we backfill these spaces and complete our Deerfield growing marketplace and Woodbury Lake redevelopments. We posted solid comparable leasing spreads of 8.7% on approximately 322,000 square feet with an average base rent of $18.47. For the past three quarters, our leasing spreads have been above 8% on higher average base rents reflecting the strength of our portfolio. Additionally, we continue to experience positive momentum and our efforts to release our anchor spaces impacted by bankruptcy and store closings. We've reasonably expect to announce replacements for both Gander Mountain at River City and K-Mart at our Kauffman Center within the next 30 days. We signed a lease with second in Charles to fill half of the sports authority space at our Front Range Village Property in Fort Collins, Colorado substantially completing the leasing of all four of the sports authority locations. As to our future, Brian Harper will be joining the company in the middle of June as our next CEO. Brian has a strong reputation in the shopping center industry. We believe that Brian's track record of success and operational excellence positions him as an individual who will be able to allocate capital and drive value in the company's assets. He comes to the company with a clean slate at the top, affording him the opportunity to pick his leadership partners. As CEO, Brian will be responsible for developing the company short and long-term strategic business plans. With that in mind, we did not feel it was prudent to encumber the new management team with prior management's expectations, and as a result the company is not affirming or updating guidance. As I look back on the last 22 years, I'm proud of our accomplishments and I'm incredibly excited about the promise of Ramco's future. I would now like to turn the call over to the operator for questions.

[Operator:]

Thank you. [Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc. Please go ahead with your question.

[Unidentified Analyst:]

Hey, good morning, guys. This is Drew [ph] on for Todd today. Dennis, you mentioned the renewal spreads in your prepared remarks they are pretty strong and healthy volume I'm just curious if that continued over into 2Q at all are you still seeing that strength and do you expect that to continue?

[Dennis Gershenson:]

Yeah. Good morning, Drew. Yeah, as I said not only we do well in this quarter and during the last three quarters, but we see no reason why we should not be able to continue to block some very healthy rental increases going forward. Again, as I mentioned in my remarks we're also planning on being able to talk about the two anchor deals the replacement for the second K-Mart as well as other very important anchor releases that we're working on in present time.

[Unidentified Analyst:]

And were there any markets you saw that strength in specifically in any of the geographic regions or anything like that?

[Dennis Gershenson:]

Really, I think across the portfolio we had an opportunity to basically see in all of our shopping centers, a very healthy interest by those tenants who continue to expand.

[Unidentified Analyst:]

Got it. Great. And then just one more from me kind of a granular question, I know it's a small project, but the shops on lean avenue I noticed that you guys are going to be doing another redevelopment project there for co-working space. I just wanted to see if you can talk about that a little bit and maybe speak about some other opportunities for that that might exist in the Ramco portfolio?

[Dennis Gershenson:]

Sure. There is a second floor on a segment of the shops on lean shopping center that really even before we acquired it had never really been utilized. And we are about a mile to a mile and a half from Ohio state and there was a tremendous amount of office interest and so we were able to make a deal with one office user for the entire space at a very good return on our investment. And interestingly at that shopping center we see an opportunity to add potentially some additional office to the shopping center. So, that's an asset that continues to give and I think that over the next four to six months ones Brian is on board you're going to see conversations about a number of opportunities that we'll pursue the majority of which will be in joint ventures we're putting the office tenant here because it's one user, it's a limited amount of square footage and there is very little downside risk because we have the cost to put them in place.

[Unidentified Analyst:]

Great, thank you. And congratulations, Dennis.

[Dennis Gershenson:]

Thank you very much.

[Operator:]

Your next question is coming from the line of Con Mings with Raymond James. Please go ahead with your question.

[Collin Mings:]

Hey, good morning.

[Dennis Gershenson:]

Hi, Collin.

[Collin Mings:]

Hey Dennis. Again, first off again best wishes to you as you transition to the Chairman role.

[Dennis Gershenson:]

Thank you. Appreciate it.

[Collin Mings:]

Recognizing Brian will likely have discretion, but just from a Board level do you anticipate to backfilling the COO role as well or there's kind of the priority just kind of backfilling the CFO role coming to you expect to continue to have a COO and a CEO maybe talk a little bit about that process as well?

[Dennis Gershenson:]

Well, ultimately that will be Brian's choice. My gut is that it's a get-go for Brian really to get comfortable with a thorough understanding of all of the assets. He needs to be touching all aspects of our business, so I think that his decision relative to a COO will come a little way down the role. We did have a conversation about it and he does expect at the get-go that he's not going to move immediately to fill the COO role.

[Collin Mings:]

Okay. And then maybe just the timeline on the CFO again recognizing lot of move pieces here with Brian coming in June, but just again from kind of a board level, search firm been higher or maybe just talk a little bit about the process there on the CFO side of things?

[Dennis Gershenson:]

We have identified a search firm who we work with in the past, and I believe that at this juncture we can say that number one, we've been contacted by a number of people who would be interested in the position, and they're out there doing some due diligence. But obviously this is going to be Brian's decision. And we expect him to move expeditiously once he's onboard to secure the CFO and get him up to speed.

[Collin Mings:]

Fair enough. And then I get the decision to kind a step away from guidance overall. But maybe just thinking about from a core operation standpoint you previously have some same store NOI guidance out there. I mean just any shift that you think about kind of 1Q results and kind of what you're seeing right now that kind of from a at least from kind of a same store pools standpoint you still feel pretty good about prior guidance and the comments of kind of the ramp you expect in the second half of the year. Or is it fair to say that's to be determined as well?

[Dennis Gershenson:]

Well, we certainly believe that the first quarter results were absolutely in line with we have planned. As I mentioned in my prepared remarks, we have a number of redevelopments that will be coming onstream. You've seen the increases in rents that we've been talking about and we expect that to continue at a strong pace. And it's just pursuant to my prepared remarks, we just hesitate to give any guidance on either FFO or same center until Brian is onboard.

[Collin Mings:]

All right. And just last one from me just along those lines by the way help is there anything else just from going back to the prepared remarks and the line in the press release just as far as some of the strategic things. Are there anything in particular that you have conversations with Brian that how you think there is going to be a harder focus on or more of a focus on going forward?

[Dennis Gershenson:]

I don't think there will be at least at the get go, any dramatic changes. But again, the strategy that he will be employing has got to be Brian's strategy.

[Collin Mings:]

Fair enough. Again, thank you very much Dennis. And again, congratulations on the transition here.

[Dennis Gershenson:]

Thank you so much, Collin.

[Operator:]

Our next question is from the line of George Hoglund with Jefferies. Please proceed with your questions.

[George Hoglund:]

Hey, good morning Dennis. Just one question in terms of some of the tenants. Do you have the sense of how many spring T-Mobile stores you have and whether those existing rents are above were below market?

[Ray Merk:]

Hey George, this is Ray Merk, the company's Chief Accounting Officer.

[George Hoglund:]

Hi, Ray. Good morning

[Ray Merk:]

Good morning. on T-Mobile we've got 7 leases currently well over 14,000 square feet. And that is ABR around 440,000. And on the spread we've got five leases just about 11,000 square feet.

[George Hoglund:]

Okay. And then can you give the rent on those?

[Ray Merk:]

Yeah, the average around 400 I think or so right in that ballpark.

[George Hoglund:]

Okay. All right, thanks. And then just in terms of the types of centers that these are in. would you say these kinds of spread out in terms of quality wise or are they concentrated and kind of upper and lower end of your portfolio?

[Dennis Gershenson:]

No, I would say it's pretty well spread out. It's we have number of them in our Town Centers. And that in our commodity enters. So, I don't think there is any specific concentration in either one of those groupings.

[George Hoglund:]

Okay. Thanks. And then just is there any general update or new tenants on the watchlist?

[Dennis Gershenson:]

Well, the watchlist that we have put together at the beginning of the year very still is consistent with the watchlist that we have at the moment. Obviously Total GNC [ph], Charmaine Charlies [ph], they were on our watchlist. The one thing I would say is as of this juncture there were no surprises relative to either additions to the watchlist or tenancies that have experienced problems.

[George Hoglund:]

Okay, thanks. Appreciate the color.

[Operator:]

And our next question is coming from the line of Michael Mueller with JP Morgan. Please proceed with your questions.

[Michael Mueller:]

Yeah, hi. First of all, congratulations but also when it comes to the transition can you talk a little bit about why Brian is the right choice versus internal options and were the two departures directly related to bringing Brian on board?

[Dennis Gershenson:]

Well, first of all I want to say that John Hendrickson did a very fine job here at Ramco. I had absolutely no complaints about John's performance, but the Board was committed to do a complete search not just to include internal candidates but external candidates and when Brian came along he does have extent of experience as a CEO, the Board felt that that was very important. You'll get an opportunity to speak to Brian his enthusiasm, I think parallel is mine, Michael, I know you've seen me in action and I am cashing in about this business as is Brian and based upon his background Brian had an extensive career in leasing, so we saw that this would be the smartest move going forward.

[Michael Mueller:]

Solid.

[Dennis Gershenson:]

I'm sorry and as far as Geoff is leaving. Geoff got an excellent opportunity on the private side on the West Coast. He and his wife, all of their kids now going off to college and so this was an opportunity to put them to relocate to the West Coast and he was not going to pass up that opportunity. And so, it was a very appropriate time for him to leave and I think that he felt that it was important again Brian indeed have the opportunity to pick his own team and so this was opportune and so he took the job.

[Michael Mueller:]

Got it. Okay. And then I think you said Brian was going to instrumental in picking the CFO, does that mean if he's coming on board in June we're not going to have a CFO announcement until a few months after that essentially?

[Dennis Gershenson:]

Well, I don't want to say how long after that when the new CFO will be chosen, but obviously it will await Brian's arrival.

[Michael Mueller:]

Got it. And last question, just given I guess all this personal shift that are going on right now is there any disruption that you're experiencing in the second quarter on the ground in terms of leasing operations just any of that?

[Dennis Gershenson:]

Absolutely not. I'm pleased to say that Brian will walk into our organization with a very strong management team. They haven't missed a beat, relative to the departure of either John or Jeff and we expect that when Brian comes in that he'll be very pleased with the professionals that he inherent.

[Michael Mueller:]

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

[Dennis Gershenson:]

Thank you.

[Operator:]

Thank you. [Operator Instructions] Our next question comes from the line of Vincent Chao with Deutsche Bank. Please go ahead with your questions.

[Vincent Chao:]

Hey, good morning Dennis and congratulations on the transition here. I guess just going back to the commentary about the first quarter being in line I think we all expected it to be lower than the prior guidance range at least in the first quarter, but this was a bit lower than I think we were anticipating. I guess when we think about backfilling opportunities and the development opportunities that are expected to come online in 2H I guess what you need to achieve to maybe get I don't know close to the old midpoint of the guidance how much visibility do you have on things that are super ready in place and just kind of waiting commencements versus needing to go out and sign something or not?

[Dennis Gershenson:]

Well, historically we have never put anything on the boards that we hadn't signed the most significant leases or the majority of leases and had a relatively good handle on cost et cetera. So, if you look at our supplement we feel very confident that we can execute on everything that is there and we're excited about a number of opportunities that we really haven't announced yet relative to diversification at our shopping centers as we move ahead especially on the dynamic town centers. So, stay tuned for some interesting developments.

[Vincent Chao:]

Okay. And then just on the disposition side of things, nothing really sold in the quarter. Again, I know the guidance is not in place anymore. But does that given that you're waiting for Brian to arrive and kind of pretty stamp on where you want to move the company. Should we assume the dispositions are on hold until he gets in place?

[Dennis Gershenson:]

Again, all of those decisions relative to acquisition or dispositions will all await. Brian really not just understanding the portfolio but the balance sheet. And where we want to take all elements of the company.

[Vincent Chao:]

Okay. And then just the last question on some of the more recent bankruptcy announcements. I was just curious if you are having update on their couple of toys that you have in the portfolio as well as the Winn-Dixie.

[Dennis Gershenson:]

Well, Winn-Dixie we only have a couple of Winn-Dixie and one of them get they have just renewed their lease there and we're talking about spending money to upgrade the store. So, we - -our visibility as far as Winn-Dixie is concerned is that they planned to stay the line in those two there at least for the short-term. As far as longer-term plans, when Winn-Dixie originally, we wonder whether or not there would be exercising options there. We have been contracted by a number of quality supermarkets who will interested in space. So, we have no concerns whatsoever about being able to backfill that if Winn-Dixie does decide to change their approach in Florida. As far as the Toys, it is concerned. We - to follow that the history of those negotiations at the end of last year we thought we had it understanding within the change that understanding. And then obviously the path that they're pursuing now is something that we're obviously disappointing is. But we are talking to replacement tenants at this moment.

[Vincent Chao:]

Okay. Thank you.

[Operator:]

Thank you. [Operator Instructions]. Our next question comes from the line of George Hoglund with Jefferies. Please go ahead.

[George Hoglund:]

Yeah. Just one follow-up. Has there been any additional departures, or any staff changes since the Brian's announcement?

[Dennis Gershenson:]

There have not been any additional changes now.

[George Hoglund:]

Okay. And would you anticipate any other near-term changes?

[Dennis Gershenson:]

Well again, Brian is coming in, but I think we have a good team. but we obviously will have to make those decisions.

[George Hoglund:]

Okay, thanks Dennis. And I just like to say congratulations as well from me. And it's been a pleasure working with you.

[Dennis Gershenson:]

You're very kind. Thank you, George.

[Operator:]

Okay, thank you. This concludes today's question-and-answer session. I would like to turn the call back to management for closing comments.

[Dennis Gershenson:]

Thank you very much operator. I've been reflecting on the number of conference calls that we have had concerning earnings and speaking to Dawn, I participated in over 80 calls. We haven't actually logged the exact number. But the one thing I do want to say is that it's been an absolute honor to interact with each and every one of you. And I wish you all very good luck.

[Operator:]

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