Rithm Property Trust Inc.
Q3 2009 Earnings Call Transcript

Published: 29 Oct 2009

[Operator:]

Welcome to the Gershenson Properties trust third quarter 2009 conference call. (Operator Instructions). It is now my pleasure to introduce your host Ms. Dawn Hendershot, Director of Investor Relations. Thank you, you may begin.

[Dawn Hendershot:]

Good afternoon and thank you for joining us for Ramco-Gershenson Properties trust third quarter 2009 conference call. I am hopeful that everyone received their press release and supplemental financial package which are available on our website. 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. Although Ramco-Gershenson believes the expectations reflected in any forward-looking statements are based on reasonable assumptions it can give no assurance that it' expectation will be obtained. Factors and risk that could cause actual results to differ from expectations are detailed in the press release and from time to time in the company's filings with the SEC. Additionally, we want to let everyone know that the information in statements made during the call are made as of the date of this call. Listeners to any replays should understand that the passage of time by itself will diminish the quality of the statements made. Also the contents of the call are the property of the company and any replay or transmission of the call may be done only with the consent of Ramco-Gershenson Properties Trust. I would now like to introduce Dennis Gershenson, President and Chief Executive Officer and Richard Smith, Chief Financial Officer both of whom will be presenting prepared remarks this afternoon. Also with us are Thomas Litzler, Executive Vice President of Development, Michael Sullivan, Senior Vice President of Asset Management and Catherine Clark, Senior Vice President of acquisition. At this time I would like to turn the call over to Dennis for his opening remarks.

[Dennis E. Gershenson:]

The third quarter was a very busy period for Ramco-Gershenson. It was event filled and we like to think – we consider it transformative. The most significant activities that we undertook in the quarter included the completion of our strategic review, our commitment to de-lever the company and strengthen the balance sheet actions by the board of trustees to demonstrate a commitment to best practices by adopting a number of corporate governance changes and the achievement by our management team of a number of significant leases demonstrating their substantial efforts to ensure that our core portfolio remains best in class. I'd like to take a couple of minutes if I could to touch on each of these themes. First, the company announced the completion of our strategic review with unanimous board approval. The board concluded that the greatest value for our shareholders would be achieved by remaining an independent company. Included amongst the reasons were that our portfolio consisted of high quality shopping centers in superior trade areas. We had a substantial number of value add redevelopments under way which would not really impact our numbers until into 2010 and then ultimately with a full year effect in 2011. Also, we were in the process of negotiating a significant number of leases to fill our mid-box vacancies. And the board also saw that we were signing an accelerating number of small tenant leases. That said we all knew that the key to a future as a standalone company would be a strong balance sheet. To that end, in the quarter we sold three net leases and issued 12 million new shares of common stock these two actions raised $125 million which we used to pay down debt. We want you to understand that these are just the first steps in de-levering the company, in reducing our refinancing risk and limiting our exposure to floating rate debt. Our commitment to strengthening the balance sheet includes setting a number of measurable debt metric goals. We will then over the next quarters give you a progress report on how we are doing to achieve these objectives. If I could, I'd like to take a moment to explain our decision making process in issuing the 12 million shares. We were committed to an offering size that would have a significant impact on our ability to begin to de-lever the company as well as produce sufficient funds for the execution of our business plan through 2012. Balanced against this need was the desire to keep the dilution to our existing shareholders to a minimum. Although we were very pleased with the execution of the offering, the sale in the third quarter of the three net leases shows that we're able to access other forms of capital. As a matter of fact in our portfolio at the present time we have 38 net land leases for out lots and we have 11 net-net anchor land leases. When we value all of those on a conservative cap rate we produce a value in excess of $110 million. Thus, with a ready market for this type of asset, we have an immediate source of capital to further pay down debt and fund our business opportunities as we move through 2010. In completing our strategic review and preparing for the equity offering our board took a bold step by eliminating a number of corporate defenses. The board of trustees chose to adopt best practices in corporate governance. I use the word bold because they chose transparency and accountability even as several of our peers held substantial positions in our stock. We believe this was the right action to take which was validated by the success of our offering and as a byproduct the overhang issue of our peer's ownership has now gone away. The last theme is the demonstration by our management team that asset management will lead the way forward and is the primary driver of our earnings growth in 2010 through their leasing efforts and cost control. While the last 12 months have been challenging times for shopping center owners we're now beginning to see a degree of optimism among both national and local retailers as they contemplate taking new spaces. Throughout the year we redoubled our efforts in response to the difficult environment and have been rewarded with leasing successes and tenant retention. This last quarter we announced three new mid-boxes filling our Linens N' Things and Circuit City vacancies. Best Buy will occupy the Circuit City space in our West Oak Center in Novi, Michigan. TJ Maxx has leased space in our Crossroads Centre in Ohio and Ross Dress For Less has committed to our Delray shopping center in Delray Beach, Florida. Further, we have renewed the majority of our expiring tenant leases achieving a 6% increase over prior rental rates, and we have signed more tenant leases in this quarter than in comparable periods in 2008 and in 2007. If you have attended our prior calls you know that this has been a consistent theme for both the first, second and now the third quarters where we exceeded leases signing not only in 2008 but 2007. Balancing this good news I need to inform you that each of the new mid-box users have rental structures that have historically been less than what Linens 'N Things and Circuit City were previously paying. Also, at our Crossroads Centre in Ohio, TJ Maxx will be taking 25,000 square feet of the 35,000 square foot linen store. An important operating statistic that you'll note in our supplement is the same center analysis which shows for the quarter a year-over-year drop of 5.1%. We projected a full year decline of 3% to 4%. Rich Smith is going to provide details for this figure. However, I think it's important that I try and give you some perspective on this very important comparison. I think as you would expect, the largest component of this number is the bankruptcies of Linens 'N Things and Circuit City. After that the most significant element of the number is the rent relief we've given to a number of existing tenants. Our approach to rent relief had two elements. First, was our desire to maintain our shopping center occupancy but occupancy should not be viewed as the sole criteria because any tenant that we wanted to help had to have provided to us first, the fact that they were a viable retail concept. Secondly, that they had a valid and solid business plan. And thirdly, that their sales issues were indeed a direct result of this economic downturn. As we reviewed the list of those tenants seeking rent relief, they fell into two types of requests. The first were the smaller tenants whose occupancy costs were just too high to survive these times. For those tenants we insisted that they share their sales history to indeed prove that the dip was recent. In the majority of the cases we agreed to provide relief for only a short period of time. And we also insisted that the tenants agreed to either an extension of their term, an exercise of their option or that they sign an option to terminate. The other type of request involved national tenants of size. With them, their sales level to their rent and overall cost ratios did not justify their remaining open for business, although the retailers would remain lease obligated. We concluded that it was better to have an operating major retailer than a dark store, although their income would have continued for a period of time. Thus we made rent relief decisions to first preserve the maximum number of tenants remaining open for business. And we were committed to retaining the integrity of our tenant mix and as I've mentioned we limited our cooperation for a finite period of time. It's important however that you understand that our third quarter number does not become an indicator for rent relief that will impact 2010. We estimate that the full year 2010 rent relief number will approximate $500,000 to $550,000. This number is based on the assumption that we at least have a modest Christmas this year. We concluded that this proactive approach to our tenant issues best positions our shopping centers for the future. We retain our tenants as a draw, we remain the dominate center in our trade area and a well occupied center promotes additional new leasing activity as it is viewed as a viable asset. A primary company goal is to stay close to our customers. One of our most important customers is our tenants. Without being taken advantage of we must be an understanding partner. Moving forward we've outlined in the supplement our capital expenditures for the balance of 2009 and 2010. Cash flow from operations will more than cover annual expenditures for capital repairs, tenant improvements and tenant allowances as we sign new leases over the next year. Our cash flow will also fund our contractual loan amortizations while leaving sufficient funds to help cover next year's capital expenditures. Our 2010 plans include very limited expenditures to preserve our development opportunities and we will limit any near term acquisition joint venture discussions to our existing portfolio of assets. It's the progress we've made on our value add redevelopments, the signing of leases with replacement national mid-box retailers to fill the voids left by Linens 'N Things and Circuit City, and our small tenant leasing velocity that will drive our earnings over the next 12 months. The raising of $125 million, a reduction of our dividend to the taxable minimum and the availability of a substantial number of net lease assets for potential sale will ensure an improving balance sheet. All of these activities are directed toward two things. First, guaranteeing a healthy shopping center portfolio with stable cash flows as our economy emerges from a turbulent year and secondly, demonstrating our commitment to create a flexible capital structure which will include a conservative balance sheet and the ability to pursue growth opportunities as they present themselves. I'd now like to turn this call over to Rick Smith.

[Richard J. Smith:]

Our quarter and year-to-date earnings and portfolio performance were in line with our expectations in the previous guidance provided. Our diluted FFO per share for the quarter was $0.53 which exceeded first quarter estimates by $0.04. This compares to the $0.62 reported in 2008. Given the state of the economy and the retail environment we feel we had a good quarter and held our own. Some of the events that had an effect on our quarter-to-quarter comparisons included a $259,000 reduction in income net of interest savings related to the contribution of the Plaza Delray Shopping Center to a joint venture last year, a$156,000 reduction income after interest savings for the sale of three assets and a $290,000 decrease related to the bankruptcies of Linens 'N Things and Circuit City. Our strategic review costs for the quarter were $335,000 and we gave an additional $223,000 in rent relief. On the positive side, we recognized $335,000 of percentage rent in the quarter all of which related to prior periods. It's important to note that the increase in percentage rent was from the tenant exceeding performance goals, not because they went into a percentage rent due to co-tenancy or other issues. For the nine months ended September 30 our diluted FFO per share was $1.60. This compares to the $1.86 reported in 2008. The major changes for the nine months were $1.2 million net reduction in income due to assets contributed to joint ventures, $848,000 loss of revenues due to tenant bankruptcies, $253,000 of lost revenue due to rent concessions granted year-to-date. And the nine month comparison also included a $1 million decrease in fee income primarily related to reduced development activity and costs amounting to $1.2 million related to our strategic review and proxy contest. We still expect these costs to total between $1.3 and $1.7 million. As we previously indicated we expect our same center income to be down between 3% and 4% in 2009. For the quarter our same center operating income decreased 5.1% or approximately $1 million. Significant reductions included $190,000 in rent relief, $300,000 related to the bankruptcy of Linens 'N Things and Circuit City, $200,000 in reduced expense recovery margin due to rent relief and tenant bankruptcies. The balance was in connection with additional legal costs for collections and tenant slippage. During the quarter we had two major deleveraging capital events our equity offering and the sale of three assets. We are pleased with the execution of our equity offering. Demand allowed us to upsize the transition almost 17%. Additionally, the underwriters exercised the full overall [option]. Some other benefits of the offering included an expanded institutional shareholder base and additional south side coverage. Lastly, the offering generated over $96 million of net proceeds which was used to de-lever the company. Our single kind of asset sales generated $27 million of net proceeds which were also used to pay down our revolving credit facility, further reducing our leverage. We believe based on the execution of these sales there currently is a market for the sale of net leased assets. At the end of the second quarter our debt-to-EBITDA was approximately 9.2 times and after our offering and asset sales our debt-to-EBITDA was 7.7 times. We've established a long-term goal to reach a debt-to-EBITDA of between six and seven times and a fixed charge coverage ratio of 2.5 times. We plan to achieve these goals by growing EBITDA through improved occupancy and higher rental rates and by reducing our leverage by conserving capital, retaining cash flow from operations and selling additional assets to fund our business plan. Since our last call we've made significant progress in renewing our $250 million revolving credit facility and expect to close on the loans by year end. This will go a long way in reducing our future refinancing risk. We have received commitments for the full balance of the new secured facility and are currently negotiating documents. In addition, the banks are in the process of reviewing third party reports. The new facilities are expected to be priced at LIBOR plus 350 with the LIBOR forward of 200 basis points. Our new $150 million revolving credit facility will mature in December of 2012 and our $100 million term loan will be fully amortized by June 2011 assisting our goal to de-lever the company. We feel our other debt maturities are manageable. We plan on paying off the Traveler's loan and adding either one or both West Oaks Two and Spring Meadows to the asset pool securing our new credit facilities. It's anticipated our [Ohio] loan will be renewed at $20 million with similar pricing to the new credit facilities and we're actively pursuing extensions or refinancings for rather on and off balance sheet debt that's maturing in the near future. And lastly we've adjusted our FFO per share guidance for 2009 to be between $1.76 to a $1.82. We feel this guidance is conservative and it factors in the effect of additional shares issued in connection with our offering, the timing of our line refinancing and forth quarter rent concessions. (Jen) can we open the call up for questions?

[Operator:]

(Operator Instructions). Our first question comes from the line of Todd Thomas – Keybank Capital Markets.

[Todd Thomas:]

[George Saddler] is on the line with me as well. I just wanted to go to the guidance right away. The new guidance basically implies $0.19 per share so, at the midpoint, and I understand that the share count is one of the main factors but you just mentioned rent concessions and I just wanted to see if you could provide a little more detail and reconcile that a little bit?

[Rich Smith:]

The rent concessions that we granted in the third quarter I think we would expect to see some of those in the fourth quarter right now I think that we're a little bit, albeit we think that we're at the trough there, we're trying to be a little conservative and trying to guard for maybe some additional ones coming in.

[Todd Thomas:]

Okay, regarding the rent release that you've already granted what's the formula like for figuring out what's right? Maybe you could tell us what the degree of rent relief on a percentage basis to the tenants' rents typically are or?

[Michael J. Sullivan:]

We found, at least with the nationals, that we're looking for concessions based on their occupancy cost, that they're looking currently anywhere to be between 12 and 15. And we've obviously partnered with these nationals and they – most of them are free giving of their sales information and the P&L per store because they see this really as a short term situation. They're in most cases willing to give us upside with percentage rent when the business comes back. The local mom and pops, 12 to 15 may be a little high. We ratchet that down to probably 8 to12 or 8 to 13. We're more concerned really with the payment history, the stability in the business plan of the mom and pops. We want to see that they've been historically running a good business, that they paid us, that they are continuing to pay something. They're just looking for a short term relief. There's a whole process where we require income statements and P&Ls and tax statements business plans and merchandising plans and we also look for other vendors to be participating with concessions to help keep the locals afloat. And it's important to note that in all of these discussions in addition to trying to maintain these businesses and occupancies for long-term growth we're also looking to get rid of certain lease language that we typically don't enjoy, particularly kick outs. We like to get OTAs and relocation rights with these. We've been very successful at least with mom and pops in doing that. We do like add percentage rents to these situations so that we can share in the upside when it happens, and we've been pretty successful thus far.

[Dennis E. Gershenson:]

I think I, just to amplify that, we may see an uptick in the same center figure relative to rent relief in Q4 because there's a number of people that we're talking to relative to that understanding but again it will still fall within the 3% to 4%. I'd like to think that we have chosen to be very conservative in that guidance so that there's no possibility that we don't under promise and over perform.

[Todd Thomas:]

And then also can you provide an update on your efforts with selling assets and sort of how you plan to fit them into your capital raising initiatives going forward? Are you marketing anything right now?

[Dennis E. Gershenson:]

We have nothing that we're marketing at the moment only because based on our history and if you'd like Cathy Clark to address just on the speed of which we're able to market these assets, we want to time those much better in 2010 so that either for our capital needs or as we see, trying to achieve certain metrics next year relative to our debt, several things. One is that we have found that these assets go relatively quickly and secondly is with an improving economy we're beginning to see some tightening of the spreads so that we may be able to achieve even better cap rates in the new year. The objective here then is much more to match because there is obviously a push-pull kind of a thing when we sell an asset then that asset we've taken a hit to FFO, so we'd like to time these sales as perfectly as possible.

[Todd Thomas:]

And then regarding joint ventures do you have an update on your efforts to source anything with Aquia or any of the other development deals and maybe also forming a joint venture to just sell operating assets into?

[Dennis E. Gershenson:]

Well as far as the Aquia is concerned we're moving well through documentation with our residential partner who will – and when I say partner who will basically build the apartments at Aquia. We're in preliminary conversations as a matter of fact with that party for the potential of becoming a partner on the retail as well. They have experience with mix use in that general area and have other projects. So based upon the progress that we're making on the leasing in the retail we've piqued their interest there as well. As far as JVs on anything else is concerned, as I mentioned in my remarks we'll at least initially these for the immediate future curtail those conversations to only involve those assets that we already own. But Cathy Clark is very involved in speaking to lenders as well as shopping center owners about their status and the ability potentially down the road to get involved in the acquisition of some more opportunistic purchases.

[Todd Thomas:]

Okay, what about on the disposition side though, would you look to do anything with – in a joint venture on that front?

[Dennis E. Gershenson:]

We – and again, typically when you say we're in preliminary conversations, that's all we've held against me. But it certainly would make a great deal of sense, assuming the cap rates were appropriate, to seed a venture with some of our assets and thus raise capital.

[Operator:]

Your next question comes from Nathan Isbee – Stifel Nicolaus & Co.

[Nathan Isbee:]

Just getting back to this rent relief issue, you – I think – Rich, you said that you think you've reached a trough here. Just a little curious, I mean this seems to be the first quarter where rent relief played any significant role in your earnings. I'm just curious why you feel –

[Richard J. Smith:]

Well, I think this is based on what we're seeing, Nate. And again, I'm really tempering this a little bit assuming that we have a reasonable Christmas season, right. Right now I think that the requests for rent relief have slowed down a little bit. I think that almost on a weekly basis we're going through those, looking at the impact on earnings and, again, they seem to have slowed down. But I think that – you'd really expect that going into the Christmas season. If we have a good Christmas season, I think that that our trough does not – other things could happen in the first quarter.

[Dennis E. Gershenson:]

If I could add something, Rich to that, is that – and Michael can speak to this as well, this isn't something that arose in the third quarter. We began speaking to a number of these retailers in the first and second quarters. But because we had the type of criteria that we did, we were only able to reach these understandings after a significant amount of time.

[Michael J. Sullivan:]

That's correct, Nate. The [mix] is over here. We had a large portion of this rent relief hit in the third quarter but Rich is right. We're seeing the velocity of these requests slowing dramatically. We're seeing the – or at least we're anticipating that the fourth quarter, the impact in concession dollars will be less. We see even in the first quarter of 2010, I think you'll see the last bit of this current negotiation stream that's really been going on since the first quarter really start to bottom out. And again, Rich had thought about tempering these forecasts based on a holiday season. All things being equal, it does in fact look like this impact is going to be tailing off into the mid 2010.

[Nathan Isbee:]

Okay and I guess the related question that you had to have been expecting is was there any geographical trends as it related to this current relief?

[Michael J. Sullivan:]

Well I could tell you that the majority of the current concessions that were approved originate in what we call our Midwest Region. It's interesting to note though that Michigan is not the worst culprit in that. It is in second place, but it's not the worst culprit and we anticipate that the concessions from Michigan will be less than a third of the total for the company. Surprisingly enough, some of our peers have fingered the Southeast in particular Florida as a trouble spot. That hasn't been as problematic for us there. Again it's Midwest for us and of the Midwest of the three or four that comprise chiefly our Midwest portfolio, Michigan is only in second place.

[Nathan Isbee:]

Okay, good. And on the same store NOI number, you're showing the same store occupancy was flat. That is a lease number, not physical occupancy, is that correct?

[Richard J. Smith:]

I think it is an occupied number but I think we had a couple tenants, big tenants take occupancy real late in the third quarter. So it's really not an average occupancy number. It's as of a particular point in time.

[Nathan Isbee:]

Okay. And the Linen and Circuit leases, Dennis, you had mentioned the decline but you didn't give any sort of figure in terms of how much you were going to have to roll down.

[Dennis E. Gershenson:]

You mean the result of their bankruptcies?

[Nathan Isbee:]

Well, on the new leases that you signed, how far below –

[Dennis E. Gershenson:]

We're experiencing – it's about 25% less. However, one of the three new leases that we sign we are putting no money into the store. And at the other two, we have worked very hard to limit the amount of money that we've had to contribute in order for the retailer to get up and running.

[Nathan Isbee:]

Okay, and how many vacant junior and mid-box spaces do you have left?

[Michael J. Sullivan:]

I can tell you that, Nate, although we break it down into several categories we have a total – and we define mid-box as really 19,000 and above. I can give you the square footage or the number of spaces. The square footage off the top of my head is about 780,000. But that's all in. We have about 180,000 of that is in redevelopment. We have about 230,000 of that is vacant but lease obligated, about 100,000 of it is vacant but currently leased, not yet occupied. And of the remaining, which are really pure vacancies for us, it's about 270,000 square feet and about two-thirds of those individual spaces, we have leasing activity currently happening anywhere from negotiated NOI to negotiating a lease. Nathan Isbee – Stifel Nicolaus & Co. And just turning to the development pipeline, how much NOI today is Aquia kicking off?

[Thomas W. Litzler:]

Nate, this is Tom. We're getting close to $2 million from the office building and another $200,000 from residual tenants that are there, Rite Aid and the like.

[Nathan Isbee:]

And what is the status of the Cedar lease?

[Thomas W. Litzler:]

The Cedar is lease obligated under the old lease arrangement under the rate screen. They're open for business.

[Nathan Isbee:]

And just turning to those power centers that you have expected delivery dates in 2013, if you could just give us some detail why you're still comfortable that these will get done, given that they're 3.5 years out?

[Thomas W. Litzler:]

We're working our way through the entitlement phase in most of those projects right now. And we're still talking to all the anchors and the anchors have given us an indication that they're looking for '12 deliveries or late '12 deliveries.

[Dennis E. Gershenson:]

Just to amplify what Tom said, in our negotiations with the anchors they have been very specific about when they want to take their stores. Earlier on, they were talking about a late '11, early '12.

[Thomas W. Litzler:]

Yes, they've governed those dates.

[Dennis E. Gershenson:]

And now they've moved back – it goes back to late '12, but it shows that they're focused enough on these sites that they are indeed giving us opening dates.

[Nathan Isbee:]

But those are only understandings; those are not signed leases, correct?

[Dennis E. Gershenson:]

No. Correct.

[Operator:]

Your next question comes from David Fick – Stifel Nicolaus & Co.

[David Fick:]

Yes, hi, double teaming you a little bit with me. A very broad question, now you've gone through this process and, by the way, congratulations on your success in both the board's effort and management's efforts to complete your process. I think it was very healthy for everyone involved. At the end of the day, you're in the capital allocation business. And Dennis, if you could sort of now that you've gotten through this give us a picture of how you see Ramco long term? Where does the company go, what are its sources and uses of capital away from just operating cash flow, operating the portfolio, dealing with what you know you have in your development pipeline today? What does this company look like three, five years out?

[Dennis E. Gershenson:]

As I said in my remarks in part, David, number – front and center is an interest in getting our balance sheet in a very conservative shape. So that is going to be part of any plan that we have going forward. I believe that we have been able to demonstrate at least in the past that we were very good at acquiring and particularly good at acquiring assets to which we could add value and then on a reasonably conservative basis, to be a developer. So we really have three prongs that we can move forward on relative to producing – increasing profitability vis-à-vis asset management and adding value to our assets, acquisitions and development. It would be certainly a midterm plan and a long-term plan that we will once again be active participants on the acquisition side. Lots of us have been talking about when these opportunities to truly make advantageous acquisitions will arise, and we see that maybe in the latter part of 2010. So we're building in a direction to be in a position to take advantage of those things, and you get then a balance between on-balance sheet acquisitions and off-balance-sheet acquisitions in the joint venture format so that we have a conservative balance and at least a mid-single digit FFO growth going forward.

[David Fick:]

And would you see yourself then coming back to the equity market to prepare for and build a bit of a war chest for those opportunities that might come next year?

[Dennis E. Gershenson:]

I'm not saying that we wouldn't come back to the marketplace, but again, the $110 million that I referenced for what you would ultimately be able to call non-core because these truly are net land leases both with the anchors and the out lots, and that does not include about another 15 out lot net land leases that we are in the process of negotiating right now. So we have a steady stream of potential assets to sell where we could raise capital and indeed selling these assets at 7.5% to 8% certainly would be more accretive if we then turn around and redeploy that money at anywhere from 10% to 15%.

[David Fick:]

What would you say today about your new board, your revised board structure, and where do you think it will be going forward? I know that's very sensitive and you can't telegraph changes, but do you have more people in total than you need with the addition of two, and what have you learned as you went through that process?

[Dennis E. Gershenson:]

Well number one, I think we have a very nice mix of the board members who truly have a very good perspective for the amount of time that they've been on the board. And I am pleased to tell you that our two new board members have been incredibly active as far as being supportive, not only in making suggestions on a whole series of things, including our approach to the investment community, but have volunteered and come in to brainstorm about our future. And they're an absolute delight to have been added to our board. So we're very pleased with the addition. And I think we have very good chemistry between our existing board and the new board members. Whether or not we could even potentially expand that group is something that we'll certainly be discussing before we get to the next proxy season, but nine members certainly seems to be a good number.

[Operator:]

(Operator Instructions) Our next question comes from Richard Moore – RBC Capital Markets.

[Rich Moore:]

Hi, good afternoon guys. Tom, I think you were saying that you had a number of empty big box/junior anchor type boxes as well as the square footage. What is the number again?

[Michael J. Sullivan:]

I'm sorry, Rich this is Mike Sullivan, question again?

[Rich Moore:]

Or Mike, sorry. Yes. How many of the junior anchor type boxes do you actually have empty? You mentioned the square footage, you broke that out nicely.

[Michael J. Sullivan:]

There are a total – off that list that I read there are 21 mid-boxes, 19 to 35 and then one anchor.

[Rich Moore:]

Okay.

[Michael J. Sullivan:]

Now we did break down some as being vacant but leased, and vacant but lease obligated. Purely vacant that we are actually on out in the market leasing is nine.

[Rich Moore:]

Got it. Does that include that one anchor?

[Michael J. Sullivan:]

It does not. We are redeveloping that shopping center, so as you know, we have the redevelopment piece carved out. In redevelopment there's the anchor and then two traditional mid-boxes. But just the pure standalone leasing, vacant boxes, although of course everything vacant is marketed, but the ones that we are focusing on there are nine comprising approximately 270,000.

[Rich Moore:]

And then on the redevelopments that you guys have, the eight redevelopments, what would you say the tenant interest – you seem pretty positive on how those are coming along. I mean what is the tenant interest for that size of box and in the stuff you're redeveloping?

[Thomas J. Litzler:]

Rich, this is Tom. We don't undertake a redevelopment unless we've got the mid-box and we've got the anchor lined up in advance, so for all of these eight we've got them lined up. What does that mean because the lease isn't signed yet, but the interest has been very positive. In some instances, we've turned the spaces over and they're opening, and we're getting a halo effect with some shop leasing around it, so it's [starting].

[Rich Moore:]

And so those guys are pretty fixed.

[Dennis E. Gershenson:]

Yes, they're all committed. These are signed leases.

[Rich Moore:]

Okay, all right, great thanks Dennis. And then on the percentage rent thing, I was thinking that those percentage rents were probably more indicative of some sort of co-tenancy situation, but you're saying that's a pretty hefty amount of percentage granted an environment where sales are all that great. How exactly did that occur for the third quarter?

[Richard J. Smith:]

It really was an account that had a June reporting period. When we look at June sales this year, we went back and looked at prior years, and basically, they exceeded the break point. They owed us rent for really a couple of years, so that's a couple of years. We recognized all in this quarter.

[Rich Moore:]

That's sort of not something that would carry on beyond this one time sort of thing, Rich?

[Richard J. Smith:]

I'm hoping their sales continue on and we get it next year as well.

[Rich Moore:]

But it would be a once a year –

[Richard J. Smith:]

They could then keep the [margin] that the last reported period was June '09 and probably a little bit less than that percentage rent related to June '09 year end. So it's June –

[Rich Moore:]

I got you, so okay, I'm with you. And so that would occur again possibly next year June timeframe.

[Richard J. Smith:]

Hopefully it might.

[Rich Moore:]

And then you guys have a couple of maturing loans in the JV portfolio what is the plan there? I mean how are the discussions?

[Richard J. Smith:]

There are two that I can think off the top of my head, one is Cypress. We're out to go under trying to get an extension with them. If not, we pay it down. Our share's a pretty small amount in the [south] one. And the other is West Acres. We're out to the market now trying to get a loan on that property, and again, we'll probably go back to the lender and look for an extension there. The third one I can think of is Beacon which is really more of a construction loan where you plan on going through and really crossing with gain. And I guess there is one more. Hartland is the last but not least. I think we're in talking to the bank to extend that as well for a couple of years.

[Rich Moore:]

And you feel comfortable, Rich, that your partners would come up with their share if you have to take any action other than extensions.

[Richard J. Smith:]

I think, and again, I think Cypress is a relatively small loan, so that I feel confident that they would.

[Rich Moore:]

And then on the $33 million or so that you have to pay down each year on the term loan, is the idea to do that primarily with the sale of non-core type assets that you talked about?

[Richard J. Smith:]

I think you could do asset sales to get it. Remember we cut our dividends, as Dennis talked about, to the taxable minimum or something, approximately the taxable minimum. That created about $20 million in itself of free cash flow as well, so a combination of a variety of things. The two logical are obviously retained cash and asset sales.

[Dennis E. Gershenson:]

Just to amplify that, Rich, there's also – there will be a number of assets that will not be collateralized in the revolver, and those obviously are available to be financed if we just wanted to replace debt with debt. So there are a number of alternatives. Obviously, the most desirable would be to pay down the term loan and not create other debt. But certainly, that is an option for us.

[Operator:]

Thank you. Ladies and gentlemen, at this time there are no further questions. I would like to turn the floor back to management for closing comments.

[Dennis E. Gershenson:]

Once again, we would just like to thank you all for your interest and your attention. We're especially thrilled to see that some of our new shareholders were on the conference call. We have our sleeves rolled up. We continue to work on filling the vacancies that presently exist in the portfolio, and we look forward to a very successful fourth quarter. And we look forward to you to joining us then. Thank you.

[Operator:]

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