Rithm Property Trust Inc.
Q3 2010 Earnings Call Transcript

Published: 27 Oct 2010

[Operator:]

Greetings, and welcome to the Ramco-Gershenson Properties Trust third quarter 2010 conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow a formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Dawn Hendershot, Director of Investor Relations for Ramco-Gershenson. Thank you, you may begin.

[Dawn Hendershot:]

Good morning, and thank you for joining us for Ramco-Gershenson Properties Trust third quarter conference call. 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 assumption, it can give no assurance that its expectations will be attained. Factors and risks 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 and 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. I would now like to introduce Dennis Gershenson, President and Chief Executive Officer and Gregory Andrews, Chief Financial Officer, both of whom will be presenting prepared remarks this morning. Also with us today are Thomas Litzler, Executive Vice President of Development; Michael Sullivan, Senior Vice President of Asset Management; and Catherine Clark, Senior Vice President of Acquisitions. At this time, I’d like to turn over the call to Dennis for his opening remarks.

[Dennis Gershenson:]

Thank you, Dawn. Good morning ladies and gentlemen. We’re pleased you could join us. Our third quarter results continue to add as a progress we’ve experienced since the beginning of the year in all aspects of our business. Our operating metrics have shown steady, positive improvements. We made additional major strides in filling anchor vacancies as well as terminating and replacing under-performing major retail penalties. Also, during the quarter, we reactivated our acquisition program and made significant progress on our developing sites. Even the non-cash impairment charge which we have taken this quarter relates to advances we’ve made with anchored tenants and partners in finalizing land prices for sales agreement at our four developments. Further, our leasing activities in the month of October, not only builds upon our achievements in the first nine months of the year but indicate that we will be more successful in advancing our operating metrics than the goals we set at the beginning of 2010. Although, the leasing progress we have made year-to-date indicates a sense of optimism on the part of national and local tenancies, we recognized that the economy is still in a fragile state with the holiday season looming large. Therefore, we tamper our enthusiasm for the balance of 2010 and ‘11 with the conservative mindset we’ve maintained over the last 12 months. Let me take a moment to frame for you the progress we’ve made in filling our larger vacancies and replacing under-performing retailers since the start of 2010. During the first nine months of the year, we have signed 11 anchor leases, accounting for over 300,000 square feet. Of that number, four mid-box leases were executed in the third quarter. Today, we’re announcing that we anticipate signing at least four additional national anchor tenant agreements, totaling over a 100,000 square feet in the last 90 days of 2010. Thus, in total, we would have added at least 15 new destination oriented mid-box retailers to our tenant mix in 2010. Of this number, we take pride in the fact that while a substantial portion of our focus has been to fill existing large format vacancies, we have also vent our efforts as good stewards of our portfolio, to analyze our existing major tenants performance, and at work with those retailers who no longer produce the sales volumes that qualify their locations as successful stores. We coordinated terminating their tenancies with the signing of new and exciting replacement users at approximately the same rent. Examples of these efforts include replacing Albertsons at Mission Bay in Delray Beach, Florida with Golfsmith and Fresh Market. Also, we replaced OfficeMax at our West Oaks Shopping Center in Novi, Michigan with Old Navy, achieving not only the addition of the soft goods retailer, but also reducing our exposure to the office sector. And today, we’re announcing that we signed a lease with DSW Shoe Warehouse and approximately 20,000 square feet at our new town plaza center in Canton, Michigan, replacing a number of oversized, underperforming, ancillary tenants. It’s important to remember as we relate this progress in improving our occupancy and tenant mix that it can take from 9 to 18 months between execution and opening for a larger format stores. Understanding this timeframe is especially important when we announce that we are replacing an existing tenant when considering our same seller statistics. Based on the leases we signed to date for both anchors and ancillary tenants, and when we include the leases executed during the month of October, as well as transactions in the pipeline, we are projecting our least occupancy to be between 91% and 92% for the year. Please note that in addition to the increased leasing velocity, our supplement shows a continuing improvement in our leasing statistics, including newly-executed leases, lease renewals, and total comparable lease metrics. On a same-center basis, we also continue to experience progress. The primary reason that our year-to-date number shows a negative comparison to 2009 is attributable to the loss of Wal-Mart at our Village Lakes Shopping Center in Land O’Lakes, Florida, and Old Time Pottery at Promenade at Pleasant Hill in Duluth, Georgia. Both events occurred in the first quarter of 2010. As of this week, we have signed a lease for 26,000 square feet of the vacant Wal-Mart space and we are in final lease negotiations with a national mid-box retailer for an additional 20,000 square feet of the Wal-Mart space. We expect both uses to be under construction in the first quarter of 2011 at rental rates substantially higher than what Wal-Mart was paying. Concerning the Old Time Pottery vacancy, we have identified two destination uses as prospects to reoccupy this space. Even with the loss of these two significant retailers, we are experiencing steadily-improving income numbers. Therefore, today we are revising our same-center estimates for 2010 from a negative 2% to 3% to an average of between negative 1% and negative 2%. Our overall efforts to date have enabled us use 2010 as a year to stabilize our rental base and advance our leasing efforts. 2011 will be a period to convert our significant lease executions in 2010 into operating tenancies, and thus, we will achieve a full year effect from those efforts in 2012 with our roster of new retailers. Switching gears, in the third quarter we announced the acquisition of the Liberty Square Shopping Center in metropolitan Chicago. Also during the quarter, we purchased a note that secured our joint venture shopping center, Merchant Square in Carmel, Indiana, for approximately 50% of its saved value. We have reached an agreement to acquire the interest of our joint venture partner and we will merge the note and ownership in Q4 to produce an initial double digit return on this investment. As for our plans on the acquisition front, it is our intention to continue to review the growing list of acquisition opportunities that fit our criteria, which include geographic diversification and the ability to add value to the assets we purchase. As I mentioned at the outset, our third quarter results also includes a $28.8 million non-cash impairment charge related to the value of certain land parcels at our development sites that we will sell to anchors or contribute to joint ventures. We’ve also written off improvements at our Aquia project that are being demolished to make way for new uses. The decision to recognize the non-cash impairment charges at this time has been triggered by signed sales contracts and agreements on specific prices as part of a letters of intent with anchors at our development sites. Thus, we do not view the impairment charge in a negative light. The price for moving these projects forward is a realistic view of the land values established by agreements and negotiations with real end users. The securing of these vital elements for our development projects does not mean, however, that a construction start is imminent because in addition to these anchor’s timetables which calls for store openings in 2013, we must also secure additional tenant commitments that create a critical mass of retailers for each project as well as satisfactory financing and firm construction costs. In addition to these non-cash charges related to our developments, we have incurred an impairment as a result of our purchase of the Merchant Square note transaction. Greg Andrews will cover the rationale for this charge. In summary, over the last 12 months, our company has been committed to increased transparency and the execution of a well-defined business trend. We believe that our efforts through the first nine months of this year demonstrate that we have made real progress on both of these fronts. Our primary focus to the balance of 2010 and beyond will be to continue our efforts to improve the core portfolio, realize upon accretive external opportunities, and continue to strengthen our balance sheet. We are confident that our success in each of these endeavors will translate into continual growth in shareholder value. I’d now like to turn the call over to Greg Andrews who will provide insight into our numbers.

[Greg Andrews:]

Thank you Dennis. Our quarter was marked by a continuing focus on leasing and management, but also on the deployment of a modest amount of capital at healthy returns. As Dennis noted, we invested $32 million between the acquisition of Liberty Square in Chicago and the purchase of the note at Merchants Square in Indianapolis. These are two well-located shopping centers in core markets with upside potential from lease up and intensive management. Once we consolidate Merchants Square in the fourth quarter, we expect an unleveraged first year return on these two investments exceeding 9.3%. We can’t assure you that we will be able to find these types of opportunities frequently, but we are cognizant that our hurdle rates for new investments remain high. Therefore, our guiding principle on the investment front is disciplined, which we will continue to apply to the growing deal flow that we are seeing. Turning to the balance sheet, during the quarter we increased our on-balance sheet borrowings by approximately $40 million. As previously noted, $32 million of this was for the acquisitions in the quarter. The remaining $8 million funded the payoff of our share of two mortgages on joint venture properties. As a result of these payoffs, our joint venture balance sheet is now less than 50% leveraged on a book basis with debt of $470 million against assets of over $1 billion. This JV debt will reduce by another $32 million once we complete the consolidation of Merchants Square. Our consolidated balance sheet also remains strong. Allow me to cite a few measures. Our debt to market capitalization was 55% at quarter end, and is 53% at our current stock price. Our interest coverage ratio is 2.0 times and our fixed charge coverage is 1.7 times. The weighted average term of our debt is 5.2 years, and the consolidated debt maturing between now and the end of next year amounts to a manageable $83 million, and our pro rata share of JV debt maturing over that same period is less than $6 million. Finally, our debt to EBITDA is 7.8 times on a consolidated basis, and 7.7 times for our joint ventures. While debt to EBITDA has increased modestly this quarter, recall that the quality of our earnings has greatly improved. By way of example, we capitalized only $183,000 of interest expense this quarter compared to nearly three times that amount in the comparable quarter of last year. With that said, we remain focus on strengthening our balance sheet over time and increasing our financial flexibility as we grow. We are currently in the market with the number of assets which if sold would generate gross proceeds to us of approximately $40 million to $45 million. We’re also currently in the marketing to finance certain assets and repay maturing debt. We expect to be able to provide you with an update on both fronts next quarter. Turning now to the income statement, as Dennis noted, this quarter, we recorded a provision for impairment of $28.8 million related to land helper development and existing buildings that are not consistent with our current development plan. This impairment resulted from plans management adopted during the quarter to sell land or interest in land in order to accomplish two goals. First, to generate cash that can pay down debt or be reinvested; and second, to advance the development prospects for the land that we intend to retain. I refer you to page 12 of our supplemental package for more detail on the impairment. As a result of our analysis, we have designated approximately half of our land as available for sale with the other half being held for development. During the quarter, we entered into a contract with an anchor retailer for a 16.8 partial at Hartman Town Square. Assuming all contingencies a result, we anticipate closing the sale in the first half of next year and we’ll apply the proceeds to pay down debt. We expect additional sales of land to occur over ensuing quarters although the timing will be difficult to predict. To sum up, we are confident in our conclusion that monetizing a portion of our land value while enhancing the development potential of the rest of our land will result in the maximum value for our shareholders. During the quarter, we also recorded an impairment of $1.8 million related to our 20% interest in Merchant Square shopping center. This entry reflects the loss the joint venture will incur when the property has conveyed to us as the lender in the fourth quarter. Notwithstanding this noncash accounting charge, Merchant Square is a transaction with which we are pleased not only because of our high going in yield but because we believe the real estate is sound and provides opportunities to add value. Turning now to our operating results; same center NOI for the consolidated portfolio decreased by 1.6% for the quarter and 1.5% year to date. These results which are better than our previous guidance reflect a combination of lower occupancy and rank partly offset by tight expense controls. Our provision for credit loss for the quarter was 602,000 or about equal to our quarterly run rate this year. At quarter end our accounts receivable balance is conservatively recorded and we have been particularly mindful of accounts related to tenants that are in bankruptcy such as Blockbuster. Focusing on NOI for a moment; our pro rata cash NOI that is NOI combining our wholly-owned property and our share of JVs was $23 million for the quarter. This represents an increase of nearly $300,000 from the pace in the second quarter even after adjusting for the mid-quarter acquisition of Liberty Square. As we stated before, we are focused on increasing our NAV through intensive leasing and efficient operations. This quarter’s growth in cash NOI is a good example of what we strive to accomplish. It is also important to note that we did not receive any income from the note at Merchant Square during the quarter but do expect to start recognizing NOI from the property once we acquire full ownership in the fourth quarter. Our result this quarter included gains on land sales at $1.6 million or approximately $0.04 per share, from selling an out parcel to quick drip at a promenade shopping center at Atlanta and an out parcel to Tim Hortons at our Hartman development in Hartman, Michigan. Together, these land sales generated net proceeds of approximately $2.2 million. While we won’t have out parcel land sales every quarter, they are in fact an ongoing part of our business and we do expect to generate such sales every year. Now, I’d like to comment on our outlook. As we noted in our press release, we are narrowing our full year FFO guidance to a range of $1.05 to $1.10 per share. This tightening reflects our continued confidence in our core operation offset by a modest amount of unbudgeted legal expense related to our defense in ongoing construction related claim. With regards to next year, we are currently in midstream in our budget process and we’ll provide 2011 FFO guidance by no later than the next quarter’s conference call. Now, I’d like to turn the call back to the operator for Q&A.

[Operator:]

(Operator Instructions) Our first question comes from Rich Moore with RBC Capital Markets. Please do your question.

[Rich Moore:]

Hello, good morning guys. A question for you on Merchant Square. You were saying Greg that that was a center that you guys are interested in. And I’m curious what you’re thinking on that center because it looks to me like you have a vacant Hobby Lobby as far as I can tell and rents that are below average. So maybe some color on why that’s a good one.

[Dennis Gershenson:]

Good morning, Rich. It’s Dennis. I made several comments. The first is that based upon the configuration of the shopping center, the Hobby Lobby vacancy and they still have four years left to run on their lease even though there is no longer an occupancy because somebody else bought that lease for them to move elsewhere. But the center is at two very significant roads. It’s in a very high income area. It’s anchored by a supermarket that is the best supermarket in the area. Marsh is doing extremely well in the location and for all intents and purposes, it’s much more of a supermarket anchored shopping center than it was that anything that might have risen to the level of a power center. So that really in a sense with the departure of Hobby Lobby and still with four years left to run on their lease and its location in the center which does not impact the other retailers, they really have given us this significant amount of time to find creative and new uses that we fill that space. So, we have some higher quality tenants in the shopping center which respond to the great area and we feel very comfortable that some of the vacancies that exist and there’s not a ton of vacancy in the space or in the center. We’ll be able to move reasonably quickly to fill up.

[Rich Moore:]

Okay, thank you Dennis. And then, is there a particular reason that you can’t speak for your previous partner or your partner for a bit more time? Is there any particular reason that Teachers wanted out of that particular center?

[Dennis Gershenson:]

You mean as far as the loan is concerned?

[Rich Moore:]

Yes. And then, they’re selling the rest of it to you, right?

[Dennis Gershenson:]

No, they were not our partner.

[Rich Moore:]

They were not your partners?

[Dennis Gershenson:]

Yes, obviously with the change in capitalization rates and due to a variety of factors, we approached Teachers and wanted to – we cast alone. They felt that it was in their best interest without really explaining to us why that what – they were better off selling the note. And so, we participated in the auction on the note and we were fortunate enough to win the auction and add a very advantageous price.

[Rich Moore:]

Okay. All right. Great. Good. I got you. And then, as far as the impairments went, is there anything else you have for sale that might fall into the same sort of situation where when you agree – I’m glad you have some centers because I think more on the land side things where you might sell something and then, as a result of the agreement to sell have additional impairments.

[Greg Andrews:]

Rich, this is Greg. As I mentioned in my prepared remarks on page 12 of the supplement, we kind of break out the impairment by property. And you’ll see, there’s sort of something across the board for almost every land holding that we have. So I think what that tells you is that we’ve gone through a very thorough and comprehensive review of any land that we might intend to sell or hold available for sale or a market for sale and essentially wrote that down to its current fair value.

[Rich Moore:]

Okay, yes, and that’s good disclosure, and I appreciate that you’re giving us.

[Greg Andrews:]

Now, as you know, that’s based on current market condition. So if anything were to change in the market, then that’s a different story. But as with the current market conditions, we’re very comfortable working with where we ended up.

[Rich Moore:]

Okay, good. Thank you, guys. And the last thing, do you have CapEx numbers for the quarter or will you put those in the supplemental? I’m thinking maintenance CapEx, tenant improvements, leasing commission, that kind of thing.

[Greg Andrews:]

Yes, Rich. We’ve been studying putting that into our supplement and I think we’ve had that question from a number of analyst as well as investors, and it’s on our radar strength to make that change. To be honest with you, this quarter, with all the other items that we had to deal with including these impairment charges, we didn’t have time to do that. But I think that that’s an important kind of disclosure that we need to consider adding going forward.

[Rich Moore:]

Okay, great. Thank you, guys.

[Operator:]

Thank you. Our next question comes from Vincent Chao with Deutsche Bank. Please state the question.

[Vincent Chao:]

Hi, good morning, everyone. Just a question, you guys have done a good job with big boxes and some of that or much of that are going to come through, I guess in 2011 in terms of conventions. Do you guys have a sense of what the NOI pick up is going to look like from those conventions on an annualized basis or specifically in 2011?

[Greg Andrews:]

Yes, Vincent, it’s a little early. We’re – as I’ve mentioned, we’re going through our budgeting process. We have anticipated dates for openings, for all of the leases that we’ve done and even for the leases that we anticipate doing, but we are still working our way through kind of what the impact of that will be –

[Vincent Chao:]

Okay.

[Greg Andrews:]

On our numbers next year. So, unfortunately, I don’t have any that I can share with you right now.

[Vincent Chao:]

Okay, that’s fair. And then just going back to the impairments just quickly, it sounded like 50% of the lands that was on the books was sort of tested as it was security held for sale. And it looks take maybe about 30% discount from orders on the books for. Is that sort of – I mean is that something we can apply to the remaining 50% in terms of end value? I’m assuming that you didn’t have to test the 50% held for sale?

[Greg Andrews:]

Yes, that’s right. We did not, and therefore I can’t really opine on to how to make any adjustments to that value. But I think what you started with is broadly accurate.

[Dennis Gershenson:]

Let me just add something. And that is, in real estate negotiations especially when you’re dealing with anchor tenants, there is a natural ebb and flow of the ability to dictate terms, maybe as a little strong, but to feel that you have the upper hand in negotiations.

[Vincent Chao:]

Right.

[Dennis Gershenson:]

The reason for these specific impairments asset development projects is because we have advanced our discussions with those retailers who will buy their parcels to a point where we know basically what they’re willing to pay. They happen to hold more cards in their hands than we do at the moment.

[Vincent Chao:]

Got you.

[Dennis Gershenson:]

So that dictates that side of the equation. But as we’re executing many of these mid-box transactions, we are getting approximately the same kinds of rents that we would have gotten several years ago from the mid-box retailers. So if that were the case, then that would justify potentially higher values relative to the land we will continue to hold for development. But it remains somewhat fluid until we put our vital stamp on a specific development and move forward with that critical mass and know really what kind of rents we actually have.

[Vincent Chao:]

Okay, that’s fair. And then just a question on the updated guidance, are there any returns on retail gains that contemplated in the fourth quarter?

[Greg Andrews:]

The answer is basically no. I think we expect to have one more land sale that will generate some cash. I don’t think we’re anticipating any kind of sizeable gain on that.

[Vincent Chao:]

Okay. And just one last one if you don’t mind. Just in terms of the holiday outlook, you mentioned it early in the call, Dennis, just that being in terms of unknown. What’s your take so far from your tenants in terms of that’s shaping up?

[Dennis Gershenson:]

Well, the tenants are modestly optimistic. I mean they’re merchandising for certainly a reasonable Christmas. And so, I think you’re going to see an improvement. But with the type of information that continues to come out in all of the periodicals, warning people about where the economy is at, I think it gives the consumer some degree of pause. I am always a half-class fool kind of guy, so I’d like to think that we’ll have a reasonably successful Christmas.

[Vincent Chao:]

Okay.

[Dennis Gershenson:]

I certainly know that that’s what my wife is aiming.

[Vincent Chao:]

Okay, thanks a lot.

[Greg Andrews:]

Thanks Vincent.

[Operator:]

Thank you. (Operator Instructions). Our next question comes from Ben Yang with Keefe, Bruyette & Woods. Please state your questions.

[Ben Yang:]

Hi, good morning. You guys are obviously scouring the market for acquisitions. And I’m just wondering, is it your expectation that there are other the Merchants’ Square type opportunities in your existing portfolio basically where you can buy out your partner’s interest in some existing properties?

[Dennis Gershenson:]

In the main, I would say no. I mean never say never, but I think for the most part and you would see that although we haven’t broken it down between the off-balance sheet, non-balance sheet assets that vis-à-vis the re-signings that we have made some very significant progress in a substantial number of the assets where we experienced a vacancy or where we bought a center with vacancy already in it. And so our joint venture partners in the main are very happy with the progress that we’re making on those assets and I think that they’re going to be waiting for those assets to mature before we actually sit down and consider doing something as far as even buying them out or selling the assets.

[Ben Yang:]

Okay, so if those opportunities aren’t going to be there, can you just maybe comment on what you’re seeing in terms of acquisitions that might interest you and in terms of what the size might be, whether you can close before the year ends, and maybe what your expectations are in terms of buying for 2011? Is it too early kind of comment on that or do you see anything in the pipeline at this point?

[Dennis Gershenson:]

Well, it’s interesting, number one, in my remarks I mentioned we are seeing an acceleration of opportunities that are coming our way. We’re actually continuing to see some off-market deals which gives us an opportunity hopefully to buy them without a proxy competition. There is a possibility that we’re looking at one asset whether or not anything could come from that before the end of the year. Normally a typical process would require more than approximately 60 days, because we aren’t in contract with anything at the moment. As far as 2011 is concerned, we do have a general figure in mind. But I think we need to hold back until its part of the big picture with our 2011 budget which at that junction we’ll be more than happy to share with you.

[Ben Yang:]

Okay. And how are you sourcing those off-market opportunities or do you have a team kind of going out there or are these opportunities coming to you?

[Greg Andrews:]

Yes, that’s right. We’re certainly well known in the industry. We have a $2 billion platform which gives us plenty of cap in the industry to be recognized. So, on occasion, those deals are coming to us, but we also have a team that’s very active working the relationships that all of us have in the industry to source opportunities. So to sort of amplify what Dennis said earlier, we’re looking at a lot of different stuff of different sizes and configurations, geographies and so forth. But I think as I try to emphasize, we’re being very selective. We’re cognizant that for whatever reason that we don’t necessarily understand, our cost of capital remains very high, and so we’re being very selective and disciplined about where we’re choosing to allocate our capital and I think you’ll see us continue to do that.

[Ben Yang:]

Okay, great. And then switching gears, I saw an article recently that you guys are abandoning a development project in Michigan called North Point Count Center, but that project does not appear in your development schedule. And I’m just wondering how many shadow projects you’re currently working on that are going to appear in the supplement at this point?

[Tom Litzler:]

Tom Litzler here. We actually terminated that project last year, but we have that land in Jackson under contract throughout the balance of this year. We just elected to terminate the contract early so that the township could get the property back and do what they wanted with it, and that’s the only piece that we have in that regard.

[Dennis Gershenson:]

Yes, that was never a piece of property that we owned as Tom said. It was a piece of property that we had optioned and we were investigating. The genesis of that interest had been the same as in a number of our other projects which was that there were anchor tenants who could not get into our existing shopping center which was called Jackson Crossing at that same location. The difficulty was, however, that it would’ve been a very substantial undertaking and it just wasn’t appropriate for us to do that at that particular time. So it may have actually just expired as far as the contract recently, but that’s something that we backed away from at least 9 months ago.

[Ben Yang:]

Okay, got it. And just final question, you talked about plans to sale some land. Is that part of the $48 million or $45 million of asset sales that you are expecting for the balance of this year or is that kind of in the –?

[Greg Andrews:]

That’s a good question. And to clarify, the $40 million to $45 million are income-producing properties. In addition to that, we are marketing land. And as I mentioned we have a contract for that one parcel at Hartland and hopefully we’ll have some more contracts during the course of next year.

[Ben Yang:]

Okay, great. Thanks guys.

[Greg Andrews:]

Okay.

[Operator:]

Our next question comes from Nathan Isbee with Stifel Nicolaus. Please state your question.

[Nathan Isbee:]

Hi, good morning. Just following up on the detail you provided about the anchor leases you signed. After you signed the four additional in the fourth quarter, can you just lay out how many additional vacancies you’d have in the anchor space?

[Michael Sullivan:]

Nate, it’s as we saw in the – at the end of the year, given all of the mid-box signings we’re anticipating, it looks like we’ll have approximately 500,000 square feet give or take still vacant in mid-box. Off that 500,000, about 160,000 of it is leased, so it gives us about 340,000 vacant. It’s difficult to talk about spaces, because we’ve subdivided the Albertsons at Mission Bay and the Wal-Mart at Village Lakes from what was two spaces to five. But that’s 500,000 at yearend with 160,000 leased.

[Nathan Isbee:]

Okay. And just assessing that pool, is it safe to say that that’s generally tougher space to lease and that we should not expect the significant progress you’ve made this year to continue in that space next year?

[Michael Sullivan:]

Actually, we do expect continued velocity in our mid-box spaces. Right now we’re projecting conservatively in the first two quarters of ‘11 to lease about 125,000 square feet of that 340,000 remaining. That will be approximately five additional leases. So, we expect the velocity to continue quite frankly into the first two quarters of ‘11.

[Nathan Isbee:]

Okay. And if you could just give a little more detail on the progress that you’ve made at Aquia, this rate activities at Aquia this quarter.

[Tom Litzler:]

Nate, Tom Litzler. The area continues to benefit from [inaudible] as you know. At this point in time, we have some more leases in the works for the retail portion of the project. We’re also competing for a number of RSPs for additional office users that would be down there, and we are working with several different potential office joint venture partners which would basically buy the deal from us, so our exposure would be limited in those regards. We continue to work with our residential partner in their plans to put the residential plans and integrate those with the retail plans for Main Street. And in addition to that, we’re speaking with a couple of different hotel chains which has expressed some sincere interest in locating on the site. So still all the planning stages and the marketing stages down there.

[Nathan Isbee:]

Okay. All right, thanks.

[Operator:]

Our next question comes from Tayo Okusanya with Jeffries & Company. Please state your question.

[Tayo Okusanya:]

Yes, good morning. Just along a Ben’s line of questioning on the acquisitions front, could you talk a little bit about what you’re seeing pricing wise, and also if you could provide the cap rates for the Liberty Square acquisition?

[Greg Andrews:]

Yes, hi Tayo, it’s Greg Andrews.

[Tayo Okusanya:]

Hi Greg.

[Greg Andrews:]

What we’re seeing on the acquisition side is continued downward pressure on cap rates for A quality properties and in particular in the hot markets which generally are aligned with the coasts. We’re seeing less of that downward pressure when it comes to B or C assets, and maybe somewhat less of that also kind of in the middle of the country. And I think what we disclosed is that the two acquisitions, Liberty and Merchants together will generate a first-year return of in excess of 9.3% for us.

[Tayo Okusanya:]

Why don’t we talk about the A assets in A markets. Would you hazard to guess about cap rate is close to 8.5% or –?

[Greg Andrews:]

Well, the cap rates always depend on the specific circumstances. I think we’ve seen cap rates as low as 6% for certain assets in that kind of bracket.

[Tayo Okusanya:]

Okay. And then, when we – second question – thanks for that. When we start to think about upcoming debt maturities in 2011, how should we start to think about your plans to refinance that?

[Greg Andrews:]

Well, I think we’ve made some comments about that on our second quarter call. We generally have financed our company in the mortgage market. And as we look out to the mortgages that mature over the next 18 months, on average those are at reasonable loan to values where we really shouldn’t have trouble refinancing the properties to extend the maturities. And so, that’s essentially the plan. And then with respect to the $30 million term loan, we continue to look at our options including as a backstop ability to just pay that off using our line of credit, but also any number of other sources of capital or unencumbered assets that we could finance with mortgage debt.

[Tayo Okusanya:]

Okay. And so, just, if you were to put mortgage debt on, what kind of rates would you expect to get?

[Greg Andrews:]

In the low 5s.

[Tayo Okusanya:]

Great, low 5%. All right, thank you very much.

[Greg Andrews:]

Thank you.

[Operator:]

Ladies and gentlemen, there are no further questions at this time. I’ll turn the conference back over to management for closing remarks. Thank you.

[Dennis Gershenson:]

We just want to say thank you again for your interest and your attention and we look forward to communicating with you, if not before, in approximately 90 days. Have a good holiday.

[Operator:]

Thank you. This concludes today’s conference. All parties may now disconnect. Copyright policy