Rithm Property Trust Inc.
Q2 2011 Earnings Call Transcript

Published: 27 Jul 2011

[Operator:]

Greetings and welcome to the Ramco-Gershenson Properties Trust second quarter 2011 earnings conference 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) As a reminder this conference is being recorded. It is now my pleasure to introduce your host Dawn Hendershot Director of IR for Ramco-Gershenson. Thank you Mr. Hendershot, you may begin.

[Dawn Hendershot:]

Good morning and thank you for joining us for Ramco-Gershenson Properties Trust second quarter conference call. Joining me today are Dennis Gershenson; President and Chief Executive Officer, Gregory Andrews; Chief Financial Officer and Michael Sullivan; Senior Vice President of Asset Management. At this time, management would like me to inform you that certain statements made during this conference call which are non-historical maybe 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 would 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.

[Dennis Gershenson:]

Thank you Dawn, good morning ladies and gentlemen. The only member that during our fourth quarter 2010 conference call, we outlined for 2011 a number of operating performance calls, handle management objectives and a plan to improve the overall quality of our portfolio. To that end, the first six months of this year has been a very busy in productive areas with the company. As a result of our actions over the last 120 days, we are delivering on our promise to provide long term share holder value and with our plans for the second half of 2011; we are laying the foundation for predictable, sustainable earnings growth. Our objectives are to provision the company as one of the top performing shopping centre (inaudible). In order to achieve all of these goals, we formulated our 2011 strategy to include; one the improvement of balance sheet and the generation of significant liquidity so that the company will be positioned to see the opportunities as they arise as well as to insulate us for future risks as it relates to outstanding debt maturities over the next 24 to 36 months. Two; our plans include capitalizing on the strategic location and strong tendency of our shopping centres, to push occupancy and thus improve our operating incoming performance while continuing costs. And three; through the sale of non-core assets and the acquisition of well located shopping centres with a value add components, we will positively reshape our demographic profile and geo-graphic concentration as well as expand the breath of (inaudible) mix and further improve the quality of our income string. With the results of the second quarter and the first six months of 2011, demonstrate significant progress on all of these growths. Relative to our first goal, balance sheet improvement and enhanced liquidity. I am pleased to report that with the closing of our term loan and line of credit both are in significantly more favourable terms of the company than our previous facilities. And the funding of our perpetual preferred offering. The outstanding balance on our revolving line of credit at quarter end stood at a $33 million. This balance has been further reduced by the proceeds from our recently completed sale of the Sunshine Plaza shopping centre in Tampa at Florida. Our (inaudible) approach through balancing our sources with our uses of capital will allow us to maintain a positive debt profile through the balance of the year. In a few minutes, Gregory Andrews will discuss the details of our financial activities in this last quarter. The cost progress and asset management produced the greatest return on invested capital. Our second goal involved leveraging our shopping centre locations to create occupancy [ph] and drive operating income. Our review of our supplement will show that we have made real progress in all aspects of portfolio operation. As the beginning of 2011, I challenged Asset Management to accomplish four objectives. First, we were to retain a higher percentage of retailers with aspiring leases at our historical average. Second, we should build upon our success in signing new (inaudible) leases with a goal of continuing to reduce the number of vacant anchor each quarter. Third, with the securing of numerous anchor destination draws, our leasing department should be able to achieve substantial progress in the leasing of the ancillary retail space and lastly I charged asset management to further reduce the cost of centre operations as the lower cam [ph] charge benefit all of our tenants. Success in these four areas will also drive improvement in our same centre net operating income comparison, which is indeed we reflected in our second quarter results. Achieving these four objectives in addition to our ongoing focus to uncover opportunities to add values to our core portfolio. An example of this process is the announcement this quarter of the redevelopment of our shops on lane shopping centre to include a new expanded old food store in 35,000 square feet. Michael Sullivan will address the four goals I have outlined at the conclusion of my remarks. The third over arching goal for 2011 involves the improvement of the overall quality of the shopping centre portfolio through the acquisition of high quality shopping centres in demographically strong markets and the recycling of the capital from the sale of existing assets that we consider non-core, are fully valued for our properties that will not grow in value over the near term such as net lease. In the second quarter, we announced the acquisition of Heritage Place a 270,000 square foot shopping centre with four anchor draws including a 70,000 square foot upscale specialty grocer which is producing gross sale well above national averages. This asset met all of our acquisition criteria including the following First, a desire to expand our geographic presence into new metropolitan markets. St. Louis is the 18th largest MFA in the company. Second; to ensure that are entrance into a new market would be coupled with an opportunity to expand our presence in that trade area. Presently, we are already reviewing a number of additional St. Louis acquisition opportunities. Thirdly, new acquisitions must be located in the trade area with a demographic profile equal to or better than our portfolio average. The three mile average household income level for Heritage Place is $95,000 and lastly, the acquisition target should afford an opportunity to add values. At Heritage Place there is a significant opportunity to add value by the leasing of available small shop space based on the strength of our grocery anchor as well as the other national credit draws to the centre. The acquisition of the Heritage Place was completed at a 7.6% capitalization rate. The centres price should we viewed in light of our second quarter and early July dispositions, which include a CDF out lot plus with the Lantana and Sunshine shopping centre sales. Combined, the dispositions produced an average sale cap rate of 7.02% generating $24,100,000 in cash and the elimination of $9.5 million in long-term debts. In addition, we are currently marketing a number of additional centres for sale that we consider non-core. The dollar generated and the debt transfer will further improve our financial metrics and provide a source of capital for future acquisitions. In summary on the asset management side, the mid box retailers who signed leases in 2010 and in the first half of 2011, will begin to take occupancy in the second half of this year. These tenancies will have a significant and positive impact on our 2012 income and occupancy numbers. Also we continued to diversify our tenant mix by reducing our exposure to anyone retailer. Our efforts in this area have been rewarded by the limited impact that boarded bankruptcy and liquidation will have on our numbers and relative to acquisitions, we are focused on transaction that will broaden our geographic footprint while increasing the quality of our portfolio. Ramco-Gershenson is committed to building on the company’s superior portfolio of large multiple anchored shopping centres that are located in demographically strong markets. Our unique emphasis on multi-anchored centres often with a grocery anchor sets us apart in the market place. These centres are typically located in the heart of a vibrant trade area as opposed to a centre anchored by a supermarket and our multiple anchors insulate our centres from the a lot of anyone major retailer, thus with a portfolio of strong able four shopping centres and a commitment to maintaining a strong balance sheet with substantial financial flexibility, we are positioning ourselves to achieve our objective of being a top performing shopping centre REIT. I would now like to turn this call over to Michael Sullivan our Senior Vice President of Asset Management, who will briefly provide insight into our operating metrics for the quarter. Michael Sullivan Thank you Dennis, good morning everyone. As Dennis mentioned, Ramco’s Asset Management Team were presented with four primary objectives, besides balance sheet improvement in our core shopping centre portfolio. I am pleased to report that, we continue to make progress in these four areas. Our first objective is to retain a larger number of tenants with expiring leases above our historical average at improving renewal rental scripts. Year-to-date we have reduced 80% of our expiring leases and project closer to an 82% sequential range for the full year. Also we have been able to generate positive growth in renewal rentals for effective three quarters. Our second challenge is to reduce our exposure to the number of anchor vacancies. Our supplement shows 15 anchors vacancies in the portfolio as of June 30, this was down from 18 vacancies at the end of the first quarter. Of these 18, three are already leased but the retailers are in negotiations with the national retailers and six [ph] are being aggressively marketed. As we all aware, Borders will be closing all of its remaining stores in the second half of 2011.The impact of these closings to Ramco is negligible. At the present time, we have one fully owned and one joint venture store. I am pleased to report that we currently have identified a national anchor tenant for the wholly owned phase at our East Town centre in Madison Wisconsin and feel confident that this lease will be signed by year-end. We are aggressively marketing the joint venture space. Let me remind you that in January the Border store had 100 squares in Farmington Hills, Michigan closed. We were able to immediately re-lease the space to Buy Buy Baby. The third operating goal to build upon on anchor releasing progress by filling ancillary space in our portfolio. In the second quarter, our small shop occupancy in our entire portfolio increased 38 basis points compared to the first quarter. In five of our shopping centres, where national anchor retailers are opened since the third quarter of 2010. We have signed leases totalling over 70,000 square feet. We do think small shops vacancies in these assets are at 21%. We believe, they will have [ph] progress to date that the overall positive trend for shop leasing in our portfolio will continue. National tendency issues have abated. In fact we have recently received notification that Blockbuster will now remain open at five of our six locations. Additionally, we continued to reduce our exposure to local tenancies portfolio by increasing our efforts to entice with national retailers to our property. Asset management’s fourth challenge for the current year is to continue to reduce recoverable operating expenses at our centres. These lower operating costs are a direct benefit to our tenant. In the second quarter, we were able to reduce our recoverable expenses versus budget by $572,000. These savings are due primary to continue success which real estate taxes appeals and leveraged outsourcing of property levels service functions. Building on the four aforementioned objectives, will remain the primary focus for asset management team through 2011. Now, I would like to turn the call over the Greg for his prepared remarks.

[Gregory Andrews:]

Thank you Michael. Let me start by explaining our new disclosure on occupancy. Then we will discuss our balance sheet, cover our income for the quarter and finish with our outlook for the year. This quarter for the first time, we are reporting occupancy statistics four our core portfolio, which is 92.1% leased and 91.3% occupied. We consider our core portfolios to be the stable properties that currently account for over 96% of our annualized base rent. The core portfolio excludes one active redevelopment that we commence this quarter as well as four potential redevelopments that are in various stages of planning but not yet under construction. We think this new disclosure will provide for better trend analysis going forward as well as better comparison to our peers. Many of them report occupancy on a similar basis. We have also disclosed total portfolio occupancy in the same area as we always have, so that you can make valid comparisons to prior quarters. Now for our financial position, our balance sheet on June 30, 2011, reflects the capital raised during the quarter, including an offering of $100 million of 7.25% convertible perpetual preferred stocks. A $75 million unsecured term loan and a $175 million unsecured line of credit. Based upon demand, our offering of convertible preferred stock was upside late April from an initial offering at $80 million to the final $100 million. In addition to these capital transactions, we raised approximately $21 million from asset sales during the quarter. Including $4 million in the sale of land and $17 million from the sale of Lantana the shopping centre in Lantana Florida. Subsequent to quarter- end, we raised another $15 million from the sale of Sunshine Plaza in Tamarac, Florida. With these transactions complete we have lowered our borrowing cost in hands or liquidity and flexibility and unencumbered over $0.5 billion in property. Let be review our debt metrics as of June 30, 2011. On net debt to market capitalization was 44.7%. Our net debt to EBITDA was 6.4 times for the quarter and 6.7 times for the first half. The weighted average term of our consolidated debt was 5.9 years. Our interest coverage ratio for the quarter was 2.8 times and our fixed charge coverage was 2.0 times. Our Pro-rata share of maturing debts over the next 12 months is only $30.7 million and finally our cash and availability under our line of credit is currently over $150 million. Going forward, we intend to maintain a strong flexible and liquid balance sheet which is essential to our success. Turning down to the income statement. Our FFO for the quarter of $0.22 per share including three notable items. First we had a loss on early extinguishment of debts of $2 million or $0.05 per share. This related to re-financing our former term loan and involving line of credit with our new credit facility. As previously noted, this onetime non-cash loss was and will be excluded from our FFO guidance for the year. Second, we had a non-cash revision for taxes of approximately $830,000 or $0.02 per share. In May, the state of Michigan repealed the Michigan business tax and replaced it with a corporate income tax. This change required us to write-off deferred fourth tax assets of $3.3 million and to deferred tax liabilities of $2.5 million for a net non-cash reduction in income in FFO of $830,000. Because the new Michigan corporate income tax allows for a dividend paid reduction, we do not anticipate material state income tax expense going forward. Third, we recognised a gain on a sale of an outparcel of $2.2 million or $0.05 per share. This sale was anticipated in our guidance at the beginning of the year. Adjusting for these three items our core FFO run rate for the quarter was approximately $0.23 per share. Now, let me address several other income statement items, consolidated property NOI on a GAAP basis was $20.5 million driven by our same property NOI growth of 1.3% and our acquisition of Heritage Place partially offset by the sale of Lantana shopping centre. Note; that an additional $300,000 of NOI from properties is included in income from discontinued operations. Our shopping centre expense recovery ratio for the quarter was 91.4% or higher than the 88.7% reported in the first quarter. We anticipate that our recovery ratio will approximate this higher lever for the rest of the year. We received virtually no lease termination income this quarter. We continue to anticipate another $1 million or so in lease termination income in the second half of the year primarily related the plans we have to replace a darkened tank anchor with a new retailer. Our provision for credit loss which is included in property operating expenses was $352,000 for the quarter. The current quarter provision is the lowest in sometimes and reflects what we believe is a modestly improving trend on the collections front. Our joint ventures continue to perform well. With our share of income increasing to $672,000 compared to a loss of $73,000 in a comparable quarter. This increase reflects the same centre NOI growth at the joint ventures of 3.4% as well as lower interest expense from hanged down debt at the ventures. Lastly, our general and administrative expense for the quarter was $4.9 million. This line item included some modest severance expenses and other costs that we do not anticipate will recur. We except the G&A to run at an annual phase of about $18.5 million in the second half of the year. Now, I would comment on our outlook. As noted in our press release, we are revising our 2011 FFO Guidance to $0.92 cents to $0.98 cents per share, which narrows the range from our previous guidance of $0.90 cents to $1 per share. Our revised guidance reflects our confidence in the operating outlook of the second half of the year, despite the economy that remains sluggish. As in the past, our guidance excludes any impairment charges for loss on extinguishment of debt. It does include the onetime non-cash tax provision we took this quarter. To sum up, we are pleased with the progress we have made this year. We have strengthened our balance sheet, improved our portfolio and aggressively leased and managed our assets. As all of this everyone here at Ramco-Gershenson remains keenly focused on creating value for our shareholders. Now I would like to turn the call back to the operator for Q and A.

[Operator:]

Thank you. We will now be conducting a question and answer session. (Operator instructions). Thank you, our first question is from Todd Thomas with Keybanc Capital Markets. Please proceed with your questions.

[Todd Thomas-Keybanc Capital Markets:]

Hi, good morning, I am along with Jordan Saddler as well.

[Dennis Gershenson:]

Good morning gentlemen.

[Todd Thomas-Keybanc Capital Markets:]

Good morning, Hey, Greg, I just had a question with regards to the revised guidance of $0.92 to $0.98 cents. If you look at, that what you have done the first half of the year, you are at $0.51 cents, I guess on a comparable basis excluding the impairments. I was just wondering if you could provide a little more detail, I you know you discussed orders briefly. Can you kind of talk about the impact to earnings and you know how we should think about sort of the back half of the year in terms of the trajectory year for earnings?

[Gregory Andrews:]

Well, you know, Borders and other tenant like that are a modest factor but you know not really, I think are main issue is that when you are comparing the first half with the second half, we have to recall that we had a fairly substantial amount lease termination fee income in the first quarter and a significant gain on land sales this quarter, so we tried to provide all the information Todd that will allow you to kind of adjust and normalize the run rate that I think would be consistent with the guidance we have given.

[Todd Thomas-Keybanc Capital Markets:]

Okay, and Dennis you talked a little bit about acquisitions in your remarks, you mentioned St. Louis in particular and then you also mentioned that you have identified some non-core asset sales, so previously you mentioned $50 million to $70 million of net investment activity for the year. You have to do quite a bit of acquisitions in the back half of the year at least relative to what we are seen in recent quarters. I was just wondering how comfortable you are still with that forecast and perhaps you can you know remind us, put some detail around, what are the acquisitions are looking at and some of the parameters around timing.

[Dennis Gershenson:]

While let me say this, our expectations are our hopes with the beginning of the year, certainly are tempered by what we have seen in the market place, that we have all discussed, which was that the very aggressive crisis on the two coasts began the infect the middle of the country and so we have seen cap rates falling even in those markets, that we have identified which are non-coastal. We are looking very carefully at several additional acquisition candidates of whether or not we would able to hit a goal on a net acquisition basis. It is the question, we do have at least one non-core asset in the market place, for sale now, over and above the three we had originally planned, so we expect to make additional acquisitions primarily along the line of the Heritage Center that you have already seen. However, it is multiple anchors and each with a grocery component but again having multiple anchors. Whether or not, we will be able to actually hit, you know the net number that identified, it may be somewhat problematic, but again we expect dispositions and acquisitions in the second half of the year.

[Todd Thomas-Keybanc Capital Markets:]

Okay. Can you give us a chance of the size of the disposition that is in the market?

[Dennis Gershenson:]

I think, we are now out, it’s a soliciting bid so, I prefer to wait until we have something more specific than to estimate either high or low on what the value that asset will be.

[Todd Thomas-Keybanc Capital Markets:]

Okay and then just lastly moving over to the balance sheet, I thinking about leverage. As you mentioned, you know, your net debt to EBITDA is now in the mid to high sixes, as we sort of think about your acquisition and disposition activity, I guess leverage will somewhat of a moving target but should we expect that you will you know continue to raise additional capital or you are comfortable with your leverage at this levels more generally now.

[Dennis Gershenson:]

We are actually more comfortable with our leverage at these levels, in other words debt to EBITDA in a six times range, it starts coverage, ideally kept at two times or higher. But a couple of points I make, we reported our asset as of June 30 and subsequent to the quarter-end, we received proceeds from another sale of $15 million, Dennis referenced another asset that were in the market with, so exactly how we fund future investments, will depend on how much activity we have, but we certainly have some funds coming from recycling capitals.

[Todd Thomas-Keybanc Capital Markets:]

Okay great, thank you.

[Operator:]

Our next question comes from, Nathan Isbee with Stifel Nicolaus, please proceed with your questions.

[Nathan Isbee:]

Hi good morning. Did the (inaudible) 1.3% in this quarter, it’s up 30 bits year-to-date. Can you give some color on the second half of the year, where you expect that trending and I guess that you have a pretty wide range on your full year guidance of negative one to one and given that we are half way through, if you have any - are more comfortable towards the higher end of that range yet or you are still hedging your bets.

[Dennis Gershenson:]

Yes. I guess what I would say Nate is that what you see in the statistics from the first quarter and the second quarter is that there is some quarter-to-quarter variability and so you know, year-to-date we are kind of right in close to the middle of that range of guidance that we gave plus 1 to minus 1 for the year. We do know that you know Borders may have an impact on it bigger in the second half, but I think we are pretty much comfortable sticking to the same guidance at this point.

[Nathan Isbee:]

Okay thank you. And can you just give a little bit of an update in terms of leasing activity as in your land help and development acquire in some of the other two centres in terms of timing as to you when you might be able to start up.

[Dennis Gershenson:]

Nate, I will say this; that no project will be commenced in 2011. After saying that we continue to receive significant tenant interest in our two Florida potential developments. We have moved through the letter of intent stage well into at least into negotiations with a number of retailers. We constantly keep our board apprised of exactly where we are at and they have set some very specific criteria for us relative to level of leasing, type of returns, etc, that they require before we could even contemplate on starting something. It - concerning acquire specifically because I know that’s one of your favourite topics. If the apartments use is not only still very viable, but pushing very hard because the need for multifamily residential in that area just continues to grow. The theatre is constant in their commitments. We continue to receive additional interest for office buildings users, but not at this juncture substantial enough for the people we are talking to on a joint venture for the office to be prepared to commence a building. But, you can rest assure that we are not going to do anything at acquire or any of our other projects that we do not feel very comfortable announcing to the world that these will be incredibly successful projects.

[Nathan Isbee:]

Okay and then I will return to favour Dennis. I will switch to one of your favourite topics, which being Michigan. If you could just talk a little bit about you had some success last quarter in terms of signing some new-to-market retailers if there has been further progress as to last coming out of ICSC.

[Dennis Gershenson:]

Well, we are dealing with a number of new-to-market smaller retailers that we are in negotiations with now but, again if you remember our stats for Michigan, which are in the mid 90% level. It - we are very comfortable with, it you know the level of leasing we have here, we mentioned the one Borders use, but it’s in a very affluent area and it’s configuration right up on the road, so if I had a box to lease that would be the most desirable box. As far as progress in Michigan is concerned that has historically never been a problem and we continue to feel comfortable with we can lease our spaces in Michigan at the high-end of the market range rest.

[Nathan Isbee:]

Okay and then can you just update us from the AMP space in terms of potential replacements there.

[Michael Sullivan:]

Nathan, this is Mike Sullivan. We have a one vacant AMP space in East Ridge Commons, 72,000 square foot plus box. We are continuing through aggressively market, we thought for earlier that we may have had, you know a viable national prospect for a piece of it, that has got in a little colder than it had in the past, secondarily before we had a new to market grocery concept that is still express the interest but trying to get their Midwest open the buy program together. So, nothing hot to report, but we still continue to aggressively market space .

[Nathan Isbee:]

Alright, thanks.

[Operator:]

Our next question comes from Michael Mueller with JPMorgan. Please proceed with your question.

[Michael Mueller:]

Hi, good morning. First question was a kind of something asked before but Dennis I think you were talking about assets being marketed for sale and you mentioned that there were number being marketed. Can you give us a rough idea of how big of a pool of assets it is dollar wise and then the likelihood that something would hit this year on the sale side and also the likelihood that something would offset that on the acquisition side.

[Dennis Gershenson:]

Well, as far as magnitude is concerned, leaving aside when exactly an asset might be sold, we are talking about - if you look at the total portfolio somewhere in the 5% to 10% range. On a square foot basis is basically what we are talking about that we have identified assets for sale. I feel very confident that a minimum of one more sale will occur and I think we anticipate several more that would be sold this year and as far as acquisitions are concerned and the timing on that. I’m pleased to say that more likely than not we will have another disposition before we close on a potential acquisition.

[Michael Mueller:]

Okay. And then Greg, when you were talking about the core portfolio percentages, I think you said 92.1% was leased. Yes that was in the release but, what did you say the occupied percentage was for the core.

[Gregory Andrews:]

91.3% Mike.

[Michael Mueller:]

91.3%, okay, that is not the supplemental anywhere, is it?

[Dennis Gershenson:]

Yes it is, it’s on page 20 on the supplement.

[Michael Mueller:]

Page 20, okay.

[Dennis Gershenson:]

In the middle of the page in bold.

[Michael Mueller:]

Got it, okay.

[Dennis Gershenson:]

So, we continue to disclose which I think is very helpful to disclose both leased percent and unoccupied percent, so that you can, you know understand, you know the activity a little bit in a little more detail.

[Michael Mueller:]

Yes, no, and that was for the core portfolio that you are talking about.

[Dennis Gershenson:]

That’s the core portfolio.

[Michael Mueller:]

Okay got it. Okay. And then by looking at leasing spreads, looks like they improved a little bit sequentially. I mean is that a function of one either being a trend where you are seeing some improvement there, continued improvement or just a function that you know these things bounce around from quarter-to-quarter.

[Michael Sullivan:]

Mike, it’s Mike Sullivan. We are seeing really steadily improving trends in both new rent spreads and renewal rent spreads. We have always taken the position that for new lease spreads, we give market rents that really are determined by the trade areas and our assets to those trade areas and we would like think that our – the quality of our assets are at the top, we are close to top of market rents and we are still comparing those market rents against leases that were generated them the go-go days. So, we are still seeing some generally improving trends in new lease spreads, but again we are being cautiously up in this to give up that beat. The renewals, however, based on what we see in the straight quarter of positive renewal spreads where we are pretty optimistic that we can continue that trend and we are cautiously up in that, so that we can end the year in position territory for renewal rental spreads.

[Gregory Andrews:]

Mike. This is Greg, I just want to add one thing, which is that you know the manner in which we disclose our spreads is very transparent and what we try to do is compare the current lease to any prior tenant that we had not limited by when they were in this space. I think you know some peers do limit the comparison to spaces that where prior tenants has been an occupancy, within the last year and so we went and looked at what that would do to our statistics and if we calculate it that way, we would have may fewer transactions that we would call comparable, which I think is what you see with some of the peers they have fewer comparable transactions but in fact at least spreads would have been positive, slightly positive like 20 plus and new leases plus 26% instead of the minus 9.7% that we report, so I want you and other people listening to understand that there is a lot of diversity factors on how these risks are calculated and the analyst community really needs to see through the detail here.

[Michael Mueller:]

Got it, okay, okay. Thank you.

[Operator:]

Our next question is from Rich Moore of RBC Capital Markets. Please proceed with your questions.

[Rich Moore:]

Hello, good morning guys. I like the new disclosure on page 20 that is good stuff and I am looking at the potential redevelopments, which by the way I am a big fan of. I think splitting stuff up like this is quiet good from my opinion. But my first question on that is is that it. Is that a sort of all is in the core portfolio that you think would fit into that category.

[Gregory Andrews:]

No, no, absolutely not. There are other opportunities within the portfolio and this was not intended to be some sort of all encompassing list of opportunities. We have vacant land adjacent to certain centres that that we could do something with we have a darkened tank paying tenant which I think is going to present us with an opportunity over the next few years. But What we did was we focused really on things that today the properties really can’t be characterized as stabilized and so there once were very focused on trying to maximize the value of those assets and let me just add one thing that those four potential re-development only account for about 2% of our analyzed so it is not a big piece of our portfolio, but it is one where we are very focused on trying to create value.

[Rich Moore:]

Okay, so yes.

[Dennis Gershenson:]

Let me add to that, when we categorize it this way as it suppose to something like a shops on lane that is in an active re-development, what we are really doing with these is we have identified that we are working on revising the tenant mix, we are seriously focused on reconfiguring the assets and thus although they are not far enough or long to name a specific retailer, we are very focused on these specific assets to make changes of consequence.

[Rich Moore:]

Okay. Thank you Dennis and then as you look at these, could these also be sold? Is that a possibility, I mean anything can be sold, but is that part of the plan possibly so that these are non-core in essence sense perhaps to?

[Dennis Gershenson:]

Well. I think part of the analysis that we will go through is always to compare our options and with anything that I think you would call a potential re-development that pretty much tells you that we still have to go through the full analysis of what we think we can accomplish and what kind of return we think we can achieve and we should compare that to what kind of proceeds we can get if we work to just dispose of the assets, so I think the short answer to your question is yes.

[Rich Moore:]

Okay and the reason I can ask, Greg is I am wondering, do you or would you guys consider putting the other non-core asset you thinking of, I suppose selling as the part of that 5% to 10% of the (inaudible) into this bucket as well and then show your core on what is truly just a core as opposed to noncore.

[Dennis Gershenson:]

Well, to the extent we really haven’t identified what is core and non-core. There are a several assets that we are seriously considering selling and we talked about this in the first quarter that are 100% leased and that we would sell just because they may be the only asset in a state or they are a net lease free standing use so I am not sure that wouldn’t muddy the waters by combining things that you'd question well, wait a minute if it’s completely least, why do you have it in the same bucket with assets that you say we are taking a good hard look at focusing on how we can reconfigure them or release them.

[Rich Moore:]

Okay, got you Dennis and I do like what you guys done here is nice, by the way I found the two centres that couldn’t find in this, I didn't see that last night. I thought if they had disappeared magically but you are there. The same question I have is on Hartland. There is a couple small pieces of debt I think Greg they come due toward the end of the year. Do those just get, since you're not pursuing the development at this point just get absorbed on to the line of credit and is that the idea?

[Dennis Gershenson:]

Well. We have already broached the subject with the lender about the possibility of extending or re-financing those loans and depending on what the lender comes back with we’ll kind of compare that in our option under the line of credit but either way, it’s a relatively modest some and recall that we are also trying to sell some land at Hartland which could pursue which could be used to pay off one of those loans.

[Rich Moore:]

Okay, good . Thank You and the last thing I have is, the margin, the operating margin was higher and I think it kind of hit on the fact as we were discussing earlier that the recovery ratio had improved and we would probably continue to improve. It looked to me like operating expenses fell and is that part of that I mean obviously your effort to look at these, is that something with that margin that we should continue to see as the same sort of level going forward.

[Dennis Gershenson:]

Yes. Well, I think we are very watchful on operating expenses as Michael Sullivan referred to you earlier and one other factor in there is probably that our bad debt was somewhat lower than it has been for some time and again we feel reasonably confident that - that reflects on improvement on collections, but those things could tend to bounce around a little bit but so those are the factors in the operating expense category.

[Rich Moore:]

Okay, great. Thank you guys.

[Operator:]

Our next question comes from Ben Yang of Keefe, Bruyette & Woods. Please proceed with your question.

[Ben Yang:]

Yeah. Hi. Thanks. Can you guys comment on the two mortgages that are currently in default, the Madisson Center in West acres and I am just wondering are you guys giving serious consideration to rolling these loans or maybe are these potentially the third and fourth non-core centres that you have teed up with sale.

[Dennis Gershenson:]

We are in discussions with both lenders and each of the property is anchored and operating so they are operating properties, but there is some issues related to the value or amount of the loans. So, we had discussions with the lenders today about it. It’s premature I think for us to describe what the outcome might possibly be from them.

[Ben Yang:]

Okay. Great and then on the potential re-development that you separate from the core. You mentioned earlier that, they are not stabilizing and hence in the re-development pool. But is the criteria to separate the core pool slowly based on the low occupancy or maybe there are timing criteria well that you put them in the re-development pool because you think you’ll have them stabilize within maybe say 3 years or so?

[Dennis Gershenson:]

Well Again, what we are doing is they fit into the re-development pool specifically because we are working on a number of concepts to again either reconfigure the centre, breakup the box into multiple retailers add to the shopping centre. There is something about each individual asset which has its own story where we are very focused. The construction team the asset management team on changing the character of the asset whether it is tenant mix or an actual physical reconfiguration.

[Ben Yang:]

I guess, I am just wondering is it possible that 2 or 3 years from now the things just remain in the pool and stay out of maybe the core statistics forever.

[Dennis Gershenson:]

Well. I think that our philosophy would be that if as a result of our analysis. We cannot come up with something that makes a great deal of sense for us, then it would be time to move on and sell the assets. We have made a commitment here to have a high quality portfolio and what is interesting of course is leaving these assets aside. A high quality portfolio will mean that even though we significantly move the portfolio forward then there will always be a lower 5% or 10% no matter how good that lower 5% or 10% would be and we will constantly continue to look at that but no if we were sitting on this call 24 months from now, I do not expect to see those in the same place.

[Ben Yang:]

Okay. Great helpful and then final question I think like you have said to have analyze the joint venture properties was positive 3.4%. Is that correct? And can you just remind us how much you will analyze will come from the JV properties?

[Dennis Gershenson:]

Yeah, that is correct and it is approximately I want to say 16% or so percent of our NOI comes from our joint ventures.

[Ben Yang:]

Great. Thank you.

[Dennis Gershenson:]

I am proud [ph] of it.

[Operator:]

Our next question comes from Omotayo Okusanya from Jefferies & Co. Please proceed with your question.

[Omotayo Okusanya:]

Yes good morning. Why don’t you give some color on your other large market which is Florida?

[Michael Sullivan:]

I can tell you that we are experiencing some traction with our shop leasing in Florida based on the number of national anchor tenants who are opened to a sign [ph] in both the wholly owned and the JV portfolio will physical and least occupancies up Q1 to Q2, as we mentioned before we are in fact, it will be able to moderate the impact of the local shop tenancies in new deals, they are in favor of national retailers. We see that trend continuing. If you look at the list of retailers in Florida with who we have done deals recently, it's really our representative of those national retailers who had pretty aggressive open-to-buy programs and we expect that to continue really from mid box all the way down to shop. So in general Florida is operating very well for us.

[Gregory Andrews:]

Let, me just add to Mike’s comments and it reflects on my reference to our larger multi-anchor shopping centres. The lion’s share of centres that reflect very significant small Ma & Pa stores are the ones that are supermarket anchor. I am not saying that national retailers don’t go into those centres, but you have an overabundance of local retailers in shopping centres that are only supermarket anchor. We have a significant number in Florida as well as throughout the rest of our portfolio still with supermarkets is part of many of those centres and those are the centres that attract the national retailers, so we have put a very significant emphasis as we have all seen more and more of these retailers open to buy and coming into existing centres that are well positioned in the market place and so we have a very specific emphasis on leasing to those national retailers.

[Omotayo Okusanya:]

Okay. That was helpful. Thank you very much.

[Operator:]

(Operator Instructions) Our next question is from Vincent Chao with Deutsche Bank, please proceed with your question.

[Vincent Chao:]

Hey guys, thanks for taking my question. Just take a question on leasing volume, I think on the fourth quarter call ,you talked about the seeing an increase of maybe 10% to 15% on leasing velocity but here today its look like its little bit off of the page from last year. Just wondering if you are still expecting that since the ramp up in the back half sits it’s still hit that 15% target?

[Michael Sullivan:]

Vincent, its Mike Sullivan I at a loss of terms of the delta from prior to this year and I guess I will take a look at the that when I get back, but I have to tell you that based on what is in the pipeline now for the second half of the year. We still have as I mentioned to you half a dozen negotiations going on for our anchors that we have a very realistic opportunity to sign these leases by the end of the year ,that will make the eleven very comparable to ten in terms of box velocity. I think in general as we mentioned before we are going to see the leasing velocity for small shop continue as it has and if you give me the opportunity I'll do a projection in terms of overall velocity for the full year 2011 versus 2010 and let you know, where I think we are going to be and if there is any varies [ph] I explain.

[Vincent Chao:]

Okay, that will be great. It could be and maybe I am looking at different set of numbers than your referencing - that was referenced in the fourth quarter, but that will be appreciated and in the other question is just a clarification on the guidance. I think that is the prior range of $0.90 to $1 in FFO, I thought that was inclusive of the three dispositions that you had previously mentioned, but not any acquisitions and I just want to get a sense with the new range and what is incorporated in there for investment activity.

[Dennis Gershenson:]

I think your correct, but basically our guidance today as well as at the beginning of the year was excluding acquisitions and dispositions and that reminds the case that we made one acquisition, we talked about additional activity there as well as some additional disposition activity, but none of that is modelled in.

[Vincent Chao:]

Okay, maybe I misunderstood. I thought that the $45 million of disposable was included but maybe I can follow up with you afterwards. Okay, that was it. Actually, in terms of occupancy guidance, we talked about a number of things but that has not changed, correct? The 91% to 92%, that's the same? I guess the leased rate I'm talking about, the 91% to 92% and I think there was a 90% to 91% for the occupied and that was on a total company basis I thought.

[Dennis Gershenson:]

I would say that I think this way is that, at this point we are really somewhat more focused on this core occupancy concept and we are currently leased there at just over 92% and our goal is to maintain that at your end keeping in mind that we have got the challenge of the couple of border source that come back during the year and notwithstanding the fact that we have a tenant ready to take one of those that probably doesn’t actually get filled this year in other words or at least may not get filled this year.

[Vincent Chao:]

Okay. Okay so the new target we should be thinking about is roughly 92% lease rate for the core portfolio?

[Vincent Chao:]

Okay. Thanks.

[Operator:]

Our next question is a follow up question from Michael Mueller from JPMorgan, please proceed with your question.

[Michael Mueller:]

This is actually a follow up question to the prior one. I would have thought that given that we've seen a couple dispositions actually close and acquisitions close that that would be in guidance. Is the rationale for not including the stuff that is closed already in guidance, is it just that it seems to be immaterial and it's not really moving the needle.

[Dennis Gershenson:]

I think there was maybe – maybe I did not speak clearly enough, the activity to date has been incorporated into our revised guidance.

[Michael Mueller:]

Okay.

[Dennis Gershenson:]

The additional activity of either acquisitions or dispositions in the second half other than the Sunshine project which already closed and subsequent to the quarter did not include (inaudible).

[Michael Mueller:]

Okay, thanks and I apologize if I got your response from the prior question wrong.

[Dennis Gershenson:]

Not a problem.

[Operator:]

There are no further questions at this time. I would now turn the phone back over to the management for closing comments.

[Dennis Gershenson:]

Ladies and gentlemen we all thank you for your attention. We are here busy working away in your best interest and we will continue to do so. Look forward to speaking to you in about 90 days. Thanks again.

[Operator:]

Ladies and gentlemen, this does conclude today’s teleconference, you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.