Ramco Gershenson's Dennis
Gershenson: Liking the REIT's
upward financials during Q3.

FARMINGTON HILLS, MI-Ramco Gershenson Property Trust enjoyed another positive quarter, showing rental increases of 3.4% and same-center NOI growth of 3.4%, leading to a cash NOI of $23.4 million (an increase of close to $3 million, year-over-year). The upbeat metrics prompted executives at the Q3 earnings call to announce an FFO guidance increase of $.02 per share, marking the second time this year that guidance was increased.

While REIT president and CEO Dennis Gershenson pointed to credit-worthy tenants and an increase in non-anchor leased occupancy (which has led to a consistent revenue stream), senior vice president, asset management Michael Sullivan noted that lease transactions topped 300,000 square feet for the quarter with the cash rental spread increasing by 5.4%. “Also in the third quarter, we renewed over 87% of all expiring leases at a rental growth of positive 4.4%, and are on target to renew over 80% of all expiring leases in 2012,” Sullivan added. Anchor occupancy, in the meantime, held steady at 96%, with anchor boxes vacancies trending downward. Smaller shop leasing increased as well, with the executives explaining that many smaller shop spaces have been, or are in the processes of being, reconfigured.

One negative blip concerned straightline rent, which suffered a reduction to income of $517,000. However, “It is important to bear in mind that straightline rent is a noncash adjustment,” explained CFO Gregory Andrews. “We are actually receiving more cash than we are allowed to recognize under GAAP.” This trend will continue, he added, with the recorded amount in any given quarter fluctuating based on leasing and reserve activity.

During the Q&A with analysts, Gershenson indicated an “ever-increasing flow of opportunities for acquisitions,” including growing interest in the Michigan market. An anticipated increase in trades during the next couple of quarters will “give some clarity to cap rates in the state of Michigan,” Gershenson predicted. “I think we’re all going to be reasonably not surprised, but happy with the cap rates that will result from those sales.” Overall, however, he pointed out that the market for acquisitions continues “frothy.” “We’re picking through various opportunities to find those centers we believe have the right tenant mix, the right amount of credit and a value-add component,” he added. Ramco Gershenson’s balance sheet can handle the buys, given its $200 million in cash and line of credit availability.

The executives were also somewhat coy when mentioning dispositions for 2013. Gershenson indicated the REIT would sell between $20 million and $50 million with an eye toward reducing minimum rent exposures in any particular state. As such, “you can expect that there may be Michigan assets that fall into that category,” he added.