Ramco-Gershenson Properties' CEO Discusses Q1 2013 Results - Earnings Call Transcript

Apr.24.13 | About: Ramco Gershenson (RPT)

Ramco-Gershenson Properties Trust (NYSE:RPT)

Q1 2013 Earnings Call

April 24, 2013 9:00 AM ET

Executives

Dawn Hendershot - Director, Investor Relation

Dennis Gershenson - President and Chief Executive Officer

Gregory Andrews - Chief Financial Officer

Micheal Sullivan - Senior Vice President, Asset Management

Analyst

Todd Thomas - KeyBanc Capital Markets

Vincent Chao - Deutsche Bank

Nathan Isbee - Stifel

Ben Yang - Evercore Partners

Michael Mueller - JPMorgan Chase

R.J. Milligan - Raymond James & Associates

Operator

Greetings and welcome to the Ramco-Gershenson Properties Trust first quarter 2013 earnings call. (Operator Instructions) It is now my pleasure to introduce your host, Dawn Hendershot, Director of Investor Relation. Thank you, ma'am, you may now begin.

Dawn Hendershot

Good morning and thank you for joining us for Ramco-Gershenson's first quarter 2013 earnings 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 not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Additionally, statements made during the call are made as the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made. Although, we believe that the expectations reflected in any forward-looking statements are based on reasonable assumptions, factors and risks that could cause actual results to differ from expectations are detailed in the quarterly press release.

I would now like to turn the call over to Dennis for his opening remarks.

Dennis Gershenson

Thank you, Dawn. Good morning, ladies and gentlemen. I am pleased to report another successful quarter for Ramco-Gershenson, where in we achieved very positive operating and financial results. Our ability to consistently improve the company's core metrics is complemented by the substantial external growth initiatives and capital markets activities we undertook in the first 90 days of this year.

I would like to take a few minutes to review with you, first, how our recently signed anchor leases and extensions, support our philosophy of constantly improving the quality of our shopping center portfolio and increasing net asset value. Second, I will provide color on our Clarion acquisition. Third, I will briefly cover our redevelopment and development activities. Fourth, I will review our progress on our capital recycling program. And lastly, even with the aforementioned significant growth initiatives, our actions in the capital markets confirm our commitment to maintain and improve our strong balance sheet.

At the end of last week, we announced the signing of new leases with Marshalls, Gordmans and Whole Foods. We also sold Wal-Mart their land lease parcel, plus additional acreage, to facilitate their expansion to a superstore at our Roseville Plaza in Roseville, Michigan. All of these transactions validate the premise that our shopping centers are the place where retailers want to locate, where national tenants are producing sales volumes, the demand that they expand their footprint, and that our centers are the destination of choice for the consumer.

Also, by adding Gordmans department store, a leading apparel and a home furnishings retailer, to replace a furniture outlet with term left under lease at our Lakeshore Marketplace. We demonstrate that our company is never satisfied leaving an asset with almost 100% leased, well enough alone, if we believe there is an opportunity to upgrade the quality of the tenant roster and increase net asset value.

It's also interesting to note that this Gordmans store will be one of their first operations in the state of Michigan. The announcement that Whole Foods will be expanding their Indianapolis store, their second store expansion with us in less than 18 months, and that Wal-Mart is expanding their Roseville, Michigan operation, speaks to the sales volume these retailers are able to achieve at our shopping centers.

In March, we acquired our Clarion Partners interest in 12 large market dominant shopping centers in Florida and Michigan. Each property is located in a densely populated trade area with healthy household income profiles. The centers are tenanted with a line up of outstanding national credit quality anchors.

In addition to the quality of the markets and tenant mix, we saw a number of advantages in pursuing this rather sizable acquisition. First, based on the purchase price, the transaction was immediately accretive and our return will improve on a full year basis. These 12 properties increased the company's total assets from $1.2 billion to over $1.5 billion. Additionally, our intimate knowledge of these centers significantly reduces our acquisition risk and in spite of the number of centers purchased, we will not need to enlarge our operating platform.

This transaction also secures for Ramco-Gershenson's 100% of the properties upside as we lease up several boxes and small tenant vacancies, expand existing anchors, with plans are already into work and develop or so of adjacent land parcels and outlets. All of these factors combine to make this acquisition a homerun of Ramco.

During the quarter, we also completed the Whole Foods redevelopment at our Shops on Lane in Columbus, Ohio. In addition to the previously mentioned anchor re-tenanting and the complete redevelopment of our Roseville Plaza, we have a number of additional value-add redevelopments in the queue, which will enhance the value of our centers, produce a healthy return on investment and contribute to our NOI growth.

On the development front, in the first quarter we opened our newest project, the Parkway Shops in Jacksonville, Florida, with over 98% occupancy and simultaneously sold our first outlet of this site for a substantial profit. You will remember the Parkway Shops is adjacent to our 900,000 square foot River City Marketplace.

At our other developmental sites, Lakeland Park Center in Lakeland, Florida, we continue to make progress on signing our anchor and large format tenant leases. As I have stated in the past, we will commence this project as we did with our Parkway Shops in Jacksonville, when we have secured commitments from the critical mass of national retailers, who ensure the success of this development. We are optimistic that we will reach that threshold in the second or third quarter of this year.

Over the last several quarters, I have outlined for you our development plans for the future. They involve purchasing acreage adjacent to our newest acquisitions, where we believe that we can write in additional tenant interest in these centers. We demonstrate the benefits of this approach as we facilitated the expansion of our newly acquired Fox River Shopping Center at Milwaukee, by the addition of T.J. Maxx, ULTA, Charming Charlie's and Rue21 on adjacent land, both at this center where we have 12 additional acres and at Harvest Junction in Longmont, Colorado, where we also purchased adjacent land. We are in active negotiations to expand these properties at accretive returns on cost.

An important element in the process of improving the quality of our markets, centers and tenant mix is our capital recycling program. In April, we sold Mays Crossing in Stockbridge, Georgia, which is anchored by Big Lots. Additional sales will occur throughout the balance of the year. A number of these dispositions will most likely include Michigan assets, as we move over the next 18 months to further achieve our goal that no one state represent more than 25% to 30% of pro rata annual rental.

Concerning our balance sheet, Greg Andrews will discuss the particulars of our successful first quarter. I would just like to state that our board of trustees and the management team are committed to ensuring that we promote an ever stronger capital structure as we grow the company.

With the successful first quarter behind us, you can expect that we will continue to post positive comparative portfolio statistics throughout the balance of the year. We will make additional acquisitions in our targeted markets of St. Louis, Chicago and Greater Denver, where we are seeing an increasing number of quality shopping centers coming to market. You can expect that we will be a net acquirer from this point through the end of 2013.

Our ability to make significant acquisitions and raise capital, while we improve our debt metrics and increase our ethical guidance, speaks to a company on the move, as we combine our internal operating increases with our aggressive external initiatives, we are writing the next chapter in Ramco-Gershenson's growth story.

I would now like to turn this call over to Michael Sullivan, who will put our operative activities in context.

Michael Sullivan

Thank you, Dennis, and good morning, ladies and gentlemen. Our first quarter results are in line with expectations and confirm that we continue to execute on our 2013 business plan. In the first quarter, we maintained strong leasing velocity and positive spreads for both new and expiring leases. Our total lease transactions for the quarter exceeded 335,000 square feet and on a comparable basis the cash rental spread was up 9.1%.

In the first quarter, we renewed 81% of expiring leases with a rental growth of positive 6.1%. Of the approximately 85,000 square feet of shop leases executed in the first quarter, 82% were with national and regional retailers. The impact of this activity continues to improve the quality of our tenant roster and tenant mix as well as the predictability and sustainability of our rental income stream. With little new space coming on line, retailers advance for existing spaces and Ramco's high quality assets remains strong. We see these trends continuing throughout the year.

During our previous call, we spoke of anticipated temporary fluctuations in occupancy in the first quarter, which we viewed as consistent with our historical portfolio trends. For the first quarter, total portfolio physical occupancy dropped 110 basis points, which we projected at yearend. This decrease was due primarily to the lease expiration of a Kmart box at Martin Square, a joint venture asset in Stuart, Florida. This expiration was anticipated, and therefore, we have been proactively pursuing redevelopment opportunities for this asset, which highlights the broader growth potential within the portfolio.

Important positive changes to the trade area coupled with strong retailer demand and impressive demographics along with Florida's Gold Coast convince us that we will unlock the embedded value of this asset soon. Another example of our ability to drive growth within the portfolio is represented in the leasing team's success, in reducing the number of dark and paying anchor spaces. At the end of the first quarter we had just one at Merchants' Square in Carmel, Indiana.

Again, we see growth opportunity in leasing the space, as we are close to finalizing LOI with a national retailer, whose presence at the center will create additional lease-up momentum and increased rental streams. The combination of our aggressive leasing efforts and continuing a retailer demand for spaces in our portfolio continues to create upside opportunities for Ramco in 2013.

This was clearly evidenced in our ongoing success in minimizing the number of anchor vacancies in the portfolio. Although, we ended the first quarter with six, because of the Martin Square vacancy, we are confident that based on the active lease negotiations we have, we will have fewer than five spaces that we post at the end of 2012.

Our occupancy was also slightly impacted by the closure of six Fashion Bug and three in line Foot Locker store. To date, we have replaced two of the Fashion Bug and one of the Foot Locker stores of national retailers. And we are in active LOI negotiations for all of the six remaining stores.

Given the current leasing velocity and the growth possibilities we see in 2013, we are comfortable in confirming that this occupancy drop is in fact temporary, and will reverse itself throughout the year to the point that leased occupancy at yearend should be in the high end of our guidance range of around 95% in the core portfolio.

Our plan to drive quality in the composition of our top 25 retail tenants is bearing fruit. As retailers like Ross Stores, DSW, LA Fitness, Lowe's and Gander Mountain move up the list. Ramco's team remains aggressive in its campaign of persistent portfolio reviews with at-risk retailers.

Achieving our leasing, renewal, income and cost containment objectives has also improved our same-center NOI performance. We posted a same-center NOI gain of 2.5% for the quarter and expect this trend to continue in 2013. Ramco's asset management team in 2013 is committed to building on the success we achieved last year, with an emphasis on continuing to drive rents and increase portfolio quality through tenancies with best-in-class retailers.

With that, I'll turn it over to Greg.

Gregory Andrews

Thank you, Michael. Let me start by covering the balance sheet. Then, I'll review our income for the quarter, and conclude with our outlook for the year.

During the quarter, we closed the purchase of our partner's 70% interest in 12 properties owned by owned by Ramco/Lion Venture. This acquisition has a dual benefit of being both a value-driven real estate transaction and a meaningful strategic event for the company. Ramco bought great real estate at a great price and took a large stride forward as a company.

We funded the $256 million purchase price with 65% equity and 35% debt. This 65-35 capitalization further strengthened our balance sheet and enabled us to pay down our line of credit by $10 million during the quarter. In addition, we raised the equity component through both the bought offering and at-the-market sales, making the cost of raising this capital highly efficient.

The debt component consisted of the same mortgage loans on seven of the 12 properties. Subsequent to quarter end, we paid of two of these mortgages, and we intend to pay up a third one in May. When this is done, over 80% of the property we acquired will be unencumbered. Adding these properties to our unencumbered pool will increase its size, quality and diversification.

By the end of the next quarter the total pool is expected to reach $1.1 billion and three of the top 10 properties in the pool will be once we bought in this transaction. Because we now own a 100% of these properties, we have consolidated them on balance sheet in a value of $367 million. As a result, our undepreciated property expanded by nearly 30% during the quarter.

At the same time, our investment in joint ventures decreased to just $28.5 million. In addition to the benefits from outright ownership of these 12 properties, we believe that the simplification of our capital structure, increase in our market capitalization, improved liquidity in our common stock and the lowering of our overhead ratio will all add value for shareholders.

So let me sum up, where we stand following this transaction. Our total market capitalization is now over $1.8 billion with debt comprising just 37% of that amount. Our interest coverage improved to 3.3 times and our fixed charge coverage remained strong at 2.2 times. These are healthy ratios, but we anticipate they will increase with a full quarter effect from our acquisition.

At the end of the first quarter, we had over $200 million available under our existing line of credit, providing us with ample capacities in the upcoming debt maturities and capital needs. By the end of the second quarter, we anticipate our unencumbered assets will allow us to borrow up to $250 million of incremental unsecured debt. In short, our financial position had never been stronger. We are excited about how our financial strength and flexibility will enable us to execute in the current climate.

Now, let's turn to the income statement. FFO for the quarter was $0.31 per diluted share. Here are some of the key items driving FFO this quarter. On the operating side, cash NOI of $24.3 million was $3.5 million higher than in the comparable quarter. As Michael noted, same-center NOI increased 2.5%, driven by minimum rent growth of 2.3% as well as higher percentage rents.

On the expense side, we continued to reap the benefit of property tax appeals, which lower our operating cost, but also reduced our tenant recoveries. We posted a provision for credit loss of $286,000 this quarter compared to the $441,000 in the previous period. Now, withstanding the lower provision, our allowance for doubtful accounts remains conservatively positioned relative to the amount, aging and credit quality of our receivables. We expect future provisions for credit loss to remain in the current range of approximately 1% of revenue.

Finally, we had negligible lease termination income this quarter compared to more than $800,000 in the comparable period. General and administrative expense of $5.5 million for the quarter was higher than the $4.9 million a year ago.

As shown on Page 12 of our supplemental package, the difference reflects two items. First, the first is a long-term incentive plan expense, which is tied to the company's relative performance. Our relative total returns have been stronger, so the true-up of this item and layering of a new year added approximately $400,000 to expense this quarter. The second is, over $200,000 from acquisition cost compared to almost no such cost a year ago. As a result of these two items, our revived forecast for G&A expenses for full year is between $20.5 million and $21 million.

During the quarter, we booked gains on land sales to $3.6 million or approximately $0.06 per share in two sales. We recorded a $0.05 per share gain on a land sale to Wal-Mart at Roseville Towne Center. As you may recall, this budgeted gain was part of the guidance we provided on our last earnings call.

In addition, we had a $0.01 per share gain on our land sale at our Parkway Shops development. Losses from joint ventures were $5.7 million for the quarter. This amount includes our pro rata share of the loss on sale between the 12 properties sold by the Ramco/Lion Venture to us. Excluding that loss, our share of earnings from joint venture was approximately $700,000. However, earnings from joint venture as well as related management fee income are expected to decline from first quarter levels as a result of our smaller joint venture platform.

Now, let me say a few words about our outlook. We are increasing our 2013 FFO guidance by $0.03 to a range of $1.06 to $1.12 per diluted share. This increase reflects primarily the benefits we expect to realize as a result of acquiring the 12 property portfolio in the first quarter. For those of you modeling earnings, please note that at this range of FFO, we anticipate our convertible preferred stock will be dilutive to FFO for the year. And will therefore be reflected as converted in our full year per share calculations.

In closing, our financial position is solid, our leasing pipeline is healthy and our investment opportunities are great. We look forward to executing our business plan for the remainder of the year.

With that, I'd like to turn the call back to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line Todd Thomas with KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

I am on with Jordan Sadler as well. First question, Dennis, you mentioned last quarter that you were confident that acquisition volumes for the year would at least match 2012. Did that thinking include the Clarion deal at all or is that outside of the joint venture deal? I'm just trying to think about acquisitions for the balance of year in context with your comments about seeing increasing opportunities in Saint Louis, Chicago and the Denver market?

Dennis Gershenson

Todd, we have been talking with Clarion for some time, however, the transaction came together really at the beginning of the first quarter. So our projections of our acquisitions for the year will exclude the Clarion. And we still expect somewhere in the $75 million to $100 million in acquisitions.

Todd Thomas - KeyBanc Capital Markets

And then, it sounds like in the Clarion properties that you acquired that there is some near-term and I guess long-term upside here selling out to (inaudible) and also some anchor leasing. I was just wondering, were there any constraints in place with the partnership that prevented you from realizing that upside together. Why are those opportunities there now?

Dennis Gershenson

No, we had an outstanding working relationship with Clarion. And if we would take the time, we could go back through a number of redevelopments that we did of consequence with them. I think that the primary rationale is that Clarion has changed its direction and is interested in owning different types of assets than the shopping centers. And so we were able to come to an agreement that was advantageous to us and obviously satisfied their basic requirement. And they were well aware of the opportunities to further improve those centers that were well leased.

One of the reasons that I may or may not be a question that would follow is that, the three assets that were left in the joint venture, and Martin Square is an example where Kmart/Sears, their lease ended and they didn't renew. It's a very good asset, but on their books they had a value that was significantly higher than what would be reflected with the vacant Kmart. And therefore it just didn't make any sense to attempt to come to agreement on a price. And that's why these three assets remained in the venture. But it also allows us to have a platform to make further acquisitions in the future, once they truly have defined the box that they want us to move ahead with.

Todd Thomas - KeyBanc Capital Markets

That was going to be my follow up. So the new acquisitions going forward, I guess some of that still being defined, but how should we really think about how you'll differentiate between what Ramco buys for its books versus the joint venture. I mean is it in your sense that it will be geographic in nature or is it more core versus value add? And also what were the split on those deals look like going forward, will they still be the similar 70-30 structure?

Dennis Gershenson

We are still operating under the existing agreement, so it would be a 70-30 split. And you're absolutely right, they are very focused on absolute core assets. Albeit again, they haven't fully flushed out the definition of the types of centers they want to own. And so there will not be a conflict between the centers we want to buy that we really see we can still add value to, and the ones that they are looking for that are absolutely stable. More likely they are not relative to the assets and stability, we have the flexibility to take a smaller percentage interest in those assets if it suit our purposes.

Operator

The next question comes from the line of Vincent Chao with Deutsche Bank.

Vincent Chao - Deutsche Bank

Just wanted to go back to the fundamentals real quick, very nice trends in the renewal spreads over last couple of quarters. And I think, Dennis, I heard you say that you expect the positive fundamentals to continue over the balance of the year. Just wondering is the six-one, is that a good run rate or is it something that was driving a little bit higher than it normally would be, given and again the trend has been fairly consistently higher. So I'm just trying to think that how you think about the rest of the year on that front?

Michael Sullivan

We really see '13 continuing up and pretty close to that number. Our internal goal is to end the year at a minimum of 5%. We had a little (inaudible) at the end of the first quarter, but the indications are from leasing that we're going to be able to sustain similar renewal spreads throughout the year.

Vincent Chao - Deutsche Bank

So there is no big lease that really drove that higher, it's just a general improvement, sounds like.

Michael Sullivan

A general improvement, a trend for us.

Vincent Chao - Deutsche Bank

And Greg, maybe just a question for you. Just trying to reconcile and it sounds like you had a same-store NOI performance in the quarter was pretty good, actually sort of mid-point of the yearly guidance. But I think at the time it was provided it was supposed to be a little bit more back half weighted. So given that we're starting off a little bit stronger here, rents spreads are expected to continue to be solid. And it sounds like you're pretty positive on overall leasing from an occupancy perspective. Just wondering I mean, do you think we're trending to the high end of that range or you think does that range move from a two to three? And just trying to figure out why that wouldn't have impacted the FFO guidance a little bit more than it did?

Gregory Andrews

There is a number of things as always that go into the FFO guidance, but let me just start with the same-center. We provided our guidance two to three for the year, and we're right at the middle of that. We did indicate previously that we thought it would be somewhat more back-end weighted as you pointed out. So potentially there is the chance that we end up towards the high end of that range. But at this time, we're not changing that guidance yet until we have certain or better outlook for the rest of the year.

And then in terms of the FFO again for the same reason, because we're not changing that outlook, we haven't sort of baked anything into FFO for the full year from that upside. There are a couple of things I pointed out in my prepared remarks that kind of little bit the other way including the slightly higher G&A this quarter as well as the coming decrease in earnings from joint ventures and management fee income.

Vincent Chao - Deutsche Bank

And just on the acquisitions, can you just provide a little bit more color in terms of the three markets that you noted, Dennis that you noted that you're seeing increased opportunities. I mean what's causing the increased opportunities for you. And then as you think about your own cost of capital, which is coming down relative to what you might be able to pay. Just wondering at a high level, how you think about what an acceptable spreads on your cost of capital would be to acquire $75 million to $100 million that you're thinking about.

Dennis Gershenson

Well, first of all, we are seeing a trend in more assets coming to market almost universally. I mean we get a lot of packages having nothing to do with the areas that we're focused on. And there has definitely been an uptick in that. I think that certainly in part driven by the fact that there are more people acquiring. I think one aspect of this especially in the non-coastal areas is that the cap rates have been driven to such a low level on the coasts that people are beginning to look closer at the interior of the country, where they can find high quality assets at certain price better than five caps.

As far as we're concerned in the trade areas that we're focused on, it gets absolutely critical that anybody looking at our company, because as we look at these trade areas whether it's St. Louis or Milwaukee, there are very wealthy pockets in these trade areas. And if people take the time to take a look at the demographic profile of the centers that we're buying, they'll see that we are only focused in the St. Louis market and in the Milwaukee market and even the assets that we've just acquired in Metropolitan Detroit market that will stack up against any coastal community other than in the heart of Manhattan.

So we are maintaining a focus on those markets that meet the criteria, which is that they've got a strong demographic profile and very high quality tenant mix of retailers that we know are here for the long run. So again, combining the increase in assets that people I think are just feeling that this maybe an appropriate time, interest rates still remain low, therefore, there is more competitors out there who will put a lot more financing on these assets than we will. It just is a much frothier market than we found in 2012.

Vincent Chao - Deutsche Bank

And then in terms of how you're thinking about your cost of capital versus the cap rates, which sounds like even on the interior, maybe coming down a little bit just given the increased number of buyers.

Dennis Gershenson

I think that when all said and done, and remember that in each of the acquisitions we're making, we would like to think that there is a value add component, some of that value add is what I referenced as far as acquiring adjacent land. But I think still in the mid sevens is a realistic number, maybe leaning more towards seven and toward eight, but anywhere from seven-three to seven-seven I think it's a good range at the centers we're looking at.

Operator

Thank you. The next question comes from the line of Nathan Isbee with Stifel.

Nathan Isbee - Stifel

Dennis, you had mentioned in your prepared remarks about as much as you had bought some more properties in Michigan, focusing on perhaps trimming your exposure there. Can you talk a little bit about some of the recent trends especially as it relates to investor interest and transactions in Michigan? And give us sense of what might be looking to sell and what you might be able to command on an open market with your profits.

Dennis Gershenson

First of all, there has definitely been an acceleration in the buyer interest in the state of Michigan. Number of institutional players have come into the state of Michigan to buy assets. We have absolutely seen the trend in the cap rates coming down. There have been a number of sales in the sevens, certainly in the low eights for Metropolitan Detroit. The assets we will primarily focus on as far as the sales for Michigan, will fall into that secondary market and where we might have maximize the value of the assets, but I think I have said in prior call that the centers that we are looking at selling now are not the ones that were distressed, that we disposed of in 2012, but really will be reasonably fully leased for 2013, for 2014. Again in secondary markets and I would assume the cap rates without trying to pin down a number within 50 basis points or so would be, it's in the higher single digits for at least for Michigan sales.

Nathan Isbee - Stifel

And then you had also mentioned earlier that you expect to be a net acquirer for the remainder of '13. You're planning to do that on a leverage neutral basis or which are you willing to let your debt tick up a little bit from the current 6.5.

Dennis Gershenson

Again, hopefully I communicated to you in my remarks and especially that's the focus of our board. If our interest ticks up at all, you're talking upon a very small percentage. But what we really are focused on is maintaining something right around the mid-six times rate. And we do not see it fluctuating higher than that.

Nathan Isbee - Stifel

And then just perhaps Michael can comment, I don't know if I miss this earlier, can you give us an update on your office exposure and what you might have come up with over the last few months vis-à-vis the OfficeMax or Office Depot?

Michael Sullivan

We're staying very close to this situation. I can tell you that we're in constant communication with what used to be three, now there are two office. As we have discussed in the past, we've done some pretty detailed analysis about competing office stores in one to three mile range from all of our centers that contain, trying to evaluate sales, trying to evaluate what the future is. We were confident that we'll be able to reduce our store count in 2013. We are actively working on that.

But we're not hearing a lot of communication out of the newly merged Max and Depot, although we constantly speak with them. I think it's still early, but we're doing lot of homework to make sure that; A, we reduce our store count; and that B, we are on top of the positioning of each of the stores in our trade areas vis-à-vis competition. So again we're all aware of the movement in the market. Staples, we're still in constant communication with Staples in constant communication with Staples without any downsizing or relocation opportunities, but I think what we can take away from what's currently happening is we will in fact be able to reduce our store count from the three office acquired in 2013.

Operator

Thank you. The next question comes from the line of Ben Yang with Evercore Partners.

Ben Yang - Evercore Partners

Dennis, you had mentioned that investors are increasingly looking at some of the non-coastal region. It sounds like cap rate compressing a bit in the core markets. And then I also believe you had given a disposition target through 2015, speaking about selling 15 of your non-core centers over the next three years. So I am just curious why you guys aren't considering accelerating dispositions for the year. Maybe take advantage of those buyers and maybe not take on the risk that cap rates could rise by 2015.

Dennis Gershenson

Certainly, all those factors, Ben, are considerations for us. I think we have articulated a conservative disposition program. We are constantly looking at perspective buyers and having conversations with them relative to their interest in centers that we've identified for sale. So it's entirely possible that you could see an uptick in our disposition program in 2013. And definitely in 2014, but we're sensitive to the specific comments that you made. And as long as a disposition makes sense for us, we'll move that as far forward as we can.

Ben Yang - Evercore Partners

But is that opportunistic?

Gregory Andrews

Just to add to what Dennis has said. Included in that kind of three year plan are some assets where we still feel like we have value to add, which is why the plan goes over three years. We want to make sure we have kind of maximized what we can do at any of these properties prior to sale.

Ben Yang - Evercore Partners

It sounds like that target could tick up for this year. And is that more an opportunistic disposition, maybe buyers approach you or you guys engage brokers that try to sell this stuff sooner rather than later. I mean how does that process play out?

Dennis Gershenson

We do both. There are certain players that we know just from what we've learned in our markets that they are active. And therefore we go to some of them directly and with other assets we're interested in marketing them through brokers who will get a much wider distribution of our products for opportunities.

Ben Yang - Evercore Partners

And then just finally question, when you guys unwind joint venture what you did with Ramco/Lion, I think Greg or Dennis you mentioned you got a great price. I am just curious how you come to an agreement on price with seven and four cap rate?

Dennis Gershenson

Again, because of our relationship with Clarion and because of their change in direction, what we did is we worked very closely with them. In each of the markets that we were in, we jointly sort out recent sales. We engaged a number of brokers. And again together with Clarion we got their input as far as value was concerned. So it was a relatively easy process to then take that information and sit down at a table, because you truly had a well admired and willing to sell it and workout price. So no one gained an advantage over the other and we both walked away from the transaction feeling very good about it.

Ben Yang - Evercore Partners

So it sounds like there was a mechanism to incorporate maybe like a current market value in that place. And kind of building on that, in your experience is there typically a discount when with partial interest in centers like to sell versus a fewer to wholly sell the assets to a different buyer?

Gregory Andrews

I think that each case varies. There was a lock up period in our relationship for five years. But once that lock up period was over Clarion could have forced to sale to in the marketplace. So they weren't at all constrained if they didn't feel that we've come to a amicable price. They could have said, well, if that's the way you feel then we're going to market that asset. So I think that at least in this situation it was a fair amount.

Ben Yang - Evercore Partners

So you bought it at seven-four, you could probably sell at a seven-four today as well?

Gregory Andrews

Well, again I think we bought it at seven-four based on 2012 numbers. We expect 2013 numbers to be better. And as I alluded to there are a numbers of place in these assets that we're already moving on that will increase the value even further.

Ben Yang - Evercore Partners

And then just finally what is the cap rate based on 2013 NOI for those assets?

Dennis Gershenson

I think you're talking about somewhere between seven-five and seven-six, without any of these value add activities that we're talking about.

Operator

The next question comes from the line of Michael Mueller with JPMorgan Chase.

Michael Mueller - JPMorgan Chase

I guess, if we're looking at the development and redevelopment pipeline out over the next few years. I mean what do you think the annual spend or the total spend over the next few years could have amount to if you look at everything that seems pretty visible when you grow it all up?

Gregory Andrews

So as we pointed out, we've added one new project to our redevelopment schedule and then what goals are. But what we anticipate happening over the next sort of 12 to 18 months is a ramp up of activity in both of the redevelopment and development and an even expansion category. We talked about some land that we acquired adjacent to the centers we bought, which provides an opportunity to expand those centers. We are working diligently on a couple of opportunities there that we will hope come to fruition over that 12 to 18 months horizon.

We have the Lakeland Park development as Dennis referred to where we're still working on signing few leases, but we are hopeful of moving that project forward during that period and then finally some redevelopments at existing centers. So all told, I think we're ramping up to kind of the 20 to 30 million-ish number, just depending on timing of all of that.

Operator

The next question comes from the line of R.J. Milligan with Raymond James & Associates.

R.J. Milligan - Raymond James & Associates

Michael I was just wondering if you could give a little bit more granularity on what you're seeing in terms of leasing trends for your two larger markets, both Michigan and Florida who is taking space specifically I guess within the small shelves is taking space. And is it more national retailers or have you seen the mom-and-pops come off the sidelines.

Michael Sullivan

R.J., we are pretty bullish on kind of on the leasing velocity, but our leasing prospects. Certainly in Michigan and Florida, especially as Dennis mentioned we stack up these assets and these demographics to mostly any trade area in the country. We are very confident that we can continue this leasing velocity in Michigan and Florida. And quite frankly really across the portfolio we're seeing similar trends.

But clearly based on the recurring composition of our executed leases we're focusing on national and retailers. And we believe with the quality of our assets, with the open to buy programs and the relocation programs with these national and regional retailers, we have some great opportunity to get them into our centers. We're certainly seeing that in the mid-box category. We're making some great strides, as we have spoken about in the past, with national a larger format shop uses and that's a great category that we're executing on.

The truly small shop executed lease trends still rests in our minds with nationals, whether they are corporate stores or they are franchise related operations. The one thing we wanted to be very careful of and selective of really would be the selection of local mom-and-pops to fill spaces. That we want to make sure that they have compelling business plans. We want to make sure that there is a little default risk. And we want to minimize landlord capital outlay. In these deals you might see some of these mom-and-pops shop deals, be maybe of a shorter term, but out they are out there. The deals are there to be made, but we're being more selective. So that the takeaway is that our emphasis is still national and regional from mid box going down to truly shop. And we're seeing a frothy environment for all those different users at the different size categories.

R.J. Milligan - Raymond James

So as you're looking at national retails would you say that demand is pretty smaller between Michigan and Florida or is there one of those markets that you think is stronger in terms of leasing velocity and lease spread prospects.

Michael Sullivan

We look at them as really being similar and I think if you look at our opportunities moving forward, and maybe, even look at the snapshot of the last 12 months, you will see we've had some good activity with nationals in both markets. But we would see them to be similar in the minds of the nationals. Dennis mentioned we have got some nationals and some regional actually enter the Michigan market and consider Ramco assets. We see that's going to continue.

Dennis Gershenson

If I could just add one thing to that and that is we have very little Michigan small tenant space to lease because of how well leased we are, both for the big box and for small shop in Michigan. Though there is a lot more opportunity obviously in the state of Florida and little opportunity in Michigan, and that I would because other trade areas that our centers are located in have been vibrant enough that we've retained those tenancies.

Operator

Our next question is a follow up question from the line of Todd Thomas with KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

Just a question for, Greg. You noted that the two more mortgages from Clarion deal were retired subsequently at the end of the quarter. And that a third will be retired shortly. Those three mortgages if I have not mistaken is roughly $70 million of mortgage that had in place a coupon of about 7.5%. I was wondering how were those mortgages retired?

Gregory Andrews

I think it's actually more in total that I think it's closer to the $100 million at a 100%, but we are currently using our line to pay those off and then we are looking at longer term financing options to pay down the line. But as I pointed out over $200 million of capacity underlined, so plenty of room there to work it that way.

Todd Thomas - KeyBanc Capital Markets

And so if I kind of dig into the guidance of that, I am wondering, what the assumptions or embedding guidance are for primarily financing those. I guess, if I think about the composition of the $0.03 guidance provision, it seems like there is an incremental penny from the additional land sale gain and then I guess $0.02 per share from the transaction overall. Is that about right? I know there was a little bit of an offset from G&A, but it seems like there will be more accretion given the above market debt that was in place that you're probably going to realize 300 to 400 basis points positive spread on.

Gregory Andrews

Well, we all have had an interest in those properties and we forecast it as a part of our budget and guidance for the year that those mortgages would be rolling and then the interest rates would be coming down.

Todd Thomas - KeyBanc Capital Markets

Your forecast for the year didn't necessarily include 100% interest, right. You were forecasting that you would buy in these assets when you gave the original?

Gregory Andrews

No. We didn't know.

Todd Thomas - KeyBanc Capital Markets

And it would add another $70 million, $80 million, $100 million at 7% to 8% that will roll down to 4% and that's pretty significant saving.

Gregory Andrews

And that's part of, I think the benefit from the transaction overall is the pick up in income we're getting both from the Ramco income as well as the ability to reduce the interest expense associated with those properties. So the strategy is to seek long-term financing at current market rates, which certainly are a lot less than 7.5%.

Todd Thomas - KeyBanc Capital Markets

And that's not necessarily in guidance.

Gregory Andrews

No. I am sorry that isn't in our current guidance.

Todd Thomas - KeyBanc Capital Markets

The savings is in guidance, so a 300 or 400 basis points savings on the $100 million.

Gregory Andrews

Yes. I mean on the mortgage, yes.

Operator

(Operator Instructions) It appears there are no further questions at this time. I would like to turn the floor back over to management for any concluding remarks.

Dennis Gershenson

As always, we thank everybody for their interest and their attention. Please watch for additional announcements throughout the quarter and we look forward to talking with you again in about 90 days. Thanks again.

Operator

Thank you, ladies and gentleman. This does concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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