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Ramco-Gershenson Properties Trust (NYSE:RPT)

Q4 2011 Earnings Call

February 15, 2012 9:00 a.m. ET

Executives

Dennis Gershenson - President, Chief Executive Officer

Gregory Andrews - Chief Financial Officer

Michael Sullivan - Senior Vice President, Asset Management

Dawn Hendershot - Director, Investor Relations and Corporate Communications

Analysts

Todd Thomas - KeyBanc Capital Markets

Jordan Sadler - KeyBanc Capital Markets

Nathan Isbee - Stifel Nicolaus

Benjamin Yang - Keefe Bruyette & Woods

Vincent Chao - Deutsche Bank Securities

Richard Moore - RBC Capital Markets

Michael Mueller - JPMorgan Chase

Edward Okine - Basso Capital

Operator

Greetings and welcome to the Ramco-Gershenson Properties Trust Fourth Quarter 2011 Earnings call. At this time all participants are in a listen-only mode. A 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 Investor Relations for Ramco-Gershenson Properties Trust. Thank you. Ms. Hendershot, you may begin.

Dawn Hendershot

Good morning, and thank you for joining us for Ramco-Gershenson Properties Trust fourth 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 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 of the date of this call. Listeners to any replay should understand that the passage of time by itself will diminish the quality of the statements made. 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. We are pleased you could join us. If there is one thought I would like you to take away from this call, it’s that Ramco-Gershenson has been on a trajectory these last two years to promote quality in all aspects of our business. What do I mean by our commitment to quality? First, we are focused on achieving and maintaining the highest credit quality from our tenant roster and income stream. Second, we are actively engaged in culling from our shopping center portfolio, those assets we consider non-core, and at the same time, pursuing the acquisition of high quality properties in metropolitan markets with superior demographics.

And third, we continue to improve the quality, strength and flexibility of our balance sheet, which will promote a solid foundation for our growth in 2012 and beyond. In 2011, our focus on quality and asset management can be seen through the progress we made in improving the composition of our rental stream. This was achieved by filing large format vacancies and both replacing underperforming big box users as well re-tenanting dark by paying tenants with national creditworthy retailers. And the success we have achieved in leasing our anchor space has resulted in the beginning of a repositioning of our lineup of our top 25 anchor tenants.

Further, these anchor additions will continue to drive smaller tenant occupancy gains. These results demonstrate that our shopping centers are truly the most desirable locations in our trade areas to accommodate the increasing demand for the expansion plans on the part of numerous national retailers. Also during 2011, we actively promoted the improvement in the quality of our shopping center portfolio by selling four non-core assets, including three Florida centers and our only property in South Carolina. We replaced the loss of their rental income by acquiring two high quality class A shopping centers in St. Louis. A new market for the company that created the opportunity to make high quality acquisitions at favorable pricing.

Both St. Louis acquisitions, purchased at a blended cap rate of 7.5%, represent an improvement in the quality of our portfolio demographic profile, a broadening of the credit quality of our tenant roster, and each center presents the opportunity to add real value as the company’s purchase price was based on income and place. The value add benefit will be realized through the lease-up of vacant space and the expansion at one center by the construction of new retail buildings. We anticipate these value add activities will commence in 2012.

Further in 2011, we continue to promote a transformational change in our capital structure. Our efforts allowed us to exceed all of our balance sheet metric goals. That said, it is important you understand, that as we move into 2012, with an emphasis on growing the company and continuing our capital recycling plan, we will jealously guard the progress we made with our balance sheet. In summary, 2011 was a year of real and substantial progress for the company in promoting quality in all aspects of our business. With a commitment as both the near-term and long-term strategy, what are our plans for 2012?

First, as it relates to asset management, we expect to further reduce the number of vacant large format boxes, portfolio-wide. In addition, as we are experiencing and acceleration in leasing commitments, with national credit quality retailers in the 4000 to 10,000 square foot range, our portfolio and leasing statistics will benefit by the combining of numerous small shop spaces. This approach answers the challenge of leasing the sheer volume of small tenant spaces our industry is facing as a whole, because of the shrinking pool of local retailers who also find themselves seriously under-capitalized.

In other words, Ramco-Gershenson, is filing its largest vacancies with the right anchors in their new format and size. We are converting the space leftover from this downsizing into productive, larger formatted small shop space. And we are reducing the amount of 1000 to 4000 square foot premises by bringing exciting new larger retail concepts to our shopping centers. All of these lease signings and tenant format changes which occurred in 2011 and are continuing in 2012, will have a major impact on our numbers this year and next, as they translate into a significant increase in quality, recurring FFO, as a percentage of total FFO.

Occupancy, same-center NOI, and leasing spreads are all anticipated to improve during 2012. Our efforts to grow our portfolio of high quality shopping centers is also progressing, we are presently in contract to sell three non-core centers, and we have identified an additional two assets that no longer fit the type of properties we wish to own going forward. Because of the number of centers we own in Michigan and Florida, coupled with our desire to diversify our portfolio, you should expect that the dispositions will more likely than not, involve properties in these two states.

In addition to our planned dispositions, we have identified at least one acquisition prospect that meets our criteria for purchase, including its location in a metropolitan market, the presence of a superior demographic profile, and the number of credit quality anchor tenants. We are working diligently to match prospective acquisitions with our disposition program, so as to limit and increase in leverage and manage dilution. Note, that our 2012 FFO guidance includes $25 million to $50 million of non-core asset sales. An additional area that will be of focus of ours in 2012, is the land we carry on our books for potential development and sale.

Please note that we have already moved a land parcel to development in progress as we are announcing the commencement of phase one of our Parkway Shops project, which is adjacent to our River City Marketplace in Jacksonville, Florida. We have signed leases with Marshalls and Dick’s Sporting Goods. These two national retailers are a terrific complement to our River City anchor lineup. Further cementing our assets as the dominant retail shopping destination for a large and growing trade area.

Also at the Parkway Shops development, we are currently finalizing leases and letters of intent with enough smaller format retailers to achieve a leased rate of over 90%, by the end of the second quarter. Our return on incremental dollars will be approximately 11%. As for the balance of our land held for development or sale, I have charged our management team with the goal of moving approximately 20% of these non-productive assets into either active projects or completed sales by the end of 2012.

Based on the activities of our asset management team, we are pleased to report that the company is producing consistent, solid results in our operating metrics. Our expectations for 2012 is a continuation of this trend with an ever increasing of share of FFO, being generated by our core operations. Also, the company remains committed through its capital recycling plan to the diversification of our markets with the twin goals of reducing our exposure to our top two market concentrations, while at the same time we will be selling assets to reduce the number of markets, where we have a limited presence.

In 2012, we will make progress on both of these fronts. Importantly, over the last 24 months and especially in 2011, Ramco has made substantial changes in our organizational structure, including personal reductions to streamline the company. We are now appropriately staffed to pursue our plans for growth. Thus, with a clear vision of building the highest quality portfolio of shopping centers and with the wind at our back, as we continue to post solid, consistent, sustainable operating results. Ramco-Gershenson is poised to deliver real growth in shareholder value as we execute on our commitment to quality.

I would now like to turn this call over to Michael Sullivan and then to Greg Andrews, who will provide the context for our achievements in the fourth quarter and the year 2011. Michael?

Michael Sullivan

Thank you, Dennis. Good morning, ladies and gentlemen. In keeping with the theme of quality, I believe that our operating performance in 2011 supports the conclusion that our shopping centers are the type of high quality assets where creditworthy tenants want to locate. That national retailers with strong merchandizing concepts are making up an ever-growing percentage of our income stream. And that our shopping center metrics provide compelling evidence that we have charted a course to produce solid, consistent and sustainable income growth.

The primary driver of our 2011 results is an aggressive leasing and asset management effort, designed to growth occupancy at increased NOI. Our success in 2011 may be summarized as follows. We maintained strong leasing velocity for both new and expiring leases. In 2011, we executed 385 leases totaling over 2 million square feet. We made significant progress in leasing up large format anchor vacancies. In 2011, we executed 14 anchor leasings with national creditworthy tenants, reducing the number of vacant anchor spaces from 15 to 18. Included in the anchor lease signings are the replacements of dark and paying tenancies and underperforming active tenancies with viable anchor retailers.

In a majority of these cases, we received substantial lease termination fees which the company used to pay for the new tenant improvements. Our achievements in this area can be attributed to our long standing and strong relationships with top national anchor retailers. Including, Ross Dress for Less, Marshalls, Michaels, DSW, and Bed, Bath and Beyond. Our anchor leasing efforts in 2011 have produced an anchor leased occupancy rate of 96%. We also made significant progress on leasing small shop space. In 2011, we executed new leases for 450,000 square feet of small shop space. Of which 70% was leased to national or regional tenants.

In addition to our success in generating interest in small tenant spaces, we were also proactive in anticipating the trends on the part of some national bankers to downsize their prototypes, both at the end of the existing terms and in some cases, mid-term. While at the same time identifying retailers in the 4000 to 10,000 square foot category, who were desirous of being added to our tenant roster. With the realty of downsizing in our minds in 2011, we converted approximately 80,000 square feet of anchor space to small shop space.

We were successful in leasing a significant portion of this additional space by taking advantage of the expansion plans of healthy national tenants in this category, including retailers such as rue21, Five Below, Dollar Tree, Kirkland's, Charming Charlie, Dress Barn, Dots and (OLTA), resulting in a leased small shop occupancy rate of 84%. Combined, our leasing efforts contributed to a significant improvement in core portfolio leased occupancy of 93.5%, which compares favorably to 92.8% achieved in the third quarter, and is a 180 basis points above the 91% in 2010.

In addition to our achievements in signing new leases, we are extremely pleased to report an historic high in our renewal retention rate. In 2011, we renewed 82% of expiring leases while still achieving an average annual rental increase of 1.5% over prior rental paid. Additionally, we achieved rental growth for comparable new leases of approximately 1%. Asset management continued in 2011 to reduce recoverable and non-recoverable operating expenses at our centers. Exclusive of acquisitions and dispositions we were able to lower recoverable operating costs by approximately $3 million versus budget, and non-recoverable costs by $175,000 versus budget. All this while improving our recovery of shopping center expenses to 94.1%.

Achieving these objectives has also improved our same center NOI performance, our leasing efforts and improved retention of expiring leases, have strengthened or minimum rent and recover income, while our cost containment measures have resulted in lower recoverable and non-recoverable expenses. This combination helped us achieve a same center NOI gain of 140 basis points for the year. Ramco’s asset management team is committed to producing steady improvement in all operating metrics, thereby creating consistent and reliable growth in the portfolio in 2012 and beyond. Greg?

Gregory Andrews

Thank you, Michael. Before I cover our results, I would like to notify you of a correction to our supplement. Then I will update you on our balance sheet at year-end, cover our income statement for the quarter and conclude with comments on our FFO outlook for 2012.

On page 27 of our supplement in the far right column, we incorrectly reported our pro rata share of joint venture net operating income or NOI, as $2.395 million for the quarter. The correct figure is $3.459 million. A revised supplement will be posted to our website following this call.

Now, turning to the balance sheet. We ended 2011 in a strong financial position. In particular, I would like to highlight three areas where our debt metrics improved compared to a year ago. First, our leverage is lower. At year-end, net debt to EBITDA, was 7.0 times compared to 8.5 times at the end of last year. We drove this improvement both by reducing our net debt by $55 million, and by increasing our EBITDA by nearly $6 million.

Second, our debt structure is stronger. At year-end, our pool of unencumbered assets had a value of approximately $565 million, which provided more than 3.5 times coverage of our $160 million in unsecured debt. Recall that at the end of 2010, the vast majority of our assets were encumbered. Note also, that our weighted average term of consolidated debt is a healthy 6.1 years, and that only 5% of our debt has variable interest rate. Third, we maintain ample liquidity. In addition to $12 million of cash at year-end, we had $144 million in borrowing capacity available under our unsecured revolving line of credit.

Our share of debt maturing in 2012 is only 15 million, leaving us with more than sufficient capacity to fund or planned capital projects and to undertake opportunistic investments. In sum, over a short period we have made substantial progress on our balance sheet. We will remain committed to a strong, flexible and liquid capital structure that affords us the capacity to act when opportunity knocks.

Turning now to the income statement. Our FFO for the quarter, adjusted for impairment charges on land and the gain on extinguishment of debt, was $0.22 per share, compared to $0.20 per share in the comparable quarter last year. As such, we had no significant lease terminations fees or gains on land sales this quarter. Or same center NOI was a bright spot. Increasing 2.3% for the consolidated portfolio. Total consolidated NOI reflects several items of note, including the acquisition of Town and Country for $37.8 million, which occurred on November 30. As a result, only one month of NOI from this acquisition was included this quarter.

In addition, our NOI includes the provision for credit loss that was $200,000 higher than in the third quarter, due to some aged receivables where we deemed collection to be doubtful. As a result, our allowance for doubtful accounts is appropriately sized going into 2012. Also note, that our straight line rent adjustment this quarter was a negative $667,000. This is because we increased our reserve against our straight line asset to minimize our risk of loss to potential early lease termination. This increase does not pertain to any tenants in particular, instead we made adjustments across our entire book of our straight line asset.

These two provisions, one for credit loss and the other for straight line rents, both effect GAAP NOI, but it is important to realize they were larger this quarter then we expect them to be on a recurring basis in 2012. Working down the statement. We recorded $4.4 million of general and administrative expense for the quarter. This is significantly lower than in prior quarters and reflects the reduction in staffing we implemented at the end of the third quarter. In 2012, or G&A should run modestly higher than our fourth quarter 2011 rate, due to anticipated salaries and vendor cost increases.

Our loss from unconsolidated joint ventures was significantly larger than usual. Let me explain this. It reflects primarily two one time non-FFO items. One, the impairment of a property at one of our joint ventures, which at our share, was a loss of $1.6 million. And two, accelerated depreciation at two shopping centers. The shops on (lane) in Columbus, Ohio, where we made room for the expansion of whole foods, and Peachtree Hills in Atlanta, Georgia where we created a path for LA Fitness. These items do not affect FFO. In fact, our share of FFO from joint ventures this quarter, was roughly equal to the amounts recognized over the prior several quarters.

The last income statement item of note is a gain on extinguishment of debt of $1.2 million. This relates to the transfer of Madison Center, a Kmart anchored property in Madison Heights, Michigan, to the lender in exchange for release from our $9.1 million loan obligation. We have not included this gain in the $0.22 of FFO as adjusted, that we are reporting in this quarter. However, it is included in the FFO that we report under NAREIT’s definition.

Now, I would like to comment on our outlook. As stated in our January press release on guidance, we are expecting 2012 FFO to be in the range of $0.94 to $1.02 per share. This reflects our expectation for same center NOI growth of 1% to 2% for the year. Given the timing of lease starts during 2012, we’d expect this growth to be somewhat back-end weighted for the year, that is to say, stronger in the second half than in the first. Increasing cash flow is one of our goals, but the quality of cash flow is also important. Let me address five ways our quality of FFO is improving between 2011 and 2012.

Specifically, our 2012 FFO guidance is based on the following, functions and accomplishments. One, lower lease termination fees and gains on land sales than we received in 2011, by approximately $0.06 per share. Two, improving tenant credit quality achieved through leases with the likes of T.J. Maxx, Bed, Bath & Beyond, Ross and others. Three, lower leverage and a primarily fixed grade debt structure. Four, sustainable JVC income based upon management and leasing contracts. And by a projected straight line adjustment during 2012, that reduced rather than increases FFO by approximately $0.02 for the whole year.

In sum, our FFO should be more predictable and sustainable going forward. We believe this to be important to our shareholders, who are inclined not only to look at reported numbers, but to understand the quality that is driving them. As always, we are keenly focused on creating value for shareholders day in and day out. Now, I would like to turn the call back to the operator for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is coming from the line of Todd Thomas with KeyBanc Capital Markets. Please state your question.

Todd Thomas - KeyBanc Capital Markets

Hi, good morning. I am on with Jordan Sadler as well. First question, just thinking about the vacancy that’s still on the portfolio today, I know you mentioned that you have eight anchor vacancies. First, can you just give us an update on the progress that you are making to lease those boxes? And then second, I was just wondering if you could maybe quantify or breakout how the rent spreads would look if you were to break them out between tenants over and under 10,000 square feet.

Michael Sullivan

Todd, Mike Sullivan. The eight spaces, of the eight spaces we have -- we are negotiating prospects to re-lease three of them and we expect to be able to qualify that interest over the next 30-45 days. The second question, can you clarify for me about rent spreads by tenant size, large and small?

Todd Thomas - KeyBanc Capital Markets

Right, right. So I saw that you broke out the leasing spreads for tenants that were -- for spaces that were vacant for more than 12 months or less than 12 months. I was just wondering if you could do it by size for tenants that were over and under 10,000 square feet.

Michael Sullivan

I think, in general, we are seeing in three different categories, different momentum for lease trends. Obviously, anchor of 19,000 and above, you will see there still is I think some downward pressure on rents. Depending upon how far you go back, I think if you are talking pre-great recession, we still are having some challenges getting those rental rates up to those levels. I think we are seeing improvements post great recession and in particular, we highlighted the vacant less than 12 months number because we are seeing some trends improving there.

Anchors are still tight. The large format shop users, however, are aggressive. The 4000 to 10,000 square foot users are, in general, especially that list of retailers that I alluded to, are aggressive. And we are seeing improving trends in national rent spreads in that category. Shop, although it is starting to warm-up, sub-4000, we are seeing some green shoots in terms of local tenancies coming back. We are really hoping that our -- the greatest impact, our greatest improvement for those spaces in that category will give us or greatest improvement. We are still cautiously optimistic. We haven’t had a track record long enough to document that this is a durable consistent trend.

Todd Thomas - KeyBanc Capital Markets

Okay. That’s helpful. And just following up on that then, where do you think that the increased demand from some of the local tenants that you are talking to, where do you think that’s coming from?

Michael Sullivan

Well, in terms of our portfolio, it really is outside in Michigan and Florida, strangely enough, we are getting really an increased in interest not only in local tenants who have multi-shop operations already, but those involved in new business plans who are potentially better capitalized then they have been in the past. So we are seeing some demand some increased demand in both Michigan and Florida.

Dennis Gershenson

Let me just add, if I could, to Michael’s comment. We are still seeing many of the leases run off in some of the secondary shopping centers. Still a very significant demand on the more viable concept local retailers, for them to move from secondary locations into our shopping centers. And so that trend continues.

Todd Thomas - KeyBanc Capital Markets

Okay. And then Dennis, with regard to the $25 million to $50 million of asset sales that are, I guess baked in the guidance, how much -- what are the net proceeds that you are expecting and how much in value do the three properties that you are under contract to sell, account for?

Dennis Gershenson

Well, although, we wanted to let you know that indeed we have made progress in that we have signed these contracts, historically, we have tended to -- make those dollar announcements when we actually close. But we certainly have a very strong confidence that we will meet and surpass the low-end of the $25 million, and it’s just a question on, as I referenced, moving out of some market where we have a very limited presence. If we can get the right type of cap rate for those assets, then we may move towards the higher end. But I have to take to -- to start giving you figures until we start closing these transactions.

Operator

Our next question is coming from the line of Nathan Isbee with Stifel Nicolaus. Please state your question.

Nathan Isbee - Stifel Nicolaus

Hi, good morning. Dennis, you had mentioned in your prepared remarks about leasing spreads improving in 2012. They were down about 8% to 10% in ’11. Can you give us a sense of where you expect those to move here in ’12?

Dennis Gershenson

I don’t know if Michael has specific numbers, but we definitely, as Michael has just alluded to in Todd’s question, we have absolutely an increase in the rental rates that these tenants are willing to pay. I continue to find interesting is as we look at a number of our peers etcetera. We have always taken a great deal of pride in the strength of our shopping centers. Those shopping centers in the year’s 2000 to 2007, produced some very aggressive rents. Are we building back to levels that we had achieved before, we are indeed doing that. But the hurdle rates because of how successful our centers were, set a reasonably high bar. But there is no question that we are indeed achieving rental rates that are superior to what we achieved in ’10 and we will achieve greater in ’12 over ’11.

Nathan Isbee - Stifel Nicolaus

Okay. I mean just looking at the three box leases you are working on no, I mean can you just talk broadly about where those rents compared to where the box leases you signed last year?

Gregory Andrews

Yeah, Nathan, they are consistent with those box leases that we have signed within the last 12 to 18 months. It’s an ism of course that they are down from ’05, ’06, ’07, ’08, but if you just take your recent history, 12 to 18 months, they are absolutely in the same neighborhood.

Nathan Isbee - Stifel Nicolaus

Okay, great. And then can you just talk a little bit about Michigan specifically in terms of retailer demand, new retailer demand to leasing in that space, given some improvement in the economy there?

Michael Sullivan

Well, Nathan, it is a good story. Things are warming up in, Michigan, in general. If you look at our Michigan stats in terms of physical and leased occupancy, in terms of average rent, we are doing really very well in Michigan. We do in fact have, in that 4000 to 10,000 square foot category, you know a number of those retailers that I mentioned, who have aggressive multiple store programs in Michigan. As Dennis mentioned, they are interested in either a flight to quality, whether it’s a new store or relocating. And we are doing a lot of deals. You have noticed that we have executed several deals with not only Bed, Bath and Beyond, buybuy Baby, there are several box retailers who are looking very favorably and aggressively at Michigan. We were getting word that there are several other, if not national, large regional players, who are also beginning to develop an open to buy plan in Michigan for late ’12 or 13. So we are seeing demand increase in Michigan.

Dennis Gershenson

And again, let me add something to Michael’s comments, if you look in the supplement Nate, you will see that for the wholly owned shopping centers that are core, we are over 97% leased. So we are well above statistical, fully leased assets. There are a couple of boxes that are yet to be leased and we have identified tenants for those boxes in our off balance sheet joint venture. But, as you know from our previous conversations, in the depths of the recession, out of the 13 states where we had our shopping centers, Michigan was always the highest statistically, as far as occupancy is concerned. And over the entire portfolio in Michigan, we are pressing the 94%, 95%. So Michigan not only has not been a problem as far as leasing is concerned, but with the advent of the buybuy Baby’s and Five Below’s and tenants like that, we are seeing a number of retailers who find Michigan a desirable place to locate for new concepts that are coming into the state.

Nathan Isbee - Stifel Nicolaus

That’s helpful, thank you. And then Greg, can you just talk a little bit about how you see the balance sheet moving this year in terms of maybe further un-encumbering some of your assets? And how far you think that can go?

Gregory Andrews

Yeah, we have a little bit of mortgage debt coming due this year, which I think we would probably be inclined to payoff using our line rather than refinancing in the mortgage market. And I think, it’s not a lot this year but it grows a little bit in the years beyond that. So that would be one source. Also we tended to, Nate, be acquiring properties, maybe more by chance than design, that are unencumbered. And so that helps our pool grow as well.

Operator

Our next question is coming from the line of Ben Yang with Keefe Bruyette & Woods. Please state your question.

Benjamin Yang - Keefe Bruyette & Woods

Yeah, hi, good morning. Dennis, a question on development, specifically on Parkway Shops, 11% incremental return on your $11.3 million that you still have to invest. So really the project will return about 7.3% including all the costs that you sunk into the project. I mean, as far as, do you think this is an asset that would warrant evaluation cap rates lower than 0.3%, once it’s open and stabilized. And then second, who do you guys evaluate restarting developments like Parkway versus maybe selling the project because, I think you mentioned intending to move ahead with 20% of your non-productive assets. I mean is it incremental return on investment, and sunk cost -- or just sunk cost when you decide to move ahead with something like this.

Dennis Gershenson

Well, it’s not an uncomplicated question you are asking. We certainly, as we -- and you got to bifurcate the property, some properties are just lands that we own that we intend to sell. Other parcels that are saleable are part of the development because certain anchors will only buy as opposed to lease. But if we look, and as we looked at, Parkway Shops, we absolutely assessed the differential between just saying let’s sell this as a fully entitled site, either with executed leases or with letters of intent and what could we achieve with that versus going ahead and doing the project. You will find with us if we are going to move ahead with the project, at least on incremental dollars, we will achieve a double digit return.

As far as the overall return when you add back in the money we have spent, I am pleased to say that in the last couple of years we made a decision that we were going to stop capitalizing costs especially interest, that increased our basis in that land. I think that was a smart decision. I think a number of our peers made that same decision. So that if we had not capitalized that interest from the get go, I think that the overall return you would have seen would have been even better. But understand at least with the projects that we will move ahead on, they are a complement to existing very profitable shopping centers that we own.

So part of what drives us forward in the developments that with Parkway and the possibility with the Lakeland asset as well, is that it complements what we have demonstrated is a successful asset as opposed to saying, we are going to go out in a potential Greenfield area and take the risk of a lot of tenant leasing. I think the mere fact that you see that I have made a representation that we will be over 90% leased within the next four months, speaks volumes about that location.

Benjamin Yang - Keefe Bruyette & Woods

Okay. That’s helpful. And then changing gears to geographic diversification strategy. Obviously, you bought assets in St. Louis, which is a new market for you, and you intend to acquire to more centers this year, I think you said you have one identified. You also said you intend to move to other markets as well. And when you think about entering new markets or growing in existing regions, what's the appropriate size or scale to make the effort worthwhile, given the fact that you are somewhat smaller size relative to your peers. I mean is it two assets, five assets, what do you think the sweet spot is for you guys for you to even exit a market?

Dennis Gershenson

Well, let’s go to, as far as entering the market is concerned, I think we would have a goal of three to five shopping centers in that marketplace. And as you can see from the two that we bought and the one center that we are talking about, we have identified is again the multi-anchor shopping center. So I think to truly have a representation in a new market, and we are very careful about the new markets that we chose, based upon a whole variety of factors. But I think three to five assets of size make sense for us.

As far as the markets that we may exit, and remember in my remarks I mentioned two focuses. One focus is obviously, we have a very significant presence in Michigan and Florida. Whether we sell assets out of that or reduce their impact by buying in other markets, that’s the focus. The other focus that we have is that we -- it’s entirely possible that we may be selling assets that are good assets, it’s just that we have made the one or two assets in that market. It’s not an area where we plan to grow and so we are better off taking the proceeds from the sale of those assets and investing them elsewhere.

Benjamin Yang - Keefe Bruyette & Woods

Okay. That’s helpful. And then just finally, I am sorry if I missed it, but did you say what the same store NOI was from your joint venture property for the quarter and for the full year?

Gregory Andrews

We didn’t. For the quarter -- and I don’t have it in front of me, Ben -- but from memory it was actually a bit over 6%.

Benjamin Yang - Keefe Bruyette & Woods

Positive?

Gregory Andrews

For the year it was about 3, just a little over 3.

Benjamin Yang - Keefe Bruyette & Woods

6% for the quarter and 3% for the full year. And can you just remind us how much of your NOI comes from the joint venture property?

Gregory Andrews

It’s around 16% to 18% pro rata.

Operator

Thank you. Our next question is coming from the line of Vincent Chao with Deutsche Bank. Please state your question.

Vincent Chao - Deutsche Bank Securities

Good morning, everyone. I just want to go back to the leasing environment comment. It sounds like things are trending positively and you seem pretty positive entering 2012. I just wanted to kind of get some color on that relative to the occupancy guide which seems to be flat year-on-year in terms of the core portfolio lease rate. And maybe if you could tie in some comments about the, you know what you are seeing from Kmart as well as, I guess there was a couple of new anchors that got that, the month to month. I just wanted to get some update on what’s going on with those guys?

Dennis Gershenson

Yeah, let me start out, and I don’t know if Mike or Greg want to add anything. But as we have indicated, we truly believe we are gaining significant traction and very pleased about these larger format but smaller tenant commitments. The first quarter is always a quarter where you get some real shake-up in occupancy relative to any of the boxes that maybe leasing and some of the smaller tenants because a preponderance of our leases do and on December 31. So I think that the number that we have put out there, we believe is a very conservative number and we understand your enquiry and we will give you an update on that either at the end of the first or sometime in the second quarter. But you should count on that being a very conservative approach.

Vincent Chao - Deutsche Bank Securities

Okay. And what you are seeing from Kmart and other stores that announced some closures here. Can you provide some color there?

Michael Sullivan

This is Mike Sullivan here. We have essentially five, you know Sears, Kmart, boxes in the portfolio. One is slated for closure in 2012, a second one is slated for closure in 2013. Both of the stores on the closure list are part of a joint venture, the partnership assets. We are in fact in direct negotiations with several national retailers to re-tenant the Kmart box slated for closure at the end of April in ’12. And we are confident that we will have replacement plan in place for the closure that’s slated for ’13. The other three stores, two of them are wholly owned, one is in a joint venture. Our indications are, based on our discussions with Kmart, that the three of them are good stores and we are anticipating them staying. Obviously, between now and the end of the year that could possible change, but those terms in general are 15 and 17.

Vincent Chao - Deutsche Bank Securities

Okay.

Gregory Andrews

And Vincent, I would just add that, across the board, the rents that Kmart and Sears pay are very low. So in fact there is potentially upside although there is typically some downtime that accompanies every tenanting aspect.

Vincent Chao - Deutsche Bank Securities

Okay. And just on the comment about the renewal rates of 82% in 2011, is that kind of where you see 2012 shaking out in terms of the renewal rate or you think that will go, back down to more historic levels or where are you sort of thinking now?

Gregory Andrews

Our pre ’11, our historical rates were in the low 70s. We are really comfortable and confident that 80% or above is achievable for us in ’12 and that’s really part of our operating plan.

Vincent Chao - Deutsche Bank Securities

Okay, but that low 70 is just sort of the historical?

Gregory Andrews

Yes, if you take the last five, five years or even farther back it’s 72%, 73%. It has been 72%, 73%. But we have obviously been looking at the ’12 and ’13 renewals and we feel pretty comfortable that we can hold the line at 80% or above.

Vincent Chao - Deutsche Bank Securities

Okay. Thanks. Just a last question. Just in terms of the disposition plan, the three under contract I think two more identified for potential sale. So assuming those all got tested for impairment I am just wondering if those five asset sales all close, would that hitch your guidance for the year for sort of what you think you are going to dispose off? Or is there a potential for additional assets to be sold? I am just trying to get a sense of whether or not there is more impairment potentially coming up here over the course of the rest of the year.

Gregory Andrews

Vincent, we obviously across the portfolio at everything that we intend to sell. I think we looked at a dozen assets of which just kind of handful were the ones where we had to take impairment charges. And all of that constitutes assets that are available for sales. As Dennis mentioned, we maybe more or less just depending on pricing. But we have looked at everything that we intend to put to market and have taken the charges appropriately.

Operator

Our next question is coming from the line of Rich Moore with RBC Capital Markets. Please state your question.

Richard Moore - RBC Capital Markets

Yeah, hi, good morning guys. Greg, on that correction you made on page 26, is that only cell that changes. I mean in other words, is the total for the JVs of $13.8 million, was that correct and it was just the pro rata share that was incorrect?

Gregory Andrews

Yeah. That’s correct. I would not, however, Rich, that we have also somewhat changed the presentation where are now deducting in NOI, 100% of the management fee, which was not previously part of the presentation. And we show a line a little bit further down on that page where we in effect add back our share of that management fees since we can't pay ourselves or cost ourselves anything in terms of management fee. And I think that add back is really effectively like the NOI to us. So I just wanted you to be aware that the presentations a little bit different.

Richard Moore - RBC Capital Markets

Okay. No, that’s a good point. And so is that an operating expenses in now where it wasn’t before, is that...?

Gregory Andrews

Yes.

Richard Moore - RBC Capital Markets

Okay. All right. I got you. Good thanks. And then staying with the JVs a second, I know that you guys have not too much in maturities, debt maturities this year, but a bunch next year. And I am curious, have you started looking at those, is it too soon, do you have any concerns about being able to refinance those mortgages as they come due.

Gregory Andrews

Yeah, we have absolutely looked at that already and we have also had discussions with our partners with respect to those mortgages. It is a little bit early to take any specific action. And in general, the long-term values across the board are reasonable, maybe a little bit at the high-end of the range. Now when you get down to specific mortgages, there may be some that are at higher loan to value than the market would refinance today. And so as a result of that, depending on our plans and the joint venture partners plans, if we refinance those we may pay some dollars down.

It’s not very large number. It’s not something that’s keep me awake at night. I don’t have a number for you. But having looked at I don’t -- it’s just not big enough to be worried about.

Richard Moore - RBC Capital Markets

Okay. And I take that you have concern that your partners would be able to put their share in?

Gregory Andrews

Correct.

Richard Moore - RBC Capital Markets

And then a quick question, if I could, on the land. I mean I think Dennis, you were saying that you wanted to look at about 20% of the $77 million of land that you have held for development and try to bring that to some sort of fruition. And I am wondering about the remaining, say 60 million of land, is that land that you think you would actually develop something on, overtime or has that sort of passed by at this point?

Dennis Gershenson

Again, may comment really involved -- the land held for future development is 53.5 million and then land held for sale 23 for a total of 76. So when I talk about 20% I am talking 20% of both of those numbers. So to the extent that there is out-lots that we sell, that there is land parcel that we sell, either as part of a development or just to sell-off and a development may happen later. My druthers would be that we have a greater emphasis on selling of parcels that of land and reducing the $23 million. Because we continue to work very hard on signing enough anchor leases, we didn’t really talk about or criteria for moving ahead with any prospective development.

But the criteria that management has and the criteria that the board has is very very strict as far as the type of commitments that are needed to be made, the share percentage of leases that have to be signed and the hurdle rates on returns. So, as with Parkway, if you hear anything from us as far as this development is concerned, it’s for all intents and purposes a done deal. So we can go into much greater depth if you want without taking up a lot of time here with everybody on the phone, as to where are we at with individual projects etcetera.

Operator

Our next question is coming from the line of Michael Mueller with JPMorgan Chase. Please state your question.

Michael Mueller - JPMorgan Chase

Hi, a couple of things. First of all, for the three to five properties that you are into contract for or close to being under contract for. Does the aggregate value of those fall within $25 million to $50 million for the guidance that you put out initially?

Dennis Gershenson

Well, the three to five, the $25 million, that will come in under the $25 million number. But again, there are adds -- we are only identifying for you that truly these five will happen sooner as opposed to later. The assets that we will then come after that, more likely than not, are those that fall into that category of -- a focus how the market maybe we should X it. As opposed to just lightening up in Michigan or Florida.

Michael Mueller - JPMorgan Chase

Okay. And Dennis, I think you mentioned that the, you talked about putting land or I guess projects that are quiet right now back into service, up to 20% of them. I think you said they are going to be very similar to Parkway shops. About how many announcements could that translate into if you do that for 20%, is it two or three starts, is it five starts?

Dennis Gershenson

Well, I think, Michael, based upon our past conversations, we kind of took a view on (inaudible) that, more likely than not that, that's not going to be a project that we are going to go in and do a multi use on. At (Hartland) or focus in the short-term is going to be more on selling off to anchors as opposed to starting a development. So in honesty if you are going to hear another announcement in 2012, and it certainly would be in the latter part of 2012, I think the only thing you would hear about would be our Lakeland side.

Michael Mueller - JPMorgan Chase

And then last question, I think Michael mentioned 84% shop occupancy, where do you expect that to go by year-end?

Michael Sullivan

Well, we have approximately a delta of about 200 basis points, physical to leased in terms of shops. We would very much like to maintain that cushion moving forward in 2012.

Michael Mueller - JPMorgan Chase

Okay, so it’s 84% leased now but 82% physical, is that.....?

Michael Sullivan

Correct.

Michael Mueller - JPMorgan Chase

Okay. And by year-end you want to have it from 82 to 84, is that?

Michael Sullivan

That’s our operating goal.

Operator

Our next question is coming from the line of Edward Okine with Basso Capital. Please state your question.

Edward Okine - Basso Capital

You did that say that the debt maturities for 2012 was 15, what is the number for 2013 for debt maturities?

Gregory Andrews

Yeah, hand on one second, Edward, and I will get that for you. Our consolidating maturities in 2013 are $21 million. And then in addition to that, our joint venture have debt coming due -- and I don’t have the number right in front of me but kind of eyeballing it, that’s probably another $30 million to $40 million at our share.

Edward Okine - Basso Capital

Okay. So 30 to 40 will be your share of that maturity?

Gregory Andrews

Yeah.

Edward Okine - Basso Capital

Okay. So in total you will be around probably $40 million to $60 million?

Gregory Andrews

Yeah, I mean I am giving you some round numbers here because I don’t have the specifics in front of me. But certainly, if you look at our supplemental package, you will see our consolidated debt maturity schedule on page eight. And then you look at the joint venture debt on page 26 and you will be able to get the exact numbers.

Edward Okine - Basso Capital

Okay. And how do you intend to finance that?

Gregory Andrews

Well, we have a variety of means available to us. The mortgage market, the bank market and obviously sources of equity capital, common and preferred. So when we get to that point we will be looking at what are the best alternative is for the company both in terms of capital structure and in terms of cost.

Operator

There are no further questions at this time, I will now turn the floor back over to management for any additional comments.

Dennis Gershenson

We would merely like to thank you all for your attention and your interest. We truly feel that we have charted a course here for growth in all sectors of our business, and look forward to talking to you in a couple of months with the report on the first quarter. Thank you, again. Have a great day.

Operator

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time and we thank you for your participation.

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