Pennsylvania Real Estate Investment Trust's CEO Discusses Q1 2012 Results - Earnings Call Transcript

| About: Pennsylvania Real (PEI)

Pennsylvania Real Estate Investment Trust (NYSE:PEI)

Q1 2012 Earnings Call

April 24, 2012 11:00 am ET

Executives

Shawn Southard – Director, Corporate Communications

Ronald Rubin – Chairman and Chief Executive Officer

Joseph F. Coradino – President

Edward A. Glickman – President and Chief Operating Officer

Robert F. McCadden – Executive Vice President and Chief Financial Officer

Analysts

Quentin Velleley – Citi Investment Research

Samit Parikh – ISI Group

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Cedrik Lachance – Green Street Advisors

Benjamin Yang – Keefe, Bruyette & Woods

Michael W. Mueller – JPMorgan Securities LLC

Jeffrey Lau – Sidoti & Company, LLC

Michael J. Bilerman – Citi Investment Research

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Pennsylvania Real Estate Investment Trust First Quarter 2012 Earnings Conference Call. During today’s presentation, all parties will be in a listen-only mode. And following the presentation, the conference will be open for questions. (Operator Instructions)

I would now like to turn the conference over to Shawn Southard, Director of Corporate Communications. Please go ahead.

Shawn Southard

Thank you, Davis. Good morning, everyone and welcome to PREIT’s first quarter 2012 conference call. During this call, PREIT will make certain forward-looking statements within the meeting of the Federal Securities laws. These statements relate to expectations, beliefs, projections, trends, and other matters that are not historical facts and are subject to risks and uncertainties that might affect future events or results. Descriptions of these risks are set forth in the company’s SEC filings.

Statements that PREIT makes today might be accurate only as of today, April 24, 2012. And PREIT makes no undertaking to update any such statements.

Also certain non-GAAP measures will be discussed. PREIT has included reconciliations of such measures to the comparable GAAP measures in its earnings release and other documents filed with the SEC.

It’s now my pleasure to turn the call over to Ron Rubin, PREIT Chairman and CEO.

Ronald Rubin

Thank you very much, Shawn. Welcome to the Pennsylvania Real Estate Investment Trust first quarter 2012 conference call. Joining me on the call today are Joe Coradino, our incoming CEO, Ed Glickman, President; Bob McCadden, CFO; also in the room today, our Vice Chairman, George Rubin; and General Counsel, Bruce Goldman.

Today, we will discuss our first quarter performance, which I’m pleased to report, reflects the continued success of our efforts to improve the fundamentals of our business. For 2012, we are off to a good start including reaching an all-time high for sales of $376 per square foot.

Before we discuss the details of our first quarter performance, we recently announced that Joe Coradino will become CEO of PREIT at our annual meeting on June 7. Joe knows the business, understands the challenges and opportunities facing the company, and has unique skills and relationship to leading a retail focused real estate company.

This business is all about relationships, and Joe has excellent skills in that area. We’re all looking forward to working with Joe on the next chapter for PREIT. As for as I am personally concerned, I’ll be here to continue to be helpful to the company, and to Joe. And with that, I’ll turn the call over to him.

Joseph F. Coradino

Thank you, Ron, and good morning everyone. It’s an honor to follow on Ron’s footsteps as CEO of this company. Ron has defined real estate in this region for more than 50 years. And his career is one of the most impressive in the commercial real estate business. I look forward to ensuring that his legacy of innovation and leadership for our business continues. And I know that as our Executive Chairman, he will be available to all of us for guidance and continued leadership.

The team and I are dedicated to continuing to implement the strategy that has been serving us very well in terms of solidifying our foundation. It has four clear pillars, continuing to drive improvement in our operating metrics with a focus on our core business, reducing leverage, selling assets that do not fit into our long-term vision, and bringing new and creative uses to our properties.

Our progress in achieving our objectives is evident in our first quarter performance. Most notably, sales per square foot have increased across our portfolio for nine consecutive quarters. This validates our decision both to reinvest in our properties, and entering the short-term leases with tenants.

The result has been ongoing increases in comparable store sales and renewal spreads that have turned clearly positive, which is a very meaningful metric and speak to the attractiveness of our properties.

With that, I’ll turn the call over to Ed Glickman to discuss the highlights of the quarter in some more detail.

Edward A. Glickman

Thanks, Joe. As you’ve heard we had a solid first quarter. Our portfolio performance continues to improve with comp sales now at $376 per square foot, up 5.3% year-to-year another high for our portfolio with 33 of 38 properties showing positive results. We are especially pleased to announce that the company’s Cherry Hill Mall at $623 per foot has become the company’s first property to break the $600 per foot mark with 10.9% year-to-year growth. Of note, three of our smaller market assets Crossroads, Dartmouth and Valley Mall continue to record solid comp sales, increases ranging from 9% to 12%. These centers are benefiting from increased consumer traffic driven by our recent tenant upgrades.

Total occupancy at the end of the first quarter was 91.9%; an increase of 110 basis points as compared to the 90.8% reported for the first quarter of 2011. In line occupancy ended the first quarter at 87.9%, 80 basis points higher than the first quarter of 2011. This quarter we had significant progress in leasing with approximately 725,000 square feet of non-anchor transaction.

Renewal transactions were secured at a positive 2.9% spread on base rents. Significant transactions for new leases included three leases with P.S. from Aeropostale, two stores for each of Pottery Barn, Shoe Department Encore, Maurices, Justice and Wet Seal. We also signed leases for large format stores with Bailey’s (inaudible) and Victoria’s Secret.

This quarter we executed three new anchored leases. JC Penney at North Hanover, Regal at Moorestown and filled up the immediate network at The Gallery. We also renewed [theaters] at Uniontown. At this time, all of our 2012 anchoring roles have been completed.

Last Friday, the company closed a very successful offering of preferred shares. We sold $115 million at a dividend rate of 8.25%. Well this offering is slightly dilutive; we still have great coverage of the common dividend at a low payout ratio. Bob will review these metrics for you shortly.

This capital rate positions us to repay our outstanding exchangeable notes, while maintaining borrowing capacity under the line of credit. By the end of the second quarter, we expect our bank leverage ratio will fall by 300 basis points to just over 63%. This is a great step towards our long-term leverage target of 50% to 60%.

Earlier in the quarter, we successfully refinanced Cap City Mall for $65.8 million at 5.3%. This was used to repay amounts outstanding against our line of credit. This property previously had a mortgage of approximately $48 million at 7.61%. This transaction generated net proceeds of $18 million.

Beaver Valley Mall had an anticipated maturity date of April 2012. Since we are marketing this asset, we’d decided to take advantage of the mortgage terms, which allow us to defer repayment until 2031.

In the summer, we will be seeking to refinance Cherry Hill Mall, which will have $230 million outstanding at maturity in October. Finally, the $38.8 million finance in our Cumberland Mall matures in November. We believe that we will have net proceeds from both of these refinancings.

As we have previously mentioned, the company is focused on leverage reduction; and one way of accomplish this is to sell non-strategic assets. To that end, we are in the market with five assets for disposition. In addition to Beaver Valley Mall, we have also offered our Orlando, Phillipsburg, North Hanover and Chambersburg properties for sale.

At this time, we have not yet entered into any transactions on these assets. When these properties are sold, the proceeds will allow us to further de-leverage. We also continue our ongoing discussions regarding joint ventures with institutional assets and hope to give you additional color on future call.

During the first quarter, we spent $2.2 million on recurring CapEx and tenant allowance. We funded these amounts and our mortgage amortization payment of $5.5 million from our ongoing cash flow. Well, our goal is to operate the company at a lower level of leverage; we still intend to pursue plans to continue our development and redevelopment activity. As for our previously announced major tenant additions, at Willow Grove Park we are on track to open Nordstrom Rack in the coming weeks and the new J.C. Penney this fall.

We are also continuing to work on the J.C. Penney relocation at North Hanover for a fall opening. And Moorestown Mall relocations for the expansion of Regal Cinema are underway.

Work continues at 801 Market Street to accommodate Philadelphia Media Network and construction has begun for Grand Lux Café at Cherry Hill Mall and mostly held at Plymouth Meeting Mall. We expect all of these tenants to take occupancy during the summer.

In the first quarter, we spent $6.9 million on development and redevelopment activity. During the balance of the year, we anticipate an additional spend of approximately $50 million to $60 million. All of these amounts and our estimated spend for the balance of the year are within our business plan, will ultimately be funded against the line of credit.

In summer, we had positive quarter making progress on both sides of the balance sheet. And with that I’ll turn the call over to Bob McCadden.

Robert F. McCadden

Thanks, Ed. Funds from operation was $25 million or $0.43 per diluted share compared to $21.3 million or $0.37 per diluted share in last year’s quarter. Same store NOI for the quarter was $59.1 million, an increase of $2.3 million or 3.5% compared to $66.8 million generated in last year’s first quarter. We benefited from higher occupancy, lower operating expenses and continued improvement in our provisions for bad debts.

Lease termination revenue was approximately $700,000 in this year’s quarter compared to $25,000 in 2011’s first quarter. Excluding lease terminations, same store NOI increased by 2.5% for the quarter.

Our G&A expenses were $300,000 higher than last year’s quarter primarily due to the timing of certain expenditures. We expect our full year normalized G&A run rate to be consistent with our previously announced guidance of approximately $38 million.

The effective interest rate on borrowings including amortization of deferred financing costs, premiums and discounts for the March 2012 quarter down to 5.92% from 6.14% in last year’s quarter, a decrease of 22 basis points.

Interest expense for the quarter was $1.9 million or 5.2% lower than last year’s quarter reflecting the impact of the lower interest rates and reductions in our average outstanding debt balances. Debt balances at the end of the first quarter including our share of partnership debt was $2.362 billion, a decrease of $34 million from last year’s first quarter.

At the end of the quarter, 95.9% of our debt was either fixed or swap to fix. Our bank leverage ratio was 56.18%, 73 basis points lower than the ratio at the end of December.

PREIT’s net loss for the quarter was $10 million or $0.18 per share. Last year, we recorded a $14.3 million or $0.27 per diluted share loss. For the 12 months ended March 31, 2012; our FFO payout ratio was a conservative 31.6%, and our FAD payout ratio was 47.3%.

Turning to 2012 guidance; after giving effect to the $0.06 per share dilution from the issuance of preferred shares, stronger than anticipated NOI growth, and other items, we expect FFO per diluted share to be in the range of $1.83 to $1.90. GAAP earnings per diluted share will be a net loss between $0.55 and $0.61 per share. We are also increasing our expectations, thanks to our NOI growth by 50 basis points to 1% to 2% excluding lease termination fees. We expect that interests on our bank borrowings will be reduced by 25 basis points starting in August 2012, as a result of leverage ratio dropping below 65% at the end of the second quarter.

In addition to redevelopment spending mentioned by Ed, we expect $35 million to $40 million in recurring capital expenditures and tenant allowances. As a reminder, our 2002 guidance includes approximately $1.7 million of income from the sale of historical tax credits that we will recognize in the third quarter.

Our guidance does not contemplate any acquisitions, property sales or capital market transactions other than the completed preferred share offering, redemption of our exchangeable notes in June and mortgage refinancings in the ordinary course of business.

I’ll now turn the call back over to Joe.

Joseph F. Coradino

Thank you, Bob. To repeat what I said earlier, our plan has been working. We continue to focus on the four initiatives, the operating metrics in our core business, invest in non-core assets, reducing leverage, and continuing to find creative uses for our properties. We’ve been successful adding value to our properties to attract tenants to our customers and benefit our shareholders. As we do that, our focus will be on operational excellence at all levels of our organization. We’re looking forward to the ICSE convention next month. We invite you to stop by our exhibit to visit with us, and the Mayor of Philadelphia, Michael Nutter. Additionally, we’ll be at the NAREIT Conference in New York City in June, and look forward to seeing you there.

With that we’re ready for questions.

Question-and-Answer Session

Operator

Thank you, sir. (Operator Instructions) Our first question is from the line of Quentin Velleley with Citigroup. Please go ahead.

Quentin Velleley – Citi Investment Research

Hi, good morning. Just in terms of the five assets that you’ve begun marketing on, could you maybe just give us a little bit more detail on how you’re thinking about the possible timing and what stage of the marketing we’re at and whether or not you can give us any feel for pricing?

Ronald Rubin

We are out marketing the properties actively. We are at the beginning of the process and we cannot give you any sense for timing at the moment.

Quentin Velleley – Citi Investment Research

And in terms of pricing, I means we’re seeing three assets – so we can sort of get a feel of where assets with a productivity above $300 for these. Can you sort of give us any sense of where these assets, were you helping them outside?

Ronald Rubin

Not yet.

Quentin Velleley – Citi Investment Research

Okay. And then just in terms of the average price range, I think gone about 2% over the year, it looks like most of that’s coming from those lower productivity assets. Can you just give us a sense for what is driving the lower base rents in those assets, is it new leases, is it sort of conversion of [percentage] rent deals to permanent rent buying deals, just to sort of give us a sense for those base rent declines?

Ronald Rubin

Quentin, there’s a couple of things impacting that. Typically, when we report our renewal spreads, we’re typically reporting them when the leases are signed. So if you go back and look at our 2011 new leases and executed leases, you saw the downtick in renewal rates across-the-board generally. I think as we mentioned in previous calls, what we’re experiencing in 2011, ’12 and the early part of ’13, there is a disproportionate amount of our renewals coming in properties with sales beneath $350 a square foot.

So effectively that’s what the key drivers, and what you’re seeing in the average base rents. That’s not unexpected, and you don’t see typically as we – as you see in this quarter our renewal spreads are flat-ish, which is quietly positive, but those leases won’t come on stream until later in 2012. So it’s going to – you’re going to see a timeline in terms of from when you see the renewals as reported in our supplemental and then how they convert into the average base rents, anywhere from three to nine months later.

Quentin Velleley – Citi Investment Research

Okay. And then just lastly, you did have a high proposition of place renewals particularly in overall productivity assets which were on shorter terms. Have you seen an improvement in that this year so far?

Joseph F. Coradino

The term of the renewals is similar to last year.

Quentin Velleley – Citi Investment Research

So it’s like, I think it was 40% of renewals are in terms of less than five years, is that number correct?

Joseph F. Coradino

What I can tell you that, we were about – was about 25%, I guess 23% to 25% of the renewals for one year or less.

Quentin Velleley – Citi Investment Research

Right.

Joseph F. Coradino

And then for those that were three years or more were down about 4% from 49% to 45%.

Quentin Velleley – Citi Investment Research

Okay. Thank you.

Operator

Our next question comes from the line of Samit Parikh with ISI Group. Please go ahead.

Samit Parikh – ISI Group

Hi, good morning. Thanks for taking my call. My question was in regards to sort of what your – generally what your sort of pushback or how your conversations with retailers are regarding fixed rent, fixed [cam bums], what we’ve been hearing are that, retailers started to giving pushback, usually understand for the expense savings that the landlords are getting. And I’ve noticed that your recovery ratio has been dropping steadily, and I know part of that has to do with the short term leasing, but any color you could give me on that would be great. Thank you.

Joseph F. Coradino

I think if you look at our portfolio compared to what other – our peers have probably announced, we probably have a smaller proportion of our leases on in fixed CAM, and I would try to think strategically as we were undertaking a lot of redevelopment projects, in many of our leases we were able to pass through a portion of the redevelopment expenses as part of the CAM pool. So we actually deliberately deferred kind of following the herd when we did fix CAM. So I think we’re probably not the best source to answer that question.

Samit Parikh – ISI Group

Okay. But on whatever portion of your leases which are fixed CAM, are you seeing any changes in lease terms in regards to that or is it pretty consistent?

Joseph F. Coradino

Not. At this point we’re never seeing 3% to 5% annual increases, but nothing dramatically different than what we’ve seen in the prior years.

Samit Parikh – ISI Group

Okay, thanks for the color.

Operator

Thank you. Our next question comes from the line of Nathan Isbee with Stifel, Nicolaus. Please go ahead.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Hi, good morning. Just looking at the occupancy movements across the portfolio, there was a fair amount of move outs even at the higher end of the portfolio, Woodlands, Jacksonville, Dartmouth, Viewmont. Can you just talk a little bit about what was driving those occupancy drop?

Joseph F. Coradino

I think we started, I guess in 2011, started reporting temporary tenants in our occupancy numbers, so what you see is the normal cyclical move out at temporary tenants across-the-board, obviously peak at the fourth quarter, and they’ve reached their lowest point in the first and second quarter. So that was a last driver of the sequential change in occupancy for even the better assets.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Is this year-over-year?

Ronald Rubin

If we broadly look at that, and I don’t know if there is any time for us, observations that we can make with respect to.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. And then just specifically on the Springfield Mall, there was about a 10% occupancy drop off, is there anything going on there with the redevelopment that might be driving or is that – should they move up?

Ronald Rubin

Yeah, essentially at Springfield, that’s positioning for additional new tenants that will be coming in, including Victoria's Secret’s [payout].

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. Thanks. And then finally, could you just talk about your thoughts in the current dividend level given the low payout and somewhat better environment out there?

Ronald Rubin

Sure. We have been reviewing our dividend and we typically have a dividend discussion at the annual meeting. So yeah, we have been thinking about it.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. Did you foresee recommending to the Board to increase it here?

Ronald Rubin

Well, I think, what I would say at this time is that our coverage ratios are strong even following the issuance of the preferred stock, which will be utilized, by the way to pay down existing debt and bring our leverage down, one run in our credit agreement which will save us additional interest. So even though with 8.25% coupon we think it was a very positive transaction, and we’re still maintaining very high coverage ratios.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. And then, just – sorry, one other question. I know it’s still about five months out, but have you started discussions with lenders in Cherry Hill and do you have any sense in terms of rate and perhaps how much you might be able to pick out of that?

Ronald Rubin

Yes, we have had discussions and broadly more money, lower rates.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Thanks.

Joseph F. Coradino

And Nath, just a couple of specifics on Woodland, there is a couple of expansions for Italiana and Forever 21. We’ve taken some tenants offline to accommodate their plant expansion; and another one of the properties, Viewmont Mall, again these are moving some tenants around for the later leasing in 2012. Maybe if we can talk specifically offline if you want to continue this discussion.

Nathan Isbee – Stifel, Nicolaus & Company, Inc.

Okay. Thank you very much.

Operator

Our next question is from the line of Cedrik Lachance with Green Street Advisors. Please go ahead.

Cedrik Lachance – Green Street Advisors

Thanks. I just want to go back to Quentin question in regards to the 2% decrease in the average base rents. You talked about a delay between sign leases and when they come into operations, but it appears to me that there is something else at play. Now I just want to try to understand that. If you look at the leases signed, every lease you’ve signed this quarter is below you average base rent, so I would suggest that some of the – either your leasing space that is of a lower quality in a particular property or is that market rents might be declining in – and I’m curious if you could comment on that?

Edward A. Glickman

Cedrik, I think some of what you’ve said is true that, at the margin, I think we talked about – even with respect to sales per square foot. As you are increasing occupancy, you are typically not leasing space at center court, that space has already been occupied for years. Your leasing space at the margins closer to the anchor locations and in side carters and typically that rent is going to have a lower average sales per square foot and reduce your overall yield on a property.

You can also see if you look back over time, when properties have most occupancy, you’re seeing a sales, I’m sorry rents per square foot increase, which is the opposite effect the lower quality spaces in the mall they are typically filled with tenants who probably are maybe least successful, but they’ve allowed, the average goes up. So it’s really not as how much that we can draw, simple conclusion based on the metrics, I think this is little bit more than you need to dig into each of the assets.

Cedrik Lachance – Green Street Advisors

Okay, and maybe just focusing again on the bottom core, all of the portfolio has been in some cases double digit decreases, and some of the average base rents. What’s driving that, is there a real change in market rent on those properties, or is there anything else that’s kind of related?

Joseph F. Coradino

Yeah, I think it’s, in a lot of cases and that section of the portfolio is market driven, and we’re – in that case we may also be looking to back fill international tenants who had left the properties several years ago with the local regional tenants who may be operating at lower sales level, and therefore paying rents at a lower level.

Cedrik Lachance – Green Street Advisors

Okay. And then just last question, on page 14, holdover leases which represented 8% of your portfolio, what are those exactly?

Joseph F. Coradino

(Inaudible).

Cedrik Lachance – Green Street Advisors

If you look at the non-anchored lease expirations, the holdover type tenants which represent 8% of your total, what is this? Is this short term leases?

Joseph F. Coradino

Essentially they are international accounts transactions that we had been contracted negotiations over, represents as you said about 8.1% of our portfolio, about 980,000 square feet. We have about 80% of those transactions and either signed or in various stages of negotiations at this point. We have begun to make progress in that area.

Cedrik Lachance – Green Street Advisors

And so, it’s national tenants whose lease term has expired, but there is still more space being rent and you are trying to hammer out the new deal.

Edward A. Glickman

That’s correct. There, it’s portfolio wide transactions.

Cedrik Lachance – Green Street Advisors

Okay, all right. Thank you very much.

Operator

Our next question is from the line of Ben Yang with KBW. Please go ahead.

Benjamin Yang – Keefe, Bruyette & Woods

Yeah. Hi, good morning. I just have a follow-up question on mall sales, I recall, you mentioned last quarter having some opportunistic buyers approach you, about buying some of your malls and I was just wondering five malls that you’re trying to sell, I think the type of assets these investors want to buy. I mean, I’m just wondering if there has been even a buyer, I think most people would describe it as a C mall?

Edward A. Glickman

All ready just trying to put that out there to do its best.

Ronald Rubin

Well, both ends, we have been, we did have some reverse enquiry on some of these properties. I think there was an expectation that the financing market would move to provide liquidity at this level of assets. I’m not clear at this time that full liquidity has gotten all the way there yet. By liquidity I mean financing at CMBS market et cetera. I believe that once that happens there will be significant interest in these properties. At the moment the interest is mostly from very opportunistic buyers who have the resources to go forward with these properties. One other thing that we’ve always said about these assets is that, it was built on a great real estate, and they are entitled, and those are two things that are harder and harder to achieve these days. So we think that there is a lot of utility in some of these properties.

Benjamin Yang – Keefe, Bruyette & Woods

I mean, what do you mean when you say opportunistic buyer, is it the local guy that thinks that can do a better job managing the assets than you guys, is it a private equity guys because…

Ronald Rubin

They’re all cash flow driven buyers who are looking for high cap rate assets because they are interested in yield, and they think that they can intensively manage the properties in a way that we might not be able to. Whether that’s true or not, that’s what makes the market. But in certain regards, I think it’s highly driven by the availability of leverage, so if the leverage comes back, it raises the current return on these properties, substantially assuming they’re higher than their cap rates. So that’s really the play that they are interested in.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, fair enough. And then obviously, we’ve seen some private equity guys buying the malls recently and I was wondering, have you had any discussions with those type of buyers, and if they were interested, would you consider selling some of your B malls to those guys?

Joseph F. Coradino

We’ve covered the order front; the information in the industry is pretty available to all of us. We know who the potential buyers are and we’ve had and continuing to have discussions with all of those types of buyers.

Benjamin Yang – Keefe, Bruyette & Woods

So, I guess everything is kind on the table at this point or are you only looking to sell your C or some of your lowest quality properties?

Joseph F. Coradino

Well, that’s where our major focus is, yes.

Benjamin Yang – Keefe, Bruyette & Woods

Okay, thank you.

Operator

Our next question is from the line of Michael Mueller with JPMorgan. Please go ahead.

Michael W. Mueller – JPMorgan Securities LLC

All right, thanks. Quick question, Bob, on the offering the proceeds, I know the press release said something like 30 million which is used to pay the credit line. Is the balance of the offering sitting there in cash at this point?

Robert F. McCadden

As of today, it is.

Michael W. Mueller – JPMorgan Securities LLC

Okay. So when we were going forward, we take out roughly 80 million there, and when you take out the preferred, excuse me – the converted it’s basically going to be that cash and then…

Robert F. McCadden

Yeah, always that cash plus residual from the credit facility. Got it?

Michael W. Mueller – JPMorgan Securities LLC

Okay. And Ed, on top of asset sales, you mentioned something about talking with folks about joint ventures, and just curious what sort of assets are you thinking about exposing to joint ventures. Is that the – the top quartile, if we look page 10 of the supplemental, is it more of the middle of the line assets in terms of productivity?

Edward A. Glickman

It’s at a wide range of discussions regarding possible joint ventures. Again our primary focus is to reduce leverage. So we’ve had a wide range of discussions.

Michael W. Mueller – JPMorgan Securities LLC

Okay, did that include assets like a Cherry Hill or Lehigh Valley?

Edward A. Glickman

Like all, I’d say at this time we’ve had a wide range of discussions with people that are interested in different tiers of the other portfolio.

Michael W. Mueller – JPMorgan Securities LLC

Okay. Okay, great, thank you.

Operator

Our next question is from the line of Jeff Lau with Sidoti & Company. Please go ahead.

Jeffrey Lau – Sidoti & Company, LLC

Hey, good morning. Just a quick simple question. The G&A, what I think you mentioned, what caused that slight increase in G&A, what are you expecting again for 2012?

Edward A. Glickman

I think we’re still holding to kind of reduction like 2% to 3% from last year’s number, which gets us somewhere around a $38 million mark. A lot of the G&A is just a function of when we spend, when we make expenses for professional fees, when we make channel contributions, it’s a whole host of things that have some timing element to them, and that they don’t always fall in the same quarter every year. Expenses that would be considered still within the budget but more of a timing; having a timing characteristic there.

Jeffrey Lau – Sidoti & Company, LLC

Well, I guess where some of it maybe due to like the Moorestown, actually going around or is that…?

Joseph F. Coradino

The first time costs would have been incurred in 2011.

Jeffrey Lau – Sidoti & Company, LLC

Perfect. Okay, thanks.

Operator

Thank you. (Operator Instructions) Our next question is a follow-up from the line of Quentin Velleley with Citigroup. Please go ahead.

Michael J. Bilerman – Citi Investment Research

Hi, it’s Michael Bilerman speaking. Ed, can you just, it might not sound that great, the five malls that you’re selling is that Beaver Valley, Chambersburg Mall, Orlando Fashion Square, what were the other two?

Edward A. Glickman

North Hanover and Chambersburg.

Michael J. Bilerman – Citi Investment Research

And what is the current – North Hanover you said, right?

Edward A. Glickman

Yes.

Michael J. Bilerman – Citi Investment Research

And Chambersburg. And what’s the current NOI growth that’s being produced either trailing 12, 2011 just so we can get a sense, we can – I know you don’t want to provide pricing, you don’t want to send it out there, but we can do our own math.

Edward A. Glickman

I am sorry, we don’t give that number out. We don’t give that NOI for individual properties.

Michael J. Bilerman – Citi Investment Research

As a group, I don’t need it as individual.

Edward A. Glickman

We don’t give that either. But you can look in the supplement because we do break down by subs there.

Michael J. Bilerman – Citi Investment Research

Right. So you do – then gross of these assets are about $200 million in growth…

Edward A. Glickman

Mike, I am sure that you can make your own judgments from that list.

Michael J. Bilerman – Citi Investment Research

Okay, thank you.

Edward A. Glickman

Thanks.

Operator

And at this time, there are no further questions in queue. I’d like to turn the call over to Mr. Rubin for closing remarks.

Ronald Rubin

Okay. Thank you all for joining us today and for your continued support and interest. Our next earnings conference call will be in July for our second quarter results. So thank you again and have a good day.

Operator

And ladies and gentlemen, that does conclude our conference for today. We would like to thank you for your participation, and you may now disconnect.

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