Rithm Property Trust Inc (RPT) 2007 Q4 法說會逐字稿

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  • Operator

  • Greetings and welcome to the Ramco-Gershenson Properties Trust fourth quarter and year-end 2007 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

  • It is now my pleasure to introduce your host, Ms. Dawn Hendershot, Director Investor Relations for Ramco-Gershenson Properties Trust. Thank you, Ms. Hendershot, you may begin.

  • - Director of IR

  • Good morning, and thank you for joining us for Ramco-Gershenson Properties Trust fourth quarter year-end conference call. I am hopeful that everyone received our press release and supplemental financial package, which are available on our Web site at RGPT.com. 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.

  • Although Ramco-Gershenson believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be obtained. Factors and risks that could cause actual results to differ from expectations are detailed in the press release and from time to time in the Company's filings with the SEC. Additionally, we want to let everyone know that the information and 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. Also, the contents of the call are the property of the Company and any replay or transmission of the call may be done only with the consent of Ramco-Gershenson Properties Trust. I would now like to introduce Dennis Gershenson, President and Chief Executive Officer; and Richard Smith, Chief Financial Officer, who will be making prepared remarks this morning, as well as Mr. Tom Litzler, Executive Vice President of Development, who is available to answer questions. At this time, I would like to turn the call over to Dennis for his opening remarks.

  • - President - CEO - Chairman

  • Thank you, Dawn. Good morning, and welcome to our year-end conference call. Given the economic uncertainty that has impacted all aspects of our economy, I believe that in addition to touching on our fourth quarter and year-end results, which are outlined in our supplement and covered in our press release, you want to hear from us as to how our portfolio is positioned to perform in this economic cycle. How have we structured our business plan for 2008? How we intend to fund our immediate and near-term capital needs, and what do our FFO projections for this year indicate for 2009 and beyond? Briefly, my view of our industry in the current economic climate is that retail real estate fundamentals for well-run, well positioned assets remain sound.

  • Although we read about a number of national retailers who are cutting back their expansion programs, we see continued interest from national and regional chains for both our redevelopment and our new development projects. Therefore, I am cautiously optimistic in the near-term and bullish about our sector's long-term prospects. Concerning Ramco specifically, you should know that with the potential for an economic slowdown looming on the horizon, as early as the middle of last year, we thoroughly reviewed our portfolio, our existing business plan, our capital needs and the composition of our funds from operations with our management team, our board of trustees, and a group of third-party professionals in order to develop a five-year business plan. It is our goal and focus to have our stock trade at a number which reflects our true net asset value. To do so, we believe strongly in running our business with an eye to preserving and improving our shopping centers, as well as protecting our balance sheet. To that end, let me make a few comments.

  • First, I want to assure you that our core portfolio is strong and stable. This conclusion is supported by both trade area and shopping center statistics. Our centers are located with rare exception in metropolitan markets. Our trade areas show an average population of 165,000 people within a five-mile radius indicating a solid residential base. An average household incomes for these markets are significantly above national averages at $73,000. Our average center size is 225,000 square feet, with an average of 2.4 anchors per shopping center. Current occupancy and rental statistics also support both the health of our trade area and our assets. Occupancy at year-end for our operating properties excluding centers under redevelopment stood at 94.6%. Same-center NOI grew at a healthy 5.7% for all of last year. Our rents for the fourth quarter for tenants renewing their leases and for tenants taking occupancy under new leases both exceeded historical averages. These statistics; however, are for tenants who open stores in the fourth quarter. Therefore, you might inquire what about conditions presently? To give you an understanding of our leasing progress this year, I'm pleased to report that since January the 1st of 2008, we have executed 17 lease renewals and average rental rate increase of 14.2% above rents these tenants were paying previously. And we have signed 17 new leases at an average rental rate of $20.27, which is over 26% above our portfolio average. Thus, in both lease renewals and new leases just executed, we are showing solid growth. These numbers reinforce the conclusion that retailers want to be a part of our centers and that our assets are indeed well located.

  • In addition to strong occupancy and increasing rental rates, a valuable indicator in demonstrating the success and desirability of our assets is the interest of existing anchors in expanding their premises and agreements with national mid-box retailers and department stores in joining the tenant line-up in over a dozen of our shopping centers. We have under way for 2008, 11 value-add redevelopment, this excludes our Aquia project. These include a Kroger Supermarket expansion in metropolitan Detroit, the addition of a 50,000-square foot Hobby Lobby in Flint, Michigan, the construction of a 40,000-square foot Sports Authority at our Paulding Pavilion Center in Georgia and the recovery of retail space at a number of our shopping centers in Florida, Michigan and Wisconsin to make way for both national midbox retailers and department stores who will occupy these areas at substantially higher rental rates than we've been receiving. Our supplement identifies these centers, the opportunities to add value, the approximate cost to complete the redevelopment, and the additional income we will achieve from these projects upon stabilization. Please note in our supplement, that these value-add redevelopment will produce a return on new dollars invested of approximately 13%.

  • Let me emphasize that these improvements to already successful and stable shopping centers, many of which are peers would consider core, untouchable assets will improve our tenant mix, increase our net operating income and produce a return on capital invested in excessive of returns for both acquisitions and development. The benefit of these redevelopment; however, usually do not come without a short-term income cost. More often than not, in order to achieve the contemplated improvements, existing tenant income will be negatively impacted as we take space offline. Base on the number of redevelopment that will be started this year, as well as the scope of these projects, the totally of the income effected by the redevelopment is approximately $4.3 million of net operating income, or $0.20 per share. The most significant component of this number comes from the demolition of all of the buildings at our Aquia Town Center in Stafford County, Virginia, to make way for a new 725,000-square foot retail and office project. It is our belief that making decisions that will positively effect and substantially improve the long-term vitality and productivity of our shopping centers is just good business.

  • We approached our 2008 business plan with an eye to balancing long-term growth with our capital needs, a desire to improve balance sheet metrics, and a commitment to utilizing our capital in the most accretive manner possible. Thus, this year we will continue to emphasize our strengths and adding value to our core portfolio, and pursuing our announced new development projects. At the same time, we will de-emphasize the acquisition of core and core plus shopping centers. Although we've been very successful in acquiring centers for our off-balance sheet joint ventures and achieving their long-term objective of a handsome return on investment, the initial return on capital invested in these types of acquisitions lag considerably behind those that can be achieved from the other facets of our business plan. This is not to say that we won't make any acquisitions in 2008. However, the purchases we pursue will be more opportunistic in character, with obvious avenues for immediate value creation. You will also find that this year's acquisition program will be scaled back considerably from those of 2006 and 2007.

  • Our development plans for 2008 involve the completion of the entitlement process, the signing of anchor leases, and at two of our four development projects, the commencement of construction. We're excited about these shopping centers; however, based on market conditions and the speed at which major retail tenants are finalizing agreements today, we have added approximately six to nine months to our schedule for several of these undertakings. Tenant interest remain high. However, construction starts and opening dates are constantly being reassessed by most anchor retailers. That being said, we maintain confidence in the shopping center sites we have under control. We will; however, not commit to major development costs prior to securing a critical mass of anchor retailers. Remember as well that at least three of these four shopping center developments will be pursued in an off-balance sheet joint venture format, keeping our capital requirements to a minimum, while maximizing our fee potential. We've outlined in the supplement our projection of project costs and returns on investment, as well as Ramco's capital needs per project.

  • Over the last several quarters, I've discussed with you our desire to raise capital through a sale or the contribution of a number of our stabilized centers to an off balance sheet joint venture. Consistent with my comment concerning the reduction and emphasis on acquisitions, it is our intention to contribute three or four of our core assets to a Venture, which does not require committing to a new shopping center acquisition program. This transaction, which we reasonably expect to complete within the next few months will have a very favorable impact on our balance sheet. Please remember as well that we have just contributed our Mission Bay Shopping Center in Boca Raton, Florida, to our ING venture. The two transactions combined will allow us to pay down a substantial portion of our existing debt, as well as provide capital for our future needs. These actions are similar to the approach to raising capital we've employed over the last several years. This form of capital recycling has allowed the Company to grow without returning to the public markets.

  • A review of our supplement shows that between the redevelopment of our core assets, our joint venture share of pending developments, and a moderate acquisition schedule, our capital needs in 2008 and 2009 are modest compared to the scale and scope of our business plan. Thus upon the completion of our pending off-balance sheet transaction, we will have both the capital we need for the foreseeable future and sufficient dry powder for growth opportunities as they arise.

  • Now that I've discussed the strength of our portfolio, the outlines of our 2008 business plan, and our pending capital raise, I would like to spend a moment discussing our FFO guidance for this year. Our 2008 FFO guidance of between $2.47 and $2.53 is most significantly impacted, as I've said, by the value-add redevelopment. Although from an FFO standpoint, it would have been better to stage these changes over several years, the Company decided that it was in the best interest of the individual centers to take advantage of these opportunities as they presented themselves. In light of these numbers, I want to make several points. First, even at the low end of our guidance, the ratio of our dividend to FFO for 2008 is 75% and the FAD ratio is 78%. Both percentages provide a wide and comfortable margin in considering the security of our dividend. Also, fixed charge coverage will be 1.9 times.

  • Second, we considered the reduced FFO figure for 2008 a strong positive. This FFO number is a reflection of our Company's commitment to own the best and strongest portfolio of shopping centers possible, and lastly, because our value-add redevelopment will produce oversized returns as they come back online in late 2008 and 2009, we believe that this program will produce that the best risk-adjusted return for our shareholders. I would like to cover just one more topic.

  • You will note that we have taken a one-time charge in the fourth quarter of 2007 as a result of an arbitration award resulting from a property management dispute that occurred in 2001. The issue related to a question as to whether or not Ramco-Gershenson, Inc., had an obligation to monitor land lease option dates for property owned by the claimant. The management agreement imposed no obligations to track and report ground lessee responsibilities. However, Ramco had assisted the claimant in years past as an accommodation. The arbitrator concluded that Ramco's prior gratuitous actions impose a current obligation to notify. Although we strongly disagree with the result, which we do not feel was consistent with the facts, we believe that we are covered by insurance and we will vigorously pursue that claim. I would now like to turn the call over to Rich Smith, who will provide additional details concerning our 2008 plan and projections.

  • - CFO

  • Thank you, Dennis, and good morning, everyone. For the quarter our delivered FFO per share was $0.64, which was a $0.01 decrease from the $0.65 reported in 2006. For the year, our diluted FFO was $2.56, which was a $0.02 increase from the $2.54 reported in the previous year. As Dennis discussed, the Company last week received news that it had lost a decision on a dispute that went to binding arbitration. Although the Company plans to pursue an insurance claim, sound accounting practice requires to take a fourth quarter charge net of tax of approximately $1.2 million, or $0.06 per diluted share. Without the charge, the Company would have met First Call estimates of $0.70 for the quarter and $2.62 for the year. Not included in our FFO calculation is the non-recurring cost associated with the redemption of our preferred B shares.

  • 2007 was a productive year for the Company. We successfully delivered our River City development, started three additional development projects, and began the redevelopment of Aquia Town Center. In addition we started the redevelopment of 11 other centers and generated capital by selling assets to off balance sheet ventures. By the end of the year, our River City development was substantially complete. During the year we financed the $100 million project for $110 million at favorable terms. Based on a conservative appraisal, we created approximately $40 million, or about $2 per share of value for our shareholders. Additionally, we earned over $9.5 million in fees and recognized over $9.6 million of after-tax gains on property sales.

  • Starting next year, we expect to receive our share of tip proceeds, which could amount to $12 million over the next 20 years. With that in mind, we're in the process of developing four new centers, which includes the redevelopment of our Aquia Town Center. Total development costs for the four projects is expected to be approximately $368 million. We feel our capital structure will support this activity since all but the Jackson, Michigan Center will be developed off balance sheet, with construction lenders providing 75% of financing and our joint venture partners providing 80% of the equity. We expect our return on cost to average 9%. This return does not include the anticipated development fees we expect to earn or after-tax gains on anchor tenant and peripheral property sales. Upon stabilization, we expect our return on equity to be over 20%. This return considers only our share of earnings and management fees, and excludes all one-time fees, such as leasing, tenant coordination, and financing.

  • Historically, one of the strengths of Ramco and what we feel sets us apart is our redevelopment skills. Since going public in 1996, we've invested approximately $136 million to redevelop centers. Our investment has generated a weighted average return on costs of approximately 12%. On most projects, not only did this investment produce a superior return, it generally improved the credit quality of our tenants and increased the value for our shareholders. Starting in 2007, we began the redevelopment of our Aquia Town Center. As Dennis discussed, when complete, this mixed use project will be over 725,000 square feet and will support the day to day needs of the community.

  • As disclosed in our supplement, we have five on balance sheet and six off balance sheet redevelopment in process. The Company's blended return on cost is expected to be approximately 13%. As with our Tel-Twelve in Lakeland Shopping Centers, which were substantially redeveloped starting in 2001, we will take Aquia off line in 2008 to facilitate the renovation. That along with the redevelopment of several other centers will generate a temporary reduction in net operating income that will come back online over the next few years with full stabilization and growth planned by the end of 2007.

  • On prior calls, we stated we have funded our growth by selling assets that were fully valued or not strategic to our business plan. We anticipate continuing that aspect of our business plan in the future. In 2007, we sold $118.2 million of assets to off balance sheet ventures, $51.2 million of the proceeds was used to reduce the Company's secured debt, $15.8 million to fund transaction costs, and our co-investment obligations, and 51.2 million was used to reduce our line of credit, freeing up of availability. In 2008, we anticipate selling to joint ventures assets valued at approximately $260 million. Approximately 50 million will be used to fund our co-investment requirements and pay transaction costs and 210 million to pay off secured and unsecured debt.

  • When considering our share of income and only recurring fees, the combined sales to joint ventures in 2007 and planned transactions in 2008 should be neutral to earnings. Our current development and redevelopment will cover multiple years. Those projects, along with our planned 2008 acquisitions, are projected to cost $514 million. After considering joint venture partner equity contributions and financings, our share of capital is expected to be $83 million. Of the $514 million, $181 million is planned to be spent in 2008, $67 million will be spent on development, 75 million on acquisitions, and $39 million on redevelopment projects. The Company's capital obligation on the $181 million is expected to be $35 million. The balance will be provided by financings and joint venture partner equity contributions.

  • Historically we've been a conservative borrower seeking the balance between proceeds and rate with a bias toward rate. Currently the mortgage environment's difficult, with fewer lenders in the market, all with tougher underwriting requirements. Given the quality of our recent acquisitions, we have successfully obtained financings at favorable terms and rates. Additionally, we have a strong bank group, which has supported the Company and is willing to provide financings for our development projects. We have four debt instruments coming due in 2008. Our $8.5 million Beacon Square construction loan has been extended until November, upon the maturity we'll either place permanent debt on the project or use the asset to support our line. The $43.3 million mortgage on our Plaza at Delray Shopping Center matures in August. We don't expect any issues refinancing the center, as the current loan to value approximates 60%. As discussed on prior calls, we'll exercise our right to extend our $150 million credit facility when it matures in December. Assuming our line of credit non-secured term loan were fully drawn, our loan to value for the asset supporting the facility would be approximately 50%.

  • Lastly, in December of 2008, our $40 million secured term loan matures. The loan to value for the three assets covering the debt is less than 60%. We expect to sell or refinance the assets securing the facility, but in either case, we are confident that the proceeds will be more than sufficient to retire the existing debt. Our 98% expense recovery ratio for the year was at plan. The 3% improvement from the 95% reported in 2006 generated a $1.4 million improvement in our recovery margin. We expect our recovery ratio to be in the high 90s again in 2008. For the year, our G&A was absolutely higher than we anticipated. During the fourth quarter, G&A was negatively impacted by the arbitration award previously discussed. This increase was offset by a reduction to the bonus of long-term incentive accruals. The reduction was a result of the Company not fully achieving its established goals under the respective plans.

  • Next year we would expect our G&A to be between $15.5 million and $16 million. By the end of 2008, we expect to have $240 million of revenues under management, as a result our G&A as a percentage of revenues managed is expected to be approximately 6.5%.

  • And lastly for the reasons noted, we expect our 2008 diluted FFO per share to be between $2.47 and $2.53. We strongly believe the growth strategy we outlined, which includes an accelerated, but cautious development and redevelopment program, has been designed to increase the overall value of our properties, generate reliable improved cash flows and accordingly, should increase shareholder value. Larry, can we open the call for questions?

  • Operator

  • Yes, thank you. (OPERATOR INSTRUCTIONS). Our first question comes from the line of David Fick with Stifel Nicolaus. Please proceed with your question.

  • - Analyst

  • Good morning. Dennis, you guys just spent a lot of time talking about your past growth and strategies and your forward growth strategies, which clearly have grown the assets of the Company. And you've also talked about creating shareholder value, and obviously shareholder value is a function of a lot of things, but probably the most important one is a base of earnings. We're now several years into, with this guidance, essentially flat earnings and, and so I'm wondering based on your forward five-year plan that you talked about having developed late last year, what do you think your forward average earnings growth should be from here, over the next four or five years?

  • - President - CEO - Chairman

  • Well, David, I originally considered putting this in my prepared remarks, but I was advised not to. But I'll jump into the deep end of the pool anyway. I prepared to make this representation. If you take our 2007 FFO number of $2.62 and you would say you would grow that at, let's say, 6% per year, then that -- let's say in 2008, 2009 and 2010, so that you would wind up at around somewhere between $3.10 and $3.15 in 2010, based upon our plan, that's where we'll be.

  • - Analyst

  • Okay, thank you. And then one detail on the arbitration settlement. Can you describe for us what the findings were in terms of factual support that the arbitrator used to find for the plaintiff?

  • - President - CEO - Chairman

  • Well, what we -- the bottom line is that in the past, what had happened is that the KMart lease and the underlying ground lease basically, those options occurred at the exact same time. When the KMart lease was extended without options for an additional 12-year period, the ground lease still had option dates. Everybody, because the ground lessor had participated in negotiations with KMart, everybody knew the KMart lease had been extended and the claimant and the trustees that were associated with the claimant all believed that the ground lease had been extended. When the ground lessor said you missed your option period, the case went to court. The court said the statute of frauds requires you to live by the documentation and what were people's understanding isn't relevant. We then, with the claimant, went and we had agreed to go to binding arbitration and the arbitrator in hearing all the facts and hearing that Ramco indeed in the past had informed the trustees that, okay, KMart has the option. We're just letting you know that under the terms of your ground lease, decide what you want to do, but it was never part of the management agreement. Unfortunately, the trustee felt that that accommodation established a duty.

  • - Analyst

  • Okay, thank you for the detail.

  • Operator

  • Thank you. Our next question comes from the line of Christine Kim with Deutsche Bank. Please proceed with your question.

  • - Analyst

  • Hi, good morning, guys. Dennis, you mentioned that some of the development stabilization were getting pushed up because anchors were wanting to open a little bit later. Could you maybe give a little bit more color on what retailers these are and how confident you are that these open dates won't get pushed out any further?

  • - President - CEO - Chairman

  • Well, let me -- Tom Litzler, who heads up the Development Group, let me have him initially cover that and I'll add anything if I think it's appropriate.

  • - EVP of Develoment

  • Hi, Christine. In particular, that refers to North Point, which is Jackson, Michigan. We have, we have a letter of intent right now from a theater, which is, which is on our timetable. We are talking with some department stores and discount department store chains which want a little extra time. They still remain very interested in the site and our midbox leasing activity at that center also appears to be very strong. So it's -- we see it merely as a short-term matter of time. The rest of the developments, we really haven't tweaked too much.

  • - President - CEO - Chairman

  • What we're seeing, Christine, is that where we originally talked to certain retailers who said that they had stores in their fall '09 program, and this involves even more than just the one development, they then began to debate, should we really open in '09 or should these be 2010 stores? One of the things, of course, that's very interesting is that retailers sometimes decide, okay, let's make that 2010. All of a sudden 2009 stores aren't coming online as rapidly as they hope they would, and all of a sudden schedules are pushed and they try to accelerate the program with centers that they know are on track and can be delivered. We just thought it would -- the better part of discretion was to be more cautious.

  • - EVP of Develoment

  • We're actually experiencing some of the latter there that Dennis referenced in Hartman, still trying to make '09 delivery dates. There still is retail interest in maintaining these time tables.

  • - Analyst

  • So those anchor leases, are there any co-tenancy triggers in terms of some of the other leases at the shopping centers?

  • - President - CEO - Chairman

  • Well, there's always co-tenancy issues more often than not what we attempt to do is merely have those co-tenancies relate to a certain amount of square footage so an anchor tenant will say you have to build at least 100,000 square feet of additional retail. We try and shy away from naming additional anchor retailers because history shows you that you're never certain until the project is complete and you don't want to back into a situation where you've made a specific tenant representation that at the end of the day for one reason or another you absolutely can't fulfill.

  • - Analyst

  • There aren't issues where some of the small shops rents are based on the anchor moving in?

  • - President - CEO - Chairman

  • More after than -- well, again, if you can envision a, let's say a typical shopping center where you have one or two anchors, more often than not forgetting very small retailers, but a number of the nationals will indeed say that they don't have to open until, one anchor or two anchors are actually open. So this is standard operating procedure in shopping centers, and obviously we will time the construction of the smaller retail spaces so that it's co-term us in with the opening of the anchors.

  • - Analyst

  • Okay, and just in terms of the development fees you guys have outlined in the supplement, when do you guys expect to start earning those, and are any of those fees in your '08 guidance?

  • - President - CEO - Chairman

  • Yes, some of those fees are in the '08 guidance and the fees, depending upon the situation could be predevelopment fees. The majority, however, are development and leasing fees.

  • - Analyst

  • How much do you have in your '08 guidance?

  • - President - CEO - Chairman

  • I think that our fee generation for development fees are really for all fees are a little bit more than we had last year, maybe a couple million dollars more than we had in '07.

  • - CFO

  • Christine, a lot of that is what Dennis just said. A lot of that is predevelopment fees from construction, services, as well as leasing fees that we draw from leases that we sign as we sign them, so they are drawn before the developments actually are undertaken. In Aquia we've got substantial leasing activity and we also have some predevelopment fees in Heartland that are booked.

  • - Analyst

  • Okay, thanks, guys.

  • Operator

  • Thank you. Our next question comes from the line of Philip Martin with Cantor Fitzgerald. Please proceed with your question.

  • - Analyst

  • Good morning, everybody.

  • - President - CEO - Chairman

  • Hello, Philip.

  • - Analyst

  • A couple different questions, kind of all over the map here. First of all, the 74.7 million in proceeds that you received from sales of assets in 2007, what was your approximate return on invested capital on that? I mean what were the returns?

  • - President - CEO - Chairman

  • I -- let's say this. The sales price was approximately mid 60s. I can tell you, because I was specifically researching the one which was Mission Bay. From the date we bought it and then when we sold it, our internal rate of return was over 24%.

  • - Analyst

  • Okay, okay. I mean that's always helpful. I mean your platform is a value-added platform and what you're talking about going forward is a lot of new development, redevelopment, value-add, et cetera. And I think it's always helpful at least to me to know how successful this platform has been for you historically.

  • - President - CEO - Chairman

  • Yes, what I plan to do, Philip, is upon the completion of this joint venture that we've talked about, we will provide information after we close on that transaction, which shows indeed, you know, what type of profitability we achieve from the time we either built it or bought it through the date of sale.

  • - Analyst

  • Okay, and would you expect similar IRRs on this, on these asset contributions to JVs, the 260? Would you expect something similar?

  • - President - CEO - Chairman

  • Well, number one, a portion of the 260 is the contribution of Aquia.

  • - Analyst

  • Correct.

  • - President - CEO - Chairman

  • Where we have about $40 million. So if you leave that one off, I feel reasonably comfortable that you're either in the very high teens or in the low 20s as far as rates of return during the hold period.

  • - Analyst

  • Okay. Is it, is it fair to say or not fair to say, either one, would any of the metropolitan Detroit assets be in this, be included in these assets to joint ventures?

  • - President - CEO - Chairman

  • Let me say this. At least one Michigan asset would be included.

  • - Analyst

  • Got it, okay. Net cash proceeds from these asset sales will be approximately what, Rich?

  • - CFO

  • Yes, the -- the net cash proceeds in '08, and Mission Bay that Dennis talked about really happened in '07, what was an installment sale.

  • - Analyst

  • Okay.

  • - CFO

  • So we're trying to move that really into, at least the cash proceeds into '08. But if I look at '08, what we'll have to pay down our debt is probably up around $70 million. We'll -- that's just on the assets that Dennis is talking about, Aquia should generate another $32 million. So that's a net number after we put in roughly about $30 million of our share of equity and costs.

  • - Analyst

  • Okay, okay. Good deal. Now, in terms of the five future developments -- or the five future redevelopment projects that you'll be adding to your pipeline probably throughout 2008, what is the approximate value of those projects and what's the approximate timing?

  • - EVP of Develoment

  • Philip, you're talking about Lake Shore, River Town, et cetera?

  • - Analyst

  • Correct, yes.

  • - EVP of Develoment

  • Okay. I'll start with the timing, while Rich and Dennis look for the numbers. The timing is really tenant-driven and we're actively working with tenants in all these instances and we have, we have some preliminary signs of interest. So as soon as we firm those up, we start to execute on these projects.

  • - President - CEO - Chairman

  • Well, let me say it differently. If you go down the list, River Town, we have a letter of intent with the department store that we're finalizing right now and we would expect to have a lease signed no later than midyear.

  • - Analyst

  • Okay.

  • - President - CEO - Chairman

  • At Shops on Lane, we are talking with the anchor grocery and we've, both they and we have acknowledged that they want to go from about 20 to somewhere between 40 and 50,000 square feet, but it's in Columbus, Ohio and there we'll have to go through an entitlement process. At South Bay, we're finalizing a lease with the drug store now, and I would expect we would have that lease signed within, oh, maybe 60 days.

  • - Analyst

  • Okay. And the approximate -- and the project costs aggregate is, would be what, of these five?

  • - President - CEO - Chairman

  • They -- something, we'll -- if we could, we would get back to you on that.

  • - Analyst

  • Okay.

  • - President - CEO - Chairman

  • In looking down the list, you're not talking about significant dollars. Like with the department store, we will not build the department store. We'll land lease to them. At South Bay with the drug store, we will also land lease to them. The Shops on Lane, the expansion of the grocery, we will obviously pay for.

  • - CFO

  • We'll fund some of that. That's to be determined.

  • - EVP of Develoment

  • And that's off as well, right?

  • - President - CEO - Chairman

  • Oh, and Shops of Lane is an off balance sheet venture.

  • - Analyst

  • Got it. Okay. That was my next question. Okay.

  • - President - CEO - Chairman

  • River Town's is on balance sheet, South Bay is on balance sheet. Lake Shore marketplace is on balance sheet, and there we have the ability to recapture a portion of Elder[Berman], about half their space. The good thing about that is that we won't -- we won't take that income off line until we have a signed deal with another retailer who is actually ready to start construction and so for all intents and purposes, the downtime will only be the construction phase, which I would like to think is no more than six months. And Elder [ Berman] is not paying a big rent for their space.

  • - Analyst

  • Okay. Okay, fair enough. Now, in terms of the development pipeline, how much of that is preleased?

  • - EVP of Develoment

  • Well, as Dennis alluded to in his comments, or said emphatically, we don't start going vertical until we have a critical mass.

  • - Analyst

  • Yes, get the anchor, 35% prelease.

  • - President - CEO - Chairman

  • Well, in the majority of these, we are well into leases. I mean in Heartland, we have a, an understanding and the documentation with Mike. On the others, Tom referred to both at North Point and at Aquia. For all intents and purposes, we have leases that are almost ready for execution with the movie theaters. We're in a lease at -- we're negotiating a lease at Aquia with an upscale supermarket. We, you know, for the office building, we have tenants. The anchor tenant north of Grummet in the office building in 60,000 square feet, they are already in occupancy. In Florida, at Lakeland, we are on the front end of that development and we're not talking about commencing construction on that until '09. We probably have eight tenants who have indicated interest and we're negotiating letters of intent with them now.

  • - Analyst

  • Okay. Okay. And my last question, I can take a, I can take on a couple of more of these off line with you, but the last one, year-to-date leasing has been strong. In your opinion, is this more of an anomaly with the leases that have been renewed or begun year to date, or is it indicative of what Ramco can expect for the remaining of the year?

  • - President - CEO - Chairman

  • Well, our historical average on lease renewals is somewhere in the 10% range. So I would say that-- to achieve 14% in the first 60 days or 50 days -- no, maybe 65 days, I mean I'm thrilled. Last year at this time, as far as renewals were concerned, we had nine renewals through the middle of February as opposed to the 17 we have, and last year we had 10 new leases as compared to the 17 we had. So I, I -- I'm pushing very hard to keep that velocity up. The indications from the letters of intent we have with tenants and the negotiations we have, you know, we see a continuation of reasonably strong rents, but I certainly wouldn't project anything beyond our historical averages and with our historical averages, on new leases we've continuously, over the entire term we've been public, constantly pushing up the average rent per square foot for new leases executed. So I would expect it to be higher than we've achieved in '07, but I'm not prepared to speculate how much higher.

  • - Analyst

  • Did it surprise you, the growth?

  • - President - CEO - Chairman

  • No, didn't surprise me, but I sure was pleased that I'm able to report it.

  • - Analyst

  • Okay. Would it surprise you to get this kind of growth on the renewals for the remainder of '08?

  • - President - CEO - Chairman

  • Again, I -- one of the things that happens, of course, in certain renewals, is that when you're dealing with much larger spaces the 10, 12, 15,000 square feet then the percentages might be a little bit lower. I think that the majority of the renewals that we've dealt with were all under about 7500 square feet. Therefore, the impact can be greater. Again, I say historically we've averaged around 10 and I would be very pleased with an increase above previous last year's paid rent at 10%.

  • - Analyst

  • Okay, okay. That's -- sounds like Rich is kicking you under the table there. Okay. Thanks for your answers. I'll talk to you offline.

  • - President - CEO - Chairman

  • Okay.

  • Operator

  • Thank you. Our next question comes from the line of Nate Isbee with Stifel Nicolaus. Please proceed with your question.

  • - Analyst

  • Hi, good morning.

  • - President - CEO - Chairman

  • Hi, Nate.

  • - Analyst

  • First of all, I appreciate the improved disclosure on the development. Just getting back to the Aquia Town Center, the timing on the costs, seems like most of your expenditures will be done by '09. I'm just trying to understand the disconnect between the expenditures and the stabilization in 2011.

  • - EVP of Develoment

  • Well, you're building in '09, Nate, but it takes a period of time to get the, the tenants and occupancy, depending on what you're doing, if you're turning over depending on the tenant, it -- if you're turning over a pad it, could take them a year to build their pad out, okay. If you're just looking at finishing, it could be, you know, 90 days, 120 days for them to build out as well. So really what you're trying to do is finish your work, turn it over to tenant, get them built, get them open. That do be the delay right there.

  • - CFO

  • Complete stabilization.

  • - President - CEO - Chairman

  • Yes, and the year and the quarter that we're giving it to you, truly -- and maybe it's a miss number from your perspective, and that is that let's take Jacksonville, our River Town project. We add Best Buy and a number of-- for all intents and purposes, we're 100% leased in the end, maybe at the end of the third quarter of 2007, but we probably, if we put a number down there, would have said stabilization would have been 2008, when everybody is in and everybody is paying rent. So you'll have the vast majority of your income in place and people operating in 2010.

  • - Analyst

  • Okay. Thank you. And could you just talk about the expected yield on the Heartland Town Center at 77. Is there something in there that we're missing?

  • - EVP of Develoment

  • I mean what you don't have roughly about 40% of that center is going to be sold to anchors or peripheral property sales. I think what you're not seeing, I think we tried to footnote it, but a little early to tell you exactly what it's going to be. Starting really this year, early this year, I think you're going to have sales in there and will recognize gains. The other thing you don't have in there, fees that we'll collect off this property.

  • - Analyst

  • Okay.

  • - EVP of Develoment

  • We agree that the return is low, but we're selling a significant portion of center out.

  • - President - CEO - Chairman

  • Yes, as a matter of fact, if you just took on an acreage basis, Nate, if you said that this shopping center, is let's say 55-acres, we're selling approximately 35 of those. So the shopping center per se that we're going to continue to own will probably only sit on 20 acres.

  • - EVP of Develoment

  • And the positive news is pretty much all the outlets are spoken for at this point, the ones we're going to sell.

  • - Analyst

  • Okay, thanks. Two more questions. Your same-store occupancy was down 120 BPS. Was that related to a large closing?

  • - CFO

  • I think that -- bear with me for a second here.

  • - Analyst

  • Any of that excludes all redevelopment?

  • - CFO

  • I think we had a, a furniture store down in South Bay that closed, that we're in the process of re-tenant. You notice South Bay's on the list with the redevelopment and we also had our future redevelopment and we also had a large tenant in our Clinton Valley mall had closed. So those two are the lion's share of the drop right there.

  • - Analyst

  • Okay, and how much land sales are you including in '08 guidance?

  • - CFO

  • A little bit less than we had this year. Bear with me for a second. Roughly it was about a $0.01 less, maybe 200, $300,000 less in net sales.

  • - Analyst

  • Okay, thank you.

  • Operator

  • Thank you. Our next questions comes from the line of Rich Moore with RBC Capital Markets. Please proceed with your question.

  • - Analyst

  • Hi, good morning guys. To follow up about what Nate was asking, Florida occupancy actually fell fairly substantially. Is there anything going on in Florida , i.e... our we seeing issues because what is going on in housing, anything like that?

  • - President - CEO - Chairman

  • I think to be honest with you Rich, what we are seeing is, that we probable have a greater percentage of small local-owned business in Florida than we have in the rest of our portfolio. That might be a result of people who moved to Florida, wanted to open up a retail store or people who used to have retail else where and might not have been as well capitalized or it may have been fun for a while. I think that with some of the changes of the economy in Florida. We have seen more issues with tenants there than in the other states. What we have done is we have a number od people who are strictly canvas trying to stir up interest for our shopping, then we turn around an we have our actually leasing agents contact those people. We are aware of it, we are on top of it. We are leading more toward now the national tenants than the locals.

  • - Analyst

  • Okay. When you look at the redevelopment, you talked about developments, but when you look of the redevelopment, I assume those are 70 to 80% committed for the space you're looking at; is that right? A very high level of, already, interest from tenants; is that true?

  • - EVP of Develoment

  • Absolutely, if you want to walk through we can do that, just give you a few examples.

  • - Analyst

  • You can do either in the interest of time, I don't walk through them all.

  • - EVP of Develoment

  • Take Oak Brook , for example that 100% committee to Hobby Lobby.

  • - President - CEO - Chairman

  • More than committed, there under construction.

  • - EVP of Develoment

  • West Alice, that's partially completed in the first Phase, in the second Phase we have got LOI for 7000-square foot national retailer to take part in the space there so that's committed. In Sunshine, same thing we've got LOI. In Holcomb, we got an LOI, we are working on a lease with a theater. Up and down the line and off balance sheet, Paulding, that's a 100% leased to Sports Authority and Staples underway so absolutely we are just not undertaking redevelopment to attempt to release the properties.

  • - President - CEO - Chairman

  • To build on that, in every one of the center's we have identified here even the ones that are down below, we not only have gone through to identifying the opportunity and identifying the user but we a have completed a pro forma, we know our cost and we are well along with these projects.

  • - Analyst

  • Okay that's wonderful, good, thank you, Dennis. Then the joint venture, the new joint venture, what's your anticipated time frame? What's your anticipated time frame, I think you said in the press release a couple months, is there any more specifics on when you might close that?

  • - President - CEO - Chairman

  • I would like to think that it would be by the end of Q2. One of the things that we are trying to balance here is that based upon the amount of dollars that are required in 2008, there isn't that immediate need to get this closed. So we want to balance the money coming in with the needs and the pay down of the debt.

  • - Analyst

  • OK. I got you and the last thing, guys, is real estate taxes were down I assume that's sort of a timing thing; is that right?

  • - EVP of Develoment

  • If you look at the year, same center there about even, but if you look at Q4, they were down a little bit because '06 was up, not that '07 was down. I think we had a fourth quarter true up effect or an accrual adjustment of the fourth quarter of '06.

  • - Analyst

  • Okay. Very good, thank you. Thank you, guys.

  • Operator

  • Thank you, there are no further questions at this time I would like to turn floor back over to management for closing comments.

  • - President - CEO - Chairman

  • We'll first of all thank you for your attention, thank you for your interest. You have here a management team that is focused and committed to making sure that the growth that we're projecting will come to fruition and we're very confident about our assets and our future. But all my talk and Richards talks and Tom's aside, the proof will be in the putting so stay tuned. Thank you again

  • Operator

  • This concludes today's teleconference you may disconnect air lines at this time. Thank you for your participation .