Rithm Property Trust Inc (RPT) 2012 Q4 法說會逐字稿

Greetings, and welcome to the Ramco-Gershenson fourth quarter 2012 earnings 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, Dawn Hendershot, Director of Investor Relations for Ramco-Gershenson. Thank you. Ms. Hendershot, you may begin.

Good morning, and thank you for joining us for Ramco-Gershenson's fourth quarter and year end 2012 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 replays 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.

Thank you, Dawn. Good morning, ladies and gentlemen. Ramco-Gershenson finished 2012 on a very strong note. In addition to posting across the board positive operating and financial results for the year, we achieved the highest total shareholder return of all our shopping center peers at 43%, and we were ranked 12th among all REITs. This performance was the result of our commitment to a business plan we outlined at the beginning of 2012. It included balancing the goals of first, growing a high quality shopping center portfolio.

Second, driving occupancy, and third, generating sustainable increases in income from leasing to best in class retailers while simultaneously maintaining a strong balance sheet with consistently improving debt metrics. 2012 was the year when we advanced all of these objectives, thereby establishing a solid foundation upon which we will build in 2013. Michael Sullivan and Greg Andrews will address our fourth quarter results. I would like to speak more broadly about our accomplishments for the year and provide insight into our goals for 2013.

A primary objective for 2012 was supplementing our internal growth with external investment activities including acquiring high quality shopping centers, undertaking value-add center redevelopments and commencing a new development project while concurrently selling our least productive properties. Last year we acquired seven shopping centers valued at over $150 million. We expanded our presence in the St. Louis market to over $100 million in retail assets, and we made our first two acquisitions in the state of Colorado, both of which are market dominant multi-anchored centers.

Our value-add redevelopment activities included the expansion of two shopping centers, the first featured the addition of a 45,000 square foot LA Fitness at Peachtree Hill in Atlanta, Georgia and the second involved almost doubling the size of an existing Whole Foods at our Shops on Lane in Columbus, Ohio. We also commenced the development of the Parkway Shops in Jacksonville, Florida in response to tenant demand which could not be accommodated in our 1 million square foot, 12 anchor River City marketplace. The Parkway Shops will open in the second quarter of this year.

In addition to these very positive changes to our corporate portfolio, we also sold four properties that were a drag on our overall asset quality, retail credit metrics, and/or demographic makeup. The focus of these acquisitions and dispositions, our redevelopment and retenanting successes, as well as the commencement of the Parkway Shops project all reflect a deliberate decision to concentrate our efforts on reinforcing our presence in existing markets, while expanding it to well researched identified growth markets. And also building a core portfolio of high quality shopping centers while refining our top tenant roster to include only those retailers who have a broad customer appeal and a stable credit profile.

Our leasing team's efforts also contributed to a banner year. After filling almost all of our anchor vacancies, retenanting dark but paying tenants and replacing underperforming uses with vibrant national retailers, we were able to achieve a significant increase in our small tenant leased occupancy. An important takeaway from our leasing successes last year is that recurring net operating income in 2013 and 2014 will benefit substantially from the full year effect of these transactions as our new tenancies open for business. Thus, a healthy percentage of our income growth in 2013 and 2014 is assured as a result of those leases signed in 2012.

Concerning the progress we've made relative to our capital structure in 2012 with the number of shopping centers we acquired, the dispositions we completed, and the capital we expended to achieve the retenanting of our retail vacancies, we were still able to post substantial advances in strengthening our balance sheet, improving our debt metrics and promoting the financial flexibility we will require to grow shareholder value in 2013.

So, with a successful 2012 behind us, what are our goals for 2013? First, we will continue our aggressive leasing program emphasizing credit quality and customer draw, both of which promote the long-term value of our core shopping center portfolio. Along with the focus on increasing occupancy in the small tenant category, our leasing efforts in 2013 will turn to driving leasing spreads above 5% for both new leases and renewals. We will also continue to make progress on mitigating risks with those retailers who need to downsize, are underperforming, or are in vulnerable retail categories.

Second, our acquisition program this year will be at least as robust as in 2012. Our focus will be on metropolitan markets. The shopping centers we acquire will be multi anchor, high quality properties which include opportunities to add value. We will also continue our capital recycling program by selling noncore properties. Combining our planned acquisitions with the contemplated dispositions, we will further harmonize our portfolio of quality shopping centers in preferred markets. Third, we will undertake two to four redevelopments in 2013. All of the contemplated redevelopments will drive long-term value and promote the desirability of our shopping centers as consumer destinations.

Fourth, we plan to commence at least two new developments in 2013. The first, our Lakeland Park project in Lakeland, Florida, which has been on our drawing boards for some time, should receive Board approval in the first quarter, and we expect a ground breaking in the spring with no less than 80% of all leasable space signed, including all of the anchors. Our second planned development involves land adjacent to a recently acquired shopping center. This project and others pending validate our approach of purchasing additional parcels at the time we make a new center acquisition where we believe there would be additional tenant interest. As we execute leases with prospective national retailers, we will announce these projects.

And lastly, we will undertake both our internal and external growth objectives in a manner that ensures a continuation of our strong capital structure and debt metrics. We approach 2013 excited about our prospects. We view the ever-changing retail landscape and the challenges it presents as an endless series of opportunities. Ramco-Gershenson has the organization and expertise to turn these opportunities into reality. We will employ this positive, can-do attitude to make 2013 even more successful than 2012, and as a result, I am confident that we will continue to grow shareholder value. I would now like to turn this call over to Michael Sullivan who will provide context and color for our operating metrics.

Thank you, Dennis. Good morning, ladies and gentlemen. Our fourth quarter results confirm that we continue to execute on our aggressive leasing and asset management plan designed to drive occupancy, produce sustainable income increases and to improve the overall quality of our shopping center portfolio. In the fourth quarter we maintained strong leasing velocity at positive spreads for both new and expiring leases. Our total lease transactions for the quarter exceeded 430,000 square feet and on a comparable basis, the cash rental spread was up 5.7%.

For the full year, our total leasing volume was approximately 1.8 million square feet with a comparable cash rental spread of 4.6%. For the full year we renewed approximately 84% of expiring leases with a rental growth of 3.2%. Our 2012 leasing velocity produced results, reflecting a plan that focused on several goals. Number one, filling the last remaining anchor vacancies in the portfolio with healthy credit-worthy tenants and proactively managing expiring tenancies going forward. Number two, supplementing our shop leasing program to include best in class retailers and including larger format users in the 5,000 to 15,000 square foot range at aggressive rental rates. Number three, targeting specific growth categories for our small shop space in less than 5,000 square feet, and number four, mitigating at-risk tenancies in our portfolio.

In the fourth quarter, anchor occupancy increased to 97.2%, a 120 basis point improvement from the fourth quarter last year. At the end of the quarter, we had five anchor vacancies. Despite two planned expirations of big box leases in 2013, we expect to have fewer total anchor spaces available by year end. One of these two expirations will occur in the first quarter which should cause a slight temporary dip in occupancy early in the year. In fact, historically, we have seen reductions in occupancy in prior first quarters due to similar natural lease expirations at year end as well as shop tenant fallout after ineffective holiday sales. This trend will hold true this year as well as we should experience a small reduction in core portfolio occupancy.

However, due to current leasing velocity and the creative opportunities in 2013, we see that trend reversing so that by year end we expect to be at the high end of our guidance range of around 95% leased. With little new space coming online, demand for existing anchor spaces remains strong. Of the nine anchor leases signed in 2012, all were with exciting national and regional credit worthy retailers who topped the list with the most aggressive 2013 expansion strategies such as Bed, Bath and Beyond, TJX brands, Ross, Dicks and LA Fitness. Based on our current leasing pipeline, we expect this trend to continue into the new year. Capital requirements and rents associated with these transactions remain consistent with deals of this type.

Our shop occupancy increased to approximately 88% leased, a 380 basis point increase for the full year. Of the approximately 500,000 square feet of shop leases executed in 2012, national and regional retailers comprised 85% of the annualized income generated by these executed leases. The impact of this activity continues to improve the quality of our portfolio, specifically the quality of our tenant roster and tenant mix as well as the predictability and sustainability of our rental income stream. We note a continuing trend identified on our last call, national retailer demand for spaces in the 5,000 to 15,000 square foot range.

The full year effect of leasing in this category will be significant. Leased occupancy of spaces in this category remain in excess of 90%, an improvement of 300 basis points over prior year end. The leases executed in this segment accounted for almost 240,000 square feet, or 48% of total shop leasing activity. These leases generated an average rental of $15.41 per square foot and include retailers such as Ulta, Five Below [gift shop], Torrid, Rue 21, Famous Footwear and Lane Bryant. We predict this type of leasing activity will continue in 2013.

Occupancy in truly small shop spaces of less than 5,000 square feet increased 100 basis points to almost 82%, and average rental income increased 2% to $20.50 per square foot. Much of the fourth quarter small shop leasing activity mirrored that of full year 2012 activity. Continuing demand from high quality retailers in the women's soft goods and beauty category, men's ready-to-wear sector, quick service and fast food casual segment, telecom vendors and destination health service providers. Combined, our leasing efforts contributed to improve this core portfolio leased occupancy of 110 basis points to 94.6% at year end.

Even as the character of our portfolio improved in occupancy, credit quality and tenant mix, we continue to proactively mitigate risks from underperforming or weak retailers. The composition of our top 25 retail tenants continues to improve with retailers like Whole Foods, Publix Super Markets, LA Fitness and Dollar Tree moving up the list. Ramco's team remains aggressive in its campaign of persistent portfolio reviews with at-risk retailers. Asset management achieved notable success in 2012 on controlling costs and maximizing margins. Our full year operating margin for the consolidated portfolio was 71.3%, or 270 basis points better than prior year end. Full year recovery of operating expenses was 89.4%, or a 340 basis point improvement over 2011. We're committed to similar production in 2013.

Achieving our leasing renewal, income and cost containment objectives has also improved our same-center NOI performance. We posted a same-center NOI gain of 3.8% for the quarter and 3.3% for the full year. Ramco's asset management team of 2013 is committed to building on the success we achieved last year with an emphasis on continuing to drive rent and increase portfolio quality through tenancies with best in class retailers. With that, I'll turn it over to Greg.

Thank you, Michael. Let me start by noting a few changes to our quarterly supplemental package, then I'll cover the balance sheet, review our income statement for the quarter and conclude with our outlook. Based upon investor feedback and our desire to make our disclosure as relevant as possible, we have made several small changes to our supplement. On page 8, we now show by year both consolidated debt maturities and our share of JV debt maturities. On page 14 we show our calculation of leverage and coverage ratios and our revolving line availability. On pages 19 through 21 we have streamlined our portfolio summary report to categorize all properties by state, and finally on pages 24 through 26 we have grouped our three single property joint ventures with Heitman together as other JVs.

Now turning to the balance sheet, starting with the asset side of the ledger. During the quarter, we purchased a 47,000 square foot phase II at the Shoppes at Fox River in Waukesha, Wisconsin, as well as 12 acres of adjacent land for $10.4 million. You might recall that we had advanced a loan to the developer of phase II with a balance of $6.1 million outstanding at the end of the third quarter. Therefore, our cash outlay was only $4.3 million to close this purchase. Also in the quarter, at Spring Meadows in Holland, Ohio, we purchased a 50,000 portion of the shopping center we did not own for $2.8 million in cash. Finally, we advanced another $4.7 million towards construction and progress, primarily at Parkway Shops phase I. The building shells are complete and look great, and our anchors, Marshall's and Dick's, are taking delivery of their stores to install fixtures and inventory. Our construction management team has done a terrific job keeping this project on time and on budget.

On the liability side of the balance sheet, let me provide an update on our joint venture, mortgage refinancing. At Shops on Lane in Columbus, Ohio, our joint venture closed a fixed rate 10-year mortgage loan with an interest rate of 3.76%. At Market Plaza in Chicago, Illinois, subsequent to quarter end, our joint venture closed a fix rate five-year mortgage loan with an interest rate of 2.76%. This refinancing required a principal paydown, of which our share was $1.7 million. Finally, at Olentangy in Columbus, Ohio, our joint venture intends to pay off the mortgage when it comes due at the end of February. Our share of the loan balance is $4.3 million.

Following this activity, our debt maturities for the rest of 2013 at our pro rata share total $57.3 million. Of this amount, $13.4 million is debt on wholly-owned properties. We plan to pay off these loans when they come due in order to unencumber two more properties. The remaining $43.9 million is our pro rata share of joint venture debt. We estimate these loans have an average loan to value of 60%. We are actively engaged with our joint venture partners in plans to refinance or pay off these loans when they mature.

At year end, we maintained a strong and flexible capital structure as demonstrated by five measures. First, liquidity, our cash plus our availability under our line of credit exceeded $200 million. Second, leverage. Our consolidated net debt to EBITDA was 6.6 times, a decrease from 6.7 times at the end of the third quarter. Third, coverage. Our interest coverage ratio was 3.2 times, our fixed charge coverage ratio was 2.2 times. Fourth, debt structure. Our debt maturities were well staggered. Our fixed rate debt accounted for 84% of our total debt, and the weighted average term of debt was nearly five years.

Fifth, flexibility. Our pool of unencumbered properties conservatively valued was $765 million, or approximately 64% of our consolidated operating real estate. In sum, our balance sheet supports our ability to execute on the growing pipeline of opportunities we see in 2013. As we grow, we anticipate increasing our unencumbered pool, extending our average term of debt, and maintaining our overall balance sheet strength.

Now let's turn to the income statement. Funds from operation for the quarter, excluding gains on extinguishment of debt and provisions for impairments, was $0.27 per diluted share. Let me run through some of the key items driving our FFO for the quarter. On the operating side, cash NOI of $23.7 million was $3.6 million higher than in the comparable quarter. As Michael noted, same center NOI for the quarter increased 3.8%, driven by a minimum rent increase of 3.1% and higher percentage rents. Same center NOI for the year increased 3.3%, driven by these same items, as well as the benefit of property tax appeals and the containment of operating costs.

Our diligent leasing team and cost conscious property managers are real stars. Their ceaseless efforts throughout the year have consistently delivered results. We posted a provision for credit loss of $324,000 this quarter compared to $658,000 in the comparable period. Barring any surprises in the overall economy, we expect future provisions for credit loss to remain in the current range of approximately 1% of revenue. In keeping with our prior guidance, straight line rent was a reduction to income again this quarter. On a consolidated basis, we reported negative straight line rent of $358,000, which means we actually received more cash than we are allowed to recognize as income under GAAP. We expect future quarters to be similar in direction, although the amount recorded in any given quarter will vary based upon leasing activity, reserve adjustments, and acquisitions and dispositions.

General and administrative expense of $4.7 million for the quarter was slightly higher than in the comparable period, which primarily reflected timing differences. For the full year, G&A expense came in at $19.4 million, or approximately $200,000 less than in 2011. Keeping G&A expense under control remains a goal from everyone in our organization. Our earnings from joint ventures were $1.1 million for the quarter, driven partly by an increase in same center NOI at our joint venture properties of 2.6% for the quarter and 6.7% for the year. Also included in our joint venture income for the quarter was a gain on extinguishment of debt of which our pro rata share was $221,000. We have excluded this gain from our computation of FFO as adjusted.

Now, let me say a few words about our outlook. We are affirming our prior 2013 guidance for FFO in a range of $1.03 to $1.09 per diluted share. Note that our guidance excludes the potential impact from acquisitions or dispositions during the year. Although we do not provide detailed operating or FFO guidance by quarter, some comments may be helpful for modeling purposes. As Michael mentioned, we project a modest decrease in occupancy in the first quarter followed by increases over the balance of the year.

Similarly, we anticipate our same center NOI growth rate will be greater in the second half of 2013 compared to the first half. Finally, we expect to sell two land parcels in the first quarter, generating a gain of approximately $0.05 per share which accounts for the transactional income included in our 2013 FFO guidance. To sum up, our financial position at the beginning of 2013 is on firm footing. Our leasing pipeline is healthy, and the opportunities for investment are encouraging. We look forward to executing our business plan for the year. With that, I'd like to turn the call back to the operator for Q&A.

We'll now be conducting a question and answer session.

(Operator Instructions)

Our first question is coming from Todd Thomas from KeyBanc Capital Markets. Please proceed with your question.

Hi, good morning, I'm on with Jordan Sadler as well. Good morning, in terms of the investment activity, it sound like the pipeline is fairly robust. What's changed in the last few months that's given you confidence in at least meeting or even exceeding the level of acquisitions you did in 2012, and what does pricing look like for some of the value- add deals that you're seeing?

Well, to the extent that we are focusing our efforts, at least initially in those states where we have a presence, we've had a broad network of people who have brought us deals. I think that both in 2011 and in 2012, our commitment not to retrade deals and the reputation we've established as closers really have not only brought the brokerage community to bring us marketive deals, but we are seeing more off market deals that are being presented to us. Now, that doesn't mean we're the only bidder on those off market deals, but it will be a very -- much smaller club looking at them, and again, that's because we have built a reputation as closers.

Cap rates I think have tightened some. The vast majority of our acquisitions in 2012 came in right at around the 7.5% mark. I think we'll see acquisition cap rates between 7% and 7.5% probably is the appropriate range. And again, we spend the amount of time necessary and really put an emphasis on our leasing team and our development team going out to research these sites and make sure that we spot the opportunities that other may not have recognized. And as I said in my prepared remarks, Todd, at least one of the centers where we did buy land adjacent to the shopping center, we're going to move on an expansion as we're already in a letter of intent with a retailer of some size that will put them in as well as some additional retail. So, that's really in part a combination answer of the question you asked and to talk about where the thrust of our development efforts will be after we complete the Jacksonville and the Lakeland projects.

Okay. And given some of the JV debt maturities that come up this year, are there any opportunities for you to buyout your partner's interest to these properties that you would want to own outright?

Well, we like all our properties, both the ones that we own 100% of as well as our joint venture properties, we manage them all the same. The debt maturities themselves don't necessarily provide any kind of emphasis for a change of ownership. As I mentioned, the loans are generally at appropriate loans to value, so the decision really is more a function of whether we want to refinance those loans or whether we are trying to pay off that debt, which is a decision we make in conjunction with our partners. Having said that, if there's an opportunity because our partner wants to exit a property, we would certainly be interested in looking at that.

Just to support Greg's comment. What is a positive is that the criteria we had when we were buying in both of our significant joint ventures really mirrors the criteria that we have had and have going forward. These are all larger assets, multi-anchored metropolitan markets with still upsides to them. Given the opportunity, I think that -- those would make nice acquisitions.

Okay. And then in terms of funding investments, you have capacity on the line, and you're still looking to sell properties that could be a source of capital, but I was just wondering how we should think about permanently financing acquisitions.

Yes, Todd, I think the answer here is kind of the same as it's always been. We have a desire to grow our business. We think there are a lot of benefits to doing so. We have a wonderful platform as I think is evident by the results we've delivered this quarter, and we'd like to apply that platform to creating value at more assets. So, that's one kind of charge that we have, and then the other is that we want to maintain a strong balance sheet with good measures on all the five things that I cited in my prepared remarks. And so in terms of financing any deals of size, you should expect us to use a combination of both debt and equity and appropriate proportions. But we do have a lot of flexibility afforded by the $200 million of cash and line availability at year end, and in fact, our unencumbered pool is large enough that we could actually upsides our line by perhaps $30 million or $40 million if we wanted to do that and have even more availability.

Okay, great. Thank you.

Thank you. Our next question is coming from R.J. Milligan from Raymond James. Please proceed with your question.

Good morning, guys.

Good morning R.J.

Question for you, after the recycling that you guys did this year, how much of your portfolio would you say would be noncore and look to sell maybe over the next two to three years?

Well, I really appreciate the way you asked the question, because that really is my answer as opposed to focusing just on 2013, is -- the first thing to understand is all the more challenged properties that we had on our books we sold in 2012. The dispositions that we'll make in 2013, '14, '15 probably amount to somewhere between $125 million and $150 million. It may be somewhere between 12 and 15 assets, but the important thing to understand about them is that these are well leased properties. However, they may not fit in the portfolio that we want to own going forward, which means that it might be a shopping center in a secondary market. It could be a shopping center in a secondary market where even though it's a very good asset it -- we have too great of a concentration in a particular state. And then the corollary to that is it may be a good asset in a state where we only have one asset, and we're not going to expand in that state and therefore, we should sell it. But, our disposition program going forward over the next three years does not necessarily mean that the assets that we'll be selling are of lower quality.

Okay, thank you. And my second question is, the comments that 85% of the small shop leasing that was done in 2012 was national or regional tenants, where do you see that mix in 2013? And I guess I'm just trying to get an idea as to whether or not you're sort of seeing the mom and pops come off the sidelines here looking for space, or if you expect the pace of the national and regional retailers to slow given the fact, that they've done their expansion and maybe they're not growing as quickly. Just some comments there.

R.J., I think we anticipate in '13 that the percentages are going to be similar. If you look at the lists of those national retailers who have aggressive expansion strategies, we're doing business with a lot of them, and we see those expansion strategies continuing in '13. So, we would hold to the line that our program is to stay close to that 85%. That 85% is an income number, and our goal is to stay there. That being said, we are also seeing some green shoots on the mom and pop front. As the economy improves, people with some sort of financial backing are putting together business models to get into business or maybe open another store. And we're confident we have the type of leasing methodology to exploit any type of movement in mom and pops. But our focus is improving our income stream, improving our roster and tenant mix, and that focus is going to be with national and regional leases.

Okay. And my last question is with your occupancy guidance, it's sort of plus or minus about 50 basis points at the end of the year, and so I'm curious as to what would drive the lower end of that guidance? Is it the expected fallout here in 1Q and whether or not you can lease that up, or are you expecting more move outs throughout the year? Just sort of what's driving that low end of guidance?

The low end really is the effect of the Q1 activity that we're seeing, and based on our pipeline, our leasing velocity, as Greg mentioned, we see an improving Q2 through Q4. And although you may accuse us of being conservative, we think that 95% leased in the core is very doable.

Okay. And then actually just one quick question on the small shops. You guys mentioned that you're expecting to see some small shops fall out, the post holiday, the ones that got their holiday sales, didn't make it through, and decides to close. We haven't seen a whole lot of that over the past couple of years. Do you expect that to return to a more normalized rate of move outs this year and going forward?

We are actually actively managing our recapture strategy. We don't see it increasing versus prior years. We're comfortable with the full out ratio, as you say. We don't see that increasing. Not only do we see it not increasing going through '13, but assuming that the economy stays on track, this is a situation that we're -- that we can well manage.

Okay. Thank you guys.

Thank you.

(Operator Instructions)

Our next question is coming from Michael Mueller from JPMorgan Chase. Please proceed with your question.

Thanks. A couple questions, so it sound like if we're thinking about net investment activity, you said you thought 2013 would be at least what 2012 was, so the -- so it looks like the bar is set at about 150 on the acquisition side. And then Dennis, you were talking about dispositions over a three-year period of 125 to 150 in total, so that's, call it 30 to 50 a year on average. So, is it unreasonable just to assume, even though nothing's baked in guidance, the plan that you guys are thinking of revolves at least, call it 150 in acquisitions and maybe 30 or 50 in dispositions. So, being a net acquirer of at least $100 million this year? Does that seem to be a reasonable expectation?

Yes, I think the way you've interpreted our comments is reasonable. We don't specifically target exact numbers because at the end of the day, we want to be opportunistic, both in terms of acquisitions and dispositions. But for modeling purposes, I think the way you've interpreted what we've said is reasonable.

Okay. And then sticking with this for a second, the land sale gains that you mentioned that you're booking in the first quarter, so that's your $0.05 there, that takes care of everything. When I was looking at guidance, the way you described it was $0.05 land sale gains, lease term and other one time items, and in Q1 you're knocking all that out with just land sale gains. If we look in the past, you've had at least $0.01 or $0.02 of lease term income in each year. So, is the assumption zero for that going forward, and do you think that's realistic?

Well, again, that kind of activity is just dependent on what your-- the status of tenants in your portfolio and what their desires are. If they're leaving and the like, so it's generally a hard to predict number. But I would say that if we receive such income, that would then steer us a little bit towards the higher end of our range.

Okay. Dennis, you talked about acquisition cap rates, I think you said 7.5% for '12, 7% to 7.5% for '13. What was the disposition cap rates in 2012, and what's the best guesstimate for a range where they pencil out over the next few years?

Well, again, the disposition cap rates, although ultimately it came in somewhat on the low side, really isn't indicative of anything because as I mentioned, these may have been -- if I can call them those challenged assets that we owned. So, on a -- one could argue it probably would have been better to deal with it on a per square foot basis than it would be on a cap rate basis. But if you were to have said that they would have been well leased, then the rate probably would be between, let's say 9% and 10% so that you'd get an appropriate feel for something that was of a higher quality versus the more challenged assets. To give you the actual cap rate all of a sudden would make it sound like, my God, we sold these at great prices, but it would be because we might have had an anchor missing and we just knew that it wasn't economically viable to replace that anchor and then sell the center and still wind up basically in the exact same position net/net as we would have been at the get go.

Got it.

So, 9% to 10% I think is a reasonable cap rate to imagine what the -- those assets were like.

Okay. And if we're thinking about this stuff going forward that's better leased, good properties, just secondary markets, the 125 to 150, do you think the cap rate's inside of that?

I'd say -- oh, yes. I'd say they would be anywhere, let's say from the mid-7%s to the mid-8%s.

Okay, great. And last question, what's a ballpark magnitude of the Q1 occupancy dip that you're expecting?

I would say on either end of 100 basis points, Mike.

Okay. Okay, great. Thanks.

Thank you. Our next question is coming from Ben Yang from Evercore Partners.

Good morning. I'm just curious, is there any reason the same-store NOI from the joint ventures has been more volatile than the consolidated portfolio? Is it just a function of location, maybe property type or maybe something else going on that might explain this?

No, I think the answer's actually quite simple, it's just a smaller portfolio, right? So, you're just have 26 properties versus 50-something. They're just -- there's inherently, I think, just a little more volatility.

Okay. And then maybe going back to the question on buying a partner's interest out when those opportunities present themselves. Do you think your joint venture properties would trade at a lower cap rate than the consolidated portfolio? Is that your expectation on these better quality assets, more desirable or maybe comparable to what you owned in the wholly-owned portfolio?

As you know, Ben, cap rates will differ. Depending upon the actual location of the center, the credit quality of the individual tenants, but in the main, that -- I would say that probably the average cap rate, is lower than at least where the marketplace is valuing our shopping centers.

Okay. So, it's hard to say or pin down, but could be a wide range, but no rules of thumb if you were to continue buying your partners out?

Again, I think it depends upon the motivation of the partner, the location of the assets, and the potential for upside.

Okay. And just a final question, maybe of the 26 joint ventures that you have, any thoughts on how many of those you'd like to wholly own, if those opportunities presented themselves?

Well, I think almost without exception, if our partners came to us and said, would you like to own all of these centers? We would probably say yes. After saying that, we do have our relationships that have been very healthy. Our partners are very happy with us, and what we've had in the past have been instances where we have bought out our partner because of certain circumstances where either they weren't willing to invest additional dollars into the asset and we saw the future more clearly than they may or they had certain circumstances where they just felt that the assets that they wanted to own would be in other areas and therefore, that was an opportune moment in which to sell. But again, it will all depend on the circumstances and the direction that our partners are headed.

Okay. Very helpful. Thanks, Dennis.

Thank you. Our next question is coming from Nathan Isbee from Stifel Nicolaus.

Hi, good morning. Just going back to the growing acquisition activity. Can you comment on how your significantly higher stock price and of course, money lower cost of capital perhaps might change or already has changed your acquisition focus or including pricing?

Well, this is Greg, Nate. It's a great question. Clearly, having a lower overall cost of capital will make it easier in a sense to execute on a business plan related to acquisitions, and that's why I think we feel very comfortable saying that we hope to be as active as we have in the last few years, if not more active. And I don't think that really would come as a surprise to you or anybody in the industry. It's very helpful to have an environment where the stock price is supportive and the cost of debt remains very attractive.

Okay. But in terms of the quality of the centers perhaps moving up the quality chain a little bit, do you see that perhaps in markets and/or sub markets would you see that happening?

Yes, I think -- so there's a couple things embedded in your question. First in terms of markets, I don't think the change in equity or debt markets is going to affect which geographic markets we are targeting. Those are things that are part of our longer term strategic plan, and we've executed on that in St. Louis and then more recently in Colorado. And we've kind of established where we want to grow regardless of that. Now, in terms of property quality, I think on that front we've also kind of demonstrated what we're targeting, which is multi-anchored high quality centers of the type that we've been buying in the last few years. So, I don't think that there needs to be a lot of change on that front. What we've been, I think very good at is kind of the rifle-shot approaches of picking our spots and negotiating good transactions that are value-added for the Company and our shareholders.

Okay. Thank you. That's helpful. And can you give -- can you give a little more detail on the five vacant boxes in terms of how far along you are in terms of lease discussion and actually signing leases?

I can. We'll go -- I guess we'll go property by property. But in general, I would say that of the five, we're speaking with retailers on all five of them. Some of them -- some of the negotiations are farther along than others, but we have active negotiations, even some involving LOIs with virtually all five of them.

Okay, and would you say that those are the same national regional type of retailers that you put into your others, or are these tougher to lease boxes that you might have to dip down in terms of tenant quality?

The negotiations are with similar national retailers with whom we've done deals in '11 and '12.

Okay, thank you. Greg, I don't know if you addressed this earlier, the tenant reimbursements were down about 8.5% year over year. Is there anything specific in there?

Well, recoveries from tenants were down because our expenses were down, so that's the biggest piece of it. In addition to that, the recovery rate, at least on a same center basis, was down a tiny bit, really not very consequential. And that just has to do with a line item that's in there which is our resale of electricity to tenants at certain centers, not at all our properties, and there's some volatility in the rates that can cause the income we receive there to vary a little bit quarter to quarter.

Okay, thank you.

(Operator Instructions)

Our next question is coming from Vincent Chao of Deutsche Bank. Please proceed with your question. Mr. Chao, you are now live. Please proceed with your question.

Sorry, guys. I was on mute there. Good morning. I just want to follow up. I thought that I heard you guys say that was a -- you were targeting about a 5% spread for 2013. I was just wondering if you could break that down for us a little bit in terms of how much of that is coming from market rent growth versus maybe rolling over some space that was signed in tougher times.

Well, I think what I tried to imply was that it was, to the extent that when you look at 2012, lease renewals we believe were healthy as well as the new leases signed where you have comp spaces. All I meant to imply is that we plan to have both of those metrics above 5% growth.

Okay. Well, I guess --

The renewals will be about -- the average for renewals will be above 5%, and the comparable space new leases will be above 5%.

Okay. Well, I guess maybe just another way to ask, what are you expecting in terms of market rent growth?

Are you talking by retailer type or by geography or just in general?

Just in your portfolio in general? Do you see market rents rising much in 2013?

I think we have probably the greatest opportunity for growth in our truly small shop area, and based on our discussion with our leasing people in the pipeline, I think that's where you're going to see at least our ability to drive market rents and rent growth through the truly small shop sector.

Okay, okay. Just going back to the occupancy, so it sounds like about 100 basis points or so decline in 1Q. Right now the leased occupied spread is pretty tight. Do you think it can stay that tight by year end, or do you think with the occupancy loss in the first quarter, even if you sign some stuff, does it take a little while longer to actually get the guys in there?

I think the physical to lease spread, I think it's really driven mostly by our leasing velocity, but also seasonality. I think we're very comfortable in identifying a spread between physical and lease anywhere between 50 and 100 basis points. It does tighten up sometimes quarter to quarter, but I think all in all, you're going to see 50 to 100 basis points and if you pressed us for more specificity, I would say the lower part of that range.

Okay. And just one last question, just on the couple redevelopment projects that you are looking to start for this year to the core and the two new development centers. I don't know if I missed it, but do you have a rough size of those projects in total?

Historically, we have run on capital expenditures for new tenants and redevelopments, et cetera, right around $20 million has been the total that we spent in those categories. For the developments, you certainly -- you're talking somewhere between $30 million and $40 million for Lakeland, and then for the expansions on adjacent land you'd obviously be talking about a lower capital expenditure somewhere between, let's say $7.5 million and $15 million.

Okay. And is it safe to assume that most of that, if it's -- the delivery times would be sort of late 2013 or 2014?

For Lakeland it would be 2014, and more likely than not, early 2014 for those developments on the land adjacent to the shopping centers just because we control the land. We've got the zoning, and those can proceed quicker. A familiarity with the shopping center leasing execution to actual opening because of community approvals, because of all kinds of things that complicate the process relative to plans and specifications. Unfortunately, that time period that has grown over the years, so even if you're on a fast track, it still can take six to nine months if you're opening -- trying to open a tenant of size.

Okay. Thank you.

Thank you.

(Operator Instructions)

There are no further questions at this time. I'd like to turn the floor back over to management for any further or closing comments.

Well, as always, we would like to thank everybody for their attention and their interest. As I mentioned before, we are bullish about our prospects for 2013, and we look forward to talking to you in approximately 45 days or so. Have a wonderful day. Thank you.

Thank you, this does concluded today's teleconference. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.