American Assets Trust Inc (AAT) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2013 American Assets Trust earnings conference call. My name is Dominique, and I will be your operator for today. (Operator Instructions).

I would now like to turn the conference over to Mr. Adam Wyll, Senior Vice President and General Counsel. Please proceed, sir.

Good morning. I'd like to thank everyone for joining us today for American Assets Trust's fourth-quarter 2013 earnings conference call. Joining me on the call are Ernest Rady, John Chamberlain, and Bob Barton. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks.

Our fourth-quarter 2013 supplemental disclosure package provides a significant amount of valuable information with respect to the Company's operating and financial performance. The document is currently available on our website.

Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results. Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our future operations and our actual performance may differ materially from the information contained in our forward-looking statements, and we can give no assurance that these expectations will be attained.

Risks inherent in these assumptions include, but are not limited to, future economic conditions, including interest rates, real estate conditions, and the risks and costs of construction. The earnings release and supplemental reporting package that we issued yesterday, our annual report filed on Form 10-K, and our financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operation.

Additionally, this call will contain non-GAAP financial information, including funds from operation, or FFO; earnings before interest, taxes, depreciation, and amortization, or EBITDA; and net operating income, or NOI. American Assets is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in the Company's supplemental operating and financial data for the fourth quarter of 2013, furnished to the Securities and Exchange Commission, and this information is available on the Company's website at www.americanassetstrust.com.

I will now turn the call over to our Executive Chairman, Ernest Rady, to begin our discussion of fourth-quarter results. Ernest?

Thanks, Adam, and good morning, everyone, and thank you all very much for joining American Assets Trust's fourth-quarter 2013 earnings call.

The performance of our premier portfolio of retail, office, and multifamily assets continued all year to provide solid and growing returns for our stockholders. Our FFO per share increased 5% and 14% year over year for the three months and year ended December 31, 2013, respectively, compared to the same periods in 2012. Same-store NOI increased 4% and 6%, respectively, for the same periods, as well.

An abundance of office and retail leasing was accomplished, including 44 leases totaling approximately 326,700 square feet. The Portland, Oregon, Lloyd District development and Torrey Reserve development are well underway, and Sorrento Pointe in San Diego is not far behind.

We believe that these development projects and others in our pipeline should allow us to increase our NAV and be accretive to shareholders through developments for many years to come. Our focus remains on creating long-term value for our shareholders. We are not seeking to be the biggest; we just want to continue to be the best.

Our multi-asset class strategy continues to demonstrate that diversity is additive to our ability to provide consistent growth, strong returns, and value creation.

I would be remiss if I did not share with you my frustration of our stock continuing to trade at a discount to NAV, as opposed to a premium. We consider ourselves to be the best in class of all public REITs, and yet after more than three years, we still do not garner the valuation we deserve.

And again, on behalf of all of us at American Assets Trust, we thank you for your confidence and your patience in allowing us to continue to manage your Company, and we look forward to your continued support. I would now like to turn it over to our President and CEO, John Chamberlain. John, would you please take it from here?

Good morning, and thank you, Ernest.

Overall conditions in our core markets -- Seattle, Portland, San Francisco, San Diego, and Oahu -- continue to show significant signs of strength in all three of our asset classes. We expect this to continue into the foreseeable future.

In addition to the FFO and same-store cash NOI performance Ernest just mentioned, net income available to common stockholders was $4.7 million and $15.2 million for the three months and year ended December 31, 2013, respectively, or $0.11 and $0.38 per diluted share, respectively. Bob will provide more details on our FFO and same-store NOI shortly.

In San Diego, construction continues on the expansion of Torrey Reserve, both on track and on budget. Building 6 is complete and substantially leased, and all four other buildings are well into construction. Also in San Diego, at Carmel Mountain Plaza lease negotiations were completed in December with Saks Fifth Avenue for their OFF 5TH outlet platform for the space adjacent to Nordstrom Rack.

In Bellevue, Washington, we have executed a lease with VMware, a technology company whose largest shareholder is EMC, for the top two floors of City Center, totaling approximately 17,000 square feet.

In Portland, Oregon, our Hassalo on Eighth project is well underway. Approximately 88,000 accident-free man hours have been expended to date, and the three city block subterranean garage is 51% complete. We are on track and on budget. The apartment vacancy for the Lloyd District has decreased further, now down to approximately 2.6%, the best in the Portland metropolitan statistical area.

As you know, each of these potential development and redevelopment opportunities are subject to market conditions and may not ultimately come to fruition. We will certainly keep you apprised.

Our acquisition and venture efforts remain in full swing; however, the pricing of assets equal to or greater in quality than our existing portfolio will only provide returns of unacceptably low levels. Disciplined investing is a core metric at AAT. If it is dilutive to shareholder value, we just won't do it. Nonetheless, we continue to evaluate growth opportunities in the recycling of capital where the probability to increase internal growth exists.

I would now like to turn the presentation over to our Chief Financial Officer, Bob Barton. Bob?

Thank you, John, and good morning, everyone.

The books are now closed for 2013. Last night, we reported fourth-quarter 2013 FFO of $0.40 per share. Net income attributable to common stockholders was $0.11 per share for the fourth quarter. Reported FFO for the full year was $1.54 per diluted share and net income attributable to common stockholders was $0.38 per share for the full year.

The Company's Board of Directors has declared a dividend on its common stock of $0.22 per share for the quarterly period ending March 31, 2014.

American Assets had a solid fourth-quarter performance. Our high-quality coastal West Coast diversified strategy continues to have stellar performance. Our retail portfolio ended the year at 97% occupancy, combined with the highest annualized base rents amongst our peers. That represents less than 100,000 square feet of vacancy in a 3 million-plus square-foot retail portfolio.

Our office portfolio ended the year at approximately 90% occupancy, as we expected. Total vacancy represents approximately 270,000 square feet of a 2.7 million square-foot office portfolio.

Approximately 50% of that 10% vacancy relates to our development projects at Torrey Reserve campus and the Lloyd District portfolio, due to tenants that have been impacted by ongoing construction activity. For this reason, we continue to exclude these two projects from same-store NOI metrics.

The tax and treasury administration at First & Main in Portland, Oregon, vacated late in the fourth quarter and represents approximately 25% of the 10% vacancy, and is consistent with our expectations from our initial underwriting when we acquired the property.

The remaining 25% of the 10% vacancy relates to general vacancy from smaller tenants. We continue to limit our office NOI to approximately 35% of our total NOI, as part of our diversified coastal West Coast strategy.

Let's talk about same-store NOI for a moment. Same-store retail cash NOI for the quarter decreased by 2.1% in the fourth quarter. However, it increased by 4.3% for the year ending December 31, 2013. The fourth-quarter year-over-year comparables were impacted by the Ross vacancy at Lomas Santa Fe and the Blast Fitness gym vacancy at Alamo Quarry.

Same-store office NOI was up 12.4% in the fourth quarter, due to a significant reduction in rental abatements at City Center Bellevue in the current quarter.

Same-store multifamily NOI, which comprises approximately 7% of our NOI, was up 7% on a cash basis for the fourth quarter and up 14.2% for the year ended December 31, 2013. Higher year-over-year occupancy and higher rents are the main drivers of the same-store growth for the multifamily portfolio.

Waikiki Beach Walk, our mixed-use property which represents approximately 12% of our NOI, continues to outperform, with robust same-store cash NOI growth of 7.7% for the fourth quarter and 11.9% for the year ending December 31, 2013. Same-store growth is being driven by significantly higher average daily rates for our Embassy Suites in Waikiki.

Turning to our results, fourth-quarter FFO increased approximately $162,000 to $0.40 per FFO share, compared to third-quarter 2013 FFO of $0.39 per FFO share. The increase in quarterly FFO was mostly attributable to year-end percentage rents in our retail portfolio and a decrease in interest expense from the refinancing of the Alamo Quarry secured debt. These increases were offset with a decrease in our operating income at our Embassy Suites hotel in Waikiki, Hawaii, due to the seasonality of the hotel.

Now as we look at our balance sheet and liquidity at the end of the fourth quarter, we are well positioned to continue to execute on our strategy of selectively acquiring or developing accretive, high-quality assets in our core coastal West Coast markets. At the end of the fourth quarter, we had approximately $299 million in liquidity, comprised of $49 million of cash and cash equivalents and $250 million of availability on our line of credit.

At the end of the fourth quarter, our total debt to total capitalization was 36.5%. We are focused on keeping our leverage ratio at 45% or less and positioning our balance sheet so we have the ability to approach the investment-grade market in 2015.

As I have mentioned before, we do have an internal roadmap to approach the investment-grade market in 2015. In order to do so, we recognize that we need to get our secured debt ratio less than 30% by 2015.

We took the first step in this process by paying off the Alamo Quarry secured debt at a fixed rate of 5.67% early in the fourth quarter with our line of credit. The next step that we took was to convert our line of credit to a fully unsecured basis in the first week of January 2014, while at the same time further reducing borrowing rates and fee structure associated with the line of credit to current market terms.

Concurrent with the recast and modification of our line of credit, in the first week of January of 2014 we added a $100 million unsecured term loan, which we used to pay down the line of credit outstanding at year end, and then entered into a five-year interest rate swap agreement, which put our all-in borrowing costs on the term loan at approximately 3.08%.

We also extended out the maturity of both the line of credit and term loan to January 2019, including extension options.

Looking at our debt maturity schedule in our supplemental document on page 19, our next secured debt maturity of approximately $141 million is on November 1, 2014. Our plan at this point in time would be to either use our accordion feature on our line of credit as a bridge loan until we hit our debut bond offering in 2015 or possibly enter into another unsecured term loan, all of which are subject to economic market conditions at that time.

We always have several ways to go and are focused on conservative and disciplined balance-sheet management. We are not only focused on long-term NAV growth for our shareholders, but also on positive same-store NOI growth on a relative basis, which we believe will ultimately translate into organic FFO growth.

Lastly, we have maintained our 2014 guidance range of $1.54 to $1.62, but we have modified our same-store growth as follows. We are still anticipating a 2% decrease in 2014 same-store retail cash NOI. The decrease in same-store retail cash NOI is due to the vacancy of Foodland at Waikele, which we have previously talked about and which expired on January 25, 2014.

We see significant growth in our retail portfolio in the coming years as in-place rents are approximately 7% below market and several of our retail properties range from 11% to 20% below market rents.

We're also anticipating a 2% increase in same-store office NOI, which is down from our previous guidance of 4%. The reduction in our same-store office cash NOI is from reduced renewal assumptions at Solana Beach Corporate Centre and reduced speculative lease-up assumptions at SBC -- at Solana Beach Corporate Centre and One Beach.

Our office portfolio continues to be approximately 10%-plus below market on a weighted average portfolio basis. Our properties in San Francisco are over 20% below market versus in place, and City Center Bellevue in Seattle is approximately 17%-plus below market versus in-place rents. We have increased our expectations for our office properties under development, due to the $1.6 million lease termination income received at Torrey Reserve from McDermott Will & Emery.

We're still anticipating a 2% increase in same-store multifamily cash NOI. We're also anticipating a 4% increase in same-store mixed-use cash NOI, which is expected to add $0.02 per share to FFO. This is actually a 4% increase, after our plans to take each tower of the Embassy Suites hotel off-line for approximately eight weeks to complete a $10 million to $12 million remodel during 2014. This is something that we expect to do approximately every seven years to maintain a consistently high-quality guest experience at the Embassy Suites hotel.

We are anticipating a reduction in interest expense of approximately $3.5 million from higher capitalized interest from our ongoing developments and lower interest costs on the Alamo debt, which was refinanced in an unsecured five-year term loan at 3.08%, and lower interest costs on two months from the repayment of the Waikele debt, which matures on November 1, 2014.

Additionally, our 2014 operational capital expenditures are expected to be in the range of $36 million to $40 million. Of this amount, approximately $10 million to $12 million represents our 2014 renovation of the Embassy Suites hotel, which I discussed a moment ago. The remaining operational CapEx is expected to be approximately $26 million to $28 million.

Our AFFO, or FAD, will be in a range of approximately $0.95 to $1.01 per share, factoring in the Embassy Suites renovation, or in a range of approximately $1.15 to $1.22 per share, excluding the Embassy Suites renovation.

The reason I break this out is because upon formation of American Assets Trust at the IPO three years ago, $10 million of cash working capital held by the Waikiki Beach Walk entities was transferred into American Assets Trust pursuant to the formation transaction documents. So this $10 million was not generated from continuing operations of American Assets Trust. Although not considered to be restricted cash, we did set these funds aside internally for the upcoming renovation of the Embassy. So the way I think about this is that this renovation was already paid for at the time of the IPO.

A couple of last points regarding 2014 guidance for those that are updating their models on AAT. We reported FFO per share of $0.40 in the fourth quarter of 2013. However, we are losing two major tenants -- Foodland at Waikele regional shopping center in Hawaii, which is approximately $675,000 a quarter, and the tax and treasury at our First & Main building in Portland, Oregon, which is approximately $595,000 a quarter. Compared with our fourth-quarter 2013 results, we expect the first quarter to be down approximately $0.02 per FFO share from both of these vacancies.

While we anticipated this rolldown in Q1 and in our guidance, we are also anticipating the ramp-up toward the end of June from Saks OFF 5TH at Carmel Mountain Plaza in San Diego and VMware, who has leased the top two floors of City Center Bellevue, Washington.

In regards to full-year guidance, I show that the 2014 full-year consensus is $1.60, compared with our 2014 midpoint of $1.58 per FFO share, which excludes acquisitions. The difference is primarily assumed acquisitions by various analysts. Excluding the acquisitions modeled by various analysts, the 2014 consensus would be $1.59, compared with our midpoint of $1.58, which is more in line with our 2014 guidance.

It's not to say that we won't find acquisitions that meet our internal underwriting requirements, but for purposes of issuing guidance, our guidance excludes any impact of additional acquisitions, dispositions, equity issuances or repurchases, debt financings or repayments, other than Waikele in November 2014.

We will continue our best to be as transparent as possible and share with you how we are thinking about our quarterly numbers. We are well prepared with a strong balance sheet to capitalize and execute on opportunities that we believe will present themselves over the coming quarters.

Operator, I will now turn the call over to you for questions.

(Operator Instructions). Todd Thomas, KeyBanc Capital Markets.

First question, I was just curious about the stock issuance in the quarter. Ernest, at the outset of the call, you talked about your frustration regarding where the stock is trading relative to your internal NAV, and you have a lot of cash on the balance sheet. It was a very small amount of issuance. I'm just curious what the thought process was there.

Todd, what we have got to look at is the cost of issuing the stock relative to our existing stockholders and the opportunities we have to invest it.

The whole motive behind everything we do is to be accretive to net asset value, add long-term value for the stockholders, and increase our cash flow. And that's what we study in terms of looking at every transaction, both stock issuance and acquisition. It's not just one alone; you have to look at both in concert with each other. That's a great question, Todd. Thank you.

Okay, and then, I guess, following up on that, I know in the past you have presented and published your own internal NAV estimate. Is that something that you plan to do again this spring? What would the timing of that be, generally?

Bob, you want to answer that?

Sure, good morning, Todd. What we have done historically is that we generally have a meeting with Green Street and go over our net asset value and just compare notes. We intend to do that this year, and we will file an 8-K on that and publish that sometime in the spring.

I might add that Bob's estimate of NAV has also been a source of frustration for me, because he is a very conservative estimator, but we live with it.

Okay, and then the two vacancies that you identified in the retail portfolio, so the moveout of Ross at Lomas Santa Fe and the Blast Fitness at Alamo Quarry, any updates there in terms of timing to backfill those spaces? And can you give us a sense of where new rents are, maybe relative to the prior rental rates?

You want to take that (multiple speakers) -- okay, go ahead, John.

Todd, this is Chris Sullivan. I am the Vice President of the retail leasing. The Lomas Santa Fe, probably expect to have that space. We're in lease negotiations with the tenant now and we probably have that space, based on timing, mid to early next year on their window to open.

Rents, I don't want to speculate quite yet where we will be on rents, but we should be in pretty good shape on rents compared to market.

The other space where Blast Fitness moved out at Alamo Quarry is a 26,000-square-foot two-level space. We have a couple of very active suitors on that, and I expect that we should be able to get that space reoccupied potentially by the end of the year. Realize that with these big-box tenants, there is a process of what it takes to open, so it's a little longer than doing a shop deal.

And of course, the Ross Stores has been particularly frustrating because of litigation with the tenant, who has claims that have prevented us from leasing it, but it will work out.

Todd, for purposes of guidance, we have left Ross vacant all year of 2014.

Okay, that's helpful. And then, just last question for Bob. The debt at Waikele Center, you talked about your potential plans to take that out, either with a new term loan or maybe using the line of credit. When is that open for prepayment? It's November maturity, but can you pre-pay that earlier?

Yes, that's a good question. That's our only CMBS that does not have an early prepayment, so that's a bullet loan on November 1.

Okay, great. All right, thank you.

Paul Morgan, MLV.

Just maybe you can provide a little color, now that you have freed up the space at First & Main -- I know you have been waiting to hold more events there and show the space -- what is traffic like? Feeling -- I know you have left it out of the full year, but what is your read on traffic, on the potential for re-leasing the space?

This is Jim Durfey, the Vice President of office leasing. I think I will answer that question for you. We've got about 70,000 square feet that was given back by the IRS, and as might be assumed, there aren't a lot of 70,000-foot tenants in the market, so we have geared our marketing approach to looking for 10,000- to 20,000-foot tenants, 20,000 being a whole floor.

Our activity has picked up. We had a broker event last month, and had a number of brokers and tenants to see the space that had not been in the space since the building was opened, so it is a very positive broker event. But we have seen a number of showings. We actually had two showings last week, as a matter fact, and we will continue to show the space and are very optimistic that we will backfill the space.

The IRS would not let us into the space until they vacated. I guess they must have had some cash collections there they thought we might avail ourselves of. So until they moved out, we didn't have access to the space.

And so, if I think about the range of your FFO guidance for the year, it sounds like Foodland, First & Main, and I think you said Ross were all basically assumed vacant for the whole year. Is that true at the top and bottom year range, and if so, I am wondering what really the drivers are to get you from the top to the bottom, if those were all assumed out to 2015?

Paul, Bob here. Those are good questions. We are seeing it roll down a little bit in the first half of the year, and then ramp back up in the second part of the year. And that will get us probably to the midpoint, plus.

But the ramping up isn't any of the big vacancies; that's just other small -- it's not a Foodland, it's not First & Main, and it's not --

Correct. The ramping up really relates to Saks OFF 5TH at Carmel Mountain Plaza and VMware towards the end of June.

Okay. Okay, great. And this is my last question, John, you mentioned that pricing in the market, very difficult to find value-enhancing deals. But then, you also alluded to looking at recycling capital. Do you have any color to provide about that? How likely could we see you maybe swap out of a stabilized asset, kind of capitalizing on where pricing is, and then looking at something where there is maybe more work to do with internal growth potential?

Well, as we have said before, a disposition is motivated by an acquisition. We are not looking to shrink the size of the Company. So with any disposition that we choose to move forward with, we have to have a place to go with that money, just to put it to work and hopefully create a higher internal-growth opportunity.

So, we continue to evaluate. We have our hands tied on a couple of these properties that we are considering selling, because of either pre-payments on loans, defeasance costs, things like that, but at the same time, finding acquisitions that make sense are very few and far between.

So, we are not looking to sell something for the sake of selling it. We are looking to sell something for the opportunity of increasing internal growth.

Is there any property type where you are seeing a little bit more opportunities?

The most active sector is probably office, institutional office, and that's something that we really have put a lid on in terms of the percentage of NOI.

So it doesn't mean that we wouldn't acquire an office, but it would likely mean that we would concurrently sell an office property to do so, if we found something that we felt was of equal or higher quality than what we currently own.

So, there is a lot of opportunity in office. There has been a lot of transactions that have occurred lately. Multifamily acquisitions are probably the lowest of all cap rates, and close to that are high-quality retail assets. So we are not going to do something that's dilutive, and when you are looking at cap rates that range between 3 and the high 4 percentage rate, it just doesn't make any sense.

Okay, great. Thank you.

Blaine Heck, Wells Fargo Securities.

So, looking at the office cash same-store NOI reported this quarter, up 12.5%, you guys said some of that was due to free rent rolling off at City Center Bellevue. Can you give us maybe the magnitude of that impact from that free rent expiring during the quarter, and maybe how long should we expect that to be a wind at your back for office cash same-store?

Hi, Blaine, Bob here. It's a good question. The difference really is about $1.1 million, and what that represents is the free rent that burned off at the end of the first quarter of 2013.

So in 4Q 2012, we had about $1.1 million of rent abatements, and then that burned off in the first half of January 2013. And so when you compare Q4 2012 with Q4 2013, that's your difference. It's about $1.1 million. All of that rent abatement has burned off.

Okay, so that won't be helpful going forward for the office in the first quarter?

Correct.

Okay. So, switching to retail, I know a backfill of the Foodland land space in Waikele isn't expected in guidance for 2014, but maybe can you give some color on what discussions are like there and whether you guys are going forward to -- I think you were talking about dividing that space into 20,000-square-foot boxes?

Blaine, this is Chris Sullivan. We are getting okay activity looking at it. It's not as if this is something new. We have working on this for a while, so I would say on an activity basis on a grade between 1 and 10, we're probably around a 5 and 6 of the options of splitting it into two or leasing it as a whole space.

But keep in mind, the space right now is occupied. We have a subtenant in there with the Inspire Church, and Foodland is also -- has some storage and a piece of the space. So it's occupied. We are getting about, I think, about $51,000 a month on it, so it's not as if it's just sitting there as a completely dark space.

We are getting a little bit of pickup from activity. We recently opened our UFC Gym that opened last week. It's just doing dynamite in respects to their traffic, and that, I expect, is going to help. It's really ignited that end of the center, so I'm hoping that's going to help pick up the leasing activity on that.

Okay, great. Thanks.

Great question, thank you.

Vance Edelson, Morgan Stanley.

Any update on the expected yields for the two major development projects, based on either subcontractor costs being higher or lower than expected or, in the case of Torrey Reserve, based on the quicker preleasing activity?

Yes, we commented on that on the last call. We expect to update our guidance on that at the end of this quarter. We have commenced construction on the buildings that are on the other side of the street from where our office is, and we will have a clearer picture of the lease-up of the buildings by then. So you expect an update on Torrey Reserve on the next call.

And in terms of the Lloyd District, we're still in the process of buying out contracts for the remaining portions of the project, and that process won't be completed until mid-second quarter of this year, so we won't be updating our guidance on returns for that project until probably the conference call after the second quarter.

So that should give you an idea of timing, but what I can share with you is we expect things to be better than we projected originally. Lease-up has progressed far in advance of what we expected and forecast, and things in the Lloyd District are getting better in terms of the market conditions and everything else that's going on up there. So, we expect a positive update.

Okay, good to hear. And then, John, another question for you on evaluating the growth opportunities out there. It sounds like you will remain very disciplined, and you mentioned a little on the cap rates by asset class. Could you provide a little more color directionally, if you can, by asset class? Has there been any noticeable moves over, say, the past half-year?

For the properties that we consider, that we are focused on, and that is coastal properties in the specific markets that we are in, we have seen cap rates come down.

There are a couple of assets that are either under contract or recently closed that, based on our numbers, not necessarily the seller's numbers, but based on our numbers, that started with 3 and 4 cap rates. So, it got to a 5, and we figured that was the bottom, and it continued to compress. So again, as I mentioned, multifamily is the lowest. Retail is right behind it.

We are looking at a -- we were looking at a retail project in the Santa Monica area that is going to trade at something south of a 4. I have never seen that before. Office properties, institutional office properties are hanging somewhere between a 5 and a 5.5, so that's your range. For top-quality properties, for AAA-plus properties, the cap rates are astounding. (multiple speakers)

And of course, if you took those conservative cap rates and extrapolating the [replied in dark] portfolio, you would come up with a number that confirms my earlier statement.

Okay, got it. Thanks, Ernest. And then, you talked about the ongoing one floor at a time renovation in Waikiki. Can you tell us about the revPAR? In particular, did you get any sort of holiday or seasonal lift that supported 4Q results, and do the renovations play into potentially much higher room rates years down the road?

Yes, Vance, during the last two weeks of -- actually last 10 days of the Embassy of the fourth quarter, we went over -- on an ADR basis, on an average daily rate basis, we went over $500, so we were selling those rooms for over $500 a night.

Our revPAR has continued to increase and our ADR has continued to increase. What our revenue strategy has been is that -- which we changed during this last year, early in this last year, was to focus our ADR at $300-plus, and so, that's what we continue to do. And as we went through that, it translated into higher revPAR, which continues to produce strong same-store mixed-use results.

If you look at where we ended up on our revPAR, I think it was, what, about $240, $250 on revPAR. That used to be our ADR. So we have dramatically increased over the last year, year and a half, in terms of where that's headed.

And I think -- I always -- I say that if you look out a decade, that property will continue to improve. It is an exceptional location. It's just an exceptional property. I think we will look back 10 years from now and say, oh, my goodness, how lucky we were to have that property. It's an exceptional property.

Okay, that's great. Thanks, guys.

Jason White, Green Street Advisors.

Just a quick question on the annex up at Landmark. I know your master lease has options through 2026. Can you give us an idea of the risk associated with that being perpetual versus perhaps that ending at some point in the next decade?

The annex lease is a non-economic deal for us. What we pay in rent is a function of what we collect in rent, so net to us is a couple of percent.

We have had discussions with Paramount with respect to buying that lease, buying the fee, and those discussions haven't gone anywhere. But in terms of net economics, it's practically zero.

Okay, that helps. And then, could you talk about the Saks box? It's been some time that has been dark, now that you have some traction there. Can you help us understand a little bit why it was dark this long? Was it lack of tenant interest? Was it trying to find the right retailer? It just seemed like that was great space that could have been filled a long time ago, but wasn't quite sure what the details were surrounding it.

If you followed Saks, you know that they were recently acquired, so in the middle of discussions with Saks, things got put on hold. And then, they resumed once the dust settled. So it was a delay.

We chose to hang with them because of the quality of the tenancy, and we thought that -- and we believe that having Nordstrom Rack and OFF 5TH next to each other in a shopping center is an absolute homerun.

So, it definitely took longer than we expected, but it was for reasons outside of our control. It had nothing to do with the premises or the tenant's interest. It had to do with their internal challenges. Chris, would you like to add to that?

Yes, the other thing I would add to that, Jason -- this is Chris Sullivan, is that when you look at all the boxes that are in the Carmel Mountain trade area, and you are leasing a 40,000-foot space, that bench starts to get pretty short.

We have several 40,000-foot tenants in our center when you look. We have the Sports Authority in there. You have Nordstrom Rack in there, and so those big boxes are few and far between. Rack -- or with Saks just adding to the fashion kick and drafting off Nordstrom Rack, now I am getting the calls which I expected from other soft-good merchants, and I'm hopeful to pull some out of North County Fair and continuing to increase that tenant mix.

So, it was part of the strategy to just make it a better property and hold out a little bit for the right tenant.

The evolution of that property has been just amazing, combined with a Sprouts, so we have all the attractions that a center like that should have, and that is going to be a keystone property in that neighborhood for decades.

Okay, thanks. Then last question, have you guys been close on any acquisitions in 2013 -- as you underwrote them? Have any come down to you got to a check on a final round, and maybe how far off where you relative to what you were willing to pay versus what they ultimately transacted at?

We had our hat in the ring on quite a few possibilities. And ultimately, the properties traded at levels that I would say were prices about 10% higher than we were willing to pay. I mean, it wasn't a few dollars; it was a lot of dollars. So, we are not a pension fund, and 3% and 4% returns don't make any sense for us.

The other thing I would add to that, Jason, is that as you have heard me mention before, it's not the going in cap rate; it's the growth. So while there was one great shopping center that we looked at, we looked at several, and we made a bid on it, it started at a 5% cap -- 4.9% or a 5.1% cap rate going in, but the growth was literally 1% over a decade.

So why would I want to do that to my shareholders and make a dilutive acquisition just for the sake of buying it? So we are very disciplined, like John says. But if it's out there, we're looking at it and we had our hat in the ring in several of those opportunities.

Okay, thanks, guys.

Discipline is a hallmark of the Company. We have been through this before when there has been prices that are just nonsensical and we passed on it. It has been the best thing to do in the short run; perhaps it's not as pleasing to the ears. But in the long run, it creates value and wealth.

Thanks, Ernest.

Rich Moore, RBC Capital Markets.

A couple things for you. First, Bob, I'm curious. The recast line, the total size seems small to me. I realize it's the same size it was, but it seems sort of small, given what you're going to have coming due this year and next year, et cetera. And I'm assuming most of the time you're going to be unencumbering those assets as they come due. So I'm curious, why is the line balance -- or the line size, the capacity so small?

From my perspective, I don't think it is. It doesn't make sense to pay for more than what I really need. I know with the capacity that I have now, I can go through 2017 without even tapping into the equity market or increasing a line.

So from my perspective, you have a $250 million unsecured line. As of today, we have zero outstanding on it. We have that $100 million unsecured term loan, which is part of the facility, and then we also have an accordion feature, which is for another $250 million. That takes me up to a total of $600 million in capacity. So I think that we are well positioned.

And if you look at it, we're only -- we only need $141 million to pay off Waikele November 1, and then at that point in time, going into the first six months of 2015, we will be close to being in a position for a debut bond offering, subject to market and economic conditions at that time.

Okay, yes, I got you, I was just -- I was thinking that to do an index-eligible bond kind of thing, you needed $250 million, plus, probably in total -- total size for the bond issuance. But it sounds like with the accordion feature, you are probably good. Okay, thank you on that.

And then, I'm curious, too, if you could, if you could explain to me on pages 11 and 12 when you are looking at NOI for -- same-store NOI for the portfolio on a with and without redevelopment, what is -- what all do you have in the with redevelopment for office category?

The only difference is Lloyd and Torrey Reserve, so on page 11, it excludes the Lloyd and Torrey Reserve redevelopments.

Okay, and you leave those in there, I guess, through completion of the projects? Is that the idea?

That's the idea, because both projects have been impacted significantly by the construction activity. We've had to tear up the parking lots, and we have lost some tenants because of the construction going on, as expected.

So in order to get same-store comparability, we thought it was best to break that out so you can see during redevelopment and with and without redevelopment.

And also, too, it makes it easier because on the Torrey Reserve campus and the Lloyd campus, you have several buildings, so while -- of the, what, six buildings that we have right now, they are operating, but the expansions are going to come online -- the expansion buildings, which is another five, will come online at different times during the development.

So we thought it would be easier for investors and analysts to follow the increase in that same-store NOI of the redevelopment properties on a separate page.

Okay, good, thank you. And then, G&A guidance. Could you remind us what it is for 2014 and if that's changed at all after the last quarter?

Yes, it hasn't changed at all. And I believe we had it at just a hair under $18 million this year.

Okay, all right, good. All right, good, thanks. And then the last thing, guys, the Lloyd center, the mall itself that has now lost its Nordstrom, have you got any thoughts about that? Does that concern you? Or do you have any, I guess, reaction to what's going on over at the mall itself?

The mall trading hands into Cypress Equities was positive. They are experts at repositioning and redeveloping those kinds of properties.

The closing of the Nordstrom to us really came as a surprise, especially in that they spent about $10 million on a remodel of their interior not too long ago. So, we're still trying to gather some information as to the why and what happened and was it expected. That's the question I have out to the people at Cypress right now, whether or not they knew that Nordstrom was going to close when they acquired the property. And if so, what their thoughts and planning are for that space.

So, when I know, I will let you know. I think -- the impression I get is that it is not going to have a bearing on them moving forward with their redevelopment plans. And keep in mind, the store has closed. There is still a lease in place. So from an income perspective, the landlord is not impacted. What burned off was their operating covenant.

So we will keep you informed. As we obtain additional information, we will pass it along.

(multiple speakers) John, thank you.

It's a very active area, though, and the closing of one store certainly is not anything that we prefer, but on the other hand, there's lots of activity in the area, and I think I read that they don't close that store until January 2015. I think it's open until then, but they have given notice, but I am not sure. That's what I read. It could be right.

Okay, Ernest, thank you. And so you guys haven't heard, though, what they might do for replacement yet, John, is that what you are saying?

Yes, we are seeking that information kind of more at a 50,000-foot level. The first question I would like to have answered is did they know they were going to close when they acquired the center, and I'm very interested in hearing the answer to that. So, we will see. As I obtain additional information, I will pass it on to you.

But talk about discipline, Rich. We looked at that mall several times. It just didn't fit the quality of portfolio that we have, so --

But we are not in the mall business, so (multiple speakers)

We wish them every success.

Great. Thank you, guys. I appreciate it.

(Operator Instructions). Craig Schmidt, Bank of America.

This is actually [Katy] on for Craig. Just a question on the leasing spreads. Given the weakness in 4Q, we are just wondering how we should be thinking about them for 2014 and what might cause them to start improving?

Katy, this is Bob. Are you talking about the retail?

Yes, the retail re-leasing.

So on retail, really from my perspective, what is going on is the non-comparables. You have some significant activity going through there in the non-comparables, because if you look at on page 24, you have a total of 21 leases, and 14 are comparable, seven are not. And of the seven, you have probably 81% of the square feet and you have a significant amount of income coming in down the road. A big portion of that is the Saks OFF 5TH coming in.

So, I think coming down the road, though, on the comparable leases is that I think the key is really to look at where we are compared to -- where the market is compared to our in-place. And as I mentioned in my comments on both the retail and office, our in-place is below where we see the current market rent.

So we think that as opportunities arise in our portfolio, as vacancies exist, we think that those are really opportunities to either renew or re-lease at higher rates.

Okay, great. So you would expect this to move into positive territory in 2014?

Yes, eventually, quarter by quarter.

Okay, thanks.

With no additional questions in the queue, I would like to hand the call back over to Mr. Ernest Rady, Executive Chairman, for closing remarks.

Again, I want to thank you all for your interest. I can assure you that this management team is devoted to enhancing shareholder wealth, building our FFO, building our NAV. We love what we do. We think we do it as well as anybody, and we're going to continue those efforts to the maximum extent we can. Thank you for your confidence.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a wonderful day.