Acadia Realty Trust (AKR) 2011 Q4 法說會逐字稿

Welcome to the fourth-quarter 2011 Acadia Realty Trust earnings conference call. As a reminder, this conference is being recorded. At this time, all audience lines have been placed on mute. We will conduct a question-and-answer session following the formal presentation. (Operator Instructions). I will now turn the call over to Amy Raconello, Vice President of Capital Markets and Investments. Please proceed.

Good afternoon and thank you for joining us for the fourth-quarter 2011 Acadia Realty Trust earnings conference call. Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer, Jon Grisham, Chief Financial Officer, and Michael Nelson, Senior Financial Principal. Before we begin, please be aware that statements made during the call that are not historical may be deemed forward-looking statements within the meaning of the Securities and Exchange Act of 1934, and actual results may differ materially from those indicated by such forward-looking statements. Due to a variety of risks and uncertainties, including those disclosed in the Company's most recent Form 10k and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, February 8, 2012, and the Company undertakes no duty to update them.

During this call, management may refer to certain non-GAAP financial measures including funds from operations and net operating income. Please see Acadia's earnings press release, posted on its website, for reconciliations of these non-GAAP financial measures with the most directly comparable GAAP financial measures. With that, I will now turn the call over to Ken Bernstein.

Thank you, Amy. Good afternoon. Thanks for joining us. Today, I'll begin by updating you on the progress of our key initiatives, and then John will conclude with a more detailed review of our fourth quarter earnings and our operating metrics, as well as our earnings forecast for 2012.

Throughout 2011, our team was focused on creating value through two broad components of our business. First is within our core portfolio, where the key drivers are our accretive re-anchoring and lease-up projects at three of our existing shopping centers, coupled with the acquisition of a host of high-quality assets as part of our asset recycling and core acquisition initiatives. Then the second component is through our external growth platform, where since our last call, we executed new opportunistic and value-added acquisitions, continued to develop, lease-up, stabilize, and monetize our existing investments, and in the fourth quarter we also made important progress with respect to our formation of Fund IV, which we expect to launch by the end of the second quarter of this year.

So I'll begin today's discussion with our core portfolio activity, followed by an update on our fund activity. First, with respect to our core portfolio operating fundamentals, when we look at our fourth quarter results and strip out the noise from our three re-anchoring projects, same-store NOI increased by 130 basis points on stable occupancy, and positive leasing spreads. This is consistent with the mild recovery that we appear to be in, but notwithstanding a mild recovery, as we look forward over the next year or so, we expect pretty significant occupancy and NOI gains driven by our three previously-announced re-anchorings, being Bloomfield Town Square, as well as two properties that formerly had A&P Supermarkets here in New York.

As John will discuss, beginning in the second half of this year, we'll begin to add what will total on a run rate basis, an incremental 3.5% to 4% to our occupancy, $3.5 million to $4 million to our NOI, and approximately 8% to our earnings base. These re-anchoring projects are now in aggregate 77% pre-leased and we'll lease the balance this year.

Rents on average for the new leases should represent approximately a 50% increase over the prior rents for those spaces. These tenants are scheduled to begin opening in the second quarter of this year, and the balance should be in place by year-end.

Now, while the NOI and earnings contribution is a little too back-ended to have full impact on 2012 numbers, they will contribute significantly to our second-half 2012, as well as to our 2013 growth. As is the case with our current re-anchorings of former A&P locations, our portfolio anchor leases, especially here in the Northeast, tend to be older centers with anchor rents that are generally below market, and while it's hard to predict when, if ever, we get the opportunity to capitalize on the recapture of these leases when we can, whether it's recapturing Caldor's, or Grand Union or Bradley or Ames, or more recently A&Ps, the value creation can be meaningful.

Most recently, there's been significant discussion regarding Sears and Kmart. While it's probably not productive to use this call to ponder Kmart and Sears' overall prospects, with regard to our portfolio, we have three Kmarts and one Sears in our core. Current weighted average base rents is approximately $5 a square foot. All of these leases appear to be below market with our property in Westchester, New York being at a fraction of market rent.

Now, that being said, given that these stores all have strong sales volume, it's premature to anticipate the opportunity to recover any of these existing leases, but separate from our existing leases, as has been most recently the case with A&P, when tenants become distressed and close stores, it tends to also create new investment opportunities. For instance, two of our more recent fund acquisitions were formerly A&P anchored centers, so as Kmart continues to evolve as a retailer, we'll watch this process and keep you apprised.

Along with this 8% net growth contribution from the three re-anchorings, the second key driver of our core growth is from our asset recycling and core acquisition initiatives. Our focus in 2011 and now continuing into 2012 is to do some modest pruning of certain assets that aren't consistent with our core strategy, and then more significantly, to add properties that we think over the long term have the potential to significantly outperform the asset class in general.

Over the past year, as we have seen further evidence of the separation of the haves and have-nots with respect to retail real estate locations and a better understanding of the secular shifts in retailing, the focus for our core investing has been primarily on urban and street retail properties in the major gateway cities.

Thus in 2011 and to date, for our core portfolio, we have entered into contracts or closed on 31 street or urban properties for approximately $180 million. These properties are in four important gateway cities. New York City, Chicago, DC, and most recently, the Greater Boston area, where in the fourth quarter, we entered an agreement to acquire a property in Cambridge, Massachusetts that's anchored by a Whole Foods, and then more recently, we entered into an agreement to acquire the adjacent parcel that currently is anchored by a below-market Rite Aid Drugs. The Rite Aid parcel acquisition will be an OP unit transaction. The aggregate consideration for both properties will be just under $20 million.

With nearly 500,000 people and average household income of nearly $100,000 within a three-mile radius of the property, this property is a high barrier to entry location with solid tenant performance below market rents. And while we don't anticipate having the opportunity to recapture either of these spaces in the near term, with a going-in unlevered yield of approximately 6% and long term upside, we feel that this is a nice addition to our core portfolio and very consistent with our growth strategy.

These $181 million of core acquisitions, once fully closed, should contribute approximately 5% to 6% to our earnings base and they will comprise approximately 20% of our core NOI, and more importantly, increase our portfolio's stability and diversification. They are all in key supply-constrained markets with locations that will remain relevant to our tenants and to their shoppers not only today, but even more so 3 years, 5 years, 10 years down the road.

When we look at our portfolio composition at the completion of these acquisitions, urban and/or street retail real estate should represent over 40% of our portfolio including our pro rata share of our fund investments. The balance of our portfolio is then fairly evenly split between supermarket-anchored centers and value or discount-anchored centers.

To date, of the now $181 million of core acquisition pipeline, we closed on $74 million, having completed the acquisitions in Georgetown and New York, and we closed on seven of the 20 Chicago assets. We're currently awaiting lenders' final approvals for the assignment of the debt for the balance of the acquisitions.

Complementing our core growth initiatives is the second major component of our business, which is the external growth generated from our fund platform. In the fourth quarter through our Fund III, we closed on three investments with an initial acquisition cost of approximately $50 million, and are under contract for a fourth property for approximately $30 million.

Thus, including these transactions over the course of 2011, we have entered into or are closing on approximately $170 million of fund acquisitions. These new investments are consistent with our general investment themes, which are first, value-add investments in high quality urban or street retail properties with retenanting or repositioning opportunities.

Second is opportunistic acquisitions of well-located real estate but that is anchored by distressed retailers. And then, third is opportunistic purchases of debt or restructurings or motivated seller transactions.

To briefly give some color on our most recent fund acquisitions, first, New Hyde Park, which is a well-located property on Long Island. We will have the opportunity to re-anchor and redevelop that property. Second, Parkway Crossing in Baltimore is consistent with our other distressed retailer acquisitions. Here we acquired this asset. It was previously anchored by an A&P Supermarket and then prior to closing, we signed a lease for that vacancy with Shop Rite Supermarkets.

Lincoln Park Center in Chicago, this was an extremely well-located property at the three way intersection of Clybourn, Halsted, and North Avenue in the heart of Lincoln Park. The project was anchored with a now vacant Borders Bookstore, which creates an attractive re-anchoring opportunity.

The property sits right across from a new, iconic Apple store, and tenants in this market range from Restoration Hardware to J. Crew. Interest in the Borders space ranges from exciting fashion retailers to active lifestyle and better home furnishing retailers.

Finally, 654 Broadway in NoHo in New York City, we purchased the debt securing this property at a discount, and simultaneously restructured the loan with the borrowers, thus enabling us to take control of the property on a consensual basis.

The property has a below-market lease with a regional operator and we have the opportunity to upgrade the property. Tenants on Broadway in NoHo range from Crate & Barrel to Adidas, and from Swatch to Urban Outfitters.

In order to stabilize these four investments, we expect that we will likely spend $15 million to $25 million of additional capital for the re-anchoring or the redevelopment, and we believe that these properties should stabilize with unleveraged yields in excess of approximately 8%.

After taking into account these transactions, we have approximately $100 million of Fund III equity remaining to deploy, and based on what we're seeing in the marketplace, we believe that we'll be able to find interesting opportunities for its investment over the next couple of quarters. Accordingly, we expect our Fund IV to launch at the end of the second quarter of this year, and to have terms and sizing similar to our Fund III.

With respect now to our existing fund investments, details on all of our urban and street retail development projects can be found in our reporting supplement. Our team continues to make progress with respect to the overall portfolio. Of particular note, at our City Point project in the fourth quarter, we made significant progress with plans for the two anchors that will occupy the majority of the second, third, and fourth levels of the entire project, as well as occupying the majority of Phase I of that project.

This leaves the first floor street level retail, and the concourse remaining to be leased. Construction on our Phase I will be completed this Spring. Construction of Phase II will begin this Summer, and Phase II should be ready for occupancy in 2015.

Now, since the devil's in the details and we have not yet signed these leases, nor formally announced the tenants, we aren't going to do so yet. We've been patient with this multi-year process, and we'll continue to make sure that we get this right.

In the fourth quarter also with respect to City Point, we commenced the process for obtaining our construction financing. We anticipate utilizing the government-sponsored EB5 program for this financing. This process is proceeding well, and upon its successful completion, should provide us with the necessary senior financing for the project.

Turning now to dispositions in the fourth quarter, we sold 15 of our 18 remaining properties in our Kroger-Safeway portfolio. So far to date, that investment has returned a 20% IRR over approximately eight years, and a 2.3 equity multiple on our investment. Looking forward, we expect to see more asset sales of Fund assets and are very pleased to see the pricing levels and demand in the market for stabilized assets.

So in conclusion, the progress that we made with our key growth initiatives during the fourth quarter and throughout 2011 is beginning to have a significant impact. Within our core portfolio, the strong growth from our re-anchoring projects combined with the new acquisitions should contribute significantly to our earnings growth in the second half of this year, and more importantly, further enhance our core portfolio quality.

And combining this with our opportunistic and value add investments made through our Fund platform enables us to create value through a broad range of investment activities.

Finally, the anticipated launching of our Fund IV will position us to take advantage of a wide array of opportunities as they arise over the next few years. I'd like to thank the team for their hard work.

They did a solid job last year, and more importantly, are very excited about our plans for 2012 and beyond. So now, I'll turn the call over to Jon Grisham, who in January assumed the role of CFO. Jon, Mike and I congratulate you. Thank you for everything and Jon, please review our fourth-quarter performance and forecast in 2012.

Thank you, Ken. I appreciate that. Good afternoon. First, I will recap 2011 results, and then I'll discuss our 2012 guidance. From an earnings perspective, FFO for the fourth quarter of $0.25 and $0.97 for the full year 2011 was consistent with guidance. One item to note for the fourth quarter, as Ken mentioned, we sold 15 of our 18 Kroger-Safeway locations, which generated promote income of $2.4 million or $0.06 for the quarter.

Looking at our Core portfolio performance for 2011, for the fourth quarter, we experienced an uptick in same-store NOI of 130 basis points as Ken mentioned, and compared to third quarter, which was a 50 basis point increase, we see that the recovery continues and the performance of our Core portfolio continues to strengthen. When looking at same-store NOI, as Ken mentioned also, the impact of the three Core re-anchorings created a negative drag in terms of same-store NOI.

For the fourth quarter it was 6% such that the headline number was minus 4.7%, and for full-year 2011, same-store NOI, again excluding the impact of the re-anchorings, was effectively flat, which was consistent with our original guidance for 2011, which called for minus 1% to positive 1% same-store NOI. Occupancy at year-end was 89.8%, including the re-anchoring leases that have been signed but not yet opened, we're 92.7% leased. And then upon finalizing the leasing of the remaining re-anchoring space, that will add another 90 basis points which will put us at 93.6%.

So now, turning to our 2012 earnings forecast, we've detailed on page 14 in our year-end supplement our projected 2012 FFO range of $1 to $1.05, and consistent with prior years, we divide our income into five categories, Core portfolio and joint venture income, asset-based fee income, transactional fee income, G&A and then other income which includes promote, RCP and lease termination income. First I'd like to drill a little bit further into our expectations for the Core for 2012.

So for the existing Core, we're forecasting the following. First in terms of same-store NOI, recall again that the three re-anchorings created 6% drag on same-store NOI in the fourth quarter, and they will continue to create some drag at the beginning of 2012, such that the first quarter will be negative, but then the impact from these re-anchorings will moderate through the year. And towards the end of the year this will actually flip and these will be a positive driver of NOI in the second half of the year.

As a result, same-store NOI for the year on a whole, inclusive of the re-anchorings, is expected to be between 2% and 3%. Importantly, as Ken mentioned, these three re-anchorings will generate $3.5 million to $4 million of NOI when they are fully online. We expect about a third of this, or $1.5 million, $0.03 to hit in the second half of 2012, and the remaining $2.5 million or about $0.05 to come on line in 2013. Lastly, we expect occupancy by year-end to be around 94%, primarily a result of these re-anchorings coming online.

So now, looking at Core acquisitions, and before I get into a discussion of the details, recall that, as we've previously discussed, every $100 million of Core acquisitions on a leverage-neutral basis generates approximately $0.03 of FFO or 3% earnings growth. So for 2011, we had $181 million of acquisitions, of which we've closed on $74 million. On a run rate basis, these acquisitions will generate $0.05 to $0.06 of FFO.

Although the majority will be realized in 2012, there will be $0.01 to $0.02 that will not be realized until early 2013, presuming that we close the end of this quarter on the remaining $107 million of deals that are under contract. In addition to these acquisitions, we're also assuming in the forecast additional acquisitions in the core of $100 million to $200 million and we assume a mid-year deployment of those investment dollars.

Related to our opportunity funds for 2012, Fund I, following the sale of the 15 Kroger-Safeway locations now has investments in Tarrytown Shopping Center, three remaining Kroger-Safeway locations and a portion of the RCP Mervyns investment. Our expectation is that we'll monetize most, if not all of this during 2012, and as a result, we've included some level of promote income forecast.

For Fund II, 2011 NOI at the fund level is $22 million, primarily in our New York urban redevelopment portfolio. We expect for 2012 that this NOI will increase to $27.5 million, primarily as a result of the full-year effect of 2011 rent commencements, and additional lease-up. For Fund III, for 2012, we're projecting new acquisitions of between $150 million to $300 million, again assuming a mid year investment.

Turning to fee income. Our forecast presumes that we're moving forward with Fund IV, as Ken has mentioned, and we've projected additional Asset Management fee income as a result. Anticipated transaction fee income of about $6 million is comparable to 2011. A key component for 2012 is construction fee income related to Fund II City Point project and this is expected to be more weighted in the second half of the year when scheduled activity for Phase II ramps up.

So to recap 2012 guidance, core re-anchorings and the current acquisition pipeline will be key drivers for 2012, primarily in the second half, and 2013 earnings generating in total approximately $0.14 of growth. Half of this will be in 2012 and the second half 2013. The other thing to note about earnings for 2012 is the distribution over the individual quarters.

Typically, we have not given quarterly guidance, and we're not giving specifically quarterly guidance, but in terms of the distribution, we expect that, given the timing of the re-anchorings, closing on the existing acquisition pipeline, timing of fee income, that 2012 earnings will be lower at the beginning of the year, accelerating into the second half of the year, so while first quarter 2012 will be in the low 20s range, importantly, third and fourth quarter will be closer to 30 and represent high-quality recurring earnings, which will be a nice platform to build off of going forward into 2013.

So now turning to the balance sheet. We've historically and will continue to maintain a low risk balance sheet. Our current net debt to EBITDA, including our pro rata share of our funds is about five times and our debt to total market capitalization is in the low 30s, and we think that this is the appropriate level to operate in.

And looking at our capital needs, vis-a-vis our current acquisition pipeline, we have sufficient cash on hand and line availability to fund the equity component of these deals, and the launching of the Fund IV will importantly provide continued capital to fund growth in our opportunity fund Business, and as we announced last month, we've established a $75 million ATM, or at-the-market, program which we anticipate will use to match funds, potential new acquisitions and our pro rata share of fund acquisitions to the extent needed to maintain our low-risk balance sheet.

So in conclusion, our 2011 results, both in terms of our core portfolio and earnings met our expectations for the year. Our core re-anchorings and current acquisition pipeline will be key drivers to Core earnings in 2012, more so in the second half of the year and more importantly, into 2013. And in addition, our Core acquisition program will contribute to future earnings, as well as the expected launch of Fund IV will continue to drive growth in our fund platform. With that, we'll be happy to take any questions at this time. Operator, please open the line up for question-and-answers.

(Operator Instructions). Your first question comes from the line of Craig Schmidt with Bank of America-Merrill Lynch. Please proceed.

I'm wondering, the two A&P stores, are they expected to be occupied in 2013 and be renting?

Yes.

So it will be almost a year from now or possibly a little more?

Well, no. We hope and expect them to open preferably before that, but certainly they will be in place by 2013.

Our expectation, Craig, is right at the end of 2012, so we're talking fourth quarter in terms of timing.

Okay, great. And I saw in the news that Shaw's announced the closing of 5 New England stores today. I'm just wondering how do you feel about I think you own 3 of them? Just 3 Shaw's, sorry. Not the -- closing.

I have not seen that list today so I don't nowhere ours would fit into. Shaw's and Supervalu have been going through that evolutionary process that the supermarket industry in general is doing, and Shaw's has really struggled to find its footing. You'll recall, we just recently last year bought another Shaw's, where we think there's strong re-leasing opportunities. Case-by-case, we have different plans for each of them. It's probably a little early to outline, but our expectation is that Shaw's is going to have to engineer a pretty significant turnaround, either internally or through a sale for them to really regain their traction.

Great, and then just I know you don't want to -- you don't have any specifics on City Point, but on the first level, are you expecting to specialty fashion or is there some other direction you're thinking of going?

It looks like it will be specialty fashion. There's a lot of new demand with H&M now opening, and the tenants are ranging. Shake Shack just opened on Fulton Street, and there is lines around the block. Fulton Street is changing pretty significantly, and over the next couple years we think that will continue both in terms of the existing Fulton Street shopper. But probably as importantly is the significant demand from the brownstone communities all around downtown Brooklyn, that don't -- historically have not yet shopped on Fulton Street, but we think that downtown Brooklyn will become an important shopping destination for them.

Okay, thank you.

Your next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed.

Hi, good afternoon. I'm on with Jordan Sadler as well. Ken, it seems like you continue to find a good amount of investment opportunities, and the deals are fairly attractive. I'm just wondering if you can talk about how you sourced some of the more recent deals, and whether or not you've seen an increase or any change in the level of competition for some of the latest acquisitions?

The competition has been fierce, but frankly its been fierce for almost as long as we're in business. Every now and then, there's a period where there's not a lot of other buyers. I think when we bought Cortlandt Town Center from Centro, that might have been that rare exception. Our team has done and continues to do a very good job of sourcing transactions from a variety of different ways. The shift in change is that I see right now to answer your question specifically is, I think we are continuing to work past that phase, that two-year period of the financial institutions kicking the can down the road. So, we are seeing more transactions that one way or another, directly or indirectly, are precipitated by borrowers or existing owners recognizing that they're going to have to, at this juncture, transact. That their lenders are not continuing to simply support the transaction. That will happen as we see large debt pools trade hands, and opportunity funds become the acquirers of those pools of debt. Obviously, the tone shifts in that dialogue with the borrowers.

We're seeing, and 654 Broadway is an example, of lenders saying we're now ready to sell our debt at a fair price. And that puts us in a good position because we can work with existing borrowers, as we did in that case to take control of the asset on a consensual basis. The last thing that we're seeing is just enough interest in OP unit transactions that it seems like the past couple calls we have talked about buyers -- excuse me, sellers coming to us on a relatively short list of potential opportunities, to take our stock in the form of OP units in connection with the transaction. Now, that doesn't mean that we don't have to pay a full price for those transactions, but it certainly reduces the competition if you will of who we are working against.

So, to sum it up, plenty of competition out there but deal flow does seem to be increasing, whether it's through distressed retailer opportunities like some of the A&P deals that we recently did or the fabulous Borders location that we just acquired. Distressed retailer opportunities will be there, debt opportunities seem to be growing, and then if we can do an OP unit deal here and there for great assets that we want to own long term, we're thrilled with that.

Okay, that's helpful. And then in terms of pruning the portfolio, the core portfolio and selling assets. It seemed like after the Ledgewood Mall, there were just a few properties left to shed. I'm just wondering, you mentioned in your prepared remarks that you were happy with the pricing in the market today, so I was wondering if there are additional sales after reviewing your portfolio that you're contemplating today?

Yes, I think that any Company, no matter how much they love their own real estate, should be very carefully looking at and prepared to sell, let's say 5%. Whatever assets they think the market will reward their shareholders for shedding in most years. So, obviously if there's a financial crisis, and there's no good selling market, I think that it pays to have a strong balance sheet so you don't have to. We'll always look to shed one or two assets and continue to upgrade our portfolio. I think you should expect to see that in 2012, but what I'll point out is, we're not talking about any material amount of dilution. We're not talking about major shifts. We don't have to. Over the course of the past 10 years, we have probably sold over 50% of our portfolio, but I'd rather do it gradually and opportunistically, and I think that's what you'll see.

Okay, and then just lastly, with regard to the mezzanine investment portfolio, first, I guess, do you expect to make any additional investments? Then, on the notes that are currently outstanding, what's your view of what might be retired in 2012, or I guess, what's baked into guidance?

Why don't you deal with the guidance first?

Sure, so in terms of guidance, let's take a step back. Our current balance in terms of mezzanine or notes receivable investments is about $33 million. There are notes maturing and new investments being made, mostly smaller investments, so there's a continual rotation throughout the year. That all being said, we think about the level in total and $33 million, might even go up a little bit over the next year or two, and we could envision it growing to, say, $50 million. Wouldn't want it to be much larger than that, certainly know where near the level if you'll recall back in 2010. We were up as much as $120 million in mezzanine investments. So, we don't foresee that, but certainly at this level we're comfortable, and we continue to no doubt invest in some good opportunities here and there.

Great. Thank you.

Your next question comes from the line of Sheila McGrath with KBW. Please proceed.

Ken, I was wondering if you could talk about Fund IV, the timing of the size and will the fee structure be the same as Fund III? And also how far along you are on the fund-raising process for that Fund.

Sure. What we have said and what I hope to be the case and every indication we've had from the investor meetings is that the size should be about the same, the fee structure or expectation should be about the same, very closely. We're comfortable with the balance of how Fund 3 is set up in terms of the preferred return hurdle, in terms of the fees, we think it's fair and balanced for all parties involved, and so far, the investor interest we have and the dialogue seem to be consistent with that. So that's what I would assume. In terms of timing, I would pencil in towards the end of the second quarter, because that's when our Fund III is likely to finish its primary investment period. If things work well, and there's always caveats, but when things work well you go from one fund then into the next and that would be our expectation.

Okay, and Jon, there was a fair amount of promote income in fourth quarter and you did give some guidance in 2012. I was just wondering if you could give us any visibility on first half of the year or second half of the year, should be back out end-weighted?

In terms of overall earnings?

Contribution of the promote.

The promote, right. So I wouldn't give it any specific weighting. It's all obviously a function of the timing of these sales transactions in Fund I. It's difficult to pinpoint exactly which quarter that will occur in, but we're, like I said confident that it will most likely be a 2012 event at some point.

Okay, and last question, Ken. Just on City Point, could you give us an update on your thoughts on the residential entitlement there? Is that something that you would consider monetizing via sale or you get a good joint venture? What are your thoughts at this point?

The residential is fully-entitled, fully-conceived. There will be a affordable housing component and a rental component in Phase II and then we will have on Phase III a effectively vacant land parcel. All of those will be sold off to, owned by, and developed by very seasoned accomplished residential development organizations, not by our organization. I may some day want to rent an apartment there, but that's about as close as we will get to the residential component.

Okay, thank you.

Your next question comes from the line of Cedrik Lachance with Green Street Advisors. Please proceed.

Thank you. Ken, just going back to Fund IV, when I look at your stock, you probably trade at -- in our numbers, about a 20% premium to NAV, which means that the public market can be a fairly cost-effective partner from an equity perspective. So when you think about getting equity from the private side, what is the attraction at present?

If we could time everything perfectly, and if we agreed with you in terms of your estimates, et cetera, I suppose there are theoretically companies that have been able to grow pure play in the public and having only one source of capital. I'll tell you in the strip center sector side, that really hasn't been an as good a recipe, we think, as what we've been able to afford our shareholders. Which is while we've made our fair share of mistakes, that for the value add and opportunistic deals that tend to arise -- I mentioned briefly that our acquisition of Cortlandt Manor -- they tend to arise when our stock is not only on a relative basis, not at a premium, but on an absolute basis maybe half of where it was a year or two before. So we announced or agreed to acquire Cortlandt Manor, our stock, Cedrik was at $9 a share, I think.

Now, was it our fault there was this minor Lehman Brothers problem? But the opportunity to be opportunistic and take on zero cash-flow yielding investments, whether they are Mervyns or Albertsons or some of these others, to put up 20% of the equity for 40% of the profits, while we still grow a high-quality core portfolio, we like that blend. We think it works for our shareholders. We think it prevents us from having to join what is sometimes referred to as the pie-eating contest and growth for growth's sake. And finally, one of the problems in the pure public play is companies tend to grow and not shed assets, they tend not to be disciplined sellers.

Being in a funds business, where your focus is buy something, fix it, stabilize it, and then monetize it. Not that you have to sell every quarter, we have a tremendous amount of flexibility as to when we want to monetize, but having that embedded discipline, we have found creates shareholder value over time. Losing that discipline seems to have hurt other companies, so may not be the best model. We like it, we think it works, we think it works well for our shareholders.

Okay, and in terms of the geographic distribution of future acquisitions, and when we look at Baltimore, it's not a core market of yours. Going forward, are there any new markets you're looking to enter over the next year or two, or is what you have right now what you're looking to grow into?

So and that's a perfect example, and you're right, Baltimore would not be where you would see our next core acquisition. For the core acquisitions, I would expect them to remain in major gateway city markets, where we think that our retailers are going to want to be, and be able to pay us more rent over the next many years going forward. That has to do with a wide variety of some of the secular issues of how we shop, as well as how the Capital Markets will view gateway cities as opposed to secondary cities.

For the opportunistic side, we can be more flexible, and we just talked about our monetization of Kroger and Safeway, and I challenge you to find one of those properties that would be in markets that we would under core to our long term strategy, yet we made a 20 IRR with very low leverage on that deal, over 2X on equity, because we can afford to be opportunistic. In the case of Baltimore, we took our time, but Shop Rite said they wanted a location at that center. We're able to buy it where by putting in Shop Rite, fixing up a few other things, we'll get to about an 8% yield, and we think that upon stabilization in the next 12 to 24 months that we will find enough good exit opportunities for those kind of transactions. So we can be more flexible as long as we think the returns are there, because we don't expect to own those type of assets long term.

Those markets are likely to be on the East Coast; correct?

Yes, yes, happy to come visit you in California, but so far, we have found that we're most competitive and able to really move fastest in the key markets, Chicago and East.

Thank you.

Your next question comes from the line of Christine McElroy with UBS. Please proceed.

Hi, good afternoon guys. I just wanted to follow-up on Craig's question earlier. Jon, I want to make sure I understand the occupancy commencement timing. Is the entire 400 basis points of upside related to the re-tenanting? If so there's no other leasing in there? And given the NOI timing that you talked about, does that imply that the bulk of the commencement will occur in Q4?

That's all correct. There is some additional leasing uptick beyond the re-anchorings but they constitute the majority of the occupancy increase for the year, yes.

And then how do you expect sort of expense recoveries to behave as occupancy recovers?

So prime example, you look at these re-anchorings. I think it will correlate fairly tightly, so as we re-anchor these spaces, expense recoveries should follow suit.

And then just on acquisitions, you mentioned in the core $100 million to $200 million in your 2012 guidance. I assume that's above and beyond the 107 that you already have under contract?

That's correct, and again, it's a mid-year assumption in terms of timing.

Have you put anything else under contract subsequent to year-end?

Nothing that we've announced or talked about.

And then with that $107 million, as you close on it, I think the bulk is expected to close this quarter. How much of the ATM would you expect to use on that stuff?

Virtually none, if any at all. So the equity component of that $107 million is about 50% of it or $50 million. As of year-end, we had $60 million of cash on hand and another $60 million under the line available, so I don't think we need the ATM for those.

Okay, but would you expect to use the bulk of the ATM this year, assuming that you find those core acquisition opportunities?

It's all a function of what we find and what we close on, but presuming that we're very successful we could use a substantial portion of it.

And then in terms of cap rates, I'm sorry if I missed this, but can you give us a sense for cap rates on the stuff that you closed last year, and the stuff that you have under contract right now? What you're assuming in terms of -- and that's just sticking to the core -- what you assume core acquisitions that you expect to close this year?

Yes, we've announced that the cap rates are in the 6.5% to 7% range in general. Cap rates for high quality core continue to march down as borrowing spreads tighten as there seems to be more confidence that the 10-year Treasury hovers around 2% for a while, so the 6.5% to 7%, if we were to try to replicate all those deals today, my guess is the market is probably closer to 6%. We're seeing deals that we're not acquiring that are for high-quality assets, where people are confident that there's strong rental growth or stability, we're seeing them trade in the low 5% and we're selling assets into some of that.

Now, when you look at an absolute basis, 5% sounds very low. We're probably not a player at that level. We announced our Cambridge Whole Foods at 6% just to give an indication of where we might be interested and where we might not. But at a 6% cap over -- looking at it just as relative to the 10-year Treasury, 400 basis point spread seems to be well within the historic average. Until rates move, I would be surprised to see, unless there's some massive -- another round of financial distress, I'd be surprised to see spreads widen and in fact I think you'll continue to see them continue to compress.

Our point of view in terms of core acquisitions is we aren't smart enough to guess or game the debt markets, thus we keep the vast majority of our debt match funded long term fixed rate, and we can borrow at 200 over almost anywhere on the yield curve. So, you can kind of pencil into what the spreads would look like from that perspective. And as Jon's articulated, we probably match fund the equity as well, so cap rates on an absolute basis are feeling compressed and low, so we'll continue to be careful.

Okay, and then just one quick modeling question. What's the average interest rate on the $51.7 million of debt that you're assuming?

It's between 5% and 6%.

Okay, thank you.

Your next question comes from the line of Rich Moore with RBC. Please proceed.

Ken, is the list of investors for Fund IV similar to Fund III, or have you got some new investors?

Both. I would expect and am hopeful that we will have a very high level of re-up and then I think we'll have a nice list of complementary investors. As you probably know, pre primarily work with University endowments, foundations, private pension funds. I joke that it's all the universities that didn't let me into college or law school, but it's a great group of investors, very savvy, and we've been very pleased with their support over the years.

So you're still in that process, I take it, of selecting or marketing to the investment community?

Yes, we intend to have it closed towards the end of the second quarter.

Right. Okay, good, thanks and then looking at the guidance for a second, do you get to -- it sounds like you get to around $0.29 somewhere in that neighborhood, $0.30 a quarter by the end of the year which is $1.15 to $1.20 run rate for annually. Is that kind of where we would be with the fund in there, and then with the re-anchored, the re-tenanted anchors in there?

That's exactly right.

Jon, I think Rich is trying to get you to give 2013 guidance. (laughter)

(multiple speakers) -- doing getting 2012 guidance, but --

I was doing exactly that Ken, now I'm looking for 2014 if I could as well. (laughter)

But the third and fourth quarters, those are good solid earnings numbers.

Good, perfect, thank you. And when you guys think about RCP and think about some of the retailers struggling and others that could be struggling, is there any more opportunity in that kind of investment you think going forward?

Sure. So far what we've been doing, when A&P got into trouble, we doubled down and bought a bunch more A&Ps. But so far we've been doing them on a one-off basis often where we specifically have a retailer saying they will take the space. It may continue to trend more towards selective assets than whole companies. And that may be a function just of the lack of LBO debt and other things, but it's part of what we do and it is a great way to create value when you can buy real estate from retailers, because they are not generally in the real estate business.

Okay, good. Got you, thank you. And then you guys have some maturing debt in the funds in 2012, including the line of credit and then going into early 2013 as well. How does that look for refinancing, or how do you plan to deal with some of these? They aren't real near term but some of them are coming up in the first half.

In terms of most of that debt, Rich, it will be refinanced. And we're well along the road in doing that. In terms of the acquisition line, to the extent that we don't renew that, then obviously, that will be replaced with investor capital.

Right, that's a good point, I've got you, so is that mortgages from banks, insurance companies, that kind of thing, Jon, is that what's available for these?

Yes.

Okay, great. Terrific, thank you, guys.

There are no further questions in queue at this time. I'd now like to hand the conference back over to Ken Bernstein for any closing remarks.

I'd like to thank everyone for taking the time to join us today. We look forward to speaking to all of you again soon.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect your lines. Good day.