Acadia Realty Trust (AKR) 2013 Q3 法說會逐字稿

Welcome to third-quarter 2013 Acadia Realty Trust earnings conference call. As a reminder, this conference is being recorded.

(Operator Instructions)

I'll now turn the call over to Amy Racanello, Vice President of Capital Markets and Investments. Please, proceed.

Good afternoon and thank you for joining us for the third-quarter 2013 Acadia Realty Trust earnings conference call. Participating in today's call will be Kenneth Bernstein, President and Chief Executive Officer, and Jon Grisham, Chief Financial Officer.

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. 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 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, October 23, 2013, 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. We're pleased with our third-quarter results, which are indicative of the progress that we've made on multiple fronts. Our earnings increased 19% for the quarter, and we project that our earnings for the year will be up between 17% and 20%. Our same-store NOI growth was a solid 4.8% this quarter and up 8.4% year to date, driven by a combination of accretive re-anchoring activities, occupancy gains and positive lease spreads. Our transactional activity, both as a buyer and a seller, was appropriately disciplined in light of fluctuations in the marketplace. Finally, we continued to maintain low leverage and strong liquidity, ensuring that we're both well insulated from any short-term market volatility as well as positioned to sustain our Company's long-term growth. With that in mind, I'll review the progress that we made this quarter.

First, with respect to our core portfolio. Leasing efforts for our three re-anchoring projects are now substantially completed. Most recently at our Crossroads Shopping Center located here in Westchester, we replaced a former A&P supermarket with DSW and PetSmart more than doubling the rent in the process. Elsewhere in our portfolio, we continued to harvest embedded value. For example, at our Brandywine Town Center, which is a 1 million square foot power center located in Wilmington, Delaware, we signed a lease with Bob's Discount Furniture for space that was formerly an underutilized atrium at the property. This lease will generate incremental NOI of approximately $600,000 a year with the cost to retrofit the space being about $1.1 million. The retailer there is anticipated to open during the first half of 2014.

Then, on the core acquisition front, given the sell off in the bond and the REIT markets and the corresponding increase in our cost of capital, this summer, we somewhat tapped the brakes on our core external growth activity as well as in our ATM program. More recently, however, we're seeing and uptick in deal activity both in terms of potential, larger transactions as well as single asset acquisitions. More importantly, looking beyond just one quarter's volume, over the past 24 months, we've continued to enhance the quality of our core portfolio through the acquisitions of approximately $345 million of core assets.

These investments increased our core portfolio's total gross asset value by 45%. More importantly, underscored our continued emphasis on upper quartile acquisitions. So, today, more than 75% of our top quartile is comprised of these recent acquisitions. Also worth noting, we've increased our portfolio's urban street retail concentration from 15% in 2010 to almost 45% today. Going forward, we expect to continue to allocate the majority of our capital to urban and street retail assets, particularly in our gateway markets.

In terms of core dispositions, despite volatility in the public markets, private real estate pricing, especially for high-quality assets, held firm. Accordingly, we took the opportunity to execute on our ongoing asset recycling initiatives. During the third quarter, we entered into a contract to sell our A&P Shopping Plaza in Boonton, New Jersey. We will continue to periodically and opportunistically engage in capital recycling for those assets that are not consistent with our long-term growth strategy.

Now, turning to our fund platform. While deal flow in the third quarter was light, our acquisition pipeline is beginning to build and we suspect that any extended volatility in the capital markets should create further interesting fund opportunities. Fund IV currently has more than $1 billion of dry powder on a levered basis. The investment themes that we're continuing to focus on include street retail, urban redevelopment, distressed retailer properties, as well as opportunistic transactions, which include both higher-yielding assets as well as distressed debt. In terms of dispositions, while we've remain disciplined in the deployment of Fund IV's capital commitments, we also continue to opportunistically monetize our stabilized fund assets, most notably during the third quarter we entered into a firm contract to sell Fund II's Fordham Plaza and Pelham Manner assets. During the past 12 months, we've now sold or entered into contracts to sell nearly $600 million of stabilized fund assets with more expected to follow.

Stabilized assets aside, the balance of our fund portfolio is a nice mix of high-yielding, lease up and development assets, which will continue to drive the internal growth in our fund platform, going forward. With respect to our development pipeline, several of our projects continue to advance. Most significantly during the third quarter, we executed a lease with Target to co-anchor our City Point development located in downtown Brooklyn. Target will operate its urban CityTarget concept on our project's second level. Since 2012, Target has opened eight CityTargets in cities including Chicago, Los Angeles, San Francisco and Seattle. This will be Target's first in New York City. The store will have an edited merchandising mix to uniquely serve Brooklyn dynamic, live, work, play population. With Target's lease now in place, City Point is 100% leased on levels five down to two, leaving us the street and concourse levels to lease. Our anchor retailers are anticipated to begin opening in the fall of 2015. Additionally, we're currently marketing for sale the site's remaining residential parcel, which is about 600,000 square feet.

In conclusion, third quarter was a period of important progress. Looking ahead, we remain well positioned to create value. We can generate internal growth through lease up and development activities. We can opportunistically sell assets and we can acquire new investments, both large and small, core and fund, high street and opportunistic.

With that, I'd like to thank our team for their hard work in the third quarter. I'll turn the call over to Jon.

Good afternoon. Both third-quarter earnings and portfolio performance was at the high end of our expectations. The earnings puts us on track to exceed the high end of our original full-year forecast, which I will go over further in just a minute. First, I'd like to review our core portfolio.

As Ken mentioned, same property NOI was up 4.8% for the quarter. The year-to-date result is higher at 8.4%, due to the impact of our key re-anchoring activities. I'd like to point out that we have expanded our disclosure in our supplement as it relates to same property NOI. We now include line item detail for NOI, as well as same property occupancy. Looking at this detail for the quarter, same property revenues, net of recoverable expenses, contributed 5.7% growth for the quarter. Within these revenues, two-thirds of the increase in the base rent line item was driven by positive releasing spreads on new and renewal leases and net lease up. The other third was from contractual bumps in existing leases. Following this strong performance, we're now bumping up our previous, same property NOI guidance by another 50 basis points over last quarter. Now, we expect full-year NOI growth will be 6.5% to 7%.

Recall that we previously discussed our three key re-anchorings in the core, which represent about $3.5 million of incremental NOI. 2013, same property NOI was boosted by re-anchoring activities at our Bloomfield and Branch centers, representing about $2.6 million of this total. And, this is now online. As we announced in last night's release, we've signed PetSmart and DSW at our Crossroads center, which represents another $700,000 of NOI. We expect this to come online mid 2014. This leaves a small piece of the original $3.5 million, about $300,000 left, that's in various stages of lease negotiations. It's also worth noting that the newly signed leases at Crossroads represent another 1% to 1.25% of additional core portfolio NOI growth on an annual basis.

Core occupancy, for the quarter, is up 30 basis points from the second quarter from 93.7% to 94%. Looking at the street retail segment of the portfolio, occupancy there is up from 94.6% to 97.4%. In looking at the suburban segment, occupancy is essentially flat at 93.5%, although leased occupancy in that segment is up 70 basis points from 94.5% to 95.2%. As I mentioned, we now also disclose same property occupancy in our supplement, so comparing third-quarter 2013 to third quarter a year ago, occupancy is up 80 basis points from 92.8% to 93.6%. On a leased basis, from 94.9% up to 95%. Consistent with last quarter, we expect year-end occupancy will be at or possibly slightly above the current level. Looking at lease spreads, for the quarter, they are up 4.6% on a cash basis and 14.3% on a GAAP basis. What makes the metric a little more meaningful this quarter is that it's more broad based, as it includes 150,000 square feet of new and renewal leases, which is, give or take, two times our normal quarterly leasing average.

Turning to earnings, as reported, FFO for the quarter was $0.32 per share, $0.93 year to date. The year-to-date result includes about $2 million, or $0.04, of transaction expenses. Before these expenses, our FFO result is $0.97, which puts us on track to exceed original guidance. Accordingly, we've increased our previous range of $1.17 to $1.25 to our current forecast of $1.26 to $1.29. Just to reiterate, both our original and revised guidance is before any acquisition related expenses.

Looking at the balance sheet, we continue to maintain a very low leverage platform. Our net debt to EBITDA for the quarter is sub 4. Including our pro rata share of the funds, it's 4.3 times. We're 100% fixed rate in the core with laddered maturities and including our pro rata share of fund debt, we're 90% fixed rate overall.

In terms of liquidity, in the core we have $56 million of cash and $186 million of current facility availability. In the fund platform, about $450 million of capital available in Fund IV. As Ken mentioned, we've added $345 million of core assets over the last two years. Our ATM has been an effective vehicle for match funding these acquisitions on a leveraged-neutral basis while maintaining our conservative overall capital structure. Since the beginning of 2012, we've raised approximately $300 million of equity, the majority of which has been through the ATM, which averages out to about $34 million of proceeds per quarter. For 2013, we've raised $76 million, although we haven't issued any equity since end of May this year following the drop in REIT share prices. As REIT prices continue to recover, we will continue to use this cost efficient vehicle to match fund our core and fund acquisition programs. While we may vary the mix of equity versus debt over any given short given short term period, based on pricing, over any extended period, we'll maintain our low-leverage model.

In conclusion, both of our platforms are performing well. The core portfolio continues to generate solid results. In the funds, during the quarter, we continued the successful monetization of Fund II assets. We continue to maintain a low-risk, low-cost capital structure and have core and fund capital available to continue to execute on our strategic plan.

With that we'll be happy to take any questions. Operator, please open up the lines up for Q&A.

Thank you. We'll now begin the question-and-answer session.

(Operator Instructions)

Tom Thomas, KeyBanc.

Jordan Sadler is here with me as well. Just a couple questions on the investment environment, Ken. First, the uptick in activity that you're seeing, any change in cap rates at all on the properties that are hitting the market again now that rates have settled down a bit relative to where they were before the spike in rates that led to the slowdown?

What we saw in the private market, especially for the higher quality assets, was when rates ticked up, when REIT prices sold off, the selling market just more went to the sideline and did not -- there was really no change in pricing. So, I think that what we're seeing so far, has been - pricing has held, but there are a host of sellers now who seem to be realistic and motivated about trying to get deals done, either by year end or to meet their goals. On the opportunistic side, because the CMBS market, which is a pretty big funder for a bunch of entrepreneurial acquirers, because that also got disrupted, on the opportunistic side and the higher-yielding, the 7%, 8% cap type deals, there, we have seen some repricing and some interesting opportunities.

Okay. Is it fair to say --? It sounds like for the core properties you are looking at, the level of competition is pretty consistent with where it was, but maybe the competition's decreased a bit for some of the fund opportunities that you're looking at?

Yes. Keep in mind, we can be, and afford to be, fairly selective on the core side. It's a relatively small portfolio, where those markets that we are focused on our team is very much on top of deal flow. I don't worry as much about where the overall market is going unless we think we're seeing a major reprising one direction or another. Right now things are feeling fairly stable on the core side, especially for the kind of properties that retailers seem to be most interested to get into.

Okay. A question on City Point, I saw their range and the expected costs for that project were tightened a bit this quarter. I was just wondering what specifically that reflects? Also, the announcement of CityTarget, does that change at all the conversations that you're now having with retailers for the ground floor and concourse retail space? What about the residential, or was that the CityTarget, or that sort of anchor, was that factored into your underwriting and discussions all along?

It was anchored in. I think the fact that Target stepped up, and we're thrilled that they did, just reinforces the commitment from the retailing community. They are great anchor, especially, if you haven't been into a CityTarget they are really an exciting new format. We are seeing a host of our other retailers, who will go on the first level street retail or concourse, excited by that fact. In general, the enthusiasm for the retail community has been strong either way. In terms of the residential, everything's going according to plan and the residential market in Brooklyn, as you probably know, is just very strong. We feel good about that piece of it. In terms of the narrowing of the --

Right, in terms of the costs. As you recall, previous quarters we had a fairly widespread. It was $250 million to $340 million. We've not narrowed that down, Todd, as you mentioned, $280 million to $310 million. The midpoint, give or take, is not that different, but with the signing of the Target lease and the clarity on the terms of their lease, and as construction progresses, gives us a little more clarity on the overall project. That's the main driver in terms of getting that range a little more defined at this point.

It obviously still includes certain tenant reimbursements, some contractual, some projected as well as, as we've discussed before, proceeds from the sale of FAR from Phase III.

Okay, thank you

Craig Schmidt, Bank of America

Ken or Jon, I just wondered if you are getting any feeling from the retailer that they're getting a little bit more cautious in the second half of the year and through holiday?

First of all, what we found over the past year, year plus, is that our retailers, fairly consistently, with only a few exceptions, have really articulated a high level of discipline. We were really never hearing that trees were going to grow to the sky this time in terms of our retailers. I think the discipline is good. It's good for industry. It means that our retailers are not pursuing growth for growth's sake, for the most part, and our focused on opening those stores that are most profitable. Fortunately for us, the bright spots where we are seeing retailers continuing to be very aggressive is in the street retail that we're spending a fair amount of time in because they're recognizing it's part of their future omni-channel opportunities. It's part of their branding, and frankly the sales growth is real good. I haven't seen any recent falloff in tenant interest, in our portfolio, we may not be the first see it. Our retailers have been disciplined. While for our vacancy, I'd love to see our retailers show some irrational exuberance while their negotiating with just us, I think it's good for our industry, overall, that we're seeing them watch their sales growth, watch the renewals and act accordingly.

Great. In terms of -- when we looked at the Manhattan retail market, there was a real benefit to a push by international retailers to grab space and it seemed to push rents. I just wonder, where you might stand on some of your other street retail and urban markets? Are they as far along as Manhattan is? Or is it still a benefit that could be felt either in Chicago or your Miami assets and so forth?

Absolutely is being felt. If you've been on Lincoln Road in the past year, you'll see H&M just opened up with a flagship. You'll see more to follow. Those global tenets that will choose to go to Chicago may be slightly different than those that will choose to go to Lincoln Road, but what we are seeing from some of the most interesting, most dynamic retailers is a global perspective. Then, when they think about the United States as part of that market, they're thinking about those key gateway markets that thankfully we're involved, as the first one, three, five, seven stores they want to open up, separate of their A malls.

Okay. Great, thanks

(Operator Instructions)

Jasmine Curivdon, JPMorgan

Now, as for City Point with just the city street and the concourse levels left to lease, where do you see the stabilized yields penciling out?

Still a little bit early for us to be forecasting that yield, as much as I would love to. So, we're going to dodge around that question. Thankfully, the rents that we're seeing, both in terms of residential sale prices and then in terms of retail on street, look good, so we feel encouraged by that.

Okay. Well, that sounds good. Did I hear right that street retail cap rates have been fairly steady?

Yes. We play multiple ends of that spectrum. So when we're a seller, we want to see cap rates go down. When we're a buyer, we'd like to see them go up. In general, especially for the gateway markets, we need to recognize that there's a long list of tenets trying to get into these locations. A buyer and a lender is looking at it. Fairly bullish, both from a downside perspective and then in terms of future growth. The growth profile for those assets looks strong, and then global capital wants to be in those kind of assets. Cap rates have held up nicely, from our perspective as a seller. While we always are looking for opportunities, we're small enough that we'll find more than our fair share, even due to the fact that pricing has held up.

Okay, all right, sounds good. After the sale of Pelham and Fordham, what else do think you'll monetize before the end of 2014?

We talked about before that we are looking at our 216 Street property, which will very possibly be the next to go after Pelham Fordham.

Okay. Alright, thank you.

(Operator Instructions)

Rich Moore, RBC Capital Markets

The acquisition targets, Ken, that you guys had previously -- just from the sounds of what your acquisition pipeline looks at, the targets you had for 2013. I'm assuming, maybe incorrectly, that you may not hit those targets at this point?

Rich, first of all, we'll see. As I think I mentioned a few times, we have seen a nice uptick in potential deal flow. That being said, I can't tell you exactly which month which deals close. I care, I guess, in terms of targets, but what I really care about is the profitability of the investments we're making. I don't think we're going to see any huge shift from our general goals for the year and for multiple years, as it relates to the core. We'll be able to achieve those give or take one quarter. I don't think I really care. Jon?

That's right. If you look at the midpoint of our 2013 core acquisition guidance, it's a little over $200 million. We're at $120 million now. Looking at the pipeline, there's enough there to get us to that market, but whether it's happens fourth-quarter 2013 or first-quarter 2014, we'll see. As Ken mentioned, the pipeline looks good, and the timing could leak into next year, we'll see.

Okay, good. Then on the fund side, guys. It seems lower than what you had planned for 2013, but I realize that's more of an opportunistic sort of activity. But, it does seem to be quite a bit lower than you had originally anticipated, is that true?

Yes. And it's nothing to apologize about. When we see great opportunities, we can jump. Because we have this capital on call, it doesn't cost us anything. In fact, we get paid to look for deals, and we get paid to not do deals. When we see those opportunities, and you've seen us do this in the past, we'll take them down and we'll take them down quickly. Summer was a little quiet because there was a lot of confusion in the marketplace. Now, things feel like they're starting to heat up again and that's good for us.

Okay, all right. That sounds good. On the same-store NOI number. I mean I kind of wrestled with this. I'm curious what your thoughts are? The portfolio has obviously improved at the same time you guys are turning in very good same-store, traditionally, historically very high same-store results. What do think as you, and I realize you're not going to give guidance, but as you go into 2014, has the portfolio improvement that you guys have done, is that ensuring a higher, long-term, same-store NOI growth rate, you think, than what traditionally has been the case?

I think there is no doubt it certainly helps. Nothing's guaranteed obviously, but if we look at third-quarter performance, for example. Stripping out the re-anchorings, it's give or take 3%, which is a great result for a stable quality portfolio. You're right. I'm not ready to give guidance for 2014 at this point, but as I mentioned in my prepared remarks, one thing to keep in mind is when we look at, for example Crossroads, there's another 1% plus of baked-in NOI growth related to that on an annual basis. Existing portfolio, re-anchoring opportunities like Crossroads, I think that, that bodes very well for our same-store NOI growth profile going forward.

Then the other, the final piece, just to remind everyone is as our street retail continues to phase in, so the acquisitions that we've made that currently are not held for one year so don't show up, those also should lift things or and stabilize things as well. Those three factors are positive.

Okay. Do you have, Ken, more of the re-anchoring type opportunities, you think, built into the portfolio somewhere?

Somewhere, yes, but we're not going to forecast it. Here was the good news - as I pointed out, as a result of the financial crisis we got three re-anchoring opportunities back and we made money doing it. So, that is the good news. The bad news is we all had to live through the financial crisis, so guessing when the next round of recapture of below- market anchors is not something I want to do right now.

Okay. All right, that sounds good, thank you. If I could real quick, Jon, on a couple line items. On the G&A, that seemed a bit lower this quarter. Anything special in there, and do we bounce back again, I assume, in the fourth quarter to a bit higher?

Yes, that's exactly right. There's always some amount of seasonality, if you will, in G&A. It was lower than usual this quarter, I think we bounced back up to somewhere around $6 million on a quarterly basis going forward. So, that's exactly right.

Good, thank you. You actually pointed it out in your prepared remarks, but we were looking at page 18. We noticed that you actually have more hedges than you have variable-rate debt, so you're actually more than 100% fixed. I'm curious what all those are, I guess?

We're a careful bunch of guys, right?

Over hedged, I like that.

There will be some financings going forward, so that will self correct. Back when we placed those hedges, which was early 2013, turns out that that was a real good time to start locking in long-term rates. I think that will work out very well for us.

Okay. Last thing, guys, is the sale of the two assets out of Fund II, does that get us any closer -- I guess it gets us closer, but does it get us anywhere near where you might get into the promote phase of Fund II?

The short answer is, is it's a little bit early to start talking promote and counting chickens. It certainly helps. The way we look at it is, if you look, for example, in terms of equity multiples. Take those pending sales, which we presume will close, hopefully, fourth quarter. Looking at previous sales in the fund, gets us to an overall gross equity multiple of about 1.7. Following that, we'll have returned almost half of the Fund II equity at a profit, so every piece gets us closer. By far the most meaningful piece is yet to come, which is City Point. That's several years down the road in terms of ultimately monetizing that. Stay tuned, but we're not going to start assuming anything at this point.

Okay, great. Thank you, guys.

(Operator Instructions)

Michael Bilerman, Citibank.

This is actually Katy McConnell on for Michael. Relative to the $22 million of CE transactional and promote income in guidance, how does that look going into 2014?

Again, I'm not ready to give 2014 guidance at this point, but if you look at that $22 million, look backwards and historically, it's been fairly consistent. Keeping in mind that two-thirds of that $22 million is asset and property management fees, which are pretty predictable and recurring in nature. Then the other piece, which is the, give or take, $5 million of transactional fees, certainly looking at City Point over the next year or two, presumably there will be quite a bit of activity there that will certainly help the transactional fee income. It has proven to be, on a historical basis, a fairly recurring number.

Okay, great. Thank you.

Cedrik LaChance.

Just a question in regards to how you think about issuing equity and raising equity? You were active earlier in the year. You spelled that share prices went down. You're clearly interested in being active again, based on comments earlier. What makes you determine that it's the right time to issue equity? Is it -- do you look at NAV? Do you look at earnings? What makes you decide that the certain equity price is the right price?

The short answer, Cedrik, is we look at NAV. When it makes sense to issue equity, we issue equity. Looking at the pipeline, there certainly is a need for capital, so we keep a close eye on the capital markets and our share price and when the time is right, we'll pull a trigger

From an earnings perspective, Cedrik, that, what we have found is that can just be a huge mistake when you're sitting there and just looking at so-called earnings accretion from issuing equity or even worse, piling on debt, so, we don't play that way. You're right, and Jon pointed out, at the end of May, stock prices started to really fall off. Coupled with the bond market movement, we took a step back because it wasn't clear to us whether or not the repricing in the public market was forward looking and we were going to see some real changes, or as it played out things moderated. On one hand, the REIT market is forward looking and I respect that. On the other hand, I guess you could joke that the REIT market has predicted seven of the last three price corrections. So, we watch it respectfully. Then, when it makes sense to match fund and raise capital that's making investments accretive to NAV, we'll do it

Okay. How would you compare your current share price with your NAV? Are we involved in NAV at this point?

There are some excellent firms that do a lot of work on NAVs, based on what we put out there. I'm respectful of the work they do and we'll let them, and all of you, do that. I think you should watch how we or any company treats their currency. So, if we are saying we're trading at a discount to NAV and issuing shares, it better be compelling. When you see, as we did last quarter, not issuing any stock, I think you should probably look at that as well.

Okay, thank you.

Josh Patinkin, BMO Capital Markets.

Looking at City Point and Target, and I realize it's a model for the city, but with a full-line offering at Atlantic Terminal down the street, how do those two concepts compare? How do you think they'll compete with each other?

I think they're going to be very complementary. More important, probably, then what I think is what Target things. We have worked with them for years on downtown Brooklyn. For those of you may recall, originally, we were going to put in a full-sized Target. Even then, they felt that there was enough of a differentiated customer in Brooklyn. Remember, Brooklyn's the fourth or fifth largest city in the United States on a standalone basis. You wouldn't go to Minneapolis and say why do they have only one Target. So, they felt very comfortable even full-sized. Now, that you're talking about a CityTarget, which is going to attract and address a different kind of shopper, and when you look at all of the new apartments and condos that are being developed, the new hotels, the new entertainment and restaurants, it's a much different experience and will easily afford Target a great foothold with both of those stores.

Okay. Is it a more of a grocery offering at the city model?

No, it's well edited. I urge you to go check out, if you're in Chicago, see their State Street store. It's really exciting, very high energy. It has plenty of groceries. It has plenty of everything, but they edit it really well. So, it will afford the urban shopper a great set of choices. It's not small, mind you. It's still close to 90,000 square feet of selling space. This is not a boutique, but it's real exciting.

Interesting, okay. On the asset recycling side, building on Rich' s thoughts in terms of fund to monetization, is there a mechanism for AKR the REIT to buy assets out of the funds as they monetize?

No. In fact, it's complicated if we were to entertain that, and it would have to be very compelling. Just keep in mind that the fund model is we, the shareholders, put up 20% of the equity for roughly 40% of the economics. We focus on buying turnaround assets either that are opportunistic on the purchase, in terms of our high-yielding investments, or heavy lifting turnaround. Buy the asset, you fix them up and you sell them. Sooner or later, Jon, has been walking you through the steps, but sooner or later we have been very successful then on monetizing and collecting our share of profits. The discipline associated with being a opportunistic buyer and an opportunistic seller is a very important skill set and one that, I think, inures to the benefit of our shareholders. Sure, it would be wonderful to cherry pick assets. It's really difficult. I'm not going to say never, because there are firms, I'm sure, that do it. It better be really compelling to your institutional investors, otherwise they're going to lose faith. There's just no reason to do that. Thankfully, we see plenty of good deal flow for us to buy for the core, and thankfully, we see enough enthusiastic buyers for the fund that we've not had to cross over that line.

Okay. On the disposition side, you mentioned there's more non core you'd like to dispose of. How much of that, as a percentage of the core portfolio, are you thinking? Over the longer term?

Thankfully, so, prior to the financial crisis, we had sold off close to the bottom what was than half of our portfolio. So, we did a lot of pruning before the financial crisis. We have, and as I pointed out in the prepared remarks, the assets we've added have been consistent with our upper quartile. In fact, since 2010 it's been 80%. The past 24 months 75%. The vast majority of our upper quartile, the vast majority of our second quartile of our portfolio, are things that we just bought. I would be really disappointed for the acquisition team to come in and say, oops, those are some that we should be selling. Our third quartile, was the upper half of our portfolio prior to 2010. That's real good. Even within our fourth quartile, there is good assets there. I joke that we have this fifth quartile of four or five assets out there that you'd look at and you'd say - look, Ken, it's a good asset, but long term, you need to be in Burlington, Vermont. Or, do you really need to own one or two assets in Ohio? I bet we could find a fifth or sixth assets and after that we're done

Okay, so fifth quartile?

Fifth quartile, think about it as five or six assets. Not going to move the needle one way or another, it's not going to be really dilutive to earnings, if we sell it. Not going to be a huge accretion to NAV, if we sell it. As just ongoing discipline, you'll see us shed those assets, opportunistically and patiently. We're in no rush and Jon certainly doesn't need the money to deleverage.

Very good, thank you

I'd like now to turn the call back to Ken Bernstein

Great. Thank you, everyone, for joining us. We'll speak to you next quarter.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating and you may now disconnect.