Acadia Realty Trust (AKR) 2013 Q4 法說會逐字稿

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

(Operator Instructions)

I will 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 fourth 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 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 10-K and other periodic filings with the SEC, forward-looking statements speak only as of the date of this call, February 13, 2014, 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. Thank you for joining us. Today I'll start with an overview of our 2013 accomplishments, then Jon will review our fourth-quarter and year-end operating results as well as our guidance for this year.

Last year, notwithstanding a fair amount of volatility in the REIT markets, we experienced steady and significant value enhancement to our real estate portfolios across both our core and our Fund platforms. First, the assets in our existing core portfolio achieved strong same-store NOI growth of more than 7%. Then, on top of that, this portfolio also benefited from well-observed cap rate compression which was most noticeable for the types of high quality retail assets that we now own. Then, furthermore, we grew that portfolio by roughly 20% with over $220 million of accretive street retail acquisitions.

With respect to our Fund platform, during the year we continued to make important leasing and development progress at assets including City Point in downtown Brooklyn, Lincoln Park Center in Chicago, and similar to our core portfolio, our operating Fund assets ranging from our Lincoln Road properties in Miami Beach to our Cortlandt Town Center in Westchester, New York, they also benefited from cap rate compression.

And then, finally, we completed $123 million of additional Fund acquisitions as well. So, not only did our portfolios' values increase but, most importantly, looking ahead, both platforms are well positioned and well capitalized to build on last years' value with a solid collection of existing assets, strong embedded growth, as well as plenty of dry powder.

So, with that in mind, let's begin with a review of our core portfolio. I'm going to leave a detailed discussion of our operating results to Jon, but overall our core portfolio performed well in 2013 and that was on the heels of a strong 2012, and looks very promising for 2014 as well. And with more of our recent acquisitions joining the same-store pool, our operating results are beginning to validate our thesis that high-quality assets located on the nation's key street retail corridors, such as those that now comprise a significant portion of our existing portfolio, that those assets are well positioned to provide both reliable and ultimately superior growth.

In terms of our core portfolio acquisition activity last year, consistent with our goals we added $221 million of high quality properties to our core portfolio with about $100 million of these acquisitions closing during or subsequent to the fourth quarter. We acquired these assets at a blended going-in yield of about 5% with strong embedded growth potential. These acquisitions strengthened our existing foothold in the vibrant live, work, play cities of New York, Chicago, Washington, DC.

As you're aware, in recent years our acquisition activities have been weighted towards street retail in response to the continued evolution of retailing. Over the next several years, we expect to see a further separation between the have locations and the have-nots with the key locations capturing a larger percentage of tenant sales and, therefore, able to sustain more robust growth.

First in Chicago, in early 2013 we made an important acquisition on North Michigan Avenue. Later in the year we added two more gold coast assets located in the nearby Rush and Walton Corridor. We now control a significant stretch of Walton Street including two of the key corners where it intersects with Rush Street. Tenants at our properties include Mark Jacobs, YSL, Brioni, [Barber], Lululemon. We're also achieving similar scalability in several other markets such as in Georgetown in Washington, DC., where earlier this year we added our seventh asset there which is located at the market's best corner of M Street and Wisconsin Avenue.

Then, closer to home, while New York continues to be a highly competitive market, last year we added to our presence in a number of Manhattan sub markets including Union Square, Bowery, and then most significantly in Tribeca. Our acquisition at 120 West Broadway represents our first investment in Manhattan's affluent Tribeca neighborhood where the median household income is approximately $180,000. Not only is the long-term trajectory for this prime sub market strong, but also the square block of retail that we acquired is an ideal combination of high quality, long-term cash flow and above-average near-term growth driven by the re-tenanting of a couple spaces that are expiring with below-market leases. This off-market transaction utilized OP units and demonstrates another means for us to add valuable assets to our portfolio on an accretive basis.

On the capital recycling front, we continue to selectively prune our asset base, disposing of lower growth properties and rotating into higher quality assets. During the fourth quarter, we completed the sale of our A&P shopping plaza in Boonton, New Jersey, at an attractive sales price of a mid-6 cap rate and thus through an appropriate blend of disciplined new equity issuance, OP unit issuance, and then recycled proceeds from asset sales, were able to achieve last year's acquisition goals on a substantially leverage neutral basis.

Looking ahead to 2014, we expect that our core acquisition pace will be similar to last year with another $200 million to $300 million of transactional volume. We're already well on our way to achieving this goal with $92 million of core acquisitions currently under contract.

It's important to note that in less than three years, we've increased the size of our core portfolio by roughly 70% and in doing so, we've also significantly upgraded its quality. For example, more than 80% of the portfolio's value is now concentrated in the nation's top 10 MSAs. We've increased our urban street retail concentration from approximately 15% to 50%. Our transactional activities have increased the portfolio's three-mile population from a solid 180,000 to now nearly 300,000 while still maintaining strong household incomes. Furthermore, we've elevated our average base rent by 45% from under $15 a square foot to now over $21 a foot.

Finally, the assets acquired over the past three years now comprise more than 90% of what we consider our top quartile, nearly 65% of our second quartile, meaning that our already solid portfolio has only gotten better. In the short-term, we can debate the merits of our shift to higher quality assets as we continue to see decent short-term NOI growth across most segments of the retail sector. However, in the long run, given the clear and inevitable changes in retailing, we're confident that our portfolio contains the types of assets that retailers are going to want to occupy and that the investment community will want to own.

Turning now to our Fund platform. During 2013, we completed $123 million of acquisitions. Although this volume was below our goal, our volume picked up during the fourth quarter and in general we believe that having discretionary capital is a great asset as long as it's disciplined in its execution.

Our investments were consistent with our four key strategies. First, street retail, then emerging street markets, distressed retailers, and then fourth is opportunistic which last year included both distressed debt as well as high yield investments.

With respect to our street and urban acquisitions, during the fourth quarter we acquired a highly visible asset located at the corner of 67th Street and Third Avenue in Manhattan's upper East Side. The asset street level retail space is currently occupied by Lucky brand jeans with a below-market rent. Their lease expires this year, providing a near-term opportunity to mark that rent to market.

During the fourth quarter, we also acquired another Chicago property located at the heart of Lincoln Park's thriving North and Clybourn Corridor. The property is currently occupied by Restoration Hardware as well as Sephora, but our expectation is that we'll have an opportunity to recapture and then re-anchor the Restoration Hardware where we can create a multilevel flagship quality space.

With respect to our opportunistic acquisitions, during the fourth quarter we added to our high yield portfolio with the acquisition of a grocery-anchored center located in Washington, DC Metro area. We were able to acquire this property at an attractive 9% cap rate due to the grocery anchor's near-term lease expiration, then we successfully negotiated an extension of the lease to 2023 and, as a result, we're able to attain attractive financing and generate leverage yields in the high teens.

Separate of new investments, during 2013 our existing $1.2 billion Fund portfolio appreciated in value driven by both leasing progress as well as strong growth in market rents and cap rate compression as well. In terms of leasing progress, at our City Point project in downtown Brooklyn, we completed the lease-up of levels two through five with Century 21, Target, and Alamo Drafthouse, increasing the project's pre-leased rate to about 65% on a square footage basis. However, on the basis of anticipated rental revenue from the street level retailer, we're still now only 40% pre-leased, enabling us to continue to benefit from the ongoing strengthening of downtown Brooklyn and Fulton Street.

At our Lincoln Park Center in Chicago we executed a lease with Design Within Reach to re-anchor the site of the former Borders books. And then given the strength of the capital markets, last year we monetized over $200 million of stabilized Fund assets in addition to $446 million in 2012, so now having sold a significant portion of our stabilized assets, the balance of the portfolio is poised for strong organic growth over the next several quarters. Today, about 25% of this portfolio is comprised of development assets.

This is not only our large City Point development, but also a number of smaller projects ranging from shopping center developments in high barrier to entry New York suburbs to street retail developments on M Street in Georgetown and in the Bowery in New York. Another 25% of the portfolio is comprised of high-yielding investments with a blended leverage return in excess of 20% on those. And the balance of the portfolio is comprised of our lease-up assets with the majority being street retail assets located in markets where rental growth is very often exceeding our expectations. This includes Lincoln Road in Miami as well as our recent acquisition on the upper East Side of Manhattan.

So, in conclusion, in 2013 we made steady progress across both of our operating platforms and, as a result, saw the value of our real estate appreciate materially. Looking ahead, we remain well positioned, well capitalized, and highly motivated. I'd like to thank the team for their hard work last year and now I'll turn the call over to Jon.

Good afternoon. I'd like to recap 2013 results and then I'll go over 2014 expectations. First, related to 2013 earnings, FFO for the fourth quarter was $0.27. There are a few items to keep in mind related to this result.

First, it included $2.3 million or $0.04 of non-cash retirement expenses, primarily related to the vesting of unvested stock compensation for Mike Nelsen who retired effective year-end 2013. It also included acquisition costs of $1.4 million or $0.02 on the core and Fund deals that we closed during the fourth quarter. And there are a few other pluses and minuses which more or less netted each other during the quarter. So adjusting for the combined $0.06, FFO would have been $0.33.

And then looking at the year, FFO as we reported was $1.20. And in addition to the $0.06 in the fourth quarter that I just covered, we had another $2.1 million or $0.04 of acquisition costs incurred through the third quarter. So, adjusting for this total of $0.10, our normalized 2013 annual FFO was $1.30. This was well above our original 2013 guidance range of $1.17 to $1.25 which was also before acquisition costs, and it also exceeded our most recent updated guidance range which we provided last quarter of $1.26 to $1.29. Our core portfolio performance for the quarter and year-to-date also exceeded our original and revised expectations.

Looking at same-store NOI. Year-to-date, NOI increased 7.2%. Again, well above our original forecast and 20 basis points over last quarter's revised forecasted range of 6.5% to 7%. The driver of this growth was an 8.5% increase in NOI from revenues which was offset a little by a 1.3% reduction in NOI from increased operating expenses. This 7.2% growth includes the effect of two key re-anchoring projects at our Bloomfield and branch centers which we've discussed at length in previous calls. Excluding the year-over-year increase in NOI from these projects, same store NOI was 4.1% for the year, which is 100 to 200 basis points above our original forecast.

As both of these projects were completed prior to the fourth quarter of 2012, the quarterly NOI growth for the fourth quarter 2013 over fourth quarter 2012 of 4.3% is a clean result, i.e., it does not include any incremental NOI from these re-anchoring activities.

Occupancy at year end was 95.2%. Our original expectation at the beginning of 2013 was 94%. We revised this to 95% last quarter and finished out the year consistent with this level. Leased versus physical occupancy stood at 97.1% at year end and on a same-store basis, leased occupancy was up over 200 basis points over 2012. And looking at our occupancy within the major components of our portfolio, street retail was 98.5% occupied and our suburban portfolio was 94.7%. And within the suburban portfolio, year-end shop occupancy was 89.1% which represents a 240 basis point increase over 2012.

Looking at our year-to-date leasing spreads, we continue to see an increase in pricing power as occupancy in the portfolio increases. Although 2013 average re-leasing costs were up nominally over 2012 from $17 to $19 a square foot, rent spreads were up significantly. On a GAAP basis, 2013 spreads were 18% compared with 2012 spreads of 6%. And on a cash basis, 2013 spreads were 7% compared with 2012 that was essentially flat.

As an aside, on leasing spreads, and we said this before, our results can vary quarter to quarter given the relative size of our portfolio and the volume of leasing. The fourth quarter on a standalone basis included only roughly half of our normal quarterly volume and furthermore included no street retail. So, we tend to look over a more extended period in evaluating performance.

Shifting to our expectations for 2014. As we announced yesterday, we are forecasting a 2014 FFO range of $1.30 to $1.40. Some highlights as it relates to this. Again, as a reminder, our guidance is before acquisition costs. First, we're targeting core acquisitions of $200 million to $300 million. And in the Funds acquisitions of $250 million to $500 million. And for these acquisitions, for both the core and Fund, we assume on average mid-year closing and funding on a leverage neutral basis, keeping in mind that on the Fund side we tend to use slightly higher levels of leverage.

A little over half of our external growth this year is expected from our targeted 2014 acquisition goals with the balance resulting from the full-year effect of the acquisitions that we have already completed during the fourth quarter of 2013 and January of 2014. Expected fee income from the Funds is down slightly, but this is not inconsistent with prior years where it has varied some both up and down, but usually within a band of give or take 10% in either direction. And G&A is expected to be down $1.5 million.

Our expectations in terms of core portfolio performance are, one, same-store NOI growth of between 4% and 5% is our forecast. Our street retail portfolio is expected to outperform the suburban assets by 100 to 200 basis points. And it's worth noting that for 2013 the NOI from our 2012 acquisitions represented about 20% of 2013 NOI that was not included in our same-store result for 2013. And similarly for 2014, there's about 15% of our total NOI that is from our 2013 acquisitions, all street retail, which are not included in our 2014 same-store NOI metric. Rather, these will show up in 2015.

In terms of occupancy, our expectation is that occupancy will end up consistent give or take with our current leased occupancy of 97%. So, putting all these pieces together, we believe we have a scalable model which most importantly should generate superior NAD (sic) growth, but it will also allow us to achieve sustainable high single-digit, low double-digit year-over-year earnings growth.

For 2013, we generated 15% plus growth, and the high end of our 2014 guidance would represent high single-digit growth. In terms of the balance sheet, we continue to maintain a low risk, low cost capital structure. We remain disciplined in our use of leverage. Our net debt to EBITDA was 4.9% at year end. Our all-in costs for the entire debt portfolio is sub-5% with about 90% of this fixed rate with laddered maturities. And we've expanded our use of unsecured debt by adding $50 million in unsecured term debt during the fourth quarter and we'll continue to develop our capabilities in this area.

Related to our use of equity, we have been and plan to continue to exercise discipline in issuing new equity. For 2013, we raised a total of $114 million from the issuance of new shares and OP units at an average net price of $26.92. $81 million of this was raised through our ATM of which all but $5 million was raised during the first half of the year. And more recently during the fourth quarter, we issued $33 million of OP units for our 120 West Broadway deal at a price consistent with our ATM issuances earlier in the year.

Looking at our 2014 capital needs, in terms of our current $92 million core acquisition pipeline, the majority of this will be funded through the conversion of an existing first mortgage investment as well as cash on hand. And for our remaining 2014 target acquisition activity, we have sufficient dry powder both in terms of liquidity and leverage to fund these without being overly dependent on the capital markets for new equity. And in our Fund platform we've deployed about $100 million of the Fund IV committed capital, leaving us give or take $1 billion of additional purchasing power to drive Fund growth over the next couple of years. Having the current pipeline covered in terms of funding and a strong balance sheet to provide us flexibility to fund our remaining projected 2014 core and Fund acquisition goals, we're positioned very well to execute on our growth strategy in both the near and long term. With that, we'll be happy to take any questions. Operator, please open up the lines for Q&A.

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

(Operator Instructions)

And our first question comes from Jay Carlington from Green Street Advisors. Please go ahead.

Great. Thanks. Jon, just a real quick question.

You mentioned 4% to 5% same store NOI. Press release said 3.5% to 4.5%. Is there a change there or is there a difference in those numbers?

It's really not a change. 4% to 5% is the right number. So, we should straighten that on the press release, but it is 4% to 5%.

Great. I guess just on the re-leasing spread front, can you kind of give us a sense of what you're looking at maybe from the street retail perspective versus the core perspective. I know you kind of addressed it but are you thinking that over the next couple years that portfolio is an outperformer and is there a way to quantify how you're thinking about that blended re-leasing spread?

So, for 2013, there wasn't a lot of turnover in terms of the street portfolio component. So, there's not a good empirical result that we can look at to demonstrate our thesis in terms of the outperformance of that segment of the portfolio. As these leases roll, and it will be over the next two, three, four, five years, I think our expectation certainly is, is that it will outperform the suburban category. But, again, we're just going to have to let some time elapse here in order to prove out the thesis.

Okay. And, Ken, maybe just a follow-up on that. You mentioned 100 to 200 basis points of outperformance on the street retail NOI versus suburban. Is that kind of like a long-term run rate to think about or is it still too early in the transformation, or how should we be thinking about that next couple years?

Yes, and I think there's a few different important components. First of all, the contractual growth which is about 100 basis points higher than the contractual growth that we achieved in our suburban portfolios. And that's just the difference in our leverage as we negotiate street retail leases versus negotiating with Kroger or with T.J. Maxx or certainly with Target as well as including the smaller spaces in suburbia. So, there's about 100 basis points of contractual growth.

Then on top of that, what we have experienced is stronger market rent growth in the street portfolio. So as we get back spaces or as leases come due for renewal, we're also seeing another it could be 100 basis points, it could be more than that, it could be several hundred basis points of superior growth. And what I point out there, and Jon's right, if you look at the contractual leases, it's hard to say that in the second quarter of next year we're going to have lease spreads of blank.

But what we've seen in our street retail leases is more often than -- certainly more often than in the suburban leases, the leases have built in mark-to-market so tenants have option to renew. But those options are predicated on fair market value. We don't see that in our suburban leases.

Because it's a much more fragmented business in street retail, if a given tenant is not succeeding there, they are much quicker to be willing to give up that lease than a discussion that we might have with a Bed, Bath and Beyond or a T.J. Maxx, et cetera. So, we also find that we can get additional growth above that 100 basis points due to the negotiated recapture of space or the mark to fair market value. And that doesn't even begin to then address the potential risks that we see to some other formats where there's downside that we're not experiencing so far in terms of street retail.

Okay. Great. Thanks, guys. Enjoy that weather.

Thanks.

Thank you. And our next question comes from Todd Thomas from KeyBanc. Please go ahead.

Hi, thanks. Good afternoon. So, first question, Jon, so guidance excludes all acquisition costs. So, if we strip out all the noise in the fourth quarter, essentially, it sounds like we get to about $0.33. So, that's $1.32 annualized.

And then if you build up from the same-store guidance that's another $0.04 to $0.05 or so plus the non-same store growth and acquisitions and so forth. I was just curious then looking at the range, $1.30 to $1.40, what are some of the moving parts that could really get numbers down either below the midpoint or even toward the low end which would really imply roughly flat or 0% normalized FFO growth?

So, probably the most significant item to keep in mind, and it's not a moving part at this point, it's just -- it's an event that's already occurred, has to do with the monetization of Fund II. So, we sold Fordham and Pelham in the fourth quarter and that does create some transitory dilution. I.e., until we reinvest those into Fund IV, there is some earnings impact in the interim.

And so certainly from an NAV perspective it's a accretive. We take that money that we've invested in Fund II plus profit and we redeploy it in Fund IV. So, from an earnings perspective, there is this temporary down time as it relates to that capital.

So, that sets us back $0.04, $0.05 at the starting point of 2014. That's why we have that low end of $1.30 which presumes modest acquisitions. I think that the mid point of our guidance is very much attainable, but that's probably the biggest reason why you're seeing that low end of $1.30.

Okay. And then, Ken, as you think about Fund IV investments from here, one of your peers that's been involved in RCP-type investments mentioned several days ago that they expected to be more active in 2014 than they have and that there seems to be a lot of opportunity for that type of investment. I know that you haven't participated in those types of transactions so much lately, but I was just curious if you're seeing that same sort of opportunity unfold perhaps?

Yes. We opted not to participate in large club deals recently for a host of reasons, even though those large club deals have been very successful.

But at the retailer level, Todd, you've seen us acquire good real estate where there were troubled retailers. We've just been doing it on a one-off basis and now we are beginning to see opportunities on a pool basis. So, that is certainly an area that our team is focused on and it wouldn't surprise me, as you see the ongoing evolution of retailing, that there will be some more opportunities there.

Okay. And then just two last detail questions on a couple properties. I was just looking in the supplement, so at 161st Street in Fund II, the anchor lease expire this year. I was just wondering what the expectation there is in terms of that tenant renewing or if you're expecting to sign with a replacement tenant, maybe what the spread might look like?

And then also, Ken, you mentioned the 67th Street acquisition in Fund IV. I was just curious, you characterized it as being a below-market lease, the lease is expiring this year as well. Any color on what that mark-to-market might look like as well?

Sure. I'm not going to predict the spread in either case. 67th Street is though a good many example of something I was discussing earlier. So, Lucky brand jeans lease expire, they have an option to renew at fair market value. We have several other tenants who are very interested.

So, it's our expectation that we get that space back and re-tenant it to another tenant at a much higher rent. When we get that done, I'll show you the spreads and they'll look very good.

161st Street similarly still a little early. Our expectation is we get the space back. That's our business plan and then it gets re-tenanted to multiple tenants.

Okay. Thank you.

Thank you. And our next question comes from Craig Schmidt from Bank of America. Please go ahead.

Thank you. I just wondered if you could talk a little bit about a street retail and possibly using the Rush and Walton Corners and the degree you feel you have some control in those assets?

Yes, Craig. It's an important part of our thesis which is to focus on certain markets where we already have a presence and then can add to it and understand what's going on in those given streets, having intimate understanding of tenant sales trends, et cetera.

You can look at Lincoln Park, Chicago at Clark University. We have now amassed a significant amount of the retail square footage on that corridor. And then as you pointed out on Rush and Walton which is to some degree the Madison Avenue of Chicago, although Chicago views it the other way around and appropriately so. But this is the area of high street retail for the more boutique tenant.

As I mentioned, we have tenants ranging from Brioni to YSL as wells as the more mainstream, the Lululemons of the world, et cetera. We have been able, through a series of four transactions, to amass the majority of the retail square footage in that corridor.

Now, there's still the ability to double and triple the amount of ownership right there and I think over the next several years you'll see us do that. With Walton Street and Oak Street being fabulous streets for our retailers and our retailers are telling us that's where they want to land if North Michigan Avenue is not the right format for them. So, you'll so us do it on M Street, you're certainly seeing it on the Fund level on Lincoln Road, and then Rush Street Corridor is just another example.

Thank you.

Thank you. And our next question comes from Christine McElroy from Citi. Please go ahead.

Hi, good afternoon, guys. Just following up on the street retail question.

You talked about five caps on the recent deals on average. I assume that's on 2014 numbers. You also talked about contractual rent growth, higher market rent growth, early recapture of space. Just wondering what sort of level of five to ten-year IRR's you're underwriting into some of these deals?

Good question. Because the problem with IRRs is you're then making some kind of assumption on exit cap and these assets that we're acquiring for the most part are in our core where we plan on holding them for an infinite life. What I would suggest is we will do better than 100 basis points of relative outperformance in terms of the NOI growth. A stabilized supermarket anchored center should throw off between 1.5% and 2.5% growth and a discounter anchor center probably has slightly lower contractual growth.

Our street retail, as I said, should have at least 100, maybe 200 basis points higher growth. Then, on top of that, when you think about the residual value to get to a 10-year IRR. What our retailers are telling us is that flagship locations, branding locations, street retail locations are where they're going to put most of their efforts into in terms of growth given the realities of omni channel retailing.

And so we expect that the growth profile 10 years from now will look even stronger than on the other asset classes. And, thus, we think that the cap rate on exit will be superior. Now, the reason I'm dancing around what exit cap rates will be 10 years from now is obviously interest rates are going to be a big portion of that guesstimate. And I absolutely am not going to forecast for you where interest rates are going to be 10 years from now.

What I will tell you is we believe on a relative basis we are making the right decision for our shareholders, selling our A&P anchored center in New Jersey at about a 6.5 cap and buying this higher growth, better protected on the downside, more upside opportunity, higher growth assets going in at about a 5 with superior growth. I'll defer to you as to the 10-year analysis on that, but we think that our shareholders will be well rewarded for it.

Thanks. On the same property occupancy data, Jon, you had a 230 basis point jump in the leased rate, but then physical occupancy's up only 40 bips year-over-year. What does that spread between lease and commence mean for the level of sort of economic impact or occupancy upside that you expect in 2014 guidance?

So, give or take, so when we look at 4% to 5%, and it is 4% to 5%, by the way, looking at that same store NOI growth, probably somewhere around 150 basis points, give or take, relates to that spread between year-end occupied and leased occupancy. And it primarily relates to really half of it give or take relates the to our Crossroads asset where we are re-anchoring the former A&P supermarket there. That should commence the latter half of 2014.

And then the other half is various handful of leases throughout the balance of the portfolio. So, again, stripping that out, same-store NOI's 3.5%, approximately, so that's the impact as it relates to that spread.

Okay. And same-store expenses, just looking at that number, just down pretty meaningfully year-over-year, wonder if you could address that? And then also within that 4% to 5% same-store NOI guidance, what are you expecting for revenue growth versus expense growth?

So, we think similar to 2013 it's driven by revenue growth. Depending on how many more he snow storms we have, like the one I'm looking at outside the window, we'll see what the expense variance looks like. But assuming for the most part normal weather patterns, I think again there will be some drag from expenses but mostly just inflationary, give or take. So, not all that different in terms of distribution between revenue and expenses as we saw them in 2013.

Okay. And then just lastly, the $1.3 million impairment of the asset that flowed through the Funds in disc ops in the quarter, didn't look like that was backed out of FFO. What was that charge?

Yes. That relates to our pre-recession investment in some land in Sheepshead Bay. We bought that for give or take $20 million. We're selling it for give or take $20 million.

And the impairment relates to primarily development fees and some other carrying costs that were capitalized during that hold. So, given that it is undepreciated land, it is included in FFO in terms of debt impairment charge.

Got you. Thank you very much.

Thank you. And our next question comes from Rich Moore from RBC Capital Markets. Please go ahead.

Hi, good afternoon, guys. When you look at acquisitions for I guess both the Fund and the core going forward, is it almost entirely street retail, is that what you're thinking, Ken, at this point?

No, Rich. At the Fund level we'll buy high yield. We bought a supermarket anchored center south of DC, we bought it at a 9% yield because the supermarket lease was short-term and then we extended it.

Where we can buy high yield, we'll buy high yield. Where we can buy debt, we'll buy debt, and RPC will take us to a lot of different places.

The nice thing about the Fund business is we certainly can do a lot of different things within our wheelhouse of expertise. But it can vary in asset quality because I don't mind buying, trading sardines at the Fund level. I'm not comfortable at the core buying assets where we have to time the exit because it's a lot harder with core assets to buy and trade. At the Fund level it's relatively easy.

The only other piece of that is our bias has been -- I don't want to say just toward street retail, but listening to our retailers and understanding that most of their interest in expanding, when I ask our retailers where are you most willing to pay us more rent five years from now, it is in the more dense, the more urban, the more 24/7, live, work, play markets. So, whether we're talking to Target and T.J. Maxx or we're talking to more high street retail soft goods retailers, their enthusiasm, the opportunity for growth, the opportunity for entrepreneurial returns seems to show up there, so that's why you're seeing a fair amount of activity there.

Okay. All right. Thank you, Ken.

And so is the -- I guess is the competition heating up at all for these kinds of assets because it doesn't seem like the public guys are gravitating all that much? I mean, you see them occasionally but they don't seem to gravitate quite as heavily as you guys have toward this sort of asset. Is there other competition though that it's becoming more difficult? How do you size that up?

Well, I really hope the rest of the public guys stay away, although on Lincoln Road Fornado bought a nice chunk of real estate down there and on our last call everyone was asking me about general growth acquisition on North Michigan Avenue. So, they're certainly around periodically and I wouldn't discount SL Green's activity in New York either.

There's plenty of competition. There always has been, Rich. For high quality assets, there's institutional capital, there's private entrepreneurial capital. We've always been comfortable with the fact that these are competitive markets. We're good at that.

We have discretionary capital. We have a very good balance sheet. We have a very good track record and a lot of credibility. So, when we see an asset we want, I know we'll stand a good fighting chance of acquiring it providing it makes sense.

The fact that there's less public company involvement is due to the fact that some of these assets are smaller acquisitions. At our size, we can afford to amass the assets the way we've been doing on Rush and Walton, the way we've been doing on M Street. For the large guys, I get that that's not a scalable business. So, that may give us an advantage within the public market, but then I clearly recognize there's plenty of competition and we're up for that fight.

Okay. I got you. So, the $92 million that you have under contract in the core, is that more street retail?

Yes.

Okay. Great. Thank you.

And then I wanted to ask you guys, too, on Kroger. I think you had a he promote in the quarter on some of those assets, on the sale of some of those assets. Is there more of that I guess you're expecting?

I saw the guidance really didn't have much in the way of promotes and I assume that was more Fund level type promotes, Funds II and III. Is there more of the Kroger-type stuff or the opportunistic retail stuff that you might get promotes on?

Not for 2014, Rich. So, Fund I, the promote related to -- we had a $12 million seller financing that we collected on in the fourth quarter and we distributed out proceeds and recognized the promote. That's really it for Fund I in terms of expected promote.

On Kroger.

On Kroger. We still are remaining RCP. Could be some there as well to the extent that there is additional value in the Mervin's portfolio, we will think there is some.

And the timing of that, obviously we can't be certain of that but we don't expect too much of that in 2014. And then as it relates to future promotes, Funds II, Funds III, that will be a 2015 and beyond event and don't expect anything in the near you future as it relates to that.

Okay. Great. Thanks, guys.

Thank you. And our last question will come from Mike Mueller from JPMorgan. Please go ahead.

Hi. I missed the beginning of the call. I apologize if this was discussed, but heard the acquisition guidance. Is there anything in the plan, whether it's in guidance or not, that's being contemplated in terms of additional monetizations of Fund assets that could be significant?

Not significant. We have a couple of Fund II assets and we've talked about these before, 216th Street potentially. We have one remaining self-storage property, Liberty Avenue, one or two others. But in the aggregate, no more than, say, $100 million.

Plus then phase three of City Point, we do expect that to monetize in this year.

Correct, correct, although obviously no earnings dilution.

Right, right.

Okay. So, if we're thinking about dilution, nothing like storage or nothing like the fourth quarter stuff?

Correct.

Seems like. Got it. Okay.

That was it. Thanks.

Good.

Thank you. I will now turn the call over to Ken Bernstein for closing remarks.

Thank you all for joining us. Those of you on the eastern seaboard, I hope you're some place safe and warm. Those of you on the West Coast, we forgive you. Speak to everybody soon.

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