Acadia Realty Trust (AKR) 2014 Q4 法說會逐字稿

Welcome to the fourth-quarter 2014 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 2014 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 18, 2015, 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.

Once the call becomes open for questions, we ask that you limit your first round to two questions per caller to give everyone the opportunity to participate. You may ask further questions by reinserting yourself into the queue and we will answer as time permits.

With that, I will now turn the call over to Ken.

Thank you, Amy. Good afternoon; thanks for joining us.

Today I'll start with an overview of our fourth quarter as well as our 2014 accomplishments, then Jon will review our operating results and our 2015 guidance. During the fourth quarter, we continued to make steady progress across our dual platforms. First, our existing core portfolio continues to produce solid internal growth. And then by selectively adding high-quality street, urban, and high-barrier-to-entry suburban retail properties, we are keeping this core portfolio relevant and well-positioned for continued solid growth. At the same time, through our highly complementary fund platform, we continue to make important progress on both new and existing investments as well as opportunistic sales.

So first I'd like to turn to our core portfolio. Jon will discuss our core operating results in detail later in the call, but along with this important internal growth, we continue to complement the portfolio with a forward-looking external growth strategy. Our goal is not growth for growth's sake. Rather, we're focused on positioning our core portfolio for continued long-term outperformance by focusing our acquisition activities on street retail and dynamic flagship or live, work, play urban markets; as well as supermarket or discounter-anchored shopping centers in both urban as well as high-barrier-to-entry suburban markets.

Last year, we added $450 million of core investments; over the past four years our team's more than doubled the size of our core portfolio, equating to a compounded annual growth rate in excess of 20%.

Our fourth-quarter volume totaled $210 million and was comprised of three transactions. First, on the street retail front, as previously reported we acquired a majority interest in 840 North Michigan Avenue, a premier flagship property located directly across the street from Water Tower Place in Chicago's Gold Coast. H&M has operated here since 2003. They recently elected to expand this store and reposition it as a global flagship. The property's other anchor, Verizon, also completed an extensive renovation, creating a new, two-level destination store.

Next, and as discussed on our last earnings call, during the fourth quarter, consistent with our urban strategy, we acquired another high-performing supermarket-anchored shopping center in Queens, New York, for $56 million. And then finally, consistent with our high-barrier-to-entry suburban strategy, we acquired a property located in Newton, Massachusetts. This property is located on Needham Street, a heavily trafficked retail corridor serving Boston's affluent and densely populated suburbs. The wealth of the immediate trade area is demonstrated by an average household income in excess of $180,000 within 3 miles. We also have another property under contract in this submarket and we hope to close that soon.

Over the past year, our core acquisition volume has been 71% street retail, 16% urban, and 13% high-barrier-to-entry suburban. While these percentages are going to shift from year to year, looking ahead, and barring any major disruption in the capital markets, we're confident that we can continue to responsibly grow our core portfolio by approximately 20% per year for the foreseeable future.

For 2015, and consistent with this 20% growth target, we are currently targeting between $300 million and $400 million of core acquisitions. With $179 million of assets already under contract, we are certainly off to a good start. And while we're very comfortable with the core portfolio's current composition, it's also clear to us that, as we continue to grow this differentiated portfolio, we will see further synergies and we will see economies of scale.

As we think about new investments for the core, we believe that the acquisition opportunity set for street and urban retail remains large in our key markets, particularly for those properties that fit into what we consider to be our sweet spot of anywhere from $20 million to $200 million asset size. In general, ownership of these properties remains private, non-institutional and highly fragmented. And more often than not, these sellers have owned the properties for multiple years, if not multiple generations.

Accordingly, we found that our ability to issue stock or more specifically operating partnership units on a tax-deferred basis has proven to be another valuable differentiator for us. In fact, nearly two-thirds of our last $360 million of street retail transactions have been at least partially funded with OP units. Thus as we contemplate our core portfolio's ideal geographic footprint, we believe that our shareholders will be rewarded by our remaining focus on the major gateway cities, where we are seeing more retailer demand and thus better potential for strong growth in market rents due to, first of all, the ongoing demographic shifts where an increasing number of young professionals as well as families are embracing the live, work, play urban lifestyle. And then second, a much healthier ratio of retail per capita in these urban markets.

Our goal is to make sure that our real estate portfolio remains best in class not only today but also over the next 5 years, the next 10 years, the next 20 years. And to do so even as shopping patterns continue to evolve, omni channel retailing becomes increasingly relevant, and as technology, whether we like it or not, enables our retailers to do more with less.

In the past, when asked what other markets we'd consider entering, I think we've been very clear that our goal is to focus only on those gateway markets where we see the potential for outsized long-term growth, and to make sure that any expansion is done thoughtfully in order to minimize what we refer to as the dumb tax associated with entering a less-familiar market.

That was certainly the case when we entered Chicago for our core portfolio. Certainly the case when we went down to Miami for our funds, and it is also the case in our decision to enter San Francisco. The property that we're acquiring is called City Center. It's a 200,000 square-foot shopping center anchored by a CityTarget. City Center represents a unique entry point for us because it's a property that we've had an ownership stake in and tracked for many years through our successful fund retailer venture with Lubert-Adler, Klaff Realty, and Cerberus. The redevelopment of this former Mervyns property was just one of many successful projects accomplished by that partnership's West Coast team and when the partnership determined that it was time to sell that property, we were more than happy to step up.

The property is both large enough and stable enough to justify our entry into this market. It's centrally located within San Francisco at the corner of two of the city's major thoroughfares, Geary Boulevard and Masonic Avenue. The surrounding trade area is densely populated, with nearly 300,000 residents in two miles, generating an average household income in excess of $100,000. Population density, together with strict zoning regulations that limit the amount of formula retail, has limited the retail competition in this trade area. In fact, today there's only five square feet of large-format shopping center space per capita in San Francisco, compared to the national average of 24 square feet per capita.

The anticipated addition of City Center to our portfolio will provide even further geographic and product type diversification. And as it stands now, nearly half of our core portfolio's gross asset value will be street retail. Approximately 20%, including City Center, will be urban retail. And then the balance will be suburban shopping centers where our focus has been on those properties located in high-barrier-to-entry markets.

I'd like to now turn to our fund platform. Over the years, our funds have proven to be both profitable and highly complementary to our core business, enabling us to further strengthen our core competencies, pursue a broader set of entrepreneurial strategies, and punch above our weight. You'll recall that through our successful Mervyns and Albertsons transactions we sharpened our skills with distressed retailers. We also originated our urban and street retail strategies in the funds.

Now, through this platform, we are currently executing on several exciting next-generation street retail concepts including Broughton Street in Savannah, Georgia, The Bowery in Lower Manhattan, Off Madison on the Upper East Side. And once we complete our value-add activities, the opportunistic sales of our fund investments at the right time and at meaningful profits has certainly inured to the benefit of all of our stakeholders.

So with this in mind, let's review some of our key progress over the past quarter. First, with respect to new investments. During the fourth quarter and as previously announced, Fund IV initiated an off-Madison strategy with the acquisition of two leaseup properties, each located about 100 feet off of Madison Avenue. Given the proximity to Madison Avenue, these properties provide retailers with high visibility and solid cotenancy while also enabling these brands to shape a unique retail identity in more intimate boutique space.

Consistent with this thesis, during January we executed a new lease with The Row, a high-fashion luxury brand who will open its New York City flagship at our 71st Street property. We're also aggregating assets in Manhattan's live, work, play markets. This includes Third Avenue retail on the Upper East side, which draws its shoppers from the surrounding population of affluent young professionals and families.

In January, we completed the $51 million acquisition of a two-level condo at 62nd Street, two blocks north of Bloomingdale's. Our team is in the process of formulating the design for a more modern facade and executing on the opportunity to create additional value through the leaseup, as well as the role of existing below-market rents. The strong retailer demand in this corridor is evidenced by our successful retenanting of another Fund IV property on Third Avenue and 67th Street, which is now home to Manhattan's first standalone Vineyard Vine.

As excited as we are about our most recent value-add investments, given the capital market tailwinds, it's also a great time to be a seller of those stabilized assets that are in high demand. Following the successful sale of our Lincoln Road properties last summer in January, we completed the sale of another Fund III asset, Lincoln Park Center in Chicago. We acquired the property in 2012 for $31.5 million. At that time, the property was 61% occupied due to the bankruptcy of Borders Books. In less than three years, we reanchored the Borders' prime corner space with Design Within Reach and Eddie Bauer, and sold the property for twice what we paid for it, generating a significantly outsized internal rate of return of 57% and an equity multiple of 2.7 times.

Now, following this sale, there is still a significant amount of embedded value in Fund III, which still owns Heritage Shops, which is a street retail property in Chicago; our Cortlandt Town Center, which was our 2009 Westchester County retail acquisition; a great retail and residential collection in New York's NoHo submarket; as well as several other properties. The sale of the Lincoln Park Center does, however, bring us closer to realizing the Fund III promote, and Jon will discuss that in further detail in a few minutes.

With that, I'd like to thank my team at Acadia for their hard work, and I'll turn the call over to Jon.

Good afternoon. I'd like to go over our 2014 core portfolio performance, then turn to 2014 earnings and lastly our 2015 guidance.

Starting with the core portfolio, the overall strength of our 2014 performance was consistent with our expectations for our high-quality street urban, dense suburban retail portfolio. Throughout 2014 our occupancy has been stable. We started the year out at 95.6% and ended the year at 95.9%, and at year-end, we were 97% leased.

Same property NOI for the fourth quarter was up 4%. For the full year up 5.2%, which exceeded our initial 2014 forecast. Redevelopment, primarily at our Crossroads property, accounted for about 130 basis points of this annual growth, with primarily increases in rent across the balance of the portfolio accounting for the rest.

Turning to earnings, for 2014, our earnings grew by $0.09 or 7% over 2013, from $1.26 to $1.35, which are both before acquisition costs. Almost all of this growth, $0.08 of the $0.09, was in the core. This was driven by both the $450 million of 2014 core acquisitions and the full-year impact of our 2013 acquisitions, as well as by the 5.2% NOI growth, which, translated through, is approximately $0.02. And for 2015 we expect the core to again generate about 8% earnings growth.

And whereas for 2014 the funds were not a significant driver, for 2015, as we move towards the monetization of Fund III, we expect additional growth from the Fund platform on top of the core growth. But I'll discuss 2015 in further detail in a few minutes.

Back to 2014. One thing worth noting is, when we compare our full-year 2014 FFO of $1.35 against our initial forecast of $1.30 to $1.40, is that there was $0.04 of short-term earnings dilution in the second half of the year which, when adjusted for, would have put us at the top of our original guidance. This dilution was from the sale of Fund III and Fund IV's Lincoln Road portfolios, which we've previously discussed, and the fourth-quarter equity issuance for the acquisition of 840 North Michigan and City Center. All long-term accretive transactions, with the dilution from the Fund sales temporary until the redeployment into future Fund investments. And, importantly, better positioning us to increase our 20% coinvestment interest to 36% in the Funds due to our carried interest.

Looking at the balance sheet at the end of 2014, we are in great shape going into 2015 with low leverage and strong liquidity. We were disciplined in funding our 2014 investments, consistent with our long-term strategy of matched funding and maintaining overall low leverage levels. We sourced our equity through ATM, open units, block trades, and recycled capital in a cost-effective manner with a focus on NAV accretion. And in terms of liquidity for the core, we have no amounts drawn on our line. And we've recently renewed our ATM for $200 million. And in the Funds, specifically Fund IV, we funded and/or allocated 40% of the committed capital, which leaves us with another $300 million of future equity.

With this backdrop of a solid 2014 performance and healthy balance sheet, I'd like to now turn to our earnings expectations for 2015. Again, consistent with prior years, our guidance is before any potential acquisition-related expenses. We're forecasting a 2015 FFO range of $1.48 to $1.56, which, when compared to 2014, represents a 10% to 15% increase in earnings. As I mentioned, core acquisitions and core property NOI are expected to account for about half of this, or 8% growth. And of this 8% or $0.11, $0.08 is expected from external core growth and $0.03 from noncontractual NOI growth.

The Fund platform is expected to contribute more meaningfully to 2015 growth on a net basis. We expect 11% earnings growth primarily as a result of the monetization of fund assets. Counterbalancing this fund growth is a deliberate 4% decrease in income from our first mortgage and mezzanine loan portfolio, which is in part from our successful conversion of loan coupon into NOI, such as at our 152, 154 Spring Street location in SoHo during 2014.

Some key assumptions for our 2015 projection are as follows: In the core, 2015 acquisitions are projected between $300 million and $400 million. An additional driver for the quarter will be NOI growth in the existing portfolio, with projected same-property NOI growth of 3% to 4%. And while this is certainly consistent with our goals and our expectation for a stable high-quality portfolio, three things to keep in mind as it relates to this are: one, unlike last year, we don't anticipate any incremental contribution from redevelopment activities. Two, our current same-property pool is not reflective of the total current core portfolio. Given our significant acquisition volume in 2014, approximately 25% of our current in-place NOI is not included in the same-store pool. As a result, less than half of our 2015 same-property pool is street and urban retail, as contrasted with, as Ken just mentioned, the 70% of our current portfolio value that is street and urban. And then, three, the majority of our fund investments are value add, and although we capture this value elsewhere, the increase in NOI in the funds is not reflected in our same-property NOI.

One last item to note for NOI growth for 2015 is, due to anticipated tenant rotation and the related downtime at a few core locations, we expect NOI growth for the first half of 2015 most likely to be below the average annual range, while the second half above the annual average.

Examples of this rotation are tenants at our Tribeca property at 120 West Broadway; our 17th Street property at Union Square; and Warby Parker, replacing the former tenant at 851 West Armitage. Although this downtime impacts the 2015 metric, the significant increase in rents obviously benefits us 2016 and beyond.

Turning to the Funds, we're projecting Fund acquisitions of $250 million to $500 million. As our Fund platform is a capital recycling model, a primary earnings driver for 2015 will be from the sale of Fund assets, both in Funds III and II. In Fund II, it will be from the sale of air rights at our City Point project; and at Fund III, projected net promote income from the continued monetization of assets.

On previous earnings calls, we discussed there was $80 million of unreturned capital in Fund III, after which Acadia's promoted share would be 36% of all remaining distributions. And we also walked through the math, whereby we estimated about $200 million of profit after the return of this capital, and that it would generate $29 million to $33 million of gross promote income. And after the associated dilution, represented primarily by the operating of fee income associated with these sold assets, the annual net FFO contribution would be, depending on the period of time, on average $3 million to $6 million per year or $0.05 to $0.10 per share, although 2015 could be less, assuming we don't get to the carry until the second half of the year.

So fast-forward to 2015. We continue to make progress on this. Following the sale of the Lincoln Park Center in the first quarter of 2015, we returned another $30 million of capital. And this leaves us only $15 million away from starting to collect our carried interest in the Fund. And though it's subject to the amount and timing of Fund asset sales, we currently expect net promote income of $0.02 to $0.03 for 2015, most likely starting in the latter half of the year.

So, in summary, we believe we have a scalable model which should continue to generate superior NAV growth, and our dual core and Fund platforms together should also allow us to achieve stable and sustainable high single-digit, low double-digit year-over-year earnings growth.

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

(Operator Instructions)

Christy McElroy, Citi.

Just with regard to City Center, maybe you could describe the specific asset a bit more? It's CityTarget anchored, but is there any small shops based there and when is the Target lease up? Just trying to get a sense for the potential upside in the NOI and maybe what was the cap rate on the deal?

So CityTarget is the main anchor. They are a relatively new lease, the past couple years, so fairly long dated. There are small shops' space as well as some new additions that are coming in shortly and we'll be talking about that in the next few months as those leases get signed.

There's also a Best Buy that it will be up to them. They have options to renew. But that may also create potential upside in the future over the next three to five years. The yield has been consistent in general, Christy, with what we've achieved over the past couple of years, is that within the first 12 months or so, with a few exceptions, we've been able to get to about a 5% yield and then have growth and opportunity beyond there.

And then just thinking about that same initial yield on the $300 million to $400 million of core acquisitions projected in 2015, what should we expect in terms of an average initial yield on those deals in terms of the impact to 2015?

And I'm always a little hesitant because we're really focused on long-term value creation, total return over an extended period of time, less so is what is the going-in yield on any given day or week. That being said, when we tally things up at the end of the year, 2013, 2014, we've seen them hovering around that 5% range.

The goal, and I think I've been hopefully pretty clear about that, is to make sure that we are putting together a portfolio that will provide us the opportunity over 3, 5, 10 years to have superior same-store NOI growth as various different leases roll, and then also more downside protection in light of just all the different shifts out there. So I think that's what you should expect to see as we pick the different markets we're going to be active in, pick the different assets we're going to acquire. And, frankly, that's more or less where the market is, provided that you don't have to do $5 billion of acquisitions and move that market.

Understood. Thanks for the color.

Todd Thomas, KeyBanc.

Just continuing with that acquisition, CityTarget, Ken, you commented about the dumb tax incurred to move into a new market. And in terms of the dollars, it's a big investment, but it's still just one asset. And I'm curious if this investment alone provides you with the scale you feel is necessary to really enter into that new market or is there more to come in San Francisco? What's the opportunity like there?

So I think it falls somewhere in between, Todd. And you are absolutely right, we spend a lot of time thinking about which markets to enter, when, how and we've been very deliberate about when not to go somewhere.

So this is an asset that we have been intimately familiar with for five, six, seven years. We've watched the West Coast team do an excellent job of taking what was once a Mervyns and now bringing it into the 21st century.

At $155 million, it's large enough that we can afford to be patient. But at $155 million it's also large enough that we can afford to spend as much time as is needed to make sure we are seeing all the interesting potential opportunities out there in San Francisco. And as I mentioned in my prepared remarks, there's only a handful of these great markets where we think, over the next 3, 5, 10 plus years, we're going to see the potential for outsized rental growth and we want to be in enough of those markets.

Now, that being said, if we never enter another market again, can we meet our five-year growth? Absolutely. But given that, we're getting on an airplane, whether we go to Chicago, whether when we fly down to Miami, there are only a handful of markets, once you're on that airplane, that are worth going to. San Francisco is one of them.

So I would be very disappointed if we didn't see additional opportunities out there. But to be crystal-clear, we can be as patient as we need to be. This is going to be a great addition and we're very excited about having this asset and then one step at a time from there, as was the case in Chicago, as has been the case elsewhere.

Okay. And then in terms of dispositions, Jon, you talked about what's in guidance from an acquisition standpoint. I was wondering, what are the current thoughts on recycling capital in the core portfolio? And how much of that suburban portfolio would you estimate does not check the box long-term? And what's the current thinking around selling some of that long-term that might not be a good fit for the Company?

So the bottom 5% of our suburban portfolio would not check the box. That being said, because I am certain that some of my colleagues here at Acadia are listening, that does not excuse them from fixing the few things that they promised to fix.

Now, in one case we're talking about in Burlington, Vermont, we are confident that our partners at Shaws are going to do a good job of turning around. That supermarket chain is part of Albertsons so that's not within our bandwidth, so Burlington, Vermont, should go. And, yes, you could point to Bloomfield Hills, Michigan, and say, Ken, great suburb of Detroit. Very strong asset, probably doesn't belong long term. We have one or two moving pieces there that we're going to get done. One or two more assets like that. And they can go.

The harsh reality, though, is it's not going to meaningfully move our needle. It will just eliminate this piece of the conversation, which is probably worthwhile over the next few years.

Okay. Thank you.

Craig Schmidt, Bank of America.

Manhattan is about to receive three new urban anchors in Nordstrom, Neiman Marcus and Saks Fifth Avenue. How is that going to change some of the upscale shopping communities in New York and how does that plan into your figuring when you're acquiring?

Craig, it's true for many of the different cities, similar kind of conversations you could have in terms of Miami and some other markets. In general, we think that the addition of new or additional flagship -- Saks is clearly already here in New York City, but whether it's into southern Manhattan, et cetera, it's all good.

There's different types of shoppers in different submarkets. And so it does cause us to be careful about which streets do we want to own more on. It might cause us to be concerned if we were in that specific box business but we're not.

And I think what you're seeing is more and more retailers recognizing that, whether it's New York or San Francisco, whether it's Chicago or a handful of these other gateway markets, they need to be here and they need to be here with state-of-the-art best formats. And that's what you're seeing and then the follow on will be positive, other than for a few very unique submarkets that might get negatively impacted.

So just the overall positive that you see from these people taking space in urban markets outweighs any kind of dislocation?

Yes. Again, we can sit can sit there and on a very microlevel say, jeez, would this impact our Vineyard Vines store on Third Avenue? And I doubt it. In fact, I think Vineyard Vines would welcome the opportunity to be able to present both in their own store as well as in these department stores.

Might this impact a store or two in Tribeca or in SoHo? Sure. But almost in every one of those instances in Tribeca, we really have more what I would consider to be neighborhood retail. It's not a tourist driven and it's not a fashion shopper driven. So to our existing portfolio, it is not a concern at all. In terms of prospective investments, it might impact a couple streets here and there and we watch that stuff closely.

Great. And finally is there any update on Savannah?

It's humming along very nicely. It's interesting, as we look at the dollar strengthening, we think about tourism differently in each submarket. Savannah has a great tourist market, but it's primarily domestic. So, so far, we are seeing real good leasing traction from a bunch of our retailers that we have, whether it's in M Street in Georgetown or Rush Street, et cetera, so that will, I think, play out nicely over the next 12 to 24 months.

Okay. Thank you.

Jay Carlington, Green Street Advisors.

Ken, I don't know if I missed this or not, but did you say if there was any incremental G&A associated with City Center?

Jon, we're using frequent flyer miles, right?

We added a couple hundred dollars for a plane ticket for Ken to the West Coast.

It shouldn't be. The nice thing about these larger -- there's a half a dozen tenants, so it's not insignificant, but compared to the olden days of 40 or 50 tenants in a suburban center, it's just not there.

So I guess as we look forward in the next couple years, are the funds going to be looking to grow on the West Coast as well?

Certainly has that opportunity. And it seems, because there's so much information we put out there, I think we'll just do another high-five. A 57% IRR on our last Fund sale certainly creates that high-class problem of our Fund investors getting money back and what are you going to do next?

And we have shown a willingness to try a bunch of different heavy lifts, but have been very profitable, whether it's Chicago -- and so it certainly could be San Francisco as well. What we have tried to do over the past 10, 15 years that we've been doing this is make sure when we pick our spots, we pick them carefully, whether it's for Funds, or for the core.

Okay. Maybe switching gears to City Point, what's the update on Phase III on the sale there and then the leasing progress you're seeing?

So Phase III is moving along. The joy of doing anything in any of these major cities is there's a bunch of I's to dot and T's to cross. And we're in the process of doing that. Needless to say, even though it takes time, it feels great to see the momentum in Brooklyn.

So every day that we wait to announce or we wait to sign a lease, things are continually and only getting better. We've had a fair amount of strong retailer interest. Should be no surprise, strong interest from different food market concepts.

So, in fact, what we decided last quarter is we're going to reintroduce the Decal Marketplace, which was open-air food in -- after we had demolished the Albee Square Mall. And that was successful in bringing that into our existing retail footprint. While it's going to cost a few bucks, it is going to be really well-received.

So that being said, we are enclosing, as a physical asset, thank goodness, and thus our retailers are going to be able to see our new Prince Street. They're going to be able to walk and really appreciate how unique this asset is relative to the other opportunities on Fulton Street.

And with that, we expect that our street-level retail will start to really get the traction we wanted to see over the next three, six months, keeping in mind that we don't get to open with the CityTarget and with Century 21 for about another year, which is on time and as forecasted. So that's our goal is to get the rest of this retail leasing done along those lines.

Okay. And maybe just a final quick question. When does the Michael's lease expire at the Newton, Mass. location that you just bought?

It's a long-term lease. It has 10 years of term on it.

Got it. Okay. Thank you.

Paul Adornato, BMO Capital Markets.

I was wondering if you could talk a little bit about your Off-Madison collection? Are you guys pioneering the Off-Madison market? And was wondering if you could talk a little bit about pricing on Madison versus Off-Madison in terms of rents and cap rates? And are the same tenants interested in Off-Madison as well as on Madison?

So it varies. Are we pioneering it? No. I'll let someone else take credit for that and I have no idea who that is. Do we think that there's a unique opportunity, given where rents have gone on Madison Avenue? Certainly well north of $1,000 a foot.

And the opportunity to provide a bunch of different retailers -- now, this is more townhouse and boutique and flagship oriented. Yes, it's less expensive. But we were thrilled, for instance, that The Row wanted to put their flagship location there. You are talking about 100 feet off of Madison, 50 feet off of Ralph Lauren's store, so it's not exactly this huge stretch, but slightly more affordable and the opportunity to really have a unique boutique space.

We'll see how many of these we can get done, but it only makes sense that for a certain number of retailers, this will be a better option. Again, I don't want to stress more affordable, but more affordable. And then for other retailers, they're going to demand and need to have that flagship Madison location. And we think that's great too.

Great. And I guess a related question is, do you see other markets expanding along the edges? And what do you see in terms of opportunities for you guys?

Yes. It's interesting because different markets have a different level of tolerance. Lincoln Road in Miami, for instance, the retailers were really hesitant to embrace our Lincoln Lane, even though it was, again, that same kind of 100 feet away. So in some places they're really much more fixated. And others they're willing to go around the corner.

There are other markets that we're currently working on. Stay tuned. What I would say is one or two assets, and the cap rate on and off Madison will be good. But if we could add 5 or 10 more of these, then you'd have a real powerful collection. And that's what our team is focused on because then you have more diversity of fashion retailers, more diversification of rent rolls, et cetera.

Great. Thank you.

Rich Moore, RBC Capital.

Ken, I guess you have the G&A from the plane ticket to the West Coast, so you've probably got G&A for a train ticket up to Boston. So will you use that to expand, maybe, beyond Newton and look at, I don't know, Newberry Street, something like that?

Sure. Right time; right place. Just to clarify, Jon made me use frequent flyer miles to San Francisco and they don't accept them on the train. So it, in fact, could be more expensive.

But seriously, there are certain streets, Rich, that make sense for us to get to at the right time when the pricing permits. What we have found is, in many instances, our entry is along the lines of an OP unit transaction where there is someone who has amassed a bunch of assets, is looking for a tax-deferred transaction.

That's a good entry point for us, or some other catalysts. We have not found that yet for Newberry Street. Wish we had. We're working on it. So stay tuned.

Okay. Good. Thanks. And then I'm curious, Jon, maybe on the promote that you guys are anticipating, you're looking at about $30 million in total. And only a very small part of that second half of this year, and I realize that's gross -- so maybe what should we think of in terms of net? And the time frame used to be a couple years, three years, whatever, but how are you thinking about that now?

So you're exactly right. The $30 million is gross. The net is somewhere between $15 million and $20 million, let's say. And in terms of, first on 2015, and this is important to go over. In our guidance, when you look at other Fund income of $14 million to $15 million, the promote in there is, gross, about $4 million to $5 million.

But in other line items -- fund NOI, asset management fee income -- there is this what we call this positive event dilution associated with that promote such that the net promote for 2015 is $0.02 to $0.03. So I know I saw one report where someone took the $15 million and said that's $0.20. That's obviously not quite right. That's looking at the promote only on a gross basis. In fact, in that category the total contribution is $0.15.

In terms of timing and amounts beyond 2015, it really is a factor of when the sales occur and volume of sales. So on the low-end, the $0.05, would be over a four-plus year period. And then on the high-end, if it's quicker, then I mentioned the upper end of $0.10 per year, that would be two to three years.

So, again, it's a function of the timing of these sales. Could happen even faster than that, but those are the amounts. And obviously, we'll see, as we make progress through 2015, we'll keep everybody posted on our expectations as it relates to the timing of that.

And let me just chime in that it's important not to lose sight of the important core portfolio growth contribution, which Jon walked through, was the majority of our solid earnings growth for last year.

Correct. For 2014.

And then is also going to make a significant contribution 2015 as projected.

About half of our growth. That's right.

We worked too hard in the Fund business to call it icing on the cake, but if our core portfolio, both internal growth -- and keep in mind same-store NOI does not correlate to earnings growth -- but the core portfolio internal and acquisitions, if we can achieve the levels that we have been the past few years, that's pretty darn good in and of itself.

Then this profit-making machine, which helps keep the lights on, helps us punch above our weight, provides us with additional capital recycling and carry, all of that -- I don't want to call it gravy, I don't want to call it icing on the cake -- but it's a nice addition.

It's going to be very lumpy. It will come exactly on the quarter that you don't want it to because it's going to blow up all of your models. I get that. But as long as it's very profitable, we love it.

I agree, Ken. That sounds great. I want to make sure I understand. So, each time you guys sell an asset, once you're in the promote phase, so to speak, once you get your promotes, then each time you sell an asset, you recognize it right then when you sell the asset?

Exactly. Once we've crossed that line of being in the carried interest, having returned all the capital, each incremental sale, as you're saying, generates immediate promote income that's recognized at that time of sale.

Okay. Great. Thank you, guys.

Michael Mueller, JPMorgan.

I was just wondering, is there a dollar-size investment for the core that you would think of as a ceiling? So you made an investment for $150-some million, but so you wouldn't want to put more than $250 million into a single asset or something like that? Are you thinking about the core investments in that way at all?

Yes. A few different ways, Mike. First of all, and I mentioned that our sweet spot seems to be $20 million to $200 million where, when you see us go below $20 million, chances are there's other deals in that pipeline to justify it. And then what we have found is, for a variety of reasons, as we get above -- and today it's $200 million. As the Company gets bigger, it might shift a little bit.

A few things happen. One, there's a concentration issue. We're able to capital recycle, raise the capital we mentioned in a very efficient basis. Once you get to larger transactions, there's a capital markets issue.

There's also what I would view as a transformational issue, is if any deal's too big, could it become too much of a distraction? And also, what we are seeing, certainly in New York City, but in many of these markets, once you get above, let's say, $300 million or $400 million the price per unit, in fact, goes up because the big boys come out and we don't need to be playing in that market as aggressively.

That being said, we look at a wide variety of transactions. And if it's larger than that $200 million or $300 million, it's not that we wouldn't. It's just that we need to then price in that thinking. From an asset-diversification perspective, we think about it, not just on the asset acquisition, but then also each geography.

So we've been very deliberate. Five years ago when we said, you know what, street retail is what our retailers are telling us is going to be a growth opportunity. Let's grow that. Which markets do we want to grow? We decided Chicago; we decided New York. We continue to add assets in Greenwich, Connecticut, as well as M Street in Georgetown. But then we look at the weighting of each of those markets and make sure that we're not too disproportionate one way or another.

So we've doubled that portfolio. Street retail has gone from [15 to 50]. We now have a nice balance as we think about things prospectively. A $200 million addition in any one of the markets we are currently in will not throw our metrics off, but a $2 billion transaction would. And so that's kind of how the thinking then narrows into that $20 million to $200 million range.

Okay. That's helpful. Thank you.

We have no further questions. Now I'd like to turn the call back over to Ken Bernstein.

Thank you all for listening. We look forward to seeing you again soon.

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