Regency Centers Corp (REG) 2013 Q3 法說會逐字稿

Good day, and welcome to the Regency Centers Corporation third-quarter 2013 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Michael Mas. Please go ahead, sir.

Thank you. Good morning, everyone, and thanks to everyone for joining us today. On today's call, you will hear from our Chairman and CEO, Hap Stein; our President and COO, Brian Smith; our CFO, Lisa Palmer; and Senior Vice President and Treasurer, Chris Leavitt.

Before we start, I'd like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes, and results may differ materially from those expressed in forward-looking statements.

Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. Hap?

Thanks, Mike. Good morning, everyone, and thank you for joining us on our earnings call. This morning, I'd like to briefly share my assessment on how well Regency's portfolio, balance sheet, and development program are now situated, and how we have positioned them to grow future shareholder value.

To begin with, as you are all aware, there have been a number of recently published research reports, and many of those reports have compared the portfolios in the shopping center sector. And pretty much every one of them have described Regency's portfolio as clearly one of the highest-quality portfolios in the shopping center sector.

In my view, four key attributes of the portfolio stand out. First, on average, our grocery anchors generate more than $27.5 million in sales. This represents a 9% increase in just the last two years, and equates to more than $530 per square foot.

Second, the average household income within three miles of our centers is $100,000, which is substantially higher than the peer average. Third, our average base rents in the portfolio are also meaningfully above the peer average. And finally, the percentage leased for small shops and being able to attract terrific small shops as a good indicator of quality, remains one of the highest in the sector.

Continuing on this topic of portfolio quality, since 2010, we've enhanced what was already a darn good portfolio, through the sale of more than $800 million of non-strategic assets, and the acquisition of $475 million of first rate centers with excellent NOI growth prospects. These newly-acquired centers are 97% leased, with grocer sales that average more than $800 per square foot, and the demographics are much better, with a total purchasing power that is 25% higher than those that were sold.

As a result, and as Brian will cover in detail, operating fundamentals remain strong, as reflected by achieving nearly 95% occupancy and year to date same property NOI growth of 4.5%. This positive momentum from robust demand for space and our high quality assets, the limited amount of new supply, and the beneficial impact of redevelopments should continue to drive occupancy and accelerate rent growth.

Not only has the recycling enhanced the portfolio, but together with other cost effective capital markets activity, it has also augmented a balance sheet that was already rock solid. Trailing debt to EBITDA is 5.9 to 1, and as of today, we have $100 million of cash, and no outstanding balance on Regency's $800 million line of credit.

Development is an important core competency for Regency, and it's creating value, in great new and redeveloped centers. The almost $300 million of developments that are in process, some of which haven't even yet broken ground, are 90% leased and expected to generate an incremental return on invested capital of approximately 9%.

Brian's going to spend some time describing our recently announced starts, and I know you will be equally impressed by the quality of these projects, and the substantial value that's being created. Furthermore, the pipelines for compelling new developments, redevelopments and acquisitions are encouraging. As you can tell, I am gratified by the important portfolio development and balance sheet milestones that have been reached.

As a result of the high quality of the portfolio and the strength of the balance sheet, we are now in a position to pivot and place more emphasis on disciplined growth. Organic earnings growth, new investments, particularly developments, and the related conservative and opportunistic financing will be the path forward for future portfolio and balance sheet enhancements.

By 2015, growth in per share core funds from operations will no longer be constrained by the impact from the elevated priorities that were placed on deleveraging and the sale of nonstrategic assets, and we will more fully benefit from the higher level of development starts. Lisa?

Thank you, Hap. Good morning, everyone.

Core FFO per for the third quarter was $0.65. This was $0.03 above the midpoint of our stated guidance range, primarily as a result of higher than expected net operating income from our 2012 acquisitions, and in process developments, and also lower G&A expense. Our 2012 acquisitions are outpacing underwriting and in process developments are leasing up faster, and rent is commencing sooner.

As Hap noted, year to date same property NOI growth was 4.5%. We now expect full-year same property NOI growth, excluding termination fees, in the range of 3.8% to 4%. With respect to transactions, dispositions continue to be an important source of capital to fund our development program.

During the quarter, we closed on the sale of all of the assets owned by our closed-end fund. And just after quarter-end, we settled our preferred equity interest in the portfolio that we sold to Blackstone in 2012.

We have slightly increased the high end of our guidance range for dispositions, and because of the tremendous success we've had converting our development and redevelopment pipeline into real starts, we have tightened the range for development guidance. Also as you would hear from Brian later, due to the increased likelihood that we could close on a few more acquisitions by year end, we've raised the high end of our guidance for acquisitions to $215 million.

Because of these results and updated expectations, core FFO is now projected to fall in the range of $2.60 to $2.63 per share. The actions taken that have accelerated the enhancement of the portfolio and strengthening of the balance sheet, as Hap mentioned, will moderate our 2014 earnings growth rate.

Early projections indicate that 2014 will be a year similar to this year, but I also am proud that what we have accomplished has positioned us to enjoy better and stronger earnings growth in 2015 and beyond. We will discuss this in more detail on our upcoming guidance call on December 17th. Brian?

Thank you, Lisa, and good morning, everyone. We are three quarters now into what's turning out to be a really strong 2013.

Let me start by highlighting some of our operating results. On a same property basis, the operating portfolio was nearly 95% leased at the close of the quarter, and shop space occupancy stands at roughly 89%, the highest it's been since 2008, and 130 basis point improvement over 2012.

With this increase in occupancy, aided by strong tenant demand and limited new supply, we continue to gain pricing power. Rent growth returned to double digits this quarter. Average rents for side shop tenants continue to trend upward, and are now 34% above the trough.

Not only are the starting rents improving, but we are also seeing more favorable lease terms as a whole, including better rent steps, and more aggressive commencement dates. Retailers are acting on this positive sentiment. Many are making significant investments in their current spaces, as well as in new ones. Given the underlying strength of tenant demand, we see no slow down in the positive momentum in all the key operating metrics.

This heightened activity is evident not only in the operating portfolio, but also in the strength of our development and redevelopment pipelines. Take our newest projects. Glen Gate, a development slated for start in October will be 103,000 square foot infill shopping center built on the site of a former Avon Cosmetics office building, in an upscale neighborhood of Chicago.

Some of you may remember touring the site at our investor day, two years ago. The 3-mile trade area benefits from a population of 150,000 people, with average household incomes of $100,000.

Glen Gate will be anchored by Mariano's a very successful grocery operator in the market, averaging sales of more than $50 million per store. The center is already nearly 90% leased and committed, before vertical construction has begun.

We also just purchased 4.5-acre site on which we plan to develop Shops On Riverside, a 50,000 square foot center anchored by the Fresh Market that will serve the affluent waterfront communities located in close proximity to downtown Jacksonville. Through this location, adjacent to the downtown core, the center will benefit from a daytime population of 110,000 people, which is fueled with strong demand from shop tenants, particularly restaurants.

Additionally, we started the redevelopment of Woodway Collection this quarter. Located in Houston, Woodway enjoys real strong purchasing power.

Within three miles there is a population of nearly 180,000 people, with average household incomes exceeding $100,000. The center has an excellent line up of shop and pad tenants, including the country's second ever Carrabba's Italian Grill, which to this day is still owned and managed by the Carrabba family.

We recently completed a facelift on the side shops and demolished the former grocery anchor space, and will relocate a nearby Whole Foods to the center. This is a perfect example of what happens when you have superior real estate. Bad news, in this case, the loss of an anchor, becomes great news.

We've also seen remarkable leasing velocity in our in-process development portfolio. With seven projects underway, and soon to go under construction as of quarter-end, are nearly 90% leased, with a combined projected incremental return approaching 9%.

Grand Ridge Plaza in Seattle, which is the dynamic retail center of an upscale planned residential and commercial community, will actually be 99% leased when it opens. This is almost unheard of for a project of its size, at 325,000 square feet.

The development starts since 2009 that are now complete and part of the operating portfolio are 97% leased. Development is not easy, but the results are gratifying, and the benefits are significant. This kind of performance is the result of the dogged determination and persistence of an experienced development team, committed to its mission.

Turning to acquisitions, I am pleased that we continue to acquire premium shopping centers with outstanding NOI growth prospects. Our most recent acquisition, Fellsway Plaza, closed earlier this month, and is no exception. Fellsway represents a very unique opportunity to acquire an institutional quality asset, located in a densely populated and extremely supply-constrained close-in suburb of Boston.

The property boasts purchasing power demographics, that's income plus population, of 435,000 in a trade area that enjoys 99% retail occupancy. Fellsway is a 154,000 square foot center, with a leading market share grocer generating $53 million in annual sales.

The center is projected to deliver compounded annual NOI growth in excess of 6% over the next 10 years, driven by a redevelopment opportunity that we intend to start immediately. We expect the redeveloped center to demand base rents that are on average nearly 35% higher than current in-place rents.

This combination of long term stability and value added potential is certainly an attractive acquisition in today's competitive market place. The team is working hard to find more opportunities with substantial growth and upside characteristics that mirror those of our more recent acquisitions, and as Lisa discussed, because of two transactions we have under contract, one in Raleigh and the other in the northeast, we have increased our guidance for full-year acquisitions.

Lastly, I'd like to touch on Safeway's recent announcement regarding their Dominick's chain, and their decision to exit the Chicago market. We have seven leases with Dominick's, one of which was previously sub-leased so six properties that could be impacted. Four of those properties are in joint ventures.

The true impact of this is going to play out over the next quarter or two, but we have been in proactive dialogue with other grocers about some of these centers for a while. With a pro rata weighted average base rent in single digits, we believe we should be able to attract desirable replacement tenants, if we get these spaces back. Hap?

Thank you, Brian, and thank you Lisa. This progress in placing the portfolio, balance sheet, and development program on very high ground is a testament, not only to our focused strategy, but also to the dedicated efforts of our talented team. Most important of all, we are committed to profit from our advantageous position by meaningfully growing NAV, shareholder value, and future earnings. We thank you for your time, and welcome your questions.

(Operator Instructions)

Our first question comes from Michael Bilerman at Citi. Please go ahead.

This is Katy McConnell on for Michael. Given occupancy almost reached the high end of guidance in third quarter, do you think the revised range is likely conservative for your end? And how much more upside do you think there could be in the next couple of years?

I'll take the guidance part of the question and then let Hap or Brian take the upside going forward. We do have a couple of strategic anchor move outs that we're working on, which if they happen, could impact our occupancy by up to as much as 40 basis points, which would take us down to the low end of the range. Again, it may or may not happen. Obviously that's -- the impact on NOI is minimal, because it's towards the latter part of the year, but the occupancy guidance is a point in time so that's the range on the down side.

In terms of outperforming, we have been outperforming so far this year, and with a beat in raise, I think the same kind of things could happen. One of the things that's going on, that continues to be a favorable trend, is the lower level of move outs that we've been experiencing. Those move outs that we are doing, many of those are done on strategic basis where we have something better to replace them. Our shop move outs for this quarter, well, year to date, our shop move outs are the lowest they've ever been, so I think that's probably one of the areas where you could see some improvement.

During the next couple years, as far as that part of your question, we do not see 90% occupancy on a shop space side and 95% overall occupancy as being a glass or any other kind of ceiling, and would hope to see over the next couple years moving our occupancy above those levels.

Okay. Great. That's helpful. Thank you.

We'll take our next question. Caller, please go ahead.

I guess going to the acquisition guidance, and thinking about that, how do you weigh the probability of coming in toward the bottom end versus the upper end of guidance? It sounds like, if you don't come in at the upper end, is it a transaction that's probably going to slip to 2014, or it just falls out and doesn't happen?

At this stage, the projects Lisa mentioned, the projects are under contract and we haven't seen anything in due diligence that would scare us, that would prevent a closing. They haven't happened, so there is always a chance, but right now we are feeling awfully optimistic that both of those will happen by year end.

I think the bigger risk might be that one might get pushed into 2014.

There is that assumption. So that could potentially push it, but I think we feel really good about it.

We're really excited about both of them, so hopefully we'll be able to share our thoughts on these with you, in the not too distant future.

Okay. We get a second question, right?

Absolutely.

There we go. Looking at sequential leasing in the category, not the small shop, but 10,000 to 19,000 square feet, there is almost a 200 basis point sequential pick up. I was wondering if you can add a little color on what's going on there?

We had a lot of leasing in that category. In fact, I think it was one of the strongest quarters we've ever had in terms of anchor leasing, maybe the second strongest quarter, ever. We are 99% leased in that category.

Whenever we get an opportunity, they fill up pretty quickly. A couple of those were major redevelopments. An example would be the Woodway Collection that we talked about in the prepared remarks, where we replaced an anchor tenant that moved out last quarter with one this year, Whole Foods this quarter.

Okay. Thanks.

We'll take our next question. Caller, please go ahead.

It's Rich Moore at RBC. On the franchise front, the tenants occupy a lot of the small shops, or could I guess, theoretically occupy some more small shop space. What are you seeing from these national franchise guys? Maybe not even franchise, just national small shop tenants.

Is that picking up? Is that sort of leveling off? Can you give us a feel for that)

Rich, I haven't seen any leveling off whatsoever. It's been strong. The quality of the franchisees has been very strong.

Overall, I think small shops there, I think there is no differentiation between franchisees and the others we're putting in there. They're healthy, very healthy. Optimistic. I mentioned putting a lot of money back into the space.

They're benefiting from the lack of new supply and our pipelines right now are as full as they've ever been. They're the fullest they've been in four quarters. If anything, we're experiencing more sense of urgency to get the stores open. So I think on all counts, the small shops are looking good going forward.

Okay. Good. Thanks, Brian.

It seems like you are always finding another development to do. The talk has always or has been recently, for the past, I'd say, three or four years, that there isn't that much development to do, and yet you seem to add one maybe every quarter. How would you characterize, I guess, the broader outlook for development at this point?

Obviously numbers nationally would support that there is not much development going on, and we hear that same thing. Mostly what you see around the country would be retail and ground floor of residential mixed use products. You see a lot of redevelopment.

But there hasn't been a lot of true shopping center development going on. We are seeing --- where we are seeing it would be places like Southern California, Houston, Washington DC, and North Carolina, but not a lot. I'd say, I find this surprising but at the same time not surprising.

It's surprised me in a sense that we are finding that there is a lot of demand, and as I mentioned, the leasing is strong. The pipelines, as I just mentioned are the fullest they've been in four quarters.

The anchors, particularly the grocers, are expanding, and there is no supply. If you are 99% leasing your large anchor spaces, they've got to find new locations. That would be true of the other portfolios out there too.

And development works. As we mentioned in the prepared remarks, if you look at the past success of the ones that we started since 2009, it's almost $400 million, they're almost 93% leased and several of the projects haven't even gone vertical yet.

So in that regard, I'm surprised, but I guess where I am not surprised is, as we said all along, it's really difficult, especially if you are focused on the infill nature of the projects, the ones we have started since 2009 have combined purchasing power well over 200,000, and when you are playing in those infill markets, they're hard to find. They're fraught with all kinds of road blocks, whether it be environmental, challenges to the entitlements and so forth.

The only way to really get through that is not only have a great team with a lot of experience, but to have been working on them for years. I think what's happening elsewhere around the country is people are starting up development programs and it just takes years and years to get those things through the process. As you know, from some of the ones we started recently, some of those -- most of those have been in the works for years.

Okay. Great. Thanks you guys.

We'll take our next question. Caller, please go ahead.

[Ken Elfnie], Morgan Stanley. I have a question; I think, Lisa, you said earlier that there is two assets under contract within that guidance of $150 million of acquisitions between now and year end. I'm curious if you could give some color on the size or any parameters around yield, IRR, around those contracts?

One small portfolio, and one's a single asset. As we indicated, one is in Raleigh, one is in the northeast.

Both have exceptional growth, and the returns meet our parameters, and they're consistent with the guidance we give. Plus they've got great NOI growth, and one of them we think has even more upside even beyond that.

Fair enough. And one more if I may. You made a couple acquisitions recently with a JV partner. Just curious, were those assets that made sense to bring in a local partner? How should we think about JVs as far as your acquisition strategy going forward?

The one we closed in the fourth quarter, Fellsway I think that's probably the poster child for the kind of property you want. We don't have a presence up there. Well we don't have a development presence up there.

It's extremely high barrier. It's a tough market to develop in, we know. This particular partner is very experienced, we have worked with him before. He has personally acquired or developed or redeveloped over 25 million square feet.

One of the largest leasing companies in the northeast where they own, lease, or manage over 70 centers and are the exclusive leasing agent for more than 11 million square feet on nearly 60 centers and they also have a tenant representation arm, where they represent some of the largest best retailers in New England.

So we think in this case, where we've got to redevelop we're going to start right out of the ground. Somebody who is from there who went to school within almost a stone's throw, and with all the connections they've got on both development and leasing side, that made great sense.

In that case, probably, though, in future cases, it's going to be access to the opportunity. I think that's what the joint charter provided in this case and any future opportunities like this, where we have a joint venture partner. That's probably going to involve.

To echo what's Hap's talking about, in this particular case there were several people competing for the project. It looked like we were not going to get it. He had been working with his broker friend on it, for years and called and basically, I think, shook it free for us, and so it really provided value there.

Fantastic. Thank you.

We'll take our next question. Caller, please go ahead.

It's [Jay Collington] with Green Street. Just a follow-up on Rich Moore's question on development. You're obviously being very thoughtful about process, they're well funded, preleasing is very good, so maybe from a Company specific standpoint, how do you think about critical mass in your development pipeline? At what point are there too many balls in the air?

I think what we have said is, we are very comfortable. Remember, this year about 20%, almost 30% of our development starts will be redevelopment starts. Somewhere in the neighborhood of 20% to 30% will be redevelopments.

Development and redevelopment starts in the neighborhood of $150 million to $200 million plus a year is something that we are very comfortable with. We think that's right sized. We also think that the infill focus and/or being in a planned community and not being a merchant developer, developing that which we want to own long term that's a very focused strategy.

And as Brian said it's been extremely successful in the last four to five years. That's where your focus is. I think somewhere in that $200 million, maybe a little bit higher, but averaging $200 million a year is, from a new development start standpoint would kind of be our goal.

To add to that, the focus here is not so much on size but on quality. What we have done in the past, where we are not going to continue to staff up just because a new opportunity comes up. What we've done in the past and will continue to do, is if there are more opportunities than a given team can handle, we'll either augment it from somewhere else where there's capacity or we will just take the best opportunity of the ones available.

Okay. Great. Maybe just a follow up on your land bank. There hasn't been any movement there in the last couple quarters. Should we expect an update there, or where do those stand right now in the process?

Yes. There has actually been a fair amount of movement on that one. We are down to a combination of land held for development to land held for sale, we're down to $61 million. A couple of years ago, we were at $150 million.

In the third quarter you probably didn't see a lot of movement because we did a sell parcel out of Southern California for about $3.2 million, but that was offset by -- we moved a parcel of land that was going to be ground leased in Cinco Ranch into the land held for sale. So it reduced the net impact of the sales for the quarter, but that thing will be sold imminently.

That's a significant focus, and as Brian indicated, we have made significant progress, and expect that progress to continue into the fourth quarter.

Okay. Great. Thank you.

We'll move onto our next question. Caller, please go ahead.

[Luke Ankrunch] from Deutsche Bank here. Could you just give a little bit more color on the upsized acquisition guidance? That would be helpful. Was there a particular circumstance that kind of accelerated the time line there, and then just from a broader perspective, on the acquisition front, given that some of the others are telling us it's tough out there for buyers in certain pockets. Can you talk about the sourcing environment and the competition that you guys are seeing more longer term in your acquisition prospects?

In terms of I guess why the guidance went up is, particularly the portfolio that Hap is talking about, it's been three months since we've issued guidance. A lot happened in that period. This one is very recent, and it happened faster than the typical acquisition does.

Normally, there is a long drawn out process. In this particular case, we got in a plane, flew up there, and literally the deal was closed that day. I am sorry, the agreement was reached that day.

So it is very competitive. Everybody is going after the same pool of great properties, but fortunately, I know as of last quarter, when we were counting this up I think we had looked back a couple years of the 16 acquisitions we had done, 12 of them were done off market.

That's what we try to do. We try to find things before they get competitive and really bid up and we are having a fair amount of success at it. It is very competitive, and there is a limited pool of the really good high-quality assets with good growth.

Lisa, you might just review briefly what our philosophy, or policy is, as related to acquisition guidelines going into the year.

Yes. If you think about just our business model, funding for our developments is coming from our dispositions, and to the extent that we either have access to-- cost effective access to the equity markets or are able to accelerate some of our disposition sales, and we can recycle those funds into great acquisition opportunities. So acquisitions are not part of our base model if you will.

Sure.

Going into the year, the guidance was $0 to $50 million as we had really prefunded, and our dispositions were estimated at that time to be on the high end at $200 million, with development starts of $150 million. As Brian said, we just didn't have any visibility to these two transactions the last time we reported.

Okay. Fair enough. And then just relative to the acquisitions that are kind of closing near the intermediate term, I guess, should we think about those as more of core property plug and play types or ones that might need a little additional attention capitalized?

They're going to be more core but I want to say that we're not just investing capital, unless in our view, it's got exceptional NOI and/or upside. And I think all the acquisitions that we have done have those characteristics. It's consistent with our strategy. It's got a sustainable and competitive advantage. It's going to be able to generate very nice NOI growth, and in a lot of cases, have additional upside. Otherwise, it's not a good use of capital.

Yes. Absolutely. Understood. Thanks.

(Operator Instructions)

While we're waiting, I was asked to clarify something. Mike Mueller had asked a question, and I apparently misunderstood it. Mike, if you were asking about the increase in the 10,000 to 20,000 square foot bucket and I was talking about the greater than 20,000 square foot bucket, so let me modify that.

Within the 10,000 to 20,000, where we saw such a big increase, it's a really small category that we've got, only 9% of our GLA fits within the 10,000 to 20,000 square feet and therefore basically any leasing is going to move the needle and we did three leases within that category and that's why we got the big jump. Sorry for misunderstanding that.

Caller, please go ahead.

It's Jonathan Pong at Baird. I just wanted to dig in a little bit on the disposition outlook, and I guess you have made good progress in terms of upping the disposition outlook so far this year. Can you talk maybe directionally as to where you see that volume trending for 2014, and how much more runway you actually have there in terms of just looking at your overall portfolio?

As we indicated in our remarks, given the acceleration of our dispositions, the progress that we've made, we think that the portfolio is very well situated right now. The balance sheet is very well situated.

And we're going to be -- it will be a funding source for developments going forward and potentially for other investments, and that's the way we're looking at it. And so, we'll give you more guidance. But I think it's safe to say that our plans for dispositions in 2014, and in the future, will be at a much lower level, unless our investment activity is also larger than it's been the last several years.

Got it. Then maybe on the small shop leasing trends, it does sound like there is a bit of upside there in terms of overall mystery and 10,000 feet and below. Is there an opportunity to be offensive and create some available space through downsizing or proactive lease terminations?

Well, first of all I think there is a lot of upside just in leasing up what we've got. We're at 88.8% and see no reason why we can't get up to 92% or whatever.

What you are really asking for is the kind of growth that is going to come from just aggressive asset management. We are doing all of the normal things, whether it's focus on rent growth, focus on rent stats and occupancy, but some of the other things that fall in the category we talked about would be creating pads, creating additional GLA. That does fall within our redevelopments.

We've got an example this past quarter, how Speedway in Boston, we added a Chick-fil-A pad. We are adding a Panera pad at Culpepper. We're adding a Dick's to Culpepper. We are expanding some of our earlier development starts. We're taking and leasing created space, which the market is allowing us to do now.

For example, up at Speedway, we have a 100,000 square foot store that we have Burlington Coat Factory in. They took the front 65,000 square feet. We leased the back 30,000 square feet roughly, and that rent will actually triple in three years, so we're getting a good --- that's a good example of the rent increases we're getting.

We are consolidating space, or expanding it. We're upgrading the quality, different uses for space.

For example, out at Plaza Hermosa, in Southern California, there is a building that's not part of the shopping center. It's located on a different tier but it's got plenty of parking. We replaced a nightclub with a $1 billion hospital, 90 year old company and they're paying almost 3% annual bumps.

So we talked about the strategic move outs. Much of our move-out activity now is a result of being able to replace tenants that we want to get out of there, and replace with better people, better economics.

And a couple of proactive things we're doing. Let's give you some examples. There is a national footwear chain that in our Corvallis center and they had a right to terminate the lease, so they went ahead and they exercised it, and we instantly replaced them with a better tenant, another national tenant, at much higher rent, and they came back and said we were just negotiating. So I think, you are starting to see that kind of leverage showing up on the landlord side that we're going to fully take advantage of.

Just to piggyback on that comment is, although we're doing a lot of creative things and taking proactive actions to grow NOI and create value, at the same time, and you always want to have less shop space than there is demand, but the kind of centers we want to own are centers where there is substantial demand for the side shop space, not only the anchor space, and where we're not afraid, but we're excited about the opportunity that the side shop space presents.

I think one of the things that's going to fuel our growth going forward is not all of the markets out there have participated in this run up. They're starting to show some good activity. Perfect case in point is Florida, which has lagged, and all of a sudden the leasing activity is very strong there, and we're seeing real rent growth numbers this past quarter.

Thanks for the color guys.

It appears there are no further questions at this time. I apologize, we did have somebody else queue up. Caller, please go ahead.

This is Tammi Fique with Wells Fargo. I just wanted to follow up, Lisa, on the lower G&A that you recorded during the quarter. I was wondering what contributed to that, and if that's a good run rate going forward?

Yes, it's a good run rate. We were just able to realize some savings.

Okay, and then I think you might have touched on this. Maybe it's related to the move out, strategic move outs. But your occupancy at the end of the third quarter was 94.9%, and the 2013 is 94.5% to 95%. You're already pretty close to the top end of that. Is there anything that we should be thinking about that would cause it to drop to the lower end of that range?

It's really what I have already answered, in terms of, I mean that really accounts for the whole thing, and it's a matter of whether we actually accomplish what we are trying to accomplish before the year end. Again they're proactive.

Low end of occupancy. The only thing could happen there I think about halfway down to the bottom of the low end, are a couple of large tenants we know are going to move out. Really, you are talking about --- I think it's about 70,000 square feet. Could something happen? If one of the anchor surprised us and moved out, that would get you there.

Okay. Then with regard to the Blackstone preferred interest, was that an early termination, or was that in line with what you expected?

No. It was early. We had expected it go through the end of the year, but we did receive the undistributed income for the remainder of the year. I mean, I think they just basically wanted to settle prior to [Brooks] doing their IPO, because some of those properties were included.

Okay. Great. Thank you.

Thank you very much. We appreciate your interest, and we hope that you have a wonderful Halloween. Thank you very much.

That does conclude today's conference. We thank you for your participation.