Whitestone REIT (WSR) 2014 Q1 法說會逐字稿

Good day, everyone, and welcome to the Whitestone REIT first quarter 2014 earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ms. Suzy Taylor, Director of Investor Relations. Please go ahead, ma'am.

Thank you, Rebecca. Good morning and thank all of you for joining Whitestone REIT's first quarter 2014 earnings conference call. Joining me on today's call will be Jim Mastandrea, our Chairman and Chief Executive Officer; and Dave Holeman, our Chief Financial Officer. Please note that some statements made during the call are not historical and may be deemed forward-looking statements. Actual results may differ materially from those indicated by the forward-looking statements due to a variety of risk and uncertainty. Please refer to the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-K and Form 10-Q, for a detailed discussion of these risks.

Acknowledging the fact that this call may be webcast for a period of time, it is also important to note that today's call includes time-sensitive information that may be accurate only as of today's date, May 6, 2014. Whitestone's earnings press release and first quarter supplemental operating and financial data package have been filed with the SEC and the Form 10-Q will be filed shortly. All are or will be available on our website whitestonereit.com in the Investor Relations section. Also included in the supplemental data package are the reconciliations from GAAP financial measures.

With that, let me pass the call to Jim Mastandrea. Jim?

Thank you, Suzy, and thank you all for joining us today on our call. Today, we're going to review our first quarter results and update you on the recent progress of our initiatives. Dave's portion of our call will focus on our financial results, our ongoing progress in Whitestone's operating results, and conclude with a review of our financial guidance for 2014.

As we begin our fourth full year as a public company, we are pleased to report the progress we have made. At the core of our progress and what truly has energized our team is the success of our service-based Community Centered Property business model. Our tenants provide four primary types of service. One, fast food and dining; two, education, tutoring, et cetera; three, medical and social services; and four, exercise and personal care. We receive a rent premium of 48% on our small space tenants. We continue to divide larger spaces into smaller spaces, which are more profitable and easier to rent. Our leases are shorter term, three to five years, and give us the ability to continue to increase rents and avoid the blend and extend re-traded deals that larger tenants frequently request.

What drives the demand for our Community Center business model is the need for services that are not impacted by the shift to online shopping. And ironically, as our smaller service-based tenants create additional traffic, they help our grocery tenants; Safeway, Albertson's, AJs, and Marshalls; experience increased revenues. Overall, our attention to our tenant needs and their success drives our increases in FFO and shareholder value. Our approach differentiates Whitestone from the big box strip center and mall owners in the public retail space. Our service driven culture in our defined target markets have demonstrated our value-add approach works and in time we believe we will earn a premium valuation.

I would like to provide some background on our tenants. We have a continually expanding tenant base of 1,225 tenants across 60 properties. Many tenants are now locating in more than one of our properties. We receive personal guarantees, rent deposits, and tenant improvement investments from them. Our tenants have the reward and the risk of their business, but also they have the passion to succeed. Our support investment in our properties to provide all the space gives them added confidence. Our downside risk is minimized, managed and measured in two ways. One, the laddering of our leases; and two, our limited exposure to any one tenant. No one tenant if they leave can negatively impact our revenue by more than 1.9%.

We stay focused on our plan for high growth, underserved markets, and the consistent execution of our business model striving to meet the needs of our ultimate customer, the consumer, and selecting the right tenants. Within the local markets where we own property; we study, research, and understand the cultural, demographic, and ethnic influences. With this knowledge of information, we accordingly reposition and redevelop our properties. We acquire properties with this purpose at significant discounts to replacement cost. We accomplish our value-added approach notching up our properties at least one class. We also strategically position ourselves to control multiple properties in an area creating barriers to entry by controlling the supply side of available real estate.

Let me give you an example. In Scottsdale, Arizona, we own three properties on a well-populated, well-traveled two mile road with a T-intersection in the middle. We have a property at each end of this roadway on corner locations and one on the corner of the T-intersection. A tenant that wants to be in this particular submarket can choose from one of our three properties at different rental price points. With our strong revenue generating strategies, leasing, redevelopment, and repositioning properties; we are also able to increase our FFO per share by driving down our cost of capital, G&A as a percentage of revenue, and scale our operations. Dave will address these in his remarks.

We are pleased that our first quarter in 2014 continued the momentum we have been building for the past three years to drive positive operating results and report our third consecutive quarter of increased core FFO per share, meeting and exceeding our dividend at a 91% payout ratio for the quarter. This result is from solid leasing, redevelopment, and repositioning efforts of our team. Dave will also provide additional details of our first quarter leasing activity report, which was robust showing that positive leasing spreads on new and renewal leases continued to increase at a very healthy rate. Our first quarter occupancy rate was 85.8%, an increase of 1.8% over the prior year.

Due to the timing of some of our tenant repositioning efforts, our first quarter of 2014 compared to the fourth quarter of 2013 was slightly down. This was no surprise to us as we expect occupancy to react this way during this process. We expect occupancy to increase in 2014 as we continue our repositioning work. Our first quarter property net operating income increased by 31% with a same-store growth of 3.2%. Our first quarter funds from operations core increased 19.2% to $0.31 per share and revenue posted a meaningful 28% growth to $17.8 million. I would like to share four reasons why we continue with solid quarter-to-quarter operating performance. Let me first touch on operations.

First, we increase the value of the Community Centers we own by improving the quality and stability of our tenants and mix. Two, we opportunistically enhance our centers with selective redevelopment and development positioning of the properties. Three, we lease smaller spaces to our tenant and in doing so, charge more rent as they grow their businesses. And four, we continually demonstrate to our tenants that we care about their success, invest in our properties, and respond quickly to their needs. Our pipeline of potential leases remains deep with leases currently in negotiation, letter of intent, and those signed but not yet moved in. I would also like to share four reasons for our acquisition success.

We are selective and disciplined purchasing one-off deals. Number two, we search for accretive acquisitions in high growth market. Number three, we avoid submarkets that have become overheated and sellers that create a bidding war competition. And number four, we stay true to acquiring properties that fit our business model. The properties we've purchased have upside at a minimum through lease-up and operating efficiencies. Our pipeline for potential acquisitions remain strong as we continue to track selected properties and follow cycles to strategically acquire high quality Community Centers in our target markets. Our track record solidly represents our ability to execute a plan and grow in enterprise profitably.

Over the last three years since our IPO, we have acquired $330 million in Community Center properties and several adjacent development land parcels all at discounted prices. Our capital structure is simple with only one class of common stock, no joint ventures or partnerships, and significant available credit with quality capital resources. Our investors and shareholders know precisely what their investment is in. Bottom line, we leverage our infrastructure, people, systems, and processes profitability with a well-managed balance sheet that is strong, which allows us to remain nimble and quick and take advantage of opportunities.

With that, I would like to turn things over to Dave Holeman, our Chief Financial Officer.

Thank you, Jim. I will start this morning by reviewing our key operating results for the first quarter, follow that with a review of our balance sheet and strong financial position, and then finish with a discussion regarding our 2014 financial guidance. Funds from operations core for the quarter was $7 million or $0.31 per share, which is an increase of 55% on an absolute dollar basis and over 19% on a per share basis over the prior year quarter. Total revenues for the quarter were $17.8 million, an increase of 27% or $3.7 million from the same period of 2013. For the quarter, our same-store revenues, which represent 80% of our total revenues, increased 3%. Leasing spreads were very healthy and very strong in the quarter on new and renewal leases signed with an increase of 12% on a GAAP basis and 4.4% on a cash basis.

Our internal leasing team signed 113 leases totaling 232,000 square feet in new, expansion, and renewal leases. This compares to 71 leases totaling 131,000 square feet in the first quarter of 2013. Our average lease size was 2,051 square feet (sic - see press release, "2,594 square feet") and the total lease value added during the quarter was $11.5 million, which is an increase of 62% from a year ago and 6.5% from the fourth quarter of 2013. Our total property net operating income for the quarter was $11.8 million, which is an increase of 31% or $2.8 million from a year ago. Same-store property NOI, which represents 78% of our total NOI, increased 3.2% from a year ago. Our interest expense for the quarter was $2.4 million at an average effective interest rate of 3.3%.

Approximately 70% of our debt is at fixed rate with a weighted average rate of 3.8% on the fixed rate debt and a weighted average term of approximately six years. As Jim mentioned, we continue to see the effects of gaining scale from a larger base of assets. Our total employee headcount increased 10% or seven people over the last 12 months while our total revenues increased nearly 30%. As a percentage of revenue, G&A expenses excluding acquisition expenses and the amortization of share-based compensation decreased by approximately 1% from a year ago. We remain focused in our cost savings efforts and continue to expect our G&A costs as a percent of revenue to continue to decrease as we grow over time.

We believe that compensation is performance based and encourages significant ownership by management is the best way to align our team with our shareholders. Included in G&A expense for the quarter was approximately $400,000 of expense for the amortization of non-cash performance based stock compensation. We expect the expense related to the amortization of non-cash performance based stock compensation to be approximately $4.1 million for the full year of 2014. Depreciation and amortization increased $835,000 or 27% for the three months ended March 31, 2014 as compared to the same period in 2013. Depreciation on improvement to same-store properties was $216,000 for the quarter and the rest of the increase came from the acquisition of new properties.

Now, let me touch on some of our key operating measures. As Jim mentioned, our total occupancy rate was 85.8% at the end of the first quarter. I will remind you that our total occupancy represents physical occupancy and does not include tenants which are under lease which have not yet moved into our properties. Our tenant base consists of 1,225 tenants and our unique leasing strategy continues to be effective producing year-over-year increases in occupancy and positive rental rate spreads. We have a diverse tenant base with our largest tenant compromising only 1.9% of our annualized rental revenues. As I previously mentioned, our leasing spreads for the quarter rose 12% on a GAAP basis, demonstrating the effectiveness of this unique operating model.

The lease terms for our properties range from less than one year for smaller tenants to over 15 years for our larger tenants. Our leases generally include minimum monthly lease payments and tenant reimbursements for payment of taxes, insurance, and maintenance. Now, let me turn to our balance sheet. As of the end of the quarter, we had $265 million of real estate debt with a consolidated debt to EBITDA ratio of 7.45 times. Real estate debt as a percentage of our total market cap was 45% and our EBITDA to interest expense ratio was a very healthy 4.1 times. We have 41 properties or 68% of our total properties, which are unencumbered by mortgage debt as of the end of the quarter. Those properties have an undepreciated cost basis of $359 million.

The total undepreciated value of our real estate assets was $548 million and $436 million as of March 31, 2014 and 2013 respectively. Approximately 70% or $180 million of our debt was subject to fixed interest rates. And our weighted average interest rate on all of our fixed rate debt was 3.8% as of the end of the quarter. We have capital available for growth with approximately $100 million available from cash and our corporate level credit facility. Finally, let me provide an update on our 2014 earnings guidance. We are reiterating the guidance we announced in February of this year. We expect FFO core to range from $1.09 to $1.18 per share and full-year FFO to range from $0.88 to $0.97 per share. We expect full-year EPS to range from $0.22 to $0.30 per share.

The range of our earnings guidance assumes acquisitions of $40 million to $60 million for the year and dispositions and development of $10 million to $20 million each. While we have not closed on any acquisitions in 2014, we remain confident of our ability to acquire accretive properties in this volume range. Acquisition and development volumes reflect the amount we expect to fund from debt and proceeds from asset dispositions. Our FFO core guidance includes approximately $0.03 to $0.05 per share from 2014 acquisitions, same-store NOI growth of 4% to 7%, and same-store ending occupancy in the range of 87% to 89%. We will continue to provide guidance updates in our future quarterly earnings releases and calls.

With that, let me turn the call back to Jim.

Thank you, Dave. I would like to close with a short summary. We initiated a five-year strategic plan in 2009, which we completed last year. That plan has served us well and this year we established a plan for the next five years. We understand market cycles, economic trends, and how to navigate them very well; which leads us to remain optimistic in our plans to grow the Company accretively. We have internal growth opportunities to harvest in the form of leasing, rental rates, and occupancy increases, and selected redevelopments; and we have external opportunities within our acquisition pipeline.

From a capital perspective, we are focused on utilizing select asset sales of our slower growth legacy properties, debt refinancing, and our corporate credit facility to support additional growth. Our focus remains on acquiring properties in underserved communities in our target markets including Asian and Hispanic communities. Our team remains committed to extracting value and driving total return to all of our shareholders. The properties we have purchased give us control of significant portions of the real estate supply chain and many of our key markets will accomplish this goal. In closing, we believe that our experience and drive to make Whitestone truly a great and profitable Company and an industry leader will be recognized over time.

With that, I would like to thank you all for your time. And operator, I'd like to turn it over to you for questions. Thank you.

(Operator Instructions) Mitch Germain, JMP Securities.

Jim, maybe just some details on the acquisition landscape. I mean obviously you've already kind of laid out that you're anticipating deal flow to decline, but just kind of curious, I mean it seems like you're getting a little more competition. Are you still seeing those distressed deals? Whatever commentary would be appreciated.

We are seeing distressed deals that are smaller. What we're seeing, Mitch, is that the sellers are getting a bit hubris. For example, we got a deal that was a private offering to us at $46 million and it had 16 acres adjacent to it, it was about 150,000 square foot deal. We came back, we knew the market really well; it was less than that. We offered $46 million, but we wanted to control the real estate next to it so we offered them $9 million for the 16 acres; but it was an auction, which give us control of. The seller came back and said we now have competition, $48 million we'll take it and we said we're not going to bid against ourselves. They came back and said okay, we'll sell it to you for $48 million, we don't want you to commit to the $9 million, we will give you a year to think it out.

When you see that kind of attitude in the selling side, particularly on raw land, it takes three years to take a piece of dirt and get it really towards even generating some cash flow; that portion of the market is getting a little bit overheated. So what we do is, it hasn't sold yet, we just watch it. We've seen this before and we've had properties in our pipeline for two years and ended up picking them up at a significant discount. So we're seeing holes like that that are starting to creep in and we're just very cautious. But we do see deals, we're seeing smaller deals. By smaller, I mean in the $10 million to $40 million range and we don't see any problem at all in meeting our commitment in terms of our guidance for acquisitions this year.

You're seeing a lot more capital flows into secondary markets. I know you mentioned select asset sales. Why not step it up and take advantage of this investor that appears to be chasing yield?

When you say step it up, what do you mean?

Selling more.

Oh, selling more. We have several properties right now under letter of intent to sell and so that if they go to a contract, which we expect them to, then we will step that up. We are not seeing the price yields that we think that they could experience so we're watching that closely.

I think as we said too, Mitch, we're really disciplined in the acquisition and disposition process. We monitor all of our properties, we look at the future potential of value-add and so we do think it's a good opportunity to recycle some capital, but we're going to do that in a very disciplined manner. We also get a lot of scale benefits as we're in just a few select markets, we have our team there, we are able to manage a large amount of assets very efficiently. So we continually look at properties, at recycling capital, and we are going to continue to be very disciplined in that process.

Great. And last one from me. If I look at some of your prior presentations, it seems like the premium that you're getting from your smaller space tenants. I think you referenced that tune to be around 50% today, I think it was a little higher even looking 6, maybe 12 months ago. Has anything changed in the leasing environment? What would drive that decline in the leasing spread for the smaller tenants?

Nothing fundamentally has changed, Mitch. If we look at our actual rates on our small tenants, they've gone up. We're just seeing more of our re-tenanting as we add value to properties and breakdown spaces. We've moved some of maybe the lower rate big spaces out so it causes that premium to be different. But actually the per dollar amounts for our small tenant have increased, it's just the ratio from that to the rent we get on the bigger tenants has gone down a little bit. So I don't think we've seen anything fundamentally, but we've continued to manage the tenant mix and on some of our bigger tenants that had low rates, we've replaced them with smaller tenants that you don't have that premium gap ratio as much.

Great. Thanks, guys.

Jonathan Pong, Robert W. Baird.

I was just wondering if there was any kind of favorable seasonality you saw in Q1 results that may have skewed NOI or FFO to the upside. Just trying to get a better sense of how we should think about that run rate for the rest of the year and reconciling that with full-year guidance, I've seen some kind of slowdown to that FFO despite what looks like an expectation has accelerated same property NOI growth?

Jonathan, what you're seeing is we've been able to start building our critical mass so we really focused on taking some of the properties that we've been buying over the last couple years since our IPO and it takes about 18 months to 24 months to prep them. I mean when you start from a vacancy in a property to where you find a tenant, you go through the whole process; the letter of intent, the contract; and then you actually do the TI work and move into that four-stage process, it takes some time. But what we're seeing now is that we've been building that momentum and that momentum is starting to take root today and that's what you're seeing. It's nothing to do with seasonality, just the timing of when we initiated our acquisitions. Dave, you want to add to that?

Let me just add just a little bit of that. I think Jim's exactly right in that we are seeing very positive momentum. We give annual guidance for a reason in that we'd like to give guidance for a little bit longer time period. There is some volatility we have quarter-to-quarter as you guys have seen, but we're very comfortable on the annual guidance we've given. As far as seasonality, there's not a lot; but there's a little bit in this business in that we have the majority of our tenants reimburse expenses, but not all. And so as our expense levels for instance on utilities in the hotter months of the summer happen, we don't have full reimbursement of those expenses. So we do see a little bit of seasonality, but we've given annual guidance we're very comfortable in and I think we also talked to some of the expenses around share-based compensation that will be different from a quarter-to-quarter basis.

Got it, alright. And then how do you guys think about the attractiveness of mom and pop tenants today? Specifically, are you seeing any further tick-up in the FDA loan appetite and maybe regardless of that, do you think you're at a point of the cycle where you could obtain credit rated or better capitalized regional or national tenants to fill up space that's historically gone towards the local entrepreneur?

What we found is that when you say better capitalized national tenants, we find they are really harder to deal with. Especially when you're buying properties that came out of foreclosure and distress where they have onerous terms in their leases and basically put some restrictions on the controls that you have in terms of owning your property. The larger tenants like to have approval rights on a substitute tenant, which they delay on because they're on a reduced lower level rent. We don't have any of those problems with over 70% of our tenants. If you think about the model that we have, it's almost like an apartment model on steroids because an apartment model goes year-to-year with a fixed monthly rent and then usually tenants who may or may not have credit will renew in a year. We have tenants who go three years and they're individuals, but if their business grows, we can move those folks next to them and expand their space. So, it's really not too much different from some of the core elements of an apartment model.

Just maybe let me add a couple of points to what Jim said. A couple of things we've seen that show us that our smaller service providing tenants are continuing to do well and we talked about the leasing spreads. If you look at our leasing spreads this quarter, obviously the majority of our tenant base are smaller service providing tenants. We saw a very healthy 12% increase on a GAAP basis in those tenants and then another factor we've seen are kind of our bad debt expense on tenants decreased a little bit this quarter as well. So, we are seeing indicators that those tenants are doing well. Maybe back to your previous question on seasonality, one other trend we tended to see is a little bit higher tenant attrition in the first quarter of the year than other quarters. We did some of that with our retenanting this quarter as far as improving the mix. We've also tended to see a little bit higher loss of tenants in the first quarter than we do in subsequent quarters.

I'd like to add one thing, which I stated in my remarks, Jonathan. And this is really something we've studied and we've learned that traditionally folks who we analyze and look at the real estate industry, in particular retail, think of the grocery anchors as driving the people for the properties with their marketing and advertising that helps support the smaller tenant. We have learned just the opposite. We've learned that if we take care of our properties and we really take care of the small tenants, they are bringing in traffic and in every one of our properties where we have a grocery anchor, they're reporting higher sales and they've done nothing different. We've painted our properties, we've put signage on, we put directional flows of traffic in it, we are bringing in the consumers with the cigar stores and the Starbucks and the cupcakes and the gelatos and all those places, and then by the way the people do their grocery shopping. So, it's kind of an interesting new direction that we're seeing that we didn't anticipate.

Great, that's very helpful. And then last question from me. Jim, on the downsizing initiative you spoke of in your prepared remarks, can you give us a sense maybe of the payback period on that capital deployment or how else do you think about the economics of that?

Of the -- I'm sorry.

Downsizing.

Downsizing of the tenants? Well, we only have I want to say one large space remaining and by downsizing that, by putting a demising wall in -- we're seeing tenants today going towards that 5,000 square feet to 10,000 square feet to 15,000 square feet that were normally going for the bigger, larger sizes before. Take for example AJ's, the grocery store at Arizona, it's their top end of the boxes line and we have two AJ's. They're about 20,000 square feet to 30,000 square feet. Your Trader Joe's in that same size range, Sprouts is in that same size range. So, we're seeing some of those tenants that can get into and out of markets more quickly so we're seeing the downsize to be more appealing to them and that helps us find more probable users than we do on the larger size.

I guess what's the payback period on the capital deployment associated with that downsizing in terms of the incremental rent that you can get on the residual space?

So we typically target mid-teens kind of returns on those efforts. Obviously, there's always some mix you look at. We look at the benefits of the center so we'll target mid-teen kind of return on capital deployed for those types of efforts.

Okay, great. Thanks a lot, guys. Appreciate it.

Merrill Ross, Wunderlich Securities.

Looking at your guidance and also looking at your portfolio specifics, looking at the new development dollars $10 million to $20 million and noting that they now appear in the bottom part of the roll forward where you do include the acquisitions and the dispositions. And I'm wondering if you didn't include that return on new development because it wouldn't be timed into this year or if we should maybe figure that's already included in the same-store growth or something?

First, let me make sure I understand your question. So we have assumed $10 million to $20 million of development this year, many of those activities are ongoing. There's a couple of properties that we're actively moving forward on, shops of Starwood in Dallas and Pinnacle in Scottsdale. In Scottsdale, there are two properties that we acquired adjacent land parcels when we bought the properties. They are properties that are near 100% leased and I think we've gotten demand for additional space. There's a couple properties we are expecting to have significant progress on this year. From a return perspective, they really won't contribute on a return basis this year so we expect to deploy $10 million to $20 million that will provide return in subsequent years to 2014. So the way we model that is really just from a cost of capital perspective, $10 million to $20 million of capital with a return coming in 2015 and beyond.

Great. Thank you.

(Operator Instructions) Carol Kemple, Hilliard Lyons.

If you had to quantify the acquisition pipeline, how large would it be at this point?

I would estimate that to be upwards of $450 million.

And do you have anything at this point that you expect to close in the second quarter?

We do.

Can you give any more details about that?

I'd like to, but we don't have it quite to that point yet.

I'll just point obviously you know our track record on acquisitions, Carol, and I think we did $130 million last year. We always have LOIs and negotiations on progress. We have several of those going just like we would at any time and so we are very confident in the volume we've given for the year and we are also confident in our ability to get those closed. So timing is always difficult to predict, but I think we've given annual guidance that we feel very good about.

Carol, I'd also like to say that we're beginning to see a lot of deals that are coming to us just because our ability to close and the nature of how we acquire properties. So, it's very positive.

And then I'm assuming there's been no change to the Board's thought on the dividend at this point?

The only thing I would tell you is obviously we have continued to talk about growing our cash flow, we've done that. We've had significant increases in our per share FFO core and cash flow and so we continue to feel very good about the cash flow levels supporting the dividend. I think Jim mentioned before, for this quarter our dividend to FFO core payout ratio was approximately 91%, which represents a significant improvement we've made over the last several years.

Okay, great. Thank you all.

Paul Adornato, BMO Capital Markets.

Just looking at the realized rent growth in this quarter. I was wondering if we look at the next (inaudible) sustainable in the leasing activity?

Hey Paul, you're breaking up. It's hard to understand your question little bit.

Can hear me now? The question was regarding the rent growth. Is the rent growth that you achieved in the first quarter sustainable throughout the year?

I think I heard the call. Let me repeat it to make sure. I think you said is the rent growth we had in the first quarter sustainable throughout the year. I think I would, and Jim can comment as well. I do think we have had very nice rent increases over the last two quarters. I think it's prudent to look at a little longer time period as well. We're very pleased in what we're seeing in our markets and the growth we're getting and we are very confident I think and we gave the same-store NOI growth in the 4% to 7% range. So I'm not sure I would just take one quarter and assume they would continue, but we've seen two quarters of nice growth. We are very focused in all of our markets on not just driving occupancy, but also driving revenue and making sure that we maximize the value in the property to that quality mix of occupancy and rate with a lot of focus on driving rate in our centers.

Okay, great. Let me ask just one more question if I could. And that is what are the cap rate assumptions in your guidance in terms of the acquisitions and dispositions?

As far as the guidance and the cap rates we've assumed in our guidance, typically if you look at the properties we bought over the last three years, consistently we've bought properties that have been probably around the 8% kind of cash-on-cash returns going in with some level of vacancy. In our guidance this year, we've assumed about 7% to 8% going in cash-on-cash and approximately 10% to 15% of vacancy in the acquisitions.

And on dispositions?

The dispositions, we've assumed I believe $10 million to $20 million in dispositions. From a timing perspective, we've assumed that that would be mid to late year and then we've assumed that that capital is deployed into the acquisition, it becomes a capital source. I think typically on the disposition side, we're looking at dispositions probably in the 7% to 9% cap rate range.

Okay, great. Thanks very much.

John Masaka, Ladenburg Thalmann.

Actually Dan Donlan here with John. Dave, just wanted to talk about the G&A here. What are you expecting in total? I think last year if you strip out non-cash stock comp and acquisitions, you did at about $7.6 million in cash comp. It seems like your guidance would imply that that's going to move up maybe a couple million. Could you maybe give us some clarity on that?

So included in our G&A obviously is some transaction costs, our acquisition expenses included in there, and then there's also the non-cash amortization of stock comp. This quarter our G&A was approximately $3 million and there was about $400,000 of stock comp and $150,000 of acquisition expenses so that run rate I think would be would be fairly consistent. From a personnel standpoint, we'll add people minimally as we add properties that our infrastructure scales very well. So if you look at the current quarter and you take out about $370,000 in stock comp and $150,000 in acquisition expenses, that's probably about the current G&A run rate.

Okay. Perfect, understood. And then just going back to Jonathan's question on the same-store or actually not the same-store, but just kind of the drop in operating expenses. You acquired $61 million of properties in the fourth quarter, your property operating expenses came down by about $0.5 million. So was there something one-time-ish in that? Do you expect that to move back to the $4 million range? Given that you acquired as many assets as you did in the back half of last year, I would suspect that that would move back upwards or is there something from a lease perspective that's changing that?

I'll add a couple of things. I think I do believe as we get more scale, we're able to manage our cost infrastructure better, we're able to leverage some of the sale and get better pricing. If you look at just the same-store expense growth, it was about 1% year-over-year and we've seen a little bit of improvement in our bad debt expense. We've also seen some improvement in just our labor costs where it can mean that we're able to leverage our maintenance guys over more properties, our property managers over more properties. There is some timing of just repairs and maintenance you make in the property and the first quarter tends to be a little lighter than other quarters. So from a repairs and maintenance standpoint, they'll probably be a little heavier in future quarters than you would see in the first quarter. But really just a combination of managing our costs, a little bit of seasonality on the repair side, and then obviously things like utilities; it's hot in Phoenix and Houston in the summer so those tend to be up a little higher in the summer months.

Okay, understood. And as far as the amount of debt on your credit facility, what are your plans for terming that out? Kind of how high are you comfortable keeping that relative to the overall capacity that you have?

A good question. So we have a $175 million unsecured credit facility that's led by Wells Fargo, Bank of America, US Bank, and Bank of Montreal. That facility is $175 million and it has an accordion option to go to $225 million. We feel very confident in our ability to exercise that accordion option if we wanted to. Currently we have $134 million drawn, of which $50 million has been termed out so we have about $80 million that is floating and really all of our variable rate debt is the $80 million floating on the line. We'll do a little bit more financing this year pulling two or three assets out of the line and putting secured financing on those.

The rates that you saw from last year are very good. I think we did $100 million of refinancing last year right at 4% with an average term of a little over eight years. So we think from a credit facility, we've got a lot of room to take some properties out of there, free up a little more room and then do the acquisition volume we've talked about. We did term out. We termed out $50 million of it so we have $80 million that floats. We'll continue to look if it makes sense to term out a little bit more, but we like to keep our fixed rate in that 70% to 80% of our total debt.

Okay, thanks. That's it from me.

And at this time, there are no further questions.

Well, operator, thank you very much and thank you all for attending our conference call. We sure appreciate it. And if you do have questions later on, feel free to call either Dave Holeman or myself. This is Jim Mastandrea and thank you and good day.

And with that ladies and gentleman, that does conclude today's presentation. We do thank everyone for your participation.