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Retail Properties of America (NYSE:RPAI)

Q4 2012 Earnings Call

February 20, 2013 11:00 am ET

Executives

Sarah Byrnes

Steven P. Grimes - Chief Executive Officer, President, Director and Member of Investment Committee

Angela M. Aman - Chief Financial Officer, Executive Vice President and Treasurer

Shane C. Garrison - Chief Investment Officer, Chief Operating Officer and Executive Vice President

Analysts

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Quentin Velleley - Citigroup Inc, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Operator

Greetings, and welcome to the Retail Properties of America Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sarah Byrnes, Vice President of Investor Relations. Thank you, Ms. Byrnes, you may begin.

Sarah Byrnes

Thank you, operator, and welcome to Retail Properties of America fourth quarter 2012 earnings conference call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section of our website at www.rpai.com.

On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under Federal Securities laws. These statements are usually identified by the use of words such as anticipates, believes, estimates, expects, intends, may, plans, projects, seeks, should, will, and variations of such words or similar expressions. Actual results may differ materially from those described in any forward-looking statements, including in our guidance for 2013, and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, those set forth in our earnings release issued last night and the risk factors set forth in our most recent 10-K, 10-Q, and other SEC filings.

As a reminder, forward-looking statements represent management's estimates as of today, February 20, 2013, and we assume no obligation to update publicly any forward-looking statement, whether as a result of new information, future events or otherwise. Additionally, on this conference call, we may refer to certain non-GAAP financial measures such as same-store results, EBITDA, FFO, operating FFO, and combined-net-debt-to-combined-adjusted-EBITDA ratio. You can find the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures in our quarterly supplemental package and our earnings release, which are available in the Investor Relations section of our website at www.rpai.com.

On today's call, our speakers will be Steve Grimes, President and Chief Executive Officer; Angela Aman, Executive Vice President, Chief Financial Officer and Treasurer; and Shane Garrison, Executive Vice President, Chief Operating Officer and Chief Investment Officer. After their prepared remarks, we will open up the call to your questions.

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

Steven P. Grimes

Thanks, Sarah, and good morning. And thank you all for joining us today. I'm extremely pleased to be reporting yet another quarter of strong operational, financial and strategic performance. I think it is safe to say that our team fired on all cylinders this year, posting operational and financial results in excess of guidance, achieving our substantial full-year disposition goal while significantly reducing our exposure to non-core asset, and meeting our near-term leverage and unencumbered asset goal.

It is worth noting that all of this happened in a year in which we also completed our IPO, moved our corporate headquarters and migrated our IT, HR and other administrative platforms. I couldn't be any more pleased with our ability to execute in 2012 and believe that, that momentum we generated this year will carry over into 2013 and beyond.

Our primary objectives for 2013 will sound familiar to many of you. First, we will continue to lease up our portfolio and generate strong, internal growth. Second, we will continue the migration of our balance sheet to investment grade. And third, as we discussed in our last call and detailed in our press release last night, we will continue to be disciplined net seller in 2013, refocusing the portfolio on high-quality, multi-tenant retail assets in strategic markets for RPAI.

As a substantial progress made to date on the balance sheet provides us with greatly enhanced financial flexibility, you will see us begin to recycle a portion of capital raised from dispositions into acquisitions. We are now well-positioned for growth, and as a result, we feel it is important to articulate to you how we will think about acquisitions going forward. We will evaluate opportunities in both power centers and grocery-anchored centers, and will be primarily focused on appropriately underwriting risk-adjusted returns, based on our thorough understanding of the individual trade area trends and dynamics. We will seek to buy assets in markets that we have strong long-term retail demand attribute and where we can realistically build critical mass. Every acquisition that we complete from here on out needs to be strategic and needs to make sense based on our cost of capital.

We own 33 million square feet of retail GLA. We are big enough to support the robust operational platform that we have created, and we are big enough to be relevant to our retail partners on a national basis. We will now be pursuing growth for growth's stake. It will be measured, strategic and economically compelling.

Despite being a relatively new publicly traded company, our team has deep and well-established relationships in the retail real estate community and also within our core target market, which we believe will prove invaluable as we ramp up our acquisition program. Furthermore, the in-house development capability that we have built up over the last several years will allow us to evaluate a broader range of potential opportunities.

During 2013, we will look forward to demonstrating to you, our investors, the high-quality nature of this portfolio. For example, 37 of our multi-tenant retail centers are anchored or shadow anchored by Target, which we believe, given the overall quality of our anchor and synergy of our softest retailers, we believe we have a greater ability to push inline occupancy and ramp at those centers.

Our grocery sales productivity is very strong at approximately $500 a square foot, and our lifestyle portfolio boasts some of our largest and most compelling assets. Southlake Town Square in Southlake, Texas is our largest asset representing over $18 million of annual NOI, with sales productivity of almost $600 a square foot, at a 9% occupancy cost ratio and 2012 NOI growth of 8%. Likewise, the Shops at Legacy in Plano, Texas, which is our fourth largest asset, generates over $7 million of annual NOI, with sales productivity of almost $500 a square foot at 9% occupancy cost ratio and 2012 NOI growth of nearly 13%.

We believe our power center portfolio, our grocery anchored portfolio and our lifestyle portfolio compare very favorably to our peers in those categories, and while it's easy to lose sight of these outstanding qualitative metrics given the size and diversification of our portfolio, we believe strongly in our assets and the ability of our team to create value for our shareholders going forward.

With that, I would like to turn the call over to Angela Aman, our Chief Financial Officer, to discuss our results for the quarter and guidance for 2013.

Angela M. Aman

Thank you, Steve, and good morning. Operating FFO was $0.22 per share for the fourth quarter or $0.92 for the full year, which was ahead of expectations as a result of higher same-store NOI growth as well as lower-than-expected G&A. Including nonoperating items, FFO was $0.26 per share for the fourth quarter, or $1.07 for the full year. The only nonoperating items this quarter were related to gains on the sales of marketable securities and the write off of loan fees associated with the early extinguishment of debt. In addition to our disposition activity during 2012, we also successfully completed the liquidation of marketable securities portfolio, generating an additional $35 million in proceeds during the year, which were used to reduce leverage. Same-store NOI growth was 60 basis points in the fourth quarter, or 1.7% for the full year, with same-store occupancy growth of 90 basis points.

Our re-merchandising effort and a handful of higher ABR properties continue to offset positive overall fundamental trends, including significant occupancy growth and positive re-leasing spread. Relative to our early earlier expectations, same-store NOI outperformed, due to higher percentage rent and specialty income from our larger lifestyle centers, lower bad debt expense and higher termination fee income.

Our previous full-year G&A guidance of $30 million had implied a significant ramp in the fourth quarter as a result of our office move, IT migration and higher legal expenses. We are pleased that we are able to accomplish so much in the fourth quarter, while maintaining a critical eye on expenses which came in at just under $27 million for the full year.

From a capital market perspective, we took several significant steps during the quarter to improve our risk profile and further our goal of becoming an investment-grade borrower. Most notably, on December 12, we announced the pricing of our non-preferred equity offering which generated $130 million in net proceeds at a rate of 7%. Proceeds from the preferred offering were used to prepay the company's $125 million of mezzanine debt on February 1. This transaction will allow us to save nearly 600 basis points in recurring annual interest expense through 2019, the state of maturity date of the mezzanine loans, and we are pleased with the additional simplification and improved efficiency of our balance sheet.

Debt maturities over the next 2 years are very manageable with $236 million maturing in 2013 and $189 million maturing in 2014 with a weighted average interest rate of 6.3%. Our combined-net-debt-to-combined-adjusted-EBITDA ratio ended the year at 6.6x, down 1.6 turns from 8.2x at year-end 2011. Including preferred equity, we ended the year at 7x. Since our IPO in April, we have consistently guided to a long-term leverage level from 6 to 7x, including preferred equity, with the expectation that we will be at the high end of this range by the end of 2012, a goal we are pleased to announce we fully met. Additional progress on the balance sheet will come from both the 2013 disposition plan, as well as from the additional lease up and stabilization of the portfolio. As we begin to deploy capital and do strategic acquisitions, we will maintain our disciplined approach to balance sheet management, and we will be opportunistic about capital raising and allocation.

Turning to guidance. Last night we initiated 2013 operating FFO guidance with a range of $0.88 to $0.92 per share, based on same-store NOI growth of 2% to 2.5% which would be weighted to the second half of the year. While 2013 same-store NOI guide does represent an acceleration from 2012, it is worth noting that the re-merchandising efforts previously discussed are detracting approximately 50 to 75 basis points from 2013 growth.

Disposition activity is expected to total $400 million to $450 million, and acquisitions are expected to total $100 million to $200 million. The expected blended cap rate on dispositions is in the mid-7% range. While it's fair to assume that dispositions occur radically throughout the year, we assume that acquisition activity will be concentrated in the second half of 2013.

Finally, we expect G&A to total $30 million to $32 million, reflecting higher legal expenses, as well as estimated acquisition costs. The only nonoperating adjustments in our operating FFO guidance relate to prepayment penalties and the write off of loan fees associated with the early extinguishment of debt, totaling $12.7 million for the full year.

And with that, I will turn the call over to Shane.

Shane C. Garrison

Thank you, Angela. I'd like to review our operating and leasing performance for the fourth quarter and provide some additional details on our disposition program for 2013. We are extremely pleased with our leasing efforts over the last 12 months. Transaction velocity continue to be very strong in the fourth quarter, with over 1 million square feet of total retail leasing activity, resulting in volume for the year of approximately 3.6 million square feet. Comparable cash leasing spreads were up 5.5% in the fourth quarter on a blended basis, and up 4.5% for the full year, ahead of our previous expectations. While new lease spreads were down 5% in the fourth quarter, driven by one anchor lease, the fundamental trend remain positive. Excluding this lease, comparable new leasing spreads would have been up 3.5% in the quarter, based on 23 leases totaling 71,000 square feet.

Comparable cash leasing spreads on renewal leases were up 7.7% and reflect a continued positive momentum in favor of Class A landlords as a result of the extremely limited new supply picture, which bodes well for RPAI in 2013 and beyond. As a result of our continued leasing successes, we ended the year with a lease rate just under 93%, up 170 basis points year-over-year, and economic occupancy of 90.5%, up 140 basis points year-over-year, due to positive net absorption and the disposition of several nonstrategic and non-core assets. We expect an improvement of approximately 150 to 200 basis points in total portfolio occupancy by year end 2013.

Our leasing pipeline remains robust with strong demand from both big-box and in-line retailers. We ended 2012 with an anchor leased rate of 96.2%, which includes approximately 230 basis points of leases that will come online during the course of 2013. As these anchors take occupancy, demand for in-line space will naturally follow, and we are seeing signs of growing traction in that area.

As we have discussed on previous calls, our occupancy growth didn't translate into corresponding growth in same-store NOI in 2012 as a disproportionate share of the occupancy gain came from the lease up of anchor space. Over the coming quarters, as our occupancy gain becomes weighted increasingly towards in-line space, the mix issue we have discussed on previous calls should begin to work in our favor. While occupancy growth has continued to be the core focus of our asset management effort over the last several years, we have remained very mindful about competitively merchandising our centers. We have been committed to finding the right tenant for each space, the one that will have solidify the asset's positioning in the market, help us to drive rent growth at the center and maximize the valuation of the asset. In addition, we have also been working diligently to minimize exposure to troubled tenants or categories before they become an issue, a practice that will help us to minimize volatility in times of retailer disruption.

We believe that as a result of our proactive approach to such tenants, we will successfully address between 3 and 6 additional anchor boxes this year. Although these actions can result in additional downtime today, we believe that addressing problems before they occur is in the best interest of our shareholders over the longer term. From an investment standpoint, we sold $258 million of office and nonstrategic retail assets in the fourth quarter or $492 million for the full year, in line with our previous guidance of $450 million to $550 million.

A successful execution of these transactions reduced our exposure to non-retail assets from 9.6% to 5.5% year-over-year, and reduced our single-tenant retail exposure from 8.7% to 6.6% of total ABR. Our largest sale in 2012 which occurred in the fourth quarter, was the sale of the Aon Hewitt West Campus for $148 million. Using a proactive approach to asset management, our team created value by extending the lease term, enhancing the credit profile of the tenant and promptly marketing the asset for sale. In order to maximize value for our shareholders, it often makes sense to be patient and fix the asset before disposition, and we believe the positive outcome of this transaction validates our approach. As Angela mentioned, we expect total dispositions in 2013 of $400 million to $450 million, based on our current expectations approximately half of the 2013 pool will be single-tenant assets, either office or retail, with the remaining half comprised of multi-tenant retail assets that we view as nonstrategic.

While Steve discussed the basic parameters of what we are looking to buy in his prepared remarks, it is worth taking a few moments to also discuss what we intend to sell from a multi-tenant retail perspective. The 2013 plan includes lower long-term growth assets primarily in the Midwest or tertiary markets in the Northeast and Southeast. Longer term, you should expect to see us significantly reduce exposure in the Midwest, but also in markets that we believe have significant structural hurdles.

For example, the sale of the Mervyns portfolio, once complete, will have substantially reduced our California exposure. Our lack of scale in this state, as well as California's fiscal and structural challenges which continue to make it a difficult environment for landlords and retailers, makes it likely that we will choose to exit the market over the next several years in favor of better risk-adjusted returns elsewhere.

As we look to acquire assets, a key consideration will be our ability to reach critical mass in any given market. We firmly believe that the best way to create real, sustainable operating leverage in the shopping center industry is through economies of scale in the individual markets. As many of you know, Dallas is our largest market with over 14% of our ABR, not only just Dallas represent a great cross-section of the RPAI portfolio, with strong power, grocery anchored and lifestyle centers, it is also a perfect example of the kind of operational efficiencies we believe are possible as a result of local market scale.

With that, I would like to turn the call over to Steve for his closing remarks.

Steven P. Grimes

Thank you, Angela and Shane, for your reports and unwavering efforts over the last year. I wish to take this time to thank our employees and our directors for a tremendous year of success and critical decision-making. And to our investors, I wish to thank you all for your patience and belief in our company and management team, and seeing the value in this great portfolio of assets. With that, I'd like to turn the call over to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Todd Thomas from KeyBanc Capital Markets.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

First question. Looked like the small shop occupancy was roughly flat sequentially, some small improvements, I guess, in the occupancy and the lease rate for 0 to 5,000 square foot spaces. All the other categories seem to see much greater increases. Are you starting to see any increase in demand for those smaller spaces in your portfolio? And what's the strategy to increase leasing velocity here?

Shane C. Garrison

Todd, this is Shane. Now that our anchored occupancy is north of 96%, it's certainly a much more compelling asset discussion when you're talking to prospective tenants and showing space to the smaller shop users. When our -- last year, our average leasing pipeline deal was approximately 8,000 square feet at this time. And right now we're running about 6,000 square feet. So we've clearly focused on the right space, the big space first, and now that we've got the lights onto those bigger space, I think we're going to see much more compelling traction in that space this year.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And then looking at some of the leasing spreads, so you mentioned that the one anchor lease led to the decline in new leasing spreads in the quarter. And I know it's also a relatively small sample, but what should we think about for 2013 leasing spreads, any thoughts or visibility at this point?

Shane C. Garrison

Yes. I think, we're comfortable with low-single digit, somewhere around where we ran this year, which is that 4.5% range.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And then a question, Steve, you commented on the company's in-house development platform in your prepared remarks. I was just wondering, are you thinking about new ground-up development projects or are there development and redevelopment opportunities in the portfolio today? Is there anything on tap for this year or is it really further out? Maybe you can just kind of provide a little more color on that.

Steven P. Grimes

Yes. I would say that ground-up is pretty much a no for 2013. We spent a good portion of 2012 assessing redevelopment opportunities within the portfolio, and we've come up with a number of opportunities with that in mind. As we had mentioned in our last call, we had hired Dan Flattery, who has now come on board to assess us or to work with us in that particular area of opportunity for us, and we expect to see some activity on the redevelopment front towards the later end of this year.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

What kind of return thresholds do you have for redevelopment projects?

Shane C. Garrison

Yes. Todd, this is Shane. I mean, it's going to be, depending on the asset, it's going to be a 9 plus, probably, return on costs. But that being said, I think it's fair to frame what we consider redevelopment. We consider redevelopment to be a situation where we need to tear down a significant portion of the center and some form of re-anchoring in that process. What we don't consider redevelopment is backfilling or redemising pad leasing or build to suit on pads. On the back of what Steve said, we do have very limited redevelopment opportunities. We are currently looking at a few assets, but it's not going to be anything of significance on an annual run rate.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. That's helpful. And then just last question for Angela. You mentioned the $0.06 per share, the $12.7 million write off of loan fees and the prepayment penalties. Is that all hitting in the first quarter? Or is there some of that, that's going to hit later on in the year?

Angela M. Aman

No. There will be some in the third quarter. The large quarters will be the first quarter and the third quarter. A little over $7 million of that will hit in the first quarter.

Todd M. Thomas - KeyBanc Capital Markets Inc., Research Division

Okay. And the balance of it will be in the third quarter?

Angela M. Aman

Yes.

Operator

Our next question comes from the line of Quentin Velleley with Citigroup.

Quentin Velleley - Citigroup Inc, Research Division

Just in terms of the small-shop leasing, are there any examples of where an uptick in having market activity is starting to improve the leasing outlook?

Shane C. Garrison

Yes. It's a good question, Quentin. I think we're just starting to see that activity pick up in some of the secondary markets. I mean, Texas has clearly been the most prolific, at least on the drives we've taken recently. I think it's a little early to expect the true economic pickup in regards to employment, but I do think that there's a general sense of overall economic well-being, and consumer confidence seems to be riding on the back of that. So that's certainly part of what we consider a better environment when we look at that small-shop this year.

Quentin Velleley - Citigroup Inc, Research Division

Right. But I guess at the moment, most of the in-line or small-shop leasing you're expecting to see this year is going to come from re-tenanting -- or sorry, improving occupancy in the larger boxes, right?

Shane C. Garrison

Correct. Correct.

Quentin Velleley - Citigroup Inc, Research Division

And then just in terms of some of the re-tenanting, I think you said you had 3 to 6 boxes that you're working on this year. Is that mostly office supply companies or tenants? Or are there other categories in there that we should think about?

Shane C. Garrison

Yes. I think, we continue to look at the watch list, it's in the pocket when we have our portfolio re-discussions with different tenants. And there's other categories, I think, the book space is clearly -- given the relatively high quality of that real estate, I think that's always a consideration and that's certainly part of the discussion this year. It's worth noting that 3 to 6 [ph] is certainly part of our guidance and that's our expectation. But definitely, there's going to be other movement outside of just the office users.

Quentin Velleley - Citigroup Inc, Research Division

Okay. And then just lastly, just an update on the Gateway in Utah.

Shane C. Garrison

Yes. Gateway is -- continues to be a, admittedly, a point of frustration internally. I know it's 82% or so, it's probably 50 bps of drag this year from a same-store perspective. We don't anticipate a big uptick this year. We think this is definitely a longer term, 24-plus transition. And part of it, obviously, is City Creek, we've had some developments in the North as well. But quite honestly, I think the merits of the real estate are still there. What is frustrating, I think, from both a tenant and a landlord perspective is that it's just not an asset that you can easily put in the box, right? You've got some lifestyle tenants, you've got some entertainment, and when you talk to some discount users or other tenants that would typically want to go into the market, it's a long design-phase discussion, it's a frontage discussion, and it's just trying to get the tenant to believe that they can harmonize with the existing tenant base. I think that's some of the frustration today.

Operator

[Operator Instructions] Our next question comes from the line of Vincent Chao with Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

I just want to go back to sort of sources and uses, seems like you're projecting about $275 million of net dispositions at the midpoint. That would basically cover your expiries for debt maturity this year, but it also sounds like you're paying some additional debt down in third quarter. Just wondering if you could just talk about sort of what the excess proceeds are going to go towards and how much of the $236 million that's maturing will be refinanced versus paid down? And maybe some color on what you expect to pay down in the third quarter.

Angela M. Aman

Sure. I think if you look at the debt maturity schedule, the $236 million you referenced, the one caveat I would make is that, that does not include the $125 million of mezzanine debt, which was a 2019 maturity. So when you look at the 12/31 balance sheet, obviously we had executed on the preferred equity offering in December. So the line balance is lower as a result of that, but that was redrawn to take out the mezz. So there was an additional use in February. So that is part of what I think helps tell the full story about where the net proceeds from the dispositions are going. In terms of the disposition pool for this year, we do have about $40 million to $50 million of debt on that pool that will be paid off, and we'll continue to decrease the net proceeds there by a little bit. That's at a low 6% interest rate. In addition, part of what the third quarter operating FFO adjustments relate to is about $35 million of bad debt associated with some of the assets we expect to sell.

Vincent Chao - Deutsche Bank AG, Research Division

Sorry, the prepayments in the third quarter are tied to disposition expectations, is that what you said?

Angela M. Aman

That's right.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. Okay. But -- So that's on the order of $40 million to $50 million, but really the delta, I guess, is the mezz debt, I guess, you paid. Okay. I guess I was just thinking if the preferred takes that out already. So, okay that's fine.

Angela M. Aman

Yes. It's just that the line balance is lower. So we're running at...

Vincent Chao - Deutsche Bank AG, Research Division

Yes. You can take the -- yes, I got you. Okay. That's fair. And I guess on the dispositions, I guess, can you talk a little bit about sort of the decision process. I think we talked about last time, in terms of selling earlier or waiting to lease up properties. I mean, I guess given where the markets are at today in the areas that you're trying to exit or settle down in, is that decision -- is it more of a just sell-it-first kind of a market just given where pricing trends have gone?

Shane C. Garrison

Yes. Looking at the dispo pool, today, I think it's worth mentioning that on an -- from an occupancy standpoint, it's basically neutral. Right? Relatively close to where we are economically. So there's no real pick up there. And so the assets are generally stable, we're selling probably as we've talked earlier, half of that is single tenant, I think. Given it's a -- what we think is a frothy single-tenant market, we're happy to sell into it, and I think it's a great time to do that. The other multi-tenant retail, nonstrategic, largely for geographic, but certainly in that bucket as well just because it no longer meets our growth profile. That's fairly disparate in geography. So it's either a geographic issue or a lack of growth issue as we continue to focus on economies of scale in certain markets.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. And just a clarification on the occupancy guidance of plus 150 to 200, is that economic or lease rate that you were talking about?

Angela M. Aman

That's economic.

Vincent Chao - Deutsche Bank AG, Research Division

Economic. Okay. And then just a last question, just in terms of the sale of multi-tenant properties. I mean, given the problems that you're having at Gateway or the frustrations that you're experiencing there, I mean, it does sound like you still believe in the real estate. But Utah is not exactly a big market for you guys, is there a trigger point that at some point, you'd say, maybe it's time to sell that asset?

Shane C. Garrison

Yes. I think that's a great question. And that's an ongoing discussion internally. Given that we think we can stabilize it, regardless of if it's a hold or not, longer term, we're going to take that shot. But as it evolves, that's certainly on the table.

Operator

Our next question comes from the line of Mike Mueller with JPMorgan.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

In terms of the same-store pools, wondering if you could just mention, and I apologize if I missed this, what the sequential occupancy increase was? I guess when you eliminate the impact of stuff going in and out of the portfolio.

Angela M. Aman

Sure, it was 60 basis points.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. Plus 60. And then of the 150 to 200 2013 guidance increase, so that's -- if we're looking at the pro rata portfolio, it's -- I think the occupancy was 90%, and that's the basis you're talking about, the 150 to 200 off of that, is that correct?

Angela M. Aman

Really, the 90.6% if you're looking at the pro rata.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. 90.6%.

Angela M. Aman

The 90.5% consolidated.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. And all of that increase, that's expected to be from leasing, so that's more of a same-store number as opposed to just being influenced by mix. Is that right?

Angela M. Aman

Yes. Yes. The impact of dispositions is very muted on either occupancy or same-store in 2013, just as a result of the pool. I would say that's probably about 20 basis points related to the dispositions and the rest is net absorption.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Got it. Okay. And then last question. Once you get past the $400 million, $450 million of dispositions this year, I mean, what's left that you see yourself selling over the next couple of years, like kind of how big is that pool?

Shane C. Garrison

Yes. It's a great question. And one that continues to evolve, Mike, is we focus on economies of scale. You know, 12% or so of the remaining portfolio today is that single-tenant, other retail or 2 non-core, office and industrial. And then the remainder, we will evolve -- we look at -- we mentioned economies of scale, and that's certainly a benefit and valid consideration when we look at Dallas. We see cost savings, benefit, Dallas specifically, probably 30%. We've got 23 assets in the 29-mile ring there, north of 4 million feet. So you get some G&A benefit there. But that's one consideration. The bigger consideration for us is really the asset mix and the scale. We think that real estate continues to be a local business and they generate consistent returns as well as value creation. We feel we need to be in the selected markets with the assets daily. And that's really what this discussion is based on and about today.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. So net seller this year, I mean if we're moving out to '14, do you still think, given those comments, that you're still a net seller over the next year or 2?

Angela M. Aman

I think that we've accomplished or we will have accomplished everything we intend to, from a balance sheet perspective as a result of the '13 disposition plan. I think you should look forward to 2014 and beyond, you should expect to see us, at worse, net neutral, but very possibly a non-acquirer.

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Okay. And last question, where do you think the fixed charge coverage ends up after the end of '13?

Angela M. Aman

I think that will be hovering around to 2x, the mezz is obviously helpful, but as a result of the net selling disposition activity this year, you've got some additional headwind there. So I think it will be around 2x.

Operator

There are no further questions at this time. I would like to turn the floor back over to Steven Grimes for closing comments.

Steven P. Grimes

Well, thank you all again for your time today. We do feel very, very good about what we accomplished last year. We feel very good about our prospects for 2013, and look forward to talking with you all in Q1 results.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Take you for your participation.

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