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Executives

Dawn Benchelt - Investor Relations Director

Mark Zalatoris - President & CEO

Brett Brown - EVP & CFO

Scott Carr - EVP & Chief Investment Officer

Analysts

Josh Patinkin - BMO Capital Markets

Todd Thomas - KeyBanc Capital Markets

Tamara Fique - Wells Fargo

Inland Real Estate Corporation (IRC) Q4 2012 Earnings Call February 21, 2013 2:00 PM ET

Operator

Good afternoon and welcome to the Inland Real Estate Fourth Quarter and Year-End 2012 Earnings Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the conference over to Dawn Benchelt. Please go ahead.

Dawn Benchelt

Thank you for joining us for Inland Real Estate Corporation’s fourth quarter earnings conference call. The earnings release and supplemental financial information package have been filed with the SEC today and posted to our website, www.inlandrealestate.com. We are hosting a live webcast of today’s call, which is also accessible on our website.

Before we begin, please note that today’s discussion contains forward-looking statements, which are management’s intentions, beliefs and current expectations of the future. There are numerous uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements. For a discussion of these risk factors, please refer to the documents filed by the company with the SEC, specifically our annual report on Form 10-K for the year ended December 31, 2011, and subsequent 10-Q filings.

During the presentation, management may reference non-GAAP financial measures that we believe help investors better understand our results. Examples include funds from operations, EBITDA and same-store net operating income. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in our earnings release and supplemental dated February 21, 2013.

Participating on today’s call will be, Mark Zalatoris, Inland’s President and Chief Executive Officer; Chief Financial Officer, Brett Brown and Scott Carr, President of Property Management.

Now, I’ll turn the call over to Mark.

Mark Zalatoris

Thank you, Dawn. Good afternoon everyone, and thank you for joining us. On the call today, I will summarize our accomplishments for the full-year 2012 and update you on our 2013 strategic goals. Scott will follow with more detail on portfolio performance and recent leasing activity and Brett will review our capital activity, summarize our balance sheet metrics and liquidity and review our guidance for 2013.

2012 was a very successful year for the company. We reported strong results near the high-end of our guidance and made significant progress on all of our key objectives. As we have communicated to you on prior calls, these objectives are to further improve portfolio operations, grow and diversify our portfolio through attractive investments, utilize strategic dispositions to improve portfolio quality and unlock capital and strengthen our balance sheet.

I would like to begin by summarizing our 2012 operational accomplishments. In 2012, our team did a fantastic job. We finished the year with total portfolio leased occupancy of 94%, an increase of 80 basis points from year-end 2011. Our total portfolio financial occupancy was 91.6% at year-end, an increase of 70 basis points over the fourth quarter of 2011.

On the leasing front, in 2012 we executed 393 leases or 1.7 million square feet of retail space, a company record for leases executed in a single year. And for the year, our average annual base rents for new and renewal leases increased 9.2% over the prior rents on a blended basis.

We continue to focus in growing our company through wholly-owned and joint venture investments and expanding our footprint to improve our diversification metrics by asset type, market and retailer. We had a very active 2012 acquiring $315 million worth of high-quality retail properties for our company and joint ventures. In addition, we sold a total of six non-core limited growth assets and reinvested the proceeds of $20 million into higher quality acquisitions.

As an example of this capital recycling, in December, the company used proceeds from dispositions to partially fund the acquisition Valparaiso Walk, a 137,000 square foot power center located in Valparaiso, Indiana, community within the Chicago MSA for $21.9 million. This market dominated Class A asset is a prime location within a major retail hub and draws consumers from trade area extending up to seven miles around it. This center is fully occupied and anchored by a strong roister of national retailers including Bed Bath & Beyond, Marshalls, Michaels and Best Buy.

Turning to joint venture activity, in October, we amended our joint venture agreement with PGGM to expand the size of the fund from $500 million to a maximum of $900 million in total investment. This amendment increase in the company’s potential maximum equity commitment to $280 million. In December, we sold the Westgate Shopping Center in Fairview Park, Ohio to the venture. We had acquired Westgate last March with the intention of selling the asset to the venture by year-end and have now completed the transaction. Our remaining maximum commitment to the PGGM venture is $107 million of equity; we will invest equity side by side with our partner going forward and do not intend to contribute additional consolidated properties to the venture.

As we have comminuted on prior calls, our PGGM joint ventures supports our strategic goals of expanding our footprint to improve diversification utilizing attractive reprise capital and preserving our balance sheet. It’s important to note that overtime we expect to increase our ownership interest in this portfolio and our option beginning in 2016.

During the quarter for our joint venture with Inland Private Capital Corporation, we acquired 10 properties for a total purchase price of $43.6 million. As a reminder, we recover our investment as interest in the properties are sold to investors and the pace of sales continues to be strong. We believe that the fee income we earned from managing the property fees within the venture provides a valuable recurring revenue stream that’s complimentary to the company's core business and covers venture related G&A multiple times over. For the fourth quarter, we recorded IPCC related fee income of $1.3 million bringing our total 2012 fee income from the joint venture to $2.6 million.

And finally, I would like to summarize our 2013 expectations which continued strategic framework we have been following for more than a year. With regard to our portfolio, for fiscal year 2013 we are expecting consolidated same-store NOI growth in the range of 1% to 2%. While our portfolio begins the year with greater stability, our expectation for same-store NOI in 2013 is lower than what we achieved in 2012 due to addition of select assets into our repositioning pipeline. We believe these initiatives will further strengthen and increase the value of our portfolio over long-term. In the short-term however, we expect this projects to slightly negatively impact our occupancy rates, revenue and same-store NOI until the works completed and new tenants begin paying rent.

Our acquisition strategy remains consistent. Transaction markets are competitive for Class A assets but we believe we could continue to source and close high quality properties for a consolidated and joint venture portfolios. We will continue to pursue acquisitions of Class A retail properties in our core markets of Chicago and Minneapolis to further enhance portfolio quality in those areas.

We will also target prime retail properties in other select markets across the United States with the goal of improving the portfolio’s diversification metrics by property type, market and retailer. For this year, we've designated for sale non-core assets that could generate $30 million to $50 million in proceeds to partially fund our acquisitions program.

We currently have over $17 million of assets under contract. We expect to sell by mid-year. And finally, we remain committed to strengthening our balance sheet providing access to multiple sources of capital at attractive pricing. Our specific goals are to reduce our secured debt and overall leverage and utilize proceeds from the sale of equity and non-core dispositions as well as institutional partner capital to facilitate our portfolio growth and transformation strategies.

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

Scott Carr

Thank you Mark and good afternoon everyone. On the call today, I would like to provide more detail on our operating and leasing activities in the fourth quarter highlighting several significant lease transactions and trends.

Next, I will address the benefits to us from the recently announced SuperValu severance transaction. And finally provide additional color around our expectations for 2013 portfolio performance. With regard to our portfolio for full year 2012, we generated a same-store NOI increase of 3.2% which was above our original expectation for the year of 1% to 3% and above the midpoint of the revised guidance of 2% to 4% that we provided in November.

Over the past couple of years, we have successfully stabilized the portfolio. At December 31, 2012, our portfolio was 94% leased, an increase of 80 basis points from 12 months earlier. Leased occupancy for anchor spaces was 96.2% and our non-anchor spaces were 88.3% leased. These occupancy rates reflect the quality of our assets and our significant presence in our markets which has allowed us to backfill vacancy we suffered during the recession.

At year end, the gap between total portfolio lease and financial occupancy had narrowed to 240 basis points as new tenants took occupancy and commenced rent payment.

Turning to leasing, during the quarter, we executed 105 leases across the total portfolio representing more than 561,000 square feet, bringing our full year leasing total to 1.7 million square feet. We saw increased leasing demand across the retail spectrum including large formats and small shops.

For the year of the 157 new leases signed, 125 were for spaces of less than 5,000 square feet, signed with a variety of national, regional and local retailers that enhance the tenant mix at our centers. With improved stability in our portfolio and increasing demand for high quality retail locations, we continue to see growth in base rents.

For the fourth quarter, we realized an 11% increase in average annual base rents for new leases and a 2.7% increase in renewals. For the year, average annual base rent increased 16.5% for new leases and 6.8% for renewals. We believe our strategy of owning significant concentrations of assets in our core markets provides us flexibility to accommodate the changing needs of retailers as well as new market entrants.

The stability of our portfolio, the lack of new supply of retail space and the continued demand from retailers has put us in an excellent position to be proactive in upgrading the quality of our tenants and increasing rents. The retailers’ trend to right sizing is one that we approach aggressively. This activity provides us with the opportunity to manage tenant exposure and unlock the potential of larger space.

A timely example of this is the work we've done with Office Depot this past year to right size their format within our portfolio. As I said in our last call, at Rivertree Court in Vernon Hills, Illinois, we're relocating and downsizing Office Depot within the center from their existing 27,000 square foot store to a 6,000 square foot store located in another wing of the center.

I am pleased to announce that in the fourth quarter, we signed a lease with Ross for the space to be vacated by Office Depot at a final average base rent that is 85% higher than the rent Office Depot is paying.

In turn, Office Depot is paying a rent for their new space that is 75% higher than the prior tenant. These rental increases are example for the opportunity we have to mark-to-market as we pursue such repositioning activities. Other activity at Rivertree Court included a lease executed with Shoe Carnival for approximately 11,000 square feet for a space formerly occupied by Ulta and the lease executed this year with Pier 1 to replace Old Country Buffet.

With the opening of all these tenants in 2013 and early 2014, our redevelopment of Rivertree Court which also included the addition of Gordmans, Old Navy, Discovery, Maurices, [Carter’s] and Torrid will be complete firmly positioning Rivertree Court as the dominant center in the trade area. We also approached Office Depot proactively regarding their current location in one of our centers in Orland Park, Illinois.

As a result of these discussions, Office Depot relocated from their 21,000 square foot store at our Orland Park place to a 6,000 square foot store in our Ravinia Plaza located just across the street. This deal with Office Depot provides us with the opportunity to further strengthen the mix of anchored tenants at Orland Park place, a location that is highly thought after by retailers.

We already are talking with several retailers interested in this space. In addition, the Office Deport lease at Ravinia Plaza essentially completes the repositioning of that asset which we kick started by signing a lease with Whole Foods in the first quarter of 2012. The Whole Foods store which opened in November is generated increased consumer traffic and leasing momentum at the center.

During the fourth quarter, we also signed the lease of the Bridal Shop for 14,000 square feet of space and at year end Ravinia Plaza was essentially fully leased. With the announced merger of Office Depot and Office Max, we expect the combined company to focus on right sizing and eliminating store overlap.

In reviewing our Office Max and Office Depot store location, there is overlap in the two markets where we have completed these relocations and we believe we are ahead of the curve having the latest format stores with fresh new lease term. We look forward to new opportunities which may result from the integration of this two change.

Another example of our strength in core markets is our growing relationship with Ross stores which officially entered Chicago market in 2011. As the owner of prime retail centers in all the major Chicago submarkets, we were in good position to facilitate Ross’ market launch. We executed a total of seven leases with Ross for locations in the Chicago area in 2010 and 2011 and signed two additional leases with Ross in the second half of 2012 with others currently in negotiation.

In the fourth quarter we also leveraged our core market expertise and valuable retailer relationships to purchase a 4.2 acre parcel of vacant land in Lincolnshire, Illinois. Simultaneous with the closing on the land acquisition, we executed a reverse build to suit lease with the fresh market for a 21,000 square foot store that is expected to open in the third quarter of 2013. We expect to invest a total of $3.1 million in the project utilizing proceeds from the sale of consolidated assets with a projected return on investment of 9.8%.

In 2013 we intend to expand our program to reposition select centers in our portfolio to accommodate in demand retail concepts and increase asset value. With seven projects underway and others under consideration, we expect to take more than 350,000 square feet out of service in conjunction with planned repositioning projects which are scheduled to come back online in 2014.

Now I would like to update you on SuperValu. As you know in January SuperValu announced that it is selling five of its banners including Jewel-Osco, the market share leader in the Chicago MSA to its consortium led by Cerberus. SuperValu will retain ownership of the remaining brands including the Cub Foods banner which is a market leader in the Minneapolis, St. Paul area.

SuperValu currently is our largest retail tenant with 11 Jewel flag stores and nine Cub Food stores representing 7.3% of total portfolio based rent at year end 2012. We believe this sale is a positive for us. First it improves our tenant diversification. Once the transaction closes, our retail exposure will be split between the Cerberus and SuperValu companies. Jewel will be our second largest tenant comprising approximately 4.2% of total portfolio annual base rent and Cub Foods will be our third largest tenant representing 3.1% of annual base rent.

Second, we believe the sale will improve the financial position of both Jewel and Cub Foods with both Cerberus and a smaller SuperValu in a better position to invest capital to reinvigorate the brands. With considerable market share controlled by both Cub Foods and Jewel-Osco in their respective markets, we believe that most of our stores within these brands should maintain their relevance as grocery operations.

More importantly, we have not been idly awaiting a resolution and the strength of most of our centers has allowed us to be proactive in instances where we perceived risk. We targeted three stores leased to SuperValu for sale or repositioning. To date, we have completed the sale to Wal-Mart of a former Cub Foods store in Indianapolis and two other Jewel stores are included in the repositioning activity I spoke of earlier.

We plan to replace the Jewel store at one center with a successful regional grocer and the other former Jewel will be redeveloped to accommodate multiple non-grocery, value oriented retailers that generate steady consumer traffic. This proactive approach will have decreased our combined SuperValu Cerberus exposure by over $1.4 million in annual base rents. Our remaining Jewel and Cub stores are enjoying strong operations with sales averaging about $500 per square foot and rental rate at or below current market.

Finally, with stability in our portfolio, improving demand from retailers across the spectrum and continuing improvement in the economy, we are confident that we can continue our success in to 2013. The equilibrium and market supply and demand is giving owners greater leverage in negotiation which should continue to support positive trends in base rental rates and NOIs. With fewer anchor spaces available for rent, we will proactively look to create space for expanding big box and junior anchors by right sizing other retailers and combining smaller spaces.

We also expect to see continued strong activity with non-anchor tenants, including franchises and local mom and pop businesses. Currently, we are anticipating consolidated same store NOI growth in 2013 in the range of 1% to 2%. This guidance reflects an expected increase in redevelopment and repositioning activity, which will reduce financial occupancy in the near-term. Two projects in particular, Rivertree Court and the Jewel and Aurora represent over $900,000 in base rent taken offline from our same store portfolio.

Over the long-term, we believe proactive asset management can enhance our retailer profile, improve our long-term growth rate and translate in to better valuation for our portfolio.

With that, I will turn it to Brett, who will provide more detail on balance sheet initiative and our financial performance.

Brett Brown

Thank you, Scott and good after everyone. On today’s call, I will review our financial results, provide an update on our balance sheet and our accomplishments in 2012 with regard to our capital strategy and detail our 2013 guidance which was issued in our earnings release this morning.

First, with regard to operations for the full-year, we reported FFO of $0.96 per share and adjusted FFO of $0.88 per share. Our adjusted FFO came within a penny of the high end of the guidance range we provided at the beginning of the year and represents an increase of 7.3% over the prior year. For the fourth quarter of 2012, we reported FFO of $0.27 per share compared to $0.21 for the fourth quarter of 2011.

FFO included a $2.7 million tax benefit related for the change and control of non-operating property during the quarter. Adjusted FFO for the fourth quarter was $0.24 per share compared to $0.22 per share for the fourth quarter of 2011. Our adjusted FFO was inline with our expectation and exceeded first call consensus estimates by a penny.

Comparing some of the major drivers or performance of our fourth quarter 2012 results, total revenue increased by $3.7 million from the fourth quarter of 2011. This was primarily due to an increase of $2.1 million in tenant recoveries related to a significant variance in the real estate tax expense in the prior year.

And as we communicate on our last call, we expected realty tax expense to reflect a year-over-year increase due to a large reduction recorded in the fourth quarter of 2011. Fee income from unconsolidated joint ventures for the quarter was $2.2 million, an increased of $420,000 over the fourth quarter of 2011.

The increase was due to higher management and transaction fee income from the PGGM and IPCC joint ventures. Fee income for the full year 2012 was $5.8 million, a decrease of $269,000 from 2011. The decreased was due to the timing of acquisition fee income from the joint venture with IPCC which is recognized as interest and the assets are sold to tenant and common investors.

The lower acquisition fee income was offset by higher management fee income from all of our joint ventures. For the 12 months ended December 31, 2012 property manage fee income from those ventures increased by $1.4 million or nearly 50% over 2011.

Turning to expenses for the quarter, total expense increased by $4.6 million. The increase was primarily due to the prior year decrease in real estate tax expense that I mentioned earlier which was $3.7 million higher than the prior year period. There is higher depreciation and amortization expense as well as G&A expenses which are related to the continued increase in assets under management.

Finally, interest expense for the quarter decreased by $650,000 from the prior year quarter. The decrease is related to the repurchase of higher rate convertible notes in November 2011, lower rates on other debt and the contribution of consolidated properties to the PGGM joint venture.

Turning to our balance sheet, we continue to execute on our long term capital plan with specific goals to enhance our liquidity, decrease our cost of debt and extend our debt maturities. In 2012, we made significant progress in these areas. Throughout the year, we closed $238 million of new and refinanced secured loans for the total portfolio. We reduced the average interest rate on refinanced loans by 63 basis points to 4.29% and replaced loans with a five year average initial term with loans that have an eight year average term.

In August, we amended our consolidated unsecured credit facilities which includes a $175 million term loan and $175 million line of credit. The amendment increased the size of the facilities by $50 million to $350 million total. It also provides us with a 35 to 55 basis point improvement in rate and extends the term of the line of credit out to 2016 and the term loan to 2017.

Last February, we issued 2.4 million shares of 8.125% Series A Cumulative Redeemable Preferred Stock raising approximately $59 million and as Mark mentioned, we upsized our joint venture with PGGM to invest in up to an additional $400 million of properties.

And lastly for 2012, we improved our debt-to-EBITDA to 7.1 times from 7.4 times for 2011 and our EBITDA-to-interest expense coverage to 2.8 times compared to 2.4 times for 2011.

And during the fourth quarter, we entered into an agency agreement with BMO, Jefferies and KeyBanc that allows us to sell up to $150 million of common stock through an at the market equity issuance program. Subsequent to the end of the quarter, we issued 547,000 shares at an average price of $9.20 or net proceeds of $5 million and the proceeds were used to fund the planned acquisitions.

I would like to provide a brief update on our comments. As we discussed in filings with the SEC, in 2012 a subsidiary of the company ceased paying debt service on the mortgage loans encumbering the Algonquin Commons Shopping Center. At this point this is a legal matter and therefore we cannot provide additional information at this time other than what has been provided in our filings.

Turning to maturities, for 2013, excluding Algonquin we have only one consolidated loan of $14.8 million and four loans on three properties in our joint venture with NYSTRS totaling $31.6 million. We plan to pay off the three loans that mature in April as we look to un-encumber more assets and our share of the debt repayment is approximately $10 million. And we will explore refinancing options for the two loans that mature later in the second half of the year.

Our debt-to-total market capitalization rate was 53.4% at quarter-end and is currently 50.6% as of yesterday’s close. While this metric can be volatile due to share price movement, we continue to target a debt-to-total market cap rate of 50% or lower and expect to remain at or below this target at the end of the year.

For the quarter, our adjusted EBITDA-to-interest expense coverage ratio was 3.1 times which compares favorably to 2.8 times for the prior year quarter and fourth quarter of 2011. Our fixed charge coverage ratio was 2.3 times for the quarter. Our total net debt-to-total EBITDA ratio was 6.6 times for the quarter compared to 7.2 times for the prior year and we are pleased as these ratios continue to improve as a result of lower interest expense and gains in operating income from our positive leasing efforts.

With regards to guidance for 2013, we're providing initial guidance for FFO per common share of $0.88 to $0.92, which includes the impacts of share issued through the ATM in January. Our guidance assumes consolidated same-store financial occupancy within a range of 89% to 90% and consolidated same-store NOI growth within a range of 1% to 2%.

Guidance assumptions also include acquisitions of $125 million of asset value for the PGGM joint venture and $100 million of asset value for the IPCC joint venture which includes acquisitions already completed as well as dispositions of between $30 million and $50 million.

With that, we will open the call up for questions. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from Josh Patinkin of BMO Capital Markets.

Josh Patinkin - BMO Capital Markets

My first question is on SuperValu and I believe Jewel has a lot of its own real estate. Do you own any of that small shops that are shadow anchored by Jewel?

Scott Carr

Josh, this is Scott. Yeah, Jewel in Chicago actually owns close to 25% of their stores and we have one location where they are shadow anchored to our shop space and that particular property has always performed well for us and we're hoping that perhaps there can be an opportunity with things going forward but again that might be get a little ahead of ourselves.

Josh Patinkin - BMO Capital Markets

Okay, is that the only asset that’s shadow anchored by SuperValu flag?

Scott Carr

We have one other SuperValu Cub Foods shadow anchored in Minneapolis, St. Paul market.

Josh Patinkin - BMO Capital Markets

Okay.

Scott Carr

Likewise, we would try to view this is an opportunity where they might want to do something with the real estate.

Josh Patinkin - BMO Capital Markets

Right, right, okay, that is good to know. Looking at Michaels, it looks like they just got a new CEO, they are a big tenant of yours, have you any thoughts on what that might mean for their growth strategy?

Scott Carr

You know Michaels has been very active as of late. They have a new prototype and they have been expanding. I would look for that to continue again that category is got a lot, little bit of runway last to it, and we are actively doing deals with Michaels. So I don't foresee any change in their projected growth.

Josh Patinkin - BMO Capital Markets

Okay, and then lastly on Mariano's have you any thoughts as that brand continues to mature in Chicago, what that mean for Chicago grocery stores and competitively speaking and how that could affect you?

Scott Carr

There is no doubt Mariano's had an impact on the grocery landscape and made it more competitive. It’s a very unique shopping experience and they are coming into open anywhere from three to five stores a year. So they will have an impact but again we always try to look at spacing and as an example, we actually bought a Jewel store last year at Red Top Plaza that’s located immediately across the street from Mariano's that opened the summer that we bought the property. Obviously, we knew the Mariano's was opening but we looked at Jewel that was doing over $700 a foot and realized that there was enough grocery business in the areas to sustain. So that’s the real metrics we look at it, how does it fits in the competitive landscape if that exist.

Josh Patinkin - BMO Capital Markets

Right, okay, and lastly on guidance 89% to 90% occupancy on the consolidated portfolio, it looks like the total portfolio is 94% leased, have you disclosed what the consolidated portfolio is leased percentage right now?

Brett Brown

This is Brett. We have the guidance of 89% to 90% and we finished for consolidated same-store and we finished financial occupancy and we finished the year at 89.4% basically saying we believe it will be flat.

Josh Patinkin - BMO Capital Markets

About flat, okay so a lot of that leased percentage of that spread in the total portfolio doesn't affect the consolidated?

Scott Carr

That's correct. Basically this year 2013 as I mentioned, we are taking offline about 350,000 square feet. We are also delivering about 380,000 square feet with some of the leasing activity that's coming online. So it’s really swapping in that's why we are remaining flat for the year.

Operator

And our next question is from Todd Thomas of KeyBanc Capital Markets.

Todd Thomas - KeyBanc Capital Markets

Mark or Scott, I wanted to circle back to the repositioning that's going on here a little bit and you mentioned that same-store NOI growth of 1% to 2% it's being dragged down a bit by some of this activity. Is this limited to the two centers with the Jewel supermarkets that you discussed? I think it was Rivertree and Aurora Hills or is there other redevelopment and remerchandising that's contemplated in guidance here?

Scott Carr

No, it’s actually seven projects that we have in the works right now. Aurora and Four Flags, our two Jewel repositioning projects. Rivertree Court is the multi-tenant repositioning project. We have a (inaudible) Health Club, a free standing building in St. Paul, Minnesota that we are repositioning to become a charter school and its limp school and that will be opening by fall for fiscal year and then in Lansing, we have a bit more dramatic of a project. We have about 150,000 square feet of retail. It was a former Sam's Club Office Max and (inaudible) Stores that we are going to be, we are under contract to sell. We will be tearing them down and the buyer will build a category killer box on the site and in conjunction with that we will redevelop the shop space that we will retain. Otherwise, the other projects are two of our outlet developments that we've been pursuing up in the Twin Cities area adding some outlines to our centers.

Todd Thomas - KeyBanc Capital Markets

And then just following up, how much spending do you think will be required to complete all of these projects and any sense so it sounds like it’s a number of projects here but any sense to what same-store NOI growth would look like if you excluded the impact of these projects?

Scott Carr

Well, if we look at same-store NOI growth as we projected it, we have about $2 million of top line rents coming online in 2013. So we are taking 900 away. So if that 900 was there, I guess it would be…

Mark Zalatoris

It would be more like two to three which is our traditional what we would expect to produce from this portfolio on an average basis going forward.

Scott Carr

But obviously we are hoping with the increased income you get still more momentum...

Mark Zalatoris

Exactly.

Scott Carr

In ’14 and ’15. And then with regards to the capital spend, we have budgeted this year total capital including new construction of about $15.2 million. That's about 26% higher than our 2012 spend and that incorporates all the activities we have planned for the year.

Todd Thomas - KeyBanc Capital Markets

Okay and then just switching over to acquisitions. Seems like you are looking at some wholly-own deals versus just PGGM joint venture investments and you talked about a range of dispositions and also investments for the PGGM and also IPCC ventures, but can you give us a sense of what you are expecting in terms of guidance for wholly-owned acquisitions of what might be reasonable I guess for us to expect for the year?

Mark Zalatoris

You know, in wholly-owned acquisitions, we're probably going to recycle the proceeds received from the dispositions of our properties and what I talked about briefly, and that capital will go into some wholly-owned acquisitions as well as the PGGM and to reduction of debt. So there is not going to be a lot, there will be some but again our focus is to fill up our commitment to the PGGM joint venture and I think we're well underway.

We actually have a property under contract for that venture right now for around $25 million. We expect to close in the next 30 to 60 days and pursuing some other quality assets for that venture. And also acquire for IPCC as we evolve that capital from their sales. That’s going to continue as well. So it's not going to look too much than in the last year or so. We will devote our main attention on filling up the PGGM joint venture.

Todd Thomas - KeyBanc Capital Markets

Okay, and I was just wondering why Valparaiso Walk was not for the PGGM venture and then also on the sale of Westgate, why was there a prolonged period on contributing that asset into the venture, it was acquired back in March and it just got contributed in December?

Mark Zalatoris

Well, the reason one for Westgate was that we have to get the amendment to the venture for the upsizing completed and executed, so it took a little time to get that accomplished because there were some nuance changes into that agreement to allow for additional types of investment that we are pursuing including some new potential development that though participate with us on, that will eventually fall into the venture that wasn't in the original agreement, so on essence there was always target to go into the venture but since we filled up the first commitment and the very first agreement, it couldn't really be put into the venture until the agreement from the second part of that was negotiate and executed, that was the time delay.

As far as the property we did buy a balance sheet. PGGM has a preference towards more urban retail, they really like stuff right in the heart of the city like we bought for them in Chicago etcetera and this is within MSA of Chicago, but it’s a little bit outside of the major material area, but when we look at that asset and saw the retailer line up a 100% occupied long term leases with natural credit tenants, you know this is a great property and we will put it on our balance sheet, if there was an interest to them just based upon there initial criteria.

Operator

(Operator Instructions) and now our next question is from Tamara Fique of Wells Fargo.

Tamara Fique - Wells Fargo

I was just wondering with regard to the repositioning taking place in 2013, should we expect that to continue in 2014 and if so what do you think is the total pipeline of assets that would qualify for on this type of repositioning redevelopment that you are doing.

Scott Carr

Tammy this is Scott. I would say what we have planned for 2013 is a fairly healthy amount for us, but it’s always been a part of our asset management strategy to have this type of activity. So I would always look for some activity to be going on maybe not in the scope of seven projects per year, but we've always seemed to have a run rate of 2% to 4% each year.

Tamara Fique - Wells Fargo

And then you disclosed the cap rates for the acquisitions that you are doing, but not for the disposition so can you give us some sense for disposition cap rates for the properties you sold as well as the ones that you are anticipating to sell this year.

Scott Carr

For the most part the assets that we've been selling have been trading in the 7% and 8% cap range.

Tamara Fique - Wells Fargo

And then with regard to acquisitions I'll ask a similar question which is should we expect 2013 acquisitions to be in a similar range to those completed in 2012 or have you seen some change in cap rates in your markets.

Scott Carr

There has been a bit of cap rate compression. We see increased competition in almost all markets that we are active in. So we would say there could be a bit of compression but we are sticking to our traditional sources as well, trying to do as many deals off market as we can. Last year we were very successful in sourcing two prime assets in the Twin Cities at very favorable cap rates. So we are just trying to stick to our blocking and tackling and hopefully beat out the market.

Tamara Fique - Wells Fargo

And then with regard to the ATM I know you said you issued some early this year but you have a $150 million, how much of that should we expect you to issue throughout the year.

Brett Brown

Beyond that we don't have any plan in the current guidance beyond the 5 million we already issued. So, unless we were to find another transaction where we would need say more, if we find more for PGGM or we need some more equity there. If we found some more for balance sheet and things like that we would look to do that but there's no other plan right now.

Tamara Fique - Wells Fargo

Okay so its more of (inaudible) not as much any kind of defensive need for, on the equity issuance.

Brett Brown

Correct.

Tamara Fique - Wells Fargo

And then you are carrying a sizeable balance on your line today, what are your plans as you look out over the year, where should we expect that to be at the end of the year.

Brett Brown

I would expect it to be a lower as actually we've already paid down by 15 million in the current year so it is lower today and I'd expect it to maintain down in that lower $65 million range where we are today.

Operator

And this will conclude our question-and-answer session. I would like to turn the conference back over to Mark Zalatoris for any closing remarks.

Mark Zalatoris

Thank you operator and thank you all for listening. We are obviously proud of our accomplishments in 2012 and look forward to updating you this year as we continue to execute on our goals. Thank you.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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