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Regency Centers (NYSE:REG)

Q4 2013 Earnings Call

February 13, 2014 11:00 am ET

Executives

Michael Mas

Martin E. Stein - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Investment Committee

Lisa Palmer - Chief Financial Officer and Executive Vice President

Brian M. Smith - President, Chief Operating Officer and Director

Analysts

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Jay Carlington

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

Katy McConnell

Juan C. Sanabria - BofA Merrill Lynch, Research Division

Yasmine Kamaruddin - JP Morgan Chase & Co, Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Jeremy Metz - UBS Investment Bank, Research Division

Christopher R. Lucas - Capital One Securities, Inc., Research Division

Operator

Greetings, and welcome to the Regency Centers Fourth Quarter Earnings Results Conference Call. [Operator Instructions] I would now like to turn the conference over to your host, Mike Mas. Thank you. You may now begin.

Michael Mas

Good morning, everyone, and thank you for joining us. With me on today's call are Hap Stein, our Chairman and CEO; Brian Smith, our President and COO; Lisa Palmer, our Chief Financial Officer; and Chris Leavitt, Senior Vice President and Treasurer.

Before we start, I would like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

I will now turn the call over to Hap.

Martin E. Stein

Thanks, Mike. Good morning, everyone, and thank you for joining us.

In 2013, we reached 2 crucial landmarks. First, we increased the percent leased in the operating portfolio to 95.2%. Second, same-property NOI growth was 4% for the second consecutive year. While those accomplishments stand out most in my mind, we also attained gratifying results in other critical facets of our business. We completed the development of 3 terrific shopping centers that are already 96% leased, representing an investment of $160 million and generating an 8.6% return on incremental capital. And we started nearly $150 million of new ground-up developments, where pre-leasing is already ahead of expectations, as well as more than $50 million of redevelopments. We also generated $350 million from the sale of nonstrategic assets and $100 million from ATM equity issuances at an average price about $53 per share. This activity allowed us to invest in the development and redevelopment projects that I just mentioned to acquire exceptional shopping centers in key markets that will be accretive to our long-term NOI growth profile and to further strengthen what was already a very strong balance sheet.

A part of these positive results is the intense focus from our top-notch team of professionals to drive growth in core earnings, NAV and shareholder value by fully employing Regency's 3 inherent strengths: our portfolio, our development program and our balance sheet. When I look at Regency, I see a portfolio that compares positively to our peers by all key metrics. A company with the unique and core competency to create value to the development and redevelopment of exceptional shopping centers in the country's top markets and a balance sheet that clearly measures up to other blue-chip companies across the REIT landscape.

As we discussed during our guidance call in December, the current health of the portfolio and balance sheet enables us to pivot from being a net seller towards placing more emphasis on growing core earnings. While we will continue to sell lower-growth assets, the primary rationale will be as a source to fund investments. Any future acquisitions will continue to be of the highest quality and have superior growth and/or upside prospects. They will be funded with additional dispositions of identified properties with low growth rates and cap rates that are roughly comparable to those we are buying. Equity could be an alternative source to fund acquisitions and developments, if the price becomes sufficiently favorable in relationship to our view of NAV to justify the high bar that will continue to be set for issuances. The end result of this net investment activity will be an even higher quality portfolio with an enhanced future NOI growth rate. Lisa?

Lisa Palmer

Thank you, Hap, and good morning, everyone.

Core FFO for the year was $2.63 per share, which is at the upper end of the most recent guidance provided in mid-December. FFO per share was $0.03 ahead of guidance due to the delayed closing of our Fairfield, Connecticut properties, which pushes the related transaction costs into 2014.

As Hap said, in 2013, we made significant progress towards the achievement of our strategic objectives, not the least of which was reaching and exceeding 95% leased and achieving same-property NOI growth of 4%. In addition, in terms of the balance sheet, we ended the year with $90 million of cash on hand and no outstanding balance on our $800 million line of credit. Our net debt-to-core EBITDA ratio now stands at less than 6x, and we are comfortably on a path to achieve our targeted ratios through organic growth and core earnings over the next few years.

We also strive for a low-laddered maturity profile and manage interest rate risk when appropriate by locking in long-term rates. We hope to capitalize on what continues to be a borrower's market as we address our April unsecured bond maturities. Included in our current projections is a $250 million bond issuance on which we've already hedged our base rate exposure. Even if there's a modest expansion from today's credit spreads, we'd still be looking at an all-in effective rate of less than 4%. We are also hedged for $250 million of 2015 maturities at just 30 basis points higher.

Looking at 2014, our guidance for operating metrics and financial results remains unchanged from what we presented in December. Core FFO per share is expected to be in the range of $2.66 to $2.72 per share and to be relatively evenly distributed throughout the year.

I'd like to remind everyone that the $100 million of equity issued, combined with net property sales in 2013, impact this year's growth by roughly 5%. In terms of occupancy, with the possibility of a few identified junior anchor and seasonal move-outs, we could see a dip in the first quarter, but we expect to end the year at the high end of our same-property percent leased guidance range.

You will notice changes to both acquisitions and dispositions guidance. The majority of these changes to account for the timing of the closing of the Fairfield, Connecticut properties, which Brian will discuss later. As discussed during our December call, we simply rolled the acquisition from 2013 into 2014. The loan assumption process is almost complete and we anticipate closing on this portfolio in the very near future. We also increased acquisition and disposition guidance, each, by $25 million on the upper end as we've recently gained control of another high NOI growth acquisition opportunity in Austin. We plan to fund that purchase with additional property sales. As Hap said, the cap rates should be roughly comparable for the dispositions that will fund our acquisitions.

Lastly, but importantly, we announced an increase to our quarterly cash dividend. Many factors go into the decision to raise the dividend, the most important of which is our view of the positive prospects for future increases in earnings and operating cash flows, balanced by our intent to maintain conservative financial metrics including the payout ratio. Brian?

Brian M. Smith

Thank you, Lisa, and good morning, everyone. As Hap and Lisa both stated, the results for 2013 were strong. The teams have been dogged in their execution of our strategy and the result has been steady and marked improvement in nearly every operating metrics. Same-property percent leased climbed to 95.1% at the end of the fourth quarter. Small shops were nearly 90% leased at year end, representing 150-basis point improvement over 2012. The team built percent leased by signing 5 million square feet of new and renewal leases during the year. In addition, we continue to see a positive trend in move-outs compared to prior years. Combined move-outs in the third and fourth quarters totaled less than 600,000 square feet, making it the first time since 2006 we've seen 2 quarters with move-outs that low. Rent growth for new leases was positive 10.7% in the fourth quarter and an even stronger 17.7% for the year. These accomplishments resulted in 4% same-property NOI growth, excluding term fees, for the second year in a row.

With our high-quality portfolio now above 95% leased, same-property NOI will benefit as pre-leasing converts to rent paying. But in general, occupancy gains will play a lesser role. Therefore, the operation team's emphasis is on taking rent growth back to our historic level of 10% or more.

In addition, the team continues to successfully execute leases that include higher and more frequent contractual rent steps. Rent growth and embedded steps are key components of our formula to meet our objective for future NOI growth.

Moving to development, we completed 3 projects in the fourth quarter. Combined, they are more than 96% leased, with an 8.6% return on incremental capital. What's more, the projects took, on average, only 21 months to stabilize from start of construction. While each of these projects is exceptional, I can't help but continue to spotlight the team's hard work and success at our Grand Ridge Plaza project, a 325,000-square foot center to celebrate its grand opening at 99% leased. It took only 18 months for commencement and construction to complete. The community response following the opening has been overwhelmingly positive. In my 30 years in the development business, it's one of the best projects I've seen.

Our in-process developments are also performing extremely well. The 6 projects, including 2 that have not yet started vertical construction, are 82% leased and committed. During our third quarter call, we discussed our fourth quarter starts, Fresh Market-anchored shops on Riverside in Jacksonville and the Mariano's-anchored Glen Gate in Chicago. These new starts, along with our other projects, are progressing nicely into tracking best-in-class operators, including a new Whole Foods that will be added in our Shops on Main project in suburban Chicago.

We also started 6 redevelopments during the fourth quarter, with total cost of $16 million and a projected return approaching 10%. This brings our total in-process redevelopment pipeline to $53 million across 13 active projects.

Turning to the fourth quarter transactions, we acquired 2 properties, Fellsway Plaza in Boston, which we introduced in the third quarter call, and Holly Park. Holly Park is a 160,000-square foot center with a prime location within Raleigh's Inner Beltline. The center benefits from a strong daytime population and has several anchors, including the highly productive Trader Joe's.

As Lisa mentioned, we're also under contract on a portfolio of 3 properties totaling 315,000 square feet in partnership with the current owner of the centers. The portfolio is located in Fairfield, Connecticut, an affluent community with extraordinary trade barriers [ph] and a 96% market occupancy rate. They are dominant centers, with the 2 downtown properties representing the heart and soul of the town. Regency is acquiring an 80% interest in the portfolio for $120 million.

Similar to Fellsway, the Fairfield partner is a local sharpshooter and we really like the potential to work together on future opportunities. Across-the-board from leasing to development to portfolio enhancement, 2013 was certainly a successful year, and I look forward to that trend continuing into 2014. Hap?

Martin E. Stein

Thank you, Brian and Lisa. I want to close by mentioning 2 remarkable milestones that we celebrated last year.

2013 was Regency's 50th year in business and its 20th year as a public company. We've grown by a good bit since then, since the company was founded and went public and we are only 1 of only 18 REITs out of the 45 in the class of 1993 that are still around. Most important of all, we are proud of Regency's total annual shareholder return of nearly 12% since our initial public offering, which has outpaced both the REIT and shopping center indices. In the 50 years since the company was founded and the 20 years since we went public, we've made monumental strides in building Regency. Learning as we grow, adapting to change, sharpening our strategy, delivering value and doing what is right. We've done so by always keeping the best interest of our 4 constituencies in mind: our people, our communities, our retail customers and our shareholders. By staying true to these values, I'm confident that our company will flourish for another 50 years.

We thank you for your time and now welcome your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Kin Bin -- Ki Bin Kim from SunTrust.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

Could you talk a little bit about your big markets, Florida, California and Texas? And how those individual markets are performing relative to your portfolio?

Brian M. Smith

Sure. Southern California -- California is really -- continues to be I think a tale of 2 states. You've got Coastal California and you've got non-coastal. Coastal California, which is where virtually all of our assets are, is really on fire. And if you look at Northern California, in particular, I think we are 97% leased there, very strong, and I would say that's pretty much true with Southern California as well. With, again, the non-coastal California, it is improving. But right now, Sacramento and the Central Valley would remain weaker markets, although they have significantly improved. Texas is a large market. Texas is one of the -- all of the markets in Texas are outstanding markets. Austin, Houston leading the way, but Dallas is also strong. And then, Florida, which has lagged, has really started coming on of late. Northern Florida is a little bit weaker than the rest. But all of Florida overall has made great strides over the last several quarters.

Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division

And just tied to that, given your commentary about how strong the markets are doing, your occupancy levels, how far do you think the industry is from development really coming back into the picture?

Brian M. Smith

I think we are getting close. We are starting to run into competition like we haven't done before. We competed, for example -- well, I would say that the developments we're starting to see competition on are pretty limited to California, Texas, Washington D.C. But even in those markets, there's been good competition. We went after -- participated in an RFP in Northern California and there were 12 respondents to it. Now a lot of those were small and I think we fare really well on those types of things, but we've lost some properties, some opportunities lately. So we're starting to see developers again for the really good assets take-on risks that they hadn't been willing to do before. We're seeing a lot of hard money put up on day 1 of the contract execution. We're seeing returns, in some cases, spread over what people perceive the exit cap rate to be, so it would -- could be sub 7%. And you're seeing, particularly in Texas, in the really hot market like Houston, people not only saw them for low returns but being willing to close on 30 days without entitlements and anchors. So you're starting to see it. Overall, I know the construction industry is forecasting 10% increase in starts. I don't know if that's true or not, but we are seeing more activity.

Martin E. Stein

A couple of follow-up comments in that regard. Number one, in spite of the additional competition both comments relayed, we still think that we can get our fair share. We're well positioned to do that at -- in the range of 8% returns that we're projecting. Not all are going to be -- achieve that, but we think we can get pretty close to that. Secondly, from a supply standpoint, which I think is equally as important, even though we would expect supply to -- supply right now is less than 1% of the historic stock -- of the stock. That's about 1/3 of historic standards. And even though supply may increase, and development may increase, I think it will still continue to be well, well below historic standards.

Lisa Palmer

And I'll -- I'd add, I think one of the things that's governing that -- and we recently met with one of our banks, this is a very large lender in the real estate industry, and they're still requiring quite a bit of equity from developers. Regency obviously is very well positioned and has competitive advantage versus some of the private, smaller guys. They're looking -- they're loaning to cost, not to value, and requiring 25% to 50% of equity, depending on that developer's balance sheet.

Operator

Our next question comes from Jay Carlington from Green Street Advisors.

Jay Carlington

Great. So just -- you mentioned your occupancy is kind of trending at -- towards the top end of where you're comfortable with, and I guess, there's going to be an increased focus on rent growth. So can you kind of talk about the releasing spreads going forward and -- the blended releasing spreads and how we should be thinking about that type of growth? Are we looking at mid single digits or is it more upside there?

Brian M. Smith

If you look at it on a quarter-by-quarter basis, it can be fairly choppy. But it shows the continual increasing trend over the last many quarters. So we think the environment is very positive, to continue that positive trend. And as I said, there may be some choppy quarters both above and below the trend line really based on anchor tenants. And -- but I think it's driven by strong fundamentals. Not only are we greater than 95% leased with a lot stronger portfolio than we used to have, but Hap pointed out that supply growth remains almost nonexistent and the retailers are getting more aggressive. So it's broad-based. We're seeing it in almost all of our leases, the rent growth. Just -- I think we've only got one target market that experienced negative growth this past year, and it was less than 1%. And the weaker market, as I mentioned also, Florida is starting to pick up. So we believe we can get to our historic level of double digits and continue this positive trend.

Jay Carlington

Okay, great. And maybe just quick follow-up. Can you give us a quick update on what's going on in Chicago with Dominick's? It looks like Whole Foods picked up one of your spots. So what's the outlook look for the rest of the remaining locations you have?

Brian M. Smith

It turned out to be really good for us. We've got -- as you know, there's 6 operating Dominick's that we have up there. Four of the leases were purchased and 1 is very, very close to being finalized. So 5 and 6 will have replacement grocers. Whole Foods, as you mentioned, bought 1, and then Mariano's bought 3. The other one, we are pretty certain to it, but I'd rather not say until we know for sure. And what we will do is -- Whole Foods and one of the Mariano's will be redevelopment. And the Mariano's that's taken the Dominick's will be about 90,000 square feet and will take that rent up significantly. And the other one, the Whole Foods redevelopment, Whole Foods rent will stay flat for the remaining of term that was -- still in that lease, the Dominick's lease, which is about 12 years or so, and then it'll jump up probably 2x. But in the meantime, as part of the redevelopment, Whole Foods will use all of its money, demise the existing store, build themselves brand new, and do a facade renovation and create a 12,000-square foot junior anchor next door to them,which we should be able to re-lease that at significantly higher rent than the underlying Dominick's lease.

Operator

Our next question comes from Jonathan Pong from Robert W. Baird.

Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division

I know this is looking a little further out, but can you shed light as to how you're thinking about the non core dispositions spigot beyond 2014? I guess, what I'm trying to get at is how we should think about the sources of long-term funding for the bulk of your redevelopment and redevelopment activity?

Lisa Palmer

We will always plan to sell properties to fund our developments. I don't think -- it's not prudent to have a business model that depends on issuance of equity. So our business model is our dispositions. It'll be lower-growth properties, which are the non core. And as the quality of those lower-growth non core properties improves, the spread between what we're selling and what we're developing will actually widen. So instead of selling properties at a 7% cap rate and developing at an 8%, we should get closer to selling to a 6% and developing at it -- or at least a 200 basis point spread even if cap rates move one way or the other. So that's how you should think about it beyond 2014 as a source of funding for our developments. And then to the extent that we have opportunity for great acquisitions, again, we would look first to our pool of properties that we could sell at a comparable cap rate but at a lower growth, so that we're, in essence, enhancing our future growth rate of the portfolio.

Operator

Our next question comes from Christy McElroy from Citi.

Katy McConnell

This is Katy McConnell on for Christy. Could you talk a little bit about how you see the food component in your centers trending over time? And to what extent you're leasing to more restaurant users, both national, regional as well as local operators?

Brian M. Smith

Sure. We're seeing a lot of leasing with the grocers and a lot of that's going on with your specialty grocers. If you look at just our development and redevelopment work that we're doing right now plus some re-tenanting, we're working with 37 new grocers. So we're seeing a lot of that. The food or -- the restaurants, yes, the restaurants we've got it looks like 113,000 square feet net add this past quarter from the restaurants. And what's going on there is just the restaurants, in many ways, are becoming the new anchors, which you'll hear. And they're not all doing well, but fast casual is white-hot right now. And the reason for that really is just the time becomes such a precious commodity, and so those restaurants are doing well. On the other hand, kind of the traditional family dining, the Macaroni Grill, the Ruby Tuesday and all of those, they are not faring very well. And I think you're going to see some closures in that sector. Anything that has healthy living associated with it in the food group is also hot. So overall, I think you're going to see continued amount of restaurant strength, particularly among the fast casual and the healthy lines. And then the strength in the grocery sector remains, especially grocers.

Operator

Our next question comes from Craig Schmidt from Bank of America.

Juan C. Sanabria - BofA Merrill Lynch, Research Division

This is actually Juan Sanabria here with Craig. Just wanted to ask on the acquisition that seemed like it's slipped, I guess, from the fourth quarter into early this year. Can you tell us a little bit about that asset and kind of the valuation of cap rate you're targeting? You kind of made a comment that going forward the acquisitions and disposition cap rates would be closer in terms of spreads. And if I look at your guidance, you're kind of targeting disposition cap rates of 7% to 7.5%. Should we think that the acquisitions going forward would be at that sort of level or am I -- did I misunderstand?

Lisa Palmer

I'll let Brian talk about the assets. I'll answer the latter part of your question first. My response to Jay is similar, is that you have to think about our dispositions, our funding, our developments. So the disposition cap rate of 7% and 7.5% is funding developments of approximately 8%. To the extent that we -- and Fairfield was really in our guidance of 2013 acquisitions, so that was already prefunded. We have cash sitting on the balance sheet ready to deploy -- to buy that asset. For 2014, any acquisition that we identify, we will then increase the dispositions guidance. And again, as we've said in our prepared remarks, in this case, we identified an asset in Austin, Texas for approximately $25 million, so we increased our acquisitions guidance by $25 million on top of Fairfield, and then our dispositions guidance by $25 million. The assets we will identify for that additional $25 million will have a cap rate comparable to what we will pay for the asset in Austin. So -- and that acquisition guidance is in the 5% range.

Martin E. Stein

So it would either in effect be the same cap rate maybe 50 to 100 basis points higher, but that's...

Lisa Palmer

Comparable.

Martin E. Stein

Very comparable.

Juan C. Sanabria - BofA Merrill Lynch, Research Division

[indiscernible]

Martin E. Stein

Zero.

Lisa Palmer

Zero. Yes. We're going to -- the goal is to identify assets with lower growth than our comparable cap rates. We will not have dilution from acquiring assets. It should be accretive. It should be neutral to the current year and accretive to future years because of the higher growth rate.

Brian M. Smith

[indiscernible] I'm sorry. Do you want me to follow up and tell you about the portfolio or did you just want to do another...

Juan C. Sanabria - BofA Merrill Lynch, Research Division

Yes, please, please.

Brian M. Smith

Okay, all right. So we kind of talked about 315,000 square feet, it's just with 3 properties in Fairfield. Two of the properties are on the main drag, right in the middle of the city. And it truly is kind of a "live, work, play" environment where the entire town congregates around those properties. The portfolio is almost 100% leased. It's 99.6%. Great market, extraordinary trade barriers, high occupancy rate. And what we like about this is, is it lines up with exactly the kind of properties we want to buy, dominant infill retail that has unique competitive advantages and the ability to merchandise to best-in-class retailers and restaurants. And this one has some truly great restaurants and retailers where people just -- it connects very strongly with the community. The one thing I think that makes this particularly special here is that even though it's downtown urban retail, it has plenty of self-contained parking. Actually, if you look at the downtown properties, it's 5.2 spaces per thousand, which is better than a lot of retail that you get even in the suburbs. So a lot to like about it.

Operator

Our next question comes from Yasmine Kamaruddin from JPMorgan.

Yasmine Kamaruddin - JP Morgan Chase & Co, Research Division

So you guys had a really nice small-shop occupancy gain from the third quarter and also year-over-year. Where do you think you'll end up in 2014 on this metric?

Lisa Palmer

If you look at our same-property percent leased guidance of 94.5% to 95.5%, we did lose some of the junior anchor space. So some of that pickup from occupancy from here will come from there. But I would say that for the most part, it's going to be about 75% of the -- occupancy pickup is going to be coming from the small-shop space.

Martin E. Stein

So 90% to 92%.

Yasmine Kamaruddin - JP Morgan Chase & Co, Research Division

Okay, great. And also, for your budget, what are you assuming happens to bad debt?

Brian M. Smith

What was the question?

Martin E. Stein

Bad debt assumption.

Lisa Palmer

We finished this year at, call, approximately 40 bps of our revenues and the health of the portfolio is really strong that we would expect it to be consistent.

Operator

Our next question comes from Rich Moore from RBC Capital.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

You've always -- just following up on that last question. You've always been good at getting the mom-and-pops sort of tenant in the small shops. And I'm curious, is that changing? Are you heading more toward the national and maybe the regional-type tenant as the most likely one to take up small shop space? And also, are you seeing -- I've seen some of these urgent care centers and dental offices, medical offices, that kind of stuff. Does that play a role at all as well in the small-shop leasing?

Brian M. Smith

It does, Rich. We -- I'm not sure our data is perfect on this. But if you look at the statistics, what it would tell you is since 2007 the amount of nationals and regionals is -- in the portfolio is a lot higher. And that today, we're doing probably 20%, 25%, it would say, local tenants. But the problem with the local tenants designation is you could have a restaurant like we have here in Jacksonville, Mellow Mushroom, which may have 3 very successful locations and it's considered local. If you talk to the field, what you would hear is that almost never will we, and it may not have an almost in that, we just do not take flyers on start-up businesses where somebody doesn't have experience. So any local is going to have at least one other store and likely a whole lot more. What was the second part, Rich? I'm sorry about that.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

No. The urgent care and the dental offices, the medical office, that kind of stuff, Brian.

Brian M. Smith

That's been a trend for the last few years as you are seeing more and more that I think a demographic shift in the country is demanding it. And the dentists, the chiropractors, all those things, they want the same things that you have in the shopping centers, the good visibility, the convenient parking, have traffic at your front door as you go into the grocery store. They are representing a good amount of leasing in our portfolio today.

Martin E. Stein

And they're merchandising their space much better than they had in the past, more sophisticated operators.

Richard C. Moore - RBC Capital Markets, LLC, Research Division

So what do you think, just to follow up on that, guys, what do you think are the credit qualities of that group, that medical sort of group? Is it easy to get comfortable, I guess, with -- how good one is over the other?

Brian M. Smith

I think it's harder to -- and think it's harder to differentiate which one is a better operator, one dentist versus another, whereas, I think in the retail and restaurant world we have a real good idea on that. But what we do like about those users is they put a lot of money into those spaces, which we think is going to result in minor leases or reduced downtime and turnover.

Operator

[Operator Instructions] Our next question comes from Jeremy Metz from UBS.

Jeremy Metz - UBS Investment Bank, Research Division

I was just looking at your same-store NOI growth trend in the back half of '13 was trending towards the low end of your 2.5% to 3.5% guidance in '14. And with occupancy gains likely limited, just wondering what do you think will drive a re-acceleration of that growth back to the mid or even high point? Is that just the expected leasing spread or is there some development baked into that?

Brian M. Smith

Well, first of all, I think if you look at 2013, you have to be careful in concluding that there was a deceleration in the second half of the year. I think unlike most prior years, you have to look at the full year number as opposed to the discrete quarters. And the reason for that is, there were some timing differences in the first 2 quarters, which elevated those numbers at the expense of the second half of the year. So 4% is really, I think, how you have to look at it. But going forward, we said all along that our goal is 3% same-property NOI growth, and we still feel very comfortable with the components. The rent growth we've talked about, we think we can take that from the high single digits into the double digits. And the rent steps, we're getting the embedded steps of about 1.3% or so. So the 2 of those combined get us to about 2.5% of the 3% we're looking for. In terms of occupancy, I think we've mentioned in the initial remarks, maybe less lift, but we still have all the pre-leasing that has to move into occupancy. And right now, we're doing a lot more leasing of the space that has been vacant for more than 12 months, so we're going to get some lift from that. And then after that, there's miscellaneous income, other ways we can grow it. But we feel pretty good that we should be able to get to the same 3% that we've strived -- that's been our target and there's not a deceleration going on.

Jeremy Metz - UBS Investment Bank, Research Division

Just the space that's been vacant grand in 12 months, I mean, you've been talking about the rent spread getting back to double digit, unless -- it seems like outside of a few abnormalities, that's been closer to cash spreads around 3% to 5%. So I'm just wondering where the double digit is? Does just have to do with some of function of what you have coming due and some of those vacant spaces during the 12 months that you feel confident on that you can get to a higher bump up to that double-digit level?

Brian M. Smith

I don't think the rent growth is going to be high from the things that have been vacant for a long time. But we're going from 0 rent to rent. So that's what's going to drive a lot of the same-property NOI growth there. In terms of the spread, it's all a function of what comes vacant. I mean, I can tell you right now, we've got 36 RadioShacks, and I think you've heard that there's going to be 500 store closings and we've looked at every one of those 36 and we see only 1 rolling back And we've got rent growth in there as high as 70%, 75% on some of them. Overall, probably 15% higher. But then Mariano's, as I told you about, I mean, talking about taking rents on a very large space from mid single digits well, well into double digits. So those kind of things provide plenty of rent growth and really the benefit lease stuff has been baking for 12 months is more same-property NOI growth.

Jeremy Metz - UBS Investment Bank, Research Division

And just to be clear, the double digit is a cash-basis spread, right?

Brian M. Smith

Right.

Operator

Our next question comes from Chris Lucas from Capital One Securities.

Christopher R. Lucas - Capital One Securities, Inc., Research Division

Lisa, you had mentioned that there's a risk to first quarter profit occupancy. I guess, Brian, I was wondering if you could provide just a quick assessment of what tenant fallout looks like so far this quarter compared to the year ago period at this point?

Brian M. Smith

When we look at historical change in occupancy quarter-by-quarter, and the first quarter is always the worst, right? It averages about 25 basis points drop in occupancy whereas the other 3 quarters were all positive. So I think as we get our budget at the end of last year and our guidance, we have taken into consideration that seasonal factor. So what I would say is that, last year, that negative 25 basis points never materialized. We're actually positive 10 basis points, and what we've seen so far this quarter, and it doesn't mean it will continue, but we've seen so far this quarter is that a lot of the move-outs are not materializing and we're tracking much better than expected.

Operator

And at this time, we have no further questions. I would like to turn the call back over to Hap Stein for closing comments.

Martin E. Stein

We thank you for your interest, your participation and hope you guys that are in snow-affected areas be safe, and take care. Have a great day.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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