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Inland Real Estate Corporation (NYSE:IRC)

Q4 2013 Earnings Conference Call

February 20, 2014 2:00 PM ET

Executives

Dawn Benchelt – Investor Relations Director-Media Relations

Mark E. Zalatoris – President and Chief Executive Officer

D. Scott Carr – Executive Vice President and Chief Investment Officer

Brett A. Brown – Executive Vice President, Chief Financial Officer and Treasurer

Analysts

Todd M. Thomas – KeyBanc Capital Markets

Craig Schmidt – Bank of America Merrill Lynch

Joshua Patinkin – BMO Capital Markets Corp.

RJ Milligan – Raymond James

Operator

Good day and welcome to the Inland Real Estate’s Fourth Quarter 2013 Earnings Conference Call and Webcast. 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, Director of Investor Relations. 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’re 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 risks 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, 2012.

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 20, 2014.

Participating on today’s call will be, Mark Zalatoris, IRC's President and Chief Executive Officer, Chief Financial Officer, Brett Brown and Scott Carr, Chief Investment Officer.

Now, I'll turn the call over to Mark.

Mark Zalatoris

Thanks Dawn, good afternoon everyone, and thank you joining our fourth quarter call. I’ll begin today with the summary of the progress we made in 2013 on our strategic goals and update you on our 2014 plan. Scott will discuss our portfolio’s performance and leasing metrics in more detail and Brett will close with an overview of our capital activity, financial results and details on our 2014 guidance for FFO.

2013 was a very strong year for our company. We reported FFO adjusted per share of $0.99, an increase of 12.5% over 2012 and made solid progress on all of our key objectives. During the year we continue to improve portfolio operations, grow and diversify our portfolio through non-core assets and enhance our balance sheet by expanding our access to well priced capital. For 2013 our share price and total return performance exceeded our shopping center peers, as well as the RMS and RMZ indices which we believe is the recognition of our accomplishments and a testament to the hard work of everyone on the IRC team.

I’d like to summarize our key accomplishments in greater detail beginning with operations. During 2013 we increased our same-store NOI by 3.7% or 2% excluding lease termination income. We also realized substantial increases in occupancy. Our total portfolio of leased occupancy increased 120 basis points to 95.2% at year end, the highest for our portfolio since the first quarter of 2008, and total portfolio of financial occupancy was 93.1% an increase of 150 basis points over one year ago. As a reminder, we achieved these results what taking approximately 350,000 square feet of leasable space offline during the year for redevelopment and repositioning initiatives.

We also generated a record leasing volumes. In 2013 we signed 366 leases for approximately 2.2 million square feet which was the highest amount of square feet ever leased by the company in a single year. Finally, rents spreads for the year were up 9.1% on a blended basis. Not only that we succeed in driving strong organic growth, we continue to strategically grow our platform to enhance portfolio of quality and diversify our markets and tenancy. We grew our total assets under management to $2.9 billion at year end 2013 and 11% increase year-over-year and a compound annual growth rate of nearly 9% since 2004. This increased scale drives operating efficiencies, enhances our visibly with national retailers and provides greater access to the capital markets.

We continue to believe in the efficiency of using institutional partner capital to grow our portfolio, which preserves capital, mitigates risks and expands our purchasing power. Furthermore, our asset based joint venture represent a captive pipeline of high quality acquisitions as we retained the ability to ultimately consolidate the joint ventures assets onto our balance sheet.

To that end, in June 2013 we brought our NYSTRS joint venture full circle and acquired our partner’s interest 13 high quality assets, for $121 million in cash and assume mortgage debt of approximately $152 million at closing. In addition, during 2013 our joint venture with PGGM purchased five assets for $92.4 million. We’ve also leveraged our deep industry relationships to form joint ventures with experienced developers to acquire newly developed properties at below market pricing. For example, this past fall we broke down on a center that would be anchored by Mariano's Grocery Store and PetSmart in the Chicago suburb of Evergreen Park. That we’re developing in partnership with two regional developers and plants acquired prior stabilization and a discount to market value.

And late last year, we announced a joint venture with MAB American retail partners to construct up to 20 new grocery-anchored shopping centers in the Southeastern United States over a five year period. Once again, our intention is to add these stabilized properties to our wholly-owned portfolio. To fund these potential growth opportunities, we continue to improve our balance sheet and flexibility throughout 2013. We significantly reduced our overall debt to total gross assets including our pro rata shares of joint ventures to 49.2% at year end an improvement of 160 basis points year-over-year.

Additionally, we retained secured debt to increase our unencumbered asset base and improve our financial flexibility. We continue to work towards our ultimate goal of achieve in the investment grade rating and manage our balance sheet with a long-term goal in light.

Finally, I would like to note that this year we will celebrate an important milestone, 10 years as a publicly traded company. During that time, we’ve experienced significant growth even as we negotiated the deepest economic recession and significant changes in the capital credit markets.

As we move forward, we will continue to execute the strategic plan we have communicated to you, with the goal of creating additional for our shareholders over the next 10 years.

I’ll now turn the call over to Scott.

D. Scott Carr

Thank you, Mark and good afternoon everybody. On today’s call I will review portfolio of operations and leasing for the fourth quarter, provide an update on the status of our current redevelopment activity and summarize the very active year of transactions.

I’ll close with a few words on our acquisition pipeline as we look to continue to drive growth in 2014. This morning we reported that our portfolio generated increases in consolidated same-store NOI of 0.4% for the quarter and 3.7% for the year. The full year gain was driven by year-over-year increase of 230 basis points in consolidated same-store of financial occupancy, solid positive rent spreads and executed leases and lease termination income.

I’d like to note the consolidated same-store NOI for the quarter did not include any lease termination income. For the full year 2013, we’ve recognized the total of approximately $6 million in lease termination income including $2 million which was recorded in other property income, and $4 million which was related to properties that were subsequently sold and therefore recorded in discontinued operations. We continue to deliver strong gains and occupancy, as total portfolio leased and financial occupancy increased 120 basis points and 150 basis points respectively over year end 2012.

These occupancy gains were driven by the robust leasing activity we have achieved in 2013. For the year, we signed a total of 366 leases, aggregating approximately 2.2 million square feet, a 24% increase in square feet leased over the last year.

Renewal activity was particularly strong, as we renewed nearly 1.6 million square feet, with average base rents that increased 8.5% over expiring rents. Additionally, we executed 57 new leases for 376,000 square feet, with average base rents that increased a 11.8% over expiring rents. 2013 was the second consecutive year of double-digit increases in average base rent on new leases.

During the fourth quarter, we executed 83 leases from more than 479,000 square feet. Leasing activities for the quarter included nearly 403,000 square feet of renewal leases, with average base rents that increased 7% over the expiring rents and 37,000 square feet of new leases with average base rents that increased 21% over expiring rents.

We believe our ability to generate strong rent spread is indicative of a high level of demand for quality retail centers such as ours. Additionally, the stability of our anchored space which is 98% leased, continues to be a driver in attracting a diverse roster of in-line tenants. Our non-anchored leased occupancy was 88.6% at year-end, an increase of 30 basis points over one year ago.

During the fourth quarter, we signed 11 leases with anchored tenants for over 311,000 square feet. Renewals included two Jewel Grocery Stores and export gyms, as well as space leased to Marshall’s, T.J. Maxx, Staples and Petco. We also signed 72 leases with non-anchored tenants for approximately 168,000 square feet. As a result of these leases we achieved 100% occupancy at six more shopping centers, including Chatham Ridge, Downers Grove Marketplace, Dunkirk Square, River Square, Skokie Fashion Square and Stone Creek. This success in leasing highlights the ability of our team to capitalize on the strong consumer traffic at our centers to maximize leasing potential.

Another primary focus for us, has been to upgrade the credit quality of our cash flows and performance of our centers through leasing and redevelopment initiatives. I’d like to provide an update on the redevelopment projects we initiated in 2013. During the year, we completed two projects for total cost of $12.4 million in the combined return on cost of 15.4%.

At University Center in St. Paul, Minnesota, we repositioned a former Bally’s Health Club to multi-tenant space for a charter school and a swim school. And as of January, all 43,000 square feet of space is back in surface. Our return on cost for this project was 15.8%. However, the charter school rent which is based in part on enrollment levels is exceeding our estimates and is likely to enhance this return.

At Rivertree Court in Vernon Hills, Illinois, we right-sized an office depot within the center to accommodate a new Ross store, we re-tenanted a former Old Country Buffet with Pier 1 Imports and added Shoe Carnival which took possession last month. We expect that by the second quarter, all of the 48,000 square feet that was taken out of service at Rivertree Court last year, will be back on line. Our return on cost for this project was 15.4%.

Looking ahead, we have five asset improvement initiatives scheduled for completion in 2014. For a combined investment of $9.8 million. During the quarter, at Dunkirk Square, in the Minneapolis Trade area, we signed a new lease with Dollar Tree for 10,000 square feet of in-line space bringing the property to 100% leased occupancy. Dollar Tree will take over space made available to our relocation of an existing Hallmark store to a new multi-tenant outlet building we are constructing in the parking lot in the center. The new building is expected to be completed in late spring and is on track to be fully leased at the time of delivery.

Additionally, in December we sold approximately 140,000 square feet of space we took offline at Lansing Square to Wal-Mart for the development of the new supercenter. With this project we maximized the value of underperforming retail space and were revitalized the remaining center with Super Wal-Mart as a new anchored tenant. Our redevelopment of the reminder of the center to create 30,000 square feet of junior anchor space began this past month.

Before I discuss our transaction’s activity I’d like to update you on the status of the 7 Dominick’s stores in our portfolio, that closed as a result of Safeway’s decision to exit the Chicago market.

To date, 2 Dominick’s leases had been assigned to other grocers. One to Mariano’s, Roundy's concept and the other to a multi-location independent grocer. In addition, after the close of the quarter, we sold one of our freestanding Dominick’s stores in Countryside, Illinois to an independent operator. We have active interest in our Dominick’s stores within our portfolio and look forward to providing additional information as we get revolution on those locations in the coming months. As a reminder, Dominick’s remains contractually obligated to pay rent and their share of property offering expenses for the remaining terms of their leases.

Turning to transactions. We’ve completed a high volume of transactions during 2013. We continue to upgrade portfolio quality by redeploying proceeds from the sale of non-core assets into new investments with better growth potential.

During the quarter, we sold two retail properties and portions of three other shopping centers, for a total sale price of $41.5 million. For the full year 2013, we sold 9 properties and portions of three others aggregating approximately 702,000 square feet, plus 66 acres of vacant land, for a total price of $72.7 million, recording a net gain on sale of $6.9 million. This is the largest amount of dispositions completed by the company in s single year. We anticipate a similar level of dispositions in 2014, as we continue our capital recycling efforts to refine portfolio quality and harvest returns at properties where we believe we had maximized value.

Turning to acquisitions. During the fourth quarter, we acquired three retail centers, comprising 504,000 square feet for a total purchase price of $84.8 million. Together with PGGM, we acquired The Whole Foods, CVS anchored Cedar Center South, in University Heights, Ohio for $24.9 million and Fort Smith Pavilion, a regional power center in Fort Smith, Arkansas for $43.3 million.

Fort Smith Pavilion, is a Target shared and linked [ph] center which includes a best-in-class line up of retailers including Bed Bath & Beyond, Dick’s Sporting Goods, Ulta, Michael’s and others. For our consolidated portfolio, we purchased our first shopping center in the southeast region of the country. During the fourth quarter, we acquired Phase I of the Goldenrod Marketplace in Orlando, which includes Marshall’s and LA fitness and a shadow anchored by a new Super Wal-Mart. We were closing the Phase II upon the completion of construction later this year.

For the full year, we acquired a total of $394 million in asset value, aggregating approximately 3 million square feet of prime retail space. Including the acquisition of NYSTRS interest in the IN retail portfolio. These acquisitions further our goal of increasing the size and quality of portfolio while diversifying market and tenant concentrations. As we look ahead, we are existed about the opportunities within our acquisition pipeline and the growth they represent. Currently, we have both stabilized assets and new development projects in both the Midwest and South East under contract for our consolidated and PGGM joint ventures portfolios. As we continue to execute on our strategy to grow our portfolio, expand the new markets and broaden our tenant relationships

This includes land in the South East that is currently under contract for our first grocery-anchored shopping center development to our joint venture with MAB American retail partners. We are working through the entitlement process in the anchor releasing with our closing on the land acquisition contingent on both, assuming we are successful we anticipate breaking ground before year end.

In summary, we continue to drive occupancy gains and positive rent spreads, create value through redevelopment and improve our portfolio, as we grow the company through the acquisition and development of high quality shopping centers, all of which drive future growth and value.

With that, I’ll turn the call over to Brett.

Brett A. Brown

Thank you, Scott. Good afternoon everyone and thanks for joining our call. We’re very pleased with our strong results for the fourth quarter and full year 2013, including our continued progress and strengthening our balance sheet to provide ample capacity and flexibility to pursue our growth objectives. Specifically, in 2013 we simplified our balance sheet by bringing our joint venture with NYSTRS through its intended conclusion and consolidating the assets previously owned though that venture. We also increased our public flow to the sale of $10 million shares which provide a net proceeds of $101 million that help to fund the accretive acquisitions completed in 2013, including the NYSTRS joint venture portfolio.

This equity issuances coupled with the increase in our share price, raised our total market capitalization to $2.2 billion at year end 2013, from $1.8 billion one year ago. In addition, we recast our unsecured credit facilities which lowered our cost of debt, extended our maturity schedule and slightly increased the capacity of the facilities. Finally, we enhanced our financial flexibility by paying off $67.7 million of secured debt expanding our pool of unencumbered assets to over $800 million at year end of 2013 from less than $700 million one year ago.

We except to continue to use our unsecured line of credit facility and cash on-hand to pay off higher rate secured debt at the earliest opportunity with minimal are no prepayment penalties. For example in December we repaid two loans in advance of the 2014 maturities including a $6.3 million loan on Big Lake Town Square and a $10 million loan on Park Square.

And after the close of the quarter, we paid off $1.4 million loan on Dominick's Countryside which was substantially sold. And the $15.8 million on shops of Greyhawk. Looking ahead, our remaining 2014 debt maturities are very manageable. Excluding the two loans on Lantern Commons $31.5 million of secured loans are maturing and $29.2 million of unsecured convertible notes can be put to our, put to or call by the company in November.

Finally, our debt and coverage ratios continued to improve as a result of our efforts. Our debt to total market capitalization was 46.8% at year end and improvement of 660 basis points of over one year ago, and total debt to gross assets including our pro rate share of joint ventures was 49.2% for the quarter, an improvement of 160 basis points over the fourth quarter of 2012.

For the quarter, our adjusted EBITDA to interest expense coverage ratio was 3.4 times, an improvement from 3.1 times for the fourth quarter of 2012, and our fixed charge coverage ratio pro rata consolidation improved to 2.7 times from 2.4 times for the same period in 2012. Lastly, our net debt to EBITDA including our share of unconsolidated joint ventures was 6.2 times for the quarter, an improvement from 6.7 times for the year ago quarter.

I want to note that the improvement in our leverage metrics reflects not only the continued expansion of our portfolio and reduction of leverage, but also the improved leasing and operational performance of our portfolio. Just regard to liquidity, we have $85 million of borrowing availability under our line of credit facility. In addition, our greater than $800 million unencumbered asset pool can support more than $90 million in unsecured borrowing above the current availability on our line of credit.

Turning to our operational results, we reported FFO of $0.19 per share and FFO adjusted of $0.26 per share for the fourth quarter. I want to note that FFO adjusted per share for the quarter included $1 million of lease termination income related to the sale of a portion of the Park Square Shopping Center and $2 million of operating income related to the true-up of recoverable expenses plus market lease adjustments that were not included in company guidance provide in our third quarter earnings report.

This morning we’ve reported fourth quarter revenue of $52.6 million, an increase of $14.1 million or 36.5% over the prior year quarter. Rental income increased by $8.3 million or 30.6% due to the consolidation of the NYSTRS joint venture assets as well as higher rental rates on new and renewal leases.

Tenant recoveries increased by $6.4 million or nearly 73% due to a corresponding flocculation in properly operating and real estate tax expense from new acquisitions as well as an increase in the rate of which recover expenses related to higher occupancy. On a same-store basis, our tenant recovery rate was 82.8% for the quarter, an increase of 350 basis points over the fourth quarter last year.

Fee income from unconsolidated ventures for the quarter was $1.7 million a decrease of $455,000 due to the consolidation of NYSTRS joint venture assets and lower transaction fee income from IPCC joint venture. Turning to expenses for the quarter, total expenses increased by $31.6 billion over the fourth quarter of 2012, property operating expense, real estate tax expense and depreciation and amortization expense all increased primarily due to new acquisitions including the consolidation of the NYSTRS joint venture assets.

In addition, property operating expense increased due to higher snow removal cost, real estate tax expense rose due to changes in tax rates and the assessed value of our assets and depreciation and amortization increased due to tenant improvements related to new leases.

Regarding asset impairments, we recorded a provision for asset impairment of $13.2 million in the fourth quarter, the majority of the impairment relates to our consolidation of the Southshore development property and simultaneous assignments to our joint venture partner of our interest in the Lantern Commons development property. These actions resulted in the recording of an impairment to reflect Southshore at its current fair value and write-off of remaining investments in the Southshore in Lantern Commons joint venture entities.

We also recorded the impairment on our property under contract for sale at a price below its current carrying cost. Additionally, G&A expense increased by $1.3 million over the fourth quarter of 2012 due to additional staff required to manage our expanded portfolio and higher transaction for pursuit cost and legal cost to put this a perspective, G&A as a percent of total assets under management with only eight-tenth of a percent for the quarter which was in line with the comparable period in the prior year.

Interest expense for the quarter increased by $900,000 over the fourth quarter of 2012, impacted by higher interest expense for the secured debt related to our consolidation of NYSTRS joint venture assets. The increase was partially offset by lower interest expense on our unsecured credit facilities and I’d like to note that interest expense for the full year decreased by $300,000 from last year.

Equity and earnings of unconsolidated joint ventures for the quarter increased by $1 million over the comparable period of 2012, due to higher NOI from properties in the PGGM joint venture portfolio, partially offset by the elimination of income from NYSTRS joint venture. Lastly, income from discontinued operations increased by $1 million for the quarter, due to lease termination income related to the partial sale of Park Square during the quarter.

Looking to 2014, we will continue to work to strengthen our credit metrics to ensure access to a variety of sources of potential capital at the lowest cost with the long-term goal of achieving investment grade status. Specifically, we intend to one, continue to look for opportunities to improve our leverage metrics with a specific focus on reducing our level of secured debt and two, utilize a variety of capital sources to support our growth objectives including capital recycling via dispositions, joint venture capital and incremental debt in equity.

Finally, this morning we provide a guidance for 2014 recurring FFO per share within a range of $0.93 to $0.97. This guidance assumes consolidated same-store NOI growth from 2% to 4% and consolidated same-store financial occupancy at year-end within a range of 91% to 92%. Please note that our guidance for 2014 recurring FFO does not include any of these assumptions for impairments or other non-cash adjustments, or the benefit of lease termination fees if any. On a comparable basis, our guidance reflects a growth range of 1.1% to 5.4% over 2013. Please refer to our earnings release which provides more detail on our 2013 FFO results and our 2014 recurring FFO guidance.

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

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) At this time, we will pause momentarily to assemble our roster. Our fist question comes from the line of Todd Thomas of KeyBanc Capital Markets.

Todd M. Thomas – KeyBanc Capital Markets

Hi thanks. Good afternoon.

Mark E. Zalatoris

Hi Todd.

Brett A. Brown

Hi good afternoon.

Todd M. Thomas – KeyBanc Capital Markets

Hi. So first question just in terms of the CAM [ph] reconciliations that hit in the quarter, it sounded like last quarter you were expecting your recovery ratio to decrease a little bit relative to the prior quarter and you know, I’m just wondering what the primary driver of that sharp increase in this quarter was. May be you can just walk through the accrual method and why there were such a big swing?

Brett A. Brown

Yes this is Brett. I don’t know on a absolute numbers basis it wasn’t huge you see the on a comparable basis to the prior quarter for the same-store it was actually a relatively flat quarter-to-quarter. And so it didn’t take a whole lot to move it up or wasn’t and to get us into that range there. So, it wasn’t any one thing in particular was across multiple assets and so where boiled down to it came in very good.

Todd M. Thomas – KeyBanc Capital Markets

Okay, what are you expecting for your expense recovery ratio in 2014?

Brett A. Brown

With occupancy tracking relatively flat I would expect it to be very similar to 2013, on a percentage basis.

Todd M. Thomas – KeyBanc Capital Markets

Okay. And then, just regarding the MAB development joint venture, you talked about that first land partial that you are close to closing on I was just wondering if you can give as chance of sort of how involved you are in the decision-making so far is your partner driving forward and then they’re calling capital essentially or are you looped into the process a bit more than that and maybe you can just give us a little bit of an update on the progress thus far overall?

D. Scott Carr

And this is Scott. We’re actually quite involved in the MIB process the first partial we have under contract we’ve been involved in this intelligence, we’ve been involved with the conservations with the municipality and the anchored tenants. One of the things we really hope to lend for the process beyond capital is the resources of our leasing team as well as the resources we have in dealing with municipalities in the experience we have. So it is very much collaborative effort and we’re excited to have our first partial under contract it’s in the metro of Atlanta areas but all I can say about at this point. But it’s something that right now is tracking very positively. And we’re starting to get traction on some other potential developments as well. So, we’re looking for some good movement over the course of this year to get this project off the ground.

Todd M. Thomas – KeyBanc Capital Markets

Okay, how quickly do you think that the venture could really ramp-up here into 2015?

D. Scott Carr

Well this first project as I mentioned, we hope to be able to break ground by the end of the year, the others I would say would be tracking into 2015 with potentially land closings between maybe the fourth quarter to first quarter, fourth quarter 2014 to first quarter 2015.

Todd M. Thomas – KeyBanc Capital Markets

Okay, and then just lastly a couple real quick ones with regards to your guidance, Brett where does the $1.5 million lease termination fee income show up on the income statement?

Brett A. Brown

Well, that is in a couple of different spots we have some as in the discontinued operations there, because it was a part of an asset that we have still there.

Todd M. Thomas – KeyBanc Capital Markets

Okay, and then just lastly also for you Brett, looks like to non-cash rent that you collected in the quarter both the straight-line and also the FAS 141 rents increased significantly, is there anything that hit this quarter specifically we should think about making adjustment for I guess what’s a good run rate for the straight line and FAS 141 going forward here?

Brett A. Brown

Yeah, it was little bit of anomaly there we had during the quarter where we did have for again tenant coming out that we had to write-off. So that I would not expect it to be in the level as it was for the fourth quarter, it should be more normalized what we had throughout the year.

Todd M. Thomas – KeyBanc Capital Markets

Throughout the year in 2013 aside from this quarter, okay. That’s helpful. All right, thank you.

Brett A. Brown

Thanks Scott.

Operator

(Operator Instructions) Next question comes from Craig Schmidt with Bank of America.

Craig Schmidt – Bank of America Merrill Lynch

Thank you, given the same-store guidance of 2% to 4% for 2014 and a relatively flattish occupancy pickup, are you expecting an increase submission spreads or what others are going to compensate for that 230% occupancy that you got in 2013?

Brett A. Brown

Hey Craig, it’s Brett. It’s really a function of that space coming online throughout the year we already have space coming online and offline and that. So it’s really going to be as that pickup of the news being coming up being better what we’ll be rolling off. And then, one thing I do want to point out on the same-store, we have a 2% to 4% range there keep in mind, there is no lease termination fee income in 2014 that budgeted compared to 2013 which we had a substantial amount of. And so, if you were to take that lease termination fee income out of 2013 we really be looking at about 200 basis points to 250 basis points higher on that. So it’s going to be a stronger than it appears.

Craig Schmidt – Bank of America Merrill Lynch

And the sequence of the NOI growth by the quarter, will it be stronger in the first half or second half?

Brett A. Brown

It’s relatively flat throughout the year, we got fairly even comps throughout in my opinion. Those trying to move around a little bit and it’s not just flat quarter-to-quarter or I should say consistent quarter-to-quarter. So, but that’s about all I can say, I don’t expect it to move around a lot but it should be fairly consistent.

Craig Schmidt – Bank of America Merrill Lynch

Okay, thanks.

Brett A. Brown

You’re welcome.

Operator

The next question is from Joshua Patinkin of BMO Capital Markets Corp.

Joshua Patinkin – BMO Capital Markets Corp.

Hi, good afternoon everybody.

Mark E. Zalatoris

Hi Josh.

Brett A. Brown

Hi Josh.

Joshua Patinkin – BMO Capital Markets Corp.

Falling back to MAB. Can you give us a sense for the type of assets that you’re looking to build even if it’s grocery-anchored, which grocery company are you looking align with?

D. Scott Carr

Josh it’s Scott. We are primarily targeting grocery-anchored centers and pretty much building to state-of-the-art where would have the grocery-anchored bots in anywhere from 10,000 square feet to 20,000 square feet of shops space and a few pads with that. If you look at the regions in which we’ve targeted, being really Florida, Georgia and the Carolinas. We’re targeting those grocery-anchored as were our most active and expanding in that region. So.

Joshua Patinkin – BMO Capital Markets Corp.

Okay. Okay, and is there a standard lease that you kind of have outlined with any grocers that are active down there or it is that flexible based on the ground you pick out?

D. Scott Carr

It’s both, it would be somewhat standard once we get up and running.

Joshua Patinkin – BMO Capital Markets Corp.

Okay.

D. Scott Carr

Today.

Joshua Patinkin – BMO Capital Markets Corp.

Okay. Okay, and if there is a lot of lease escalations, rent escalations I should say?

D. Scott Carr

Well it is pretty – pretty less to me anticipated with the anchored leases there is generally not a lot of escalations. We would look to build in the income growth through the outlast and the shop leases.

Joshua Patinkin – BMO Capital Markets Corp.

Okay. All right, thanks for taking my questions. Appreciate it.

D. Scott Carr

Sure, thanks. Take care.

Operator

Our next question is from RJ Milligan with Raymond James.

RJ Milligan – Raymond James

Hey, good afternoon guys.

Mark E. Zalatoris

Hey, RJ.

RJ Milligan – Raymond James

I was curious if you guys looked at, or can comment if you looked at the human-diversified transaction?

Mark E. Zalatoris

Oh RJ, this is Mark. We’ve always said that we continue to look at all opportunities to grow our portfolio or if things make sense. So, that said, we can’t provide further detail regarding any individual for confidentiality purposes.

RJ Milligan – Raymond James

Okay, let me ask you in a different way. You guys obviously are aggressive growers in 2013 portfolio acquisition announcement for the development joint venture, are you, what size which you would like the company to be and then what do you think it’s ideal and where do you want to go and sort of how long does is take you to get there?

Mark E. Zalatoris

That’s good question. let’s step back to look. 2013 was a pretty strong year for us we grew nearly $400 million of assets when you particularly if you count that by on our partner NYSTRS in the share of that portfolio, but we’ve put on a couple of $100 million of assets in the other joint ventures and on balance sheet. So, on a row and I think we can grow quite well we’re looking at number of good opportunities right now, the expansion into in Southeast has given us more opportunities to look at properties that we’ve had in the past, and including minding of the some of the relationships with developers that we bought from in the Midwest that are active down there in the Southeast.

So, I really think that we can replicate the kind of success we had in 2013 on a row and I think continue to grow our portfolio that way, but that being said, if opportunity present itself where we could do something substantial that could even double our size. We won’t be afraid of that. We would certainly be active participants if the opportunity was right, the asset type was right, the locations are right where we want to be. We wouldn’t shy away from that. So where do we want to be ultimately? On a nice steady growth path like we have done in the past year, we’re almost up to $3 billion in assets under management and just continue that pace.

RJ Milligan – Raymond James

Okay, thanks for the comments.

Mark E. Zalatoris

Welcome, thank you.

Operator

(Operator Instructions) We have a follow-up question from Todd Thomas of KeyBanc Capital Markets.

Todd M. Thomas – KeyBanc Capital Markets, Inc.

Hi, thanks. I just wanted to follow-up on Craig’s question. You ended the year; consolidated same-store financial occupancy was 91.3%. I think last quarter, you mentioned that you thought – you updated the range that it would end the year at around 89% to 90%. So you handily exceeded that. You were sort of running around 88% to 89% for the full year. So you’re a couple of hundred basis points ahead of that today. Then sort of baking in annual rent escalators and leasing spreads. I’m just wondering why your same-store wouldn’t shake out at a little bit of a higher rate with all of the work that you’ve completed late in the year, in particular.

Brett A. Brown

Let me clarify, this is Brett. The range we’re giving in the past was an average rather than the ending of the year. And so I think if you took the average for the year, we were probably closer to the 90, perhaps. So it’s a little easier to target a year-end number, so that’s kind of we’re giving going forward here. So you can at least compare the year-end 2013 to what we expect the year-end 2014. So I hope that helps a little.

Mark E. Zalatoris

And Todd, maybe just to lend a little color to what we anticipate in 2014 with regard to the same-store pool, we will see a little bit of movement amongst those assets based on dispositions we’re anticipating, as well as potentially taking some space off-line for redevelopment. So there will be some shifts in occupancy in terms of the same-store pool, as well as the makeup of the same-store pool.

Todd M. Thomas – KeyBanc Capital Markets, Inc.

Okay, that’s helpful. And then I know it’s a small deal, but I had a question on the Rite Aid sale in the quarter. I was wondering if you can share how much term was left on that lease and what the cap rate was for the deal?

D. Scott Carr

Yes, hi, it’s Scott. That one had about six years left on the lease. That’s fairly well in terms of sales performance, it was a drive through. And our cap rate on that was right around in that.

Todd M. Thomas – KeyBanc Capital Markets, Inc.

Okay. And then just in terms of the taxes, I know that can fluctuate quarterly. But what sort of range will we be thinking about for the full year? No, I’m sorry not real estate taxes, taxes for the TRS?

D. Scott Carr

That’s a function of the activity through the TRS, which is typically our IPCC activity. But that also changes with our tax provisions, et cetera for various activities that we have. So we had some movement there with the activity around the Pine Tree joint venture where we took the one project and they took the other. And so there were some deferred tax asset liabilities that you have to change your evaluations, so a little bit of noise there in the quarter. Going forward, I would say you are better off just to look at what our typical kind of activity is on IPCC and what kind of tax we’d have on that. So it would be pretty nominal based on the fee income for those.

Todd M. Thomas – KeyBanc Capital Markets, Inc.

Okay, all right. Thank you.

D. Scott Carr

Thank you.

Operator

There appears to be no further questions at this time. I’d like to turn the conference back over to Mark Zalatoris for any closing remarks.

Mark E. Zalatoris

Well, thank you, operator. We just like to thank you all for listening to our call today and look forward to reporting our first quarter results to you in May. Have a great afternoon and stay dry.

Operator

Thank you. The conference is now concluded. Thank you for attending. You may now disconnect.

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