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Winthrop Realty Trust (NYSE:FUR)

Q4 2013 Earnings Call

March 06, 2014 12:00 pm ET

Executives

Carolyn Tiffany - President, Trustee and Member of Ethics & Compliance Committee

John Andrew Garilli - Chief Financial Officer, Member of Ethics Committee, and Member of Compliance Committee

Michael L. Ashner - Chairman and Chief Executive Officer

Analysts

Craig Mailman - KeyBanc Capital Markets Inc., Research Division

Mitchell B. Germain - JMP Securities LLC, Research Division

Charles Fischer

Brett Reiss

Operator

Greetings, and welcome to the Winthrop Realty Trust's Fourth Quarter and Year-End 2013 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to Ms. Amy Grucan [ph] from Winthrop's Investor Relations department. Thank you, Ms. Grucan [ph]. You may begin.

Unknown Executive

Good afternoon, everyone. Welcome to the Winthrop Realty Trust's conference call to discuss our fourth quarter 2013 financial results. With us today from senior management are Michael Ashner, Chairman and Chief Executive Officer; Carolyn Tiffany, President; John Garilli, Chief Financial Officer; and other members of the management team. This morning, March 6, we issued a press release and posted on our website supplemental financial information, both of which will be furnished on form 8-K with the SEC. Both the press release and the supplemental financial information are available on our website at www.winthropreit.com. The press release is in the News and Events section and the supplemental financial information is in the Investor Relations section. Additionally, we are hosting a live webcast of today's call, which you can also access in the website's News and Events section. At this time, management would like to inform you that certain statements made during this conference call which are not historical, might constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although we believe the expectations reflected in any forward-looking statements, including NAV analysis are based on reasonable assumptions, we can give no assurance that these expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements are detailed in the press release and from time to time in our filings with the SEC. We do not undertake a duty to update any forward-looking statements. Please note that in the press release, we have reconciled all non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Regulation G requirements. This can be found in the FFO table of the press release. Please note that all per share amounts are on a diluted basis.

I now would like to turn the call over to Carolyn Tiffany.

Carolyn Tiffany

Thank you, Amy. Good afternoon, everyone. Thank you all for joining us today. During the first half of 2013, we looked to build our cash reserves seeing few opportunities that met our investment criteria. During the second half of 2013, however, we made a number of significant new investments. The accretive nature of which will be evident as we move into 2014 and the operations of these properties are reflected for a full period. In addition to our investing activity, we also continue to execute on our strategy to take advantage of the current competitive pricing for stabilized assets. Towards that end, as we reported today, in 2014, we sold a number of assets in our loan portfolio at a price of $43 million, which provided us with a 16% return over the course of the holding period.

During the fourth quarter, we also sold the last of our Cedar Realty Trust shares, which liquidated all our holdings and [ph] REIT securities. Our overall return on the investment in Cedar shares was 74.6% on an investment of $17.5 million. And what we referred to as our operating property segments since the third quarter, we sold our Newbury Apartment property located in Meriden, Connecticut and our Arboretum office property located in Lisle, Illinois. We also sold our interest in certain assets we owned with Marc Realty for an aggregate price that was equal to our aggregate net asset value reported at September 30, 2013. We took another then temporary impairment on these equity investments for GAAP purposes during the fourth quarter, which negatively impacted our earnings. This impairment related primarily to the suburban Chicago office properties. These assets are located in markets that were hit particularly hard during the 2008 economic crisis.

During the fourth quarter this year, we determined that in light of the lack of demonstrable near-term recovery in these markets for these particular assets and our unwillingness to invest new capital necessary to address tenant rollover and upgrade the property. Because of the poor projected return on this new capital, we decided it was time to exit these investments.

We currently have signed letters of intent to sell our stabilized Crossroads I and II office properties located in Englewood, Colorado and our Jacksonville, Florida warehouse property. We are marketing for sale our Amherst, New York net lease office property. We expect we will sell these assets during 2014 at prices consistent with our reported net asset values. Despite these property sales, our operating property segment continues to grow. Our $84 million investment in 4 luxury apartment properties represents a considerable equity investment. We expect that with the favorable leverage we obtained in connection with this acquisition and the potential for improved value on our assets, this investment should yield an attractive current return and superior overall Internal Rate Of Return. Similarly, our equity in 701 Seventh Avenue is a sizable investment, which we expect will be fully funded at $100 million by the end of the second quarter. The development is on target to be completed by 2017. Demolition work is underway and formal groundbreaking is scheduled for April. As we reported previously, under the terms of our venture, assuming the sale of this property in 3 years at a price of approximately $1.03 billion, the company will receive a return of its capital at a 12% IRR. In addition, for every dollar of sales proceeds in excess of approximately $1.103 billion, we are entitled to receive approximately 15.3%. Our Vintage portfolio continues to perform very well and has an overall occupancy rate of 97%. In the fourth quarter, we received a quarterly cash distribution of $1.6 million on our equity investment of approximately $32.25 million. The Tacoma development property is completed, fully leased and expected to convert to its permanent financing later this month. The other development projects in our Vintage venture, Urban Center and [indiscernible] are on schedule and within budget. Our COE venture is now down to 1 property, Northwest Business Park located in Atalanta, having given back the new market property to the lender during the fourth quarter. We carried the new market property on our books and for net asset value purposes as 0. We think that the Northwest Business Park has improved this year, going from 70% leased at December 31, 2012 to 77% at December 31, 2013.

Our remaining operating properties are stabilized with an overall occupancy in our consolidated office and retail properties of 91% with no major lease turnover in 2014. This represents a 2% increase from September 30, 2013, reported occupancy of 89%, due largely to positive leasing activity at 1515 Market Street in Philadelphia. Our remaining loan portfolio is performing well. During the first quarter of 2014, our Queensridge loan paid off in full and in addition to do the par value, we received a yield maintenance payment of $1.8 million. We also expect to receive a payment in excess of par on account of our equity participation feature on our loan secured by an office property located in Playa Vista, California, which is currently being marketed for sale.

Our Concord CDO continues to cash flow and we received distributions of $1.3 million during the fourth quarter. You will note that in our supplemental report, we have increased the high end of the range of net asset value attributed to the Concord investment from $40 million at September 30, 2013 to $24.4 million at December 31, 2013. This is due primarily to improved collateral value and certain of the underlying investments, giving rise to greater expectation recovery. In 2014, we made a new $16 million mezzanine loan secured by Freed Management's interest and entities, owning 2 retail shopping centers in Chicago, Illinois. The loan bears interest at LIBOR plus 12%, subject to annual 50-basis-point increases. Upon satisfaction of the loan, Winthrop will be entitled to a participation interest as described in today's release. As additional collateral for the loan, Winthrop acquired a pledge of the interest held by Freed Management and its affiliates in the Sullivan Center and Mentor Retail ventures. At December 31, 2013, we had unrestricted cash and cash equivalents of $112.5 million.

Finally, our reported range of net asset value per common share increased to $13.80 to $15.83 from our reported range of $12.98 to $15.01 at September 30, 2013. The increase is the result of increased values at a number of our operating properties, including our 1515 Market Street, Philadelphia property, which has resulted from increased occupancy discussed earlier, improved occupancy and operations at our Lake Brandt and Waterford Multifamily Properties, as well as our retail property located in Chicago and our vintage platform. Complementing these value increases is the increase to the high-end range of our Concord investments previously mentioned. Overall, we are seeing improved metrics across our portfolio and this is reflected in our reported NAV. Keep in mind that this rise in net asset value gives no significant increase to the value of the luxury residential portfolio or our investment in 701 Seventh Ave., 2 sizable assets, which we expect will increase in value over time. Now, I will turn the call over to John Garilli. John?

John Andrew Garilli

Thank you, Carolyn. Good afternoon, everyone. I will provide an overview of Winthrop's financial results, as well as the review of our business segments for the quarter and year ended December 31, 2013. For the quarter ended December 31, 2013, we reported a net loss of $8 million or $0.22 per common share compared with a net loss of $4.9 million or $0.15 per common share for the quarter ended December 31, 2012. The increase in net loss is due to the impairments taken with respect to certain Marc Realty properties, which I will discuss shortly. Funds from operations or FFO for the fourth quarter of 2013 was $7.8 million or $0.22 per common share compared with FFO of $5 million or $0.15 per common share for the fourth quarter of 2012. For the year ended December 31, 2013, we reported net income of $17.3 million or $0.51 per common share compared with net income of $15.3 million or $0.46 per common share for the year ended December 31, 2012. FFO for the year ended December 31, 2013 was $45.8 million or $1.36 per common share compared with FFO of $46.4 million or $1.40 per common share for the year ended December 31, 2012. We disposed of certain assets in 2013 and we recognized $11 million in gains on sale of real estate. These gains are included in income from discontinued operations, but are excluded from the FFO calculation. As Carolyn mentioned, during the first quarter of 2014, we sold our interest in certain properties we owned with Marc Realty. As a result, we recognized $7.7 million of other than temporary impairment charges on these equity investments in the fourth quarter of 2013. These impairments are included in income from continuing operations and while the impact of this is reflected in our overall net income, they do not impact our FFO. Operating results by business segment for the quarter ended December 31, 2013 were as follows: With respect to our operating properties Business segment, operating income was approximately $12 million for the 3 months ended December 31, 2013 compared with approximately $8.8 million for the 3 months ended December 31, 2012. Operating income increased by $2.6 million from our consolidated operating properties and $600,000 from our equity investment operating properties during this period. With respect to our consolidated operating properties, operating income from our same-store properties was $6.2 million for the 3 months ended December 31, 2013, down approximately $300,000 from the comparable period last year. Our new stores generated operating income of $3.2 million in the quarter. Both revenue and expenses from same-store properties remained relatively stable for the 3 months ended December 31, 2013 as compared to the same period in 2012, with revenue decreasing from $11.1 million to $11 million and operating expenses increasing from $3.5 million to $3.7 million. The revenue decrease was due primarily to a decrease in revenue at our Amherst, New York property, which resulted from a lease modification signed in 2013 that lowered the current rental payments, but extended the terms of the lease. This was partially offset by increased revenue at our 450 West 14th Street property in New York, New York. Our new store properties, which consist of our office property in Philadelphia, Pennsylvania and our residential properties in Greensboro, North Carolina; Stamford, Connecticut; San Pedro, California; Houston, Texas; Phoenix, Arizona; and Oklahoma City, Oklahoma, generated revenue of $7.4 million. New store operating expenses were $3 million for the current period and real estate tax expense was approximately $1.1 million.

Net operating income from operating property equity investments was $2.6 million for the 3 months ended December 31, 2013 compared to net income of $2 million for the 3 months ended December 31, 2012. The increase was due primarily to the recognition of $1 million of income from our 701 Seventh Avenue in Times Square investment, which closed October 16, 2012. We also recognized the $600,000 decrease in operating loss from our Sealy Newmarket investment, primarily as a result of having recognized losses in prior periods, which brought our investment balance to 0 at December 31, 2012, resulting in the suspension of the recognition of additional losses. Operating income from our Sullivan Center investments decreased by $600,000 in the quarter as a result of the recognition of our share of operating losses at the property. Our loan assets and loan securities business segment reported net operating come of $6.5 million for the 3 months ended December 31, 2013 compared to net operating income of $5.4 million for the 3 months ended December 31, 2012. This increase in quarter-over-quarter earnings is primarily the result of $1.3 million in earnings recognized in the fourth quarter of 2013 from our Concord equity investments as compared to a $1.7 million loss on these investments in the fourth quarter of 2012. This increase was partially offset by a $700,000 decrease in interest income and discount accretion as a result of loan sales and payoffs throughout the year. A $600,000 gain on the sale of loan securities recognized in the fourth quarter of 2012 and a $350,000 loan loss reserve recorded in the fourth quarter of 2013 on our Rockwell loan receivable, which was in default as of December 13 -- December 2013. Turning to our REIT securities business segment, operating income was $500,000 for the 3 months ended December 31, 2013 compared with an operating loss of $200,000 for the 3 months ended December 31, 2012. The increase in REIT securities operating income for the comparable periods was primarily due to an $875,000 gain on the sale of our remaining holdings of Cedar Realty Trust shares in the fourth quarter. As Carolyn mentioned, we have fully divested all of our holdings of REIT securities as of December 31, 2013. And lastly, [indiscernible], we had cash and cash equivalents of $112.5 million compared the balance of $97.7 million at December 31, 2012. Now, I'll turn the call over to Michael Ashner. Michael?

Michael L. Ashner

Thank you, John, for that scintillating discussion. I would like to touch briefly on a few of the matters described by Carolyn from my perspective. Acquisition investment activity during the last quarter of 2013 and into the first quarter of 2014 reflected, from my standpoint, a number of factors. First, with the hanging around the hoops factor as seen in the ST Residential acquisition, which is often the case with us. We made a fair bid for the entire portfolio. We were rejected when higher bids were received. We continued to monitor the process closely and ultimately, when the bids fell apart, as marketed interest rates rose, we ended up acquiring 4 of these 11 assets 5 months later at our initial bid price. Follow-on investments play an equally prominent role as a company increases investment in Times Square from $36 million as of the end of the third quarter to $89 million presently and expanded it to include the 452-room hotel component. Parenthetically, I believe the agreement to open a Marriott Inc. [indiscernible] Hotel will be a huge boost for this venture. Similarly, our first quarter investment to Freed Management relating to a Chicago shopping center holdings can be considered as follow-on, first, to Sullivan Center and then to their mentor building investments we made with the Freed organization. A primary concern to us, however, is the impact to real estate and real estate-related investment opportunities from the substantial flow of investment capital into this sector, which, in our view, has both compressed equity capitalization rates and subordinate loan yields to presently unattractive levels on a risk-adjusted basis. Apart from follow-on transactions are those with structural complexity or those with borrowers' issues. We are finding it increasingly difficult to source new satisfactory opportunities. Nevertheless, a frothy capital market does have certain benefits. First, debt capital is certainly inexpensive based on historical trends. Consequently, we have taken advantage of the low interest rate environment to finance and refinance our assets wherever possible. Most notably, we've financed our $246 million acquisition of the ST Residential portfolio with a new $150 million LIBOR plus 200-basis-point facility and refinanced our $111 million LIBOR plus 11% Sullivan Center loan with a new $113 million fixed-rate 3.95% loan. This is the least expensive debt capital I've ever experienced in my 33 years of real estate investing and we want the company to take advantage as much of it as it can utilize.

Separately, we're enjoying strong leasing activity as substantially all of our post 2009 office and multifamily acquisitions. How much of this is due to our low-cost basis relative to our competitors rather than real economic growth in our office assets is hard for us to say. The other side of the coin to a frothy investment environment is a rise in real estate asset pricing from the sales perspective. We're jumping on this wholeheartedly. As Carolyn mentioned, during the first quarter, we sold a substantial portion of our subordinated debt portfolio at a blended yield to maturity of 10%, creating a 16% IRR in the investment to the company. We also closed the sale of Newbury Apartments during the first quarter at the NAV price. We have recently marketed and accepted bids on our Crossroads I and II and Jacksonville properties at a very favorable front pricing and are currently marketing our Amherst, New York property, which we recently entered into a long-term lease extension and modification with the tenant. We expect all of these properties to be sold by year end at pricing comporting with our published NAV range.

Finally, we have this quarter exited 3 of our 4 legacy Marc Realty assets within our published NAV range, although at a loss to our historic basis. Subject to REIT holding period limitations, it is our intention to sell as much of our mature, stabilized assets into this market as possible. On the sales side, we certainly like these pricing levels and we'll use it to build our near-term cash reserves. We continue to harvest some strong concerns, however. As I mentioned already, the availability of new replacement investments, which satisfy our risk return hurdles, currently appears limited. On reflection, the recession of 2009 to 2012 was a much easier investing environment for this company than the present. Building our cash resources also is a vital concern so we can avoid or minimize effect of dilution if and when future opportunities arise. Finally, and most importantly, bringing our stock price more in line with our reported NAV continues to be central focus of ours and we will continue to pursue any and all alternatives to remedy this issue. These are our concerns. This is our focus. And let's open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question is from Craig Mailman of KeyBanc.

Craig Mailman - KeyBanc Capital Markets Inc., Research Division

Michael, maybe just staying on your last theme here about finding it easier to monetize assets rather than redeploy that capital, given the fact that you guys have $112 million of cash in the balance sheet. Just maybe your thoughts on where that cash balance could trend and potentially what the timeframe could be on redeployment, what maybe needs to change in the environment for you guys to get more comfortable redeploying that. Or is it something where you'd do a special dividend at some point to return some of that to shareholders?

Michael L. Ashner

Well, this is a multipronged question you asked. A lot of it depends on the macroeconomic environment. Right now, the lessons that we learned in 2005 to 2011, for us, was that it's better to have cash if you think the environment is too expensive to invest than not to have cash because as a result, you find very often that the market opportunities that are created when the market does a sudden downturn. So for the near-term, it's accumulate cash, looking to take advantage of any change in the macroeconomic environment as it affects real estate. If that were not to change, if that is to say, we were to determine that there is a midterm or long-term environment in which we don't see opportunities for one reason or another, then of course, we would consider returning that capital to investors to some point.

Craig Mailman - KeyBanc Capital Markets Inc., Research Division

Okay, that's helpful. Carolyn, how much could you sell for the balance of this year and not run up against Safe Harbor issues?

Carolyn Tiffany

Obviously that's something that we monitor. It depends, part of it -- I mean, we do still have a little bit of room. We can do 7 sales. But if we sell assets, for instance, the loan portfolio that we just sold, we sold a number of assets that it was considered one sale because it was sold as a portfolio. So we're monitoring that.

Michael L. Ashner

I think I'd like to add that pretty much, everything that we own other than ST Residential and 701, one can consider -- can be structured to sale pretty much when we buy something and we acquire something, we structure so that we can dispose of it once it becomes mature and stabilized. So it's a difficult question. The difficulty with the question is simply that how we want to aggregate assets for sale in any given 12-month period.

Carolyn Tiffany

Also, the 2-year Safe Harbor, a number of assets that have stabilized, for instance, Waterford Apartments in Memphis, those are assets that we might consider selling, but we have to wait till the 2-year Safe Harbor is up.

Craig Mailman - KeyBanc Capital Markets Inc., Research Division

Okay. So I mean, at this point, you have between Crossroads, Jacksonville and Amherst, it's like another call it $65 million on top of what you guys have done year-to-date? So I mean, it's -- you could potentially get to that kind of 1 75 [ph] of asset or loan sales this year.

John Andrew Garilli

We could.

Craig Mailman - KeyBanc Capital Markets Inc., Research Division

Okay. And then, Michael, maybe just your higher-level thoughts because obviously, none of us can predict the future, but what do you think from your standpoint, opens up the log jam a little bit gives you guys better opportunities?

Michael L. Ashner

I think the most likely source of opportunities is a rise in interest rates. Yes, when we saw in -- the ST Residential transaction basically came to us because when it was bid by everyone in April and May, entered -- and we lost it. The high bidder, bid $100 million more than us. Interest rates popped, as we all recall, in June and pretty much all the bids fell apart. We were the only ones that were still at the table. So I would say that if I had to look at it near-term, I can't predict the events throughout the world, whether the Ukraine lobs a nuclear missile to Soviet Union or the Israelis bomb Iran. But I would say that one event that I would think would have created the most opportunity that I can take some comfort in predicting is a rise in interest rates. And that's why we would like that cash.

Operator

Our next question comes from Mitch Germain of JMP Securities.

Mitchell B. Germain - JMP Securities LLC, Research Division

Michael, I think a couple of quarters ago, you had said, the deal pipeline, you were feeling really good about the deals you had under underwriting. It seems like you're backing away a bit. So back then, we had some interest rate volatility, today less likely or more stabilized. I mean, that's really kind of -- like you just said, that's going to be really what kind of unlocks and kind of brings forth more opportunities. Is that to the way you approach it?

Michael L. Ashner

Well, I mean, with the last question, Craig. Craig's question was what factors would I identify as that which creates the volatility that I can -- I would say interest rates are those that do, volatility in the interest rates creates the most amount of volatility in our business on a near-term basis. Other than that, it's hard for me to predict if there's -- I think, growth throughout America is relatively anemic. So that's not going to bailout real estate in most sectors. So you don't have the -- I don't think you have the wind at your back such that if something changes, with respect to interest rates particularly, that real estate is going to avoid volatility at that point, and not opportunity. That's my opinion. If I just say this, Mitch, if I was such a genius on interest rates, I'd be out of the real estate business. I'd be in the betting interest-rate futures business.

Mitchell B. Germain - JMP Securities LLC, Research Division

Exactly. You've done a good job, obviously, repositioning the portfolio, reducing some of the secondary market, focusing more on in-fill. We have heard through some of our broker contacts, obviously, increased activity in secondary markets. Is that something that you are looking at today to possibly put some capital to work? Or is that a trend that you would rather remain a bit of a spectator on?

Michael L. Ashner

No. I think, in fact, I want to step away from that. When we -- to the extent we are in secondary markets in 2011 and 2012, they were very cheap. You could buy -- we bought Crossroads for, I don't know, $70, $80 a square foot, Deer Valley. I think that the interest that people are showing in the secondary markets is primarily because they just have too much cash to invest. You buy the secondary market at an $8, you'll end up selling it at an $8. They don't have the strength, they don't have pricing power and economic demand takes longest there. Unless you can just steal something or get it very cheap, we have no interest. And there's nothing that we can steal or get very cheap in these secondary markets right now, particularly for the reason you just highlighted, that capital is not moving into those markets. The fact that capital moves into a market and starts buying something doesn't make it right. What are the underlying economics of those markets? What is the rent growth? What is the demand growth? What's happening? That's the essential question. And as I just alluded to, if it's not very inexpensive, we're not going to be a player in the secondary markets.

Carolyn Tiffany

And I think, as you can see, we've actually been -- we've been exiting. We're selling our Crossroads, we're getting rid of the Marc Realty, Chicago suburban. We're really looking to exit those markets at this point.

Mitchell B. Germain - JMP Securities LLC, Research Division

Great. And last one for me. I know you've got 3 developments underway in Vintage. Is there any more of land that you can monetize in the future with that portfolio?

Michael L. Ashner

Well, I mean, Carolyn, you run the deal. What's your view?

Carolyn Tiffany

The Vintage, I mean, they're always looking. They are a smaller organization, but they are always looking for opportunities. There are some things that they do have in their pipeline, but haven't pulled the trigger on yet.

Michael L. Ashner

We're dependent on them. These are good partners, know what they're doing. All of their projects are very successful. They've generated a ton in cash flow on a relatively low investment. If we were to tamper with it, I'm afraid we'd break it.

Carolyn Tiffany

And our partner has significant personal net worth tied into the company. So he tends to be deliberate, which we appreciate. So I do expect that this is a platform that has potential for growth. But it will be slow and deliberate.

Operator

The next question is from Charles Fischer of Ellis Partners.

Charles Fischer

I have a couple questions for you. The NAV at Memphis and Greensboro improved nicely in the quarter. Would you think those are leasing improvements based on the market or did you do specific -- did you take any specific actions to improve the leasing?

Michael L. Ashner

The answer is a bit of both. Where Lake Brandt had dipped a bit in the first quarter and second quarter of 2013 and we focused the management's efforts on that and turned Lake Brandt around. It wasn't that it was a terrible problem, but we do our NOI -- our valuation based off of NOI so that -- in that market, it was more than we saw there was a little weakness and it was addressed. Waterford was a combination of both. Waterford, as you may recall, was a loan-to-own situation, so we bought the loan from a bank and then foreclosure of the property and although it wasn't in terrible shape, foreclosure disruptive on the operations of the property, the property's operations were fully restored to where they should be and they are now reflective of what it can do.

Carolyn Tiffany

Yes, just to supplement that, we did a lot in terms of tenant -- improving the tenant space at that property. So during 2012, when we were running through NOI, in 2013, we had a lot of tenant write-offs, receivable write-offs as we transitioned that property into a better quality tenant. So now that, that process has kind of washed itself out, we are expecting higher NOI.

Charles Fischer

Terrific. At 1515 Market Street, you guys had a great quarter. Can you give us some color on the outlook for the asset in '14 and do you expect the leasing success to continue there?

Michael L. Ashner

Well, the leasing trajectory is ahead of our projections. It's a great product. I mean, you know Philadelphia, it's very -- a center city right at the square with a subway terminal below it. It has great access, great location. Our management company has done a really good job with leasing it up. I would suspect or project that we hit over 90% by the end of this year. We're ahead of our target on that property.

Charles Fischer

Michael or Tiffany, can you give us an update on how the 4 luxury residential properties are doing operationally?

Michael L. Ashner

The San Pedro is doing what it's supposed to be doing at this point and we've taken over the management. 44 Monroe is doing what it's supposed to be doing and we've taken over management there. Mosaic needs a little primping based on leasing analysis that we've done and we'll be taking over management there in -- probably in a month. But all of them in their occupancies, it's 3 of them probably blended, blended in mid-90s, low 90s. And then the Stamford property's 100% leased. In fact, we had to give up, at least not, this used to be an apartment. We're giving it up and trying to build a separate leasing center. So we're doing fine.

Charles Fischer

Terrific. My next question is a little more nuanced. When you did the secondary a couple of months ago, management was precluded from participating due to inside information. Has all that information become public or are the insiders still restricted from buying shares?

Michael L. Ashner

We've restrictions in buying shares is we have -- I assume the window opens and closes for us like it does for every company. What's currently restricting us is that, that's sort of an ethical restriction. We've a stock buyback program in place. I think, it's fair that we buy stock with the company and if we think the stock is cheap, we should buy for the company, not for ourselves.

Charles Fischer

That's a great answer, Michael. That leads me to my next question, which is, given, of course, the current share price, and you've sort of these asset sales that helped to reliquefy the balance sheet. It looks like buying back stock had a 15 -- if you assume of $15 meeting NAV, we're looking at about a 20% discount, which looks to be an outstanding risk-adjusted investment. Could you talk about that? I know you like it, but we haven't seen [indiscernible] buyback.

Michael L. Ashner

It's part of the alternatives we consider. But bear in mind that the company's repurchase of stock is subject to significant SEC regulations. How much trading activity goes on that day? How much we can buy, all of that. But the answer is that like a special dividend, like other alternatives, we would consider with our capital, one of which would be buying back stock.

Charles Fischer

As a long-term shareholder, it seems to be a bit of head scratch on why we would have a special dividend if you can buy back stock at a discount to NAV? It's super-accretive, it's tax-efficient, it just makes the world go round for me.

Michael L. Ashner

Before I say yay or nay, of course, Carolyn was taken [indiscernible], you have to take into consideration GAAP, you have to take into consideration this and that. I don't know enough to make to be definitive. But to me, buying back stock, I like buying back stock if it can be bought back at a favorable return to the assets. It's the purchase, as you know, best in life. It's easier to buy your own stock than to buy a building. You know everything -- you should know everything that you can know about it, right? So on a risk-adjusted basis, it's a good deal.

Charles Fischer

I completely agree. Did the accountants make you do a straight line on rental adjustment on Sullivan Center and 450 West 14th, or is that a different reason why that was taken?

Michael L. Ashner

I wouldn't know the answer to that.

John Andrew Garilli

Yes, the straight-line rental on 450 is clearly a GAAP model adjustment due to the long-term ground lease measure with fixed terms and then a similar situation on the Sullivan Center.

Charles Fischer

Okay. And Carolyn, on the Vintage portfolio, is there an opportunity to sell or redo the tax credits as some of those properties reached the end of their 15-year compliance period? And are any of those properties getting to closer to that 15-year benchmark period?

Carolyn Tiffany

Yes, they do. They start to roll actually in 2014 and we are in discussions with our partners for the best execution on that.

Charles Fischer

terrific. If you don't mind, I have just 2 more questions, maybe. Could you get shareholder approval, not necessarily for liquidation, but maybe it is to give you some more flexibility on asset sales. You get shareholder approval for liquidation, you don't actually liquidate, but then you could actually sell more than 7 assets. Is that something that is possible?

Michael L. Ashner

Well, if we were to get shareholder approval to liquidate, we would liquidate because we could go to jail if we said we're going to liquidate and did not.

Carolyn Tiffany

And over the kind of the REIT requirements, once you adopt a plan of liquidation, then you have 2 years to liquidate, and if you don't liquidate within that 2 years, then any remaining assets get transferred into a liquidating trust.

Michael L. Ashner

So would be, to your point, a liquidation would have significant tax benefits on sales of assets. We could sell more assets and the character of the gain if we chose, for example, to do the condominium conversions ourselves on the ST portfolio would be more favorable.

Charles Fischer

Okay. And then my last kind of question was on Times Square. Would you expect -- I'm not trying to sort of go too far on this, but do you think, Michael and Tiffany, that we would sign a -- that your partner -- our partner would sign a lease for the retail space in '14? Or maybe 50-50? Or any kind of guidance you might give us on that.

Michael L. Ashner

Well, just so it's clear, no lease can get signed without Winthrop's consent. No financing can take place, no sale can take place without Winthrop's consent. We have very strong negative bidder rights. Having said that, we have great partners. Witkoff is doing -- Witkoff Group is doing a phenomenal job and I have to compliment them. I think that it's going to be a more deliberative process on what the kind of tenant it is that we want. It's going to, obviously, be a marquee international tenant. Once this line of thinking is just marquee international tenant, who wants to make use of its presence there from a marketing standpoint, every bit as much as just sales per square foot because it's one of the most visible corners on Times Square, internationally. Having said that, there's other opportunities to develop the space for like a mart basis, like jewelry mart and find 4 or 5 retailers in a particular industry and all of them use that space. They have separate portions of that space. One thing to note is that with the Meriden addition, the top 2 floors which would've been the most difficult are now leased to Marriott under the Marriott agreement. So we're really talking about the 4 above ground level floors, the 2 below ground level floors. So we're giving a lot of thought to that.

Charles Fischer

Is it the last -- I guess, you just said Michael, obviously the first and second floor on Times Square would be assumed those are snapped to rent and you just got to find somebody who actually needs. Is it still 80,000 square feet we're in the market for?

Michael L. Ashner

No, we're down to 60,000 square feet.

Charles Fischer

60,000 square feet. So then that broadens it out because our last year's attendance that needs 80,000 square feet versus 60,000 square feet or maybe 40,000 square feet, I guess, as you get smaller, you got a lot more people that can [indiscernible].

Michael L. Ashner

That was a benefit from the addition agreement. I think it's just sort of premature to decide what we're going to do. It all set dovetails into what we're going to do with the signage, whether the tenant, which is, I think we all favor is that the tenant assumes the rental on the signage [indiscernible] because you're going to sign a lease or leases, which is going to tie that property up to 15 years, right? No one's signing on their around a 10-year lease because the rent's going to be through the roof. And you have to give a lot of thought to that.

Charles Fischer

Sure. And I know maybe you don't know, but do you see that as a '14 or a '15 event more likely?

Michael L. Ashner

I don't think the decision will be made before the first quarter of '15.

Operator

The next question is from Howard Alter [ph] of Ground View Capital. [ph]

Unknown Analyst

My question is more about the cause of the divergence between the current share price and NAV? To what would you attribute that? Because sometimes to solve the issue, we have to first define what's causing it. So what were your thoughts on that?

Michael L. Ashner

I think there's a multitude of factors that affect it. It has nothing to do -- it has certainly does not have anything to do with effort of Carolyn and I to reach out and meet with investors. I think, if I was in no particular order of importance, and I would suspect that, one, there is -- we're small. Two, we're complex, so it takes more time for an analyst to figure us out than they would a company which is dedicated, for example, to retail. You have to spend the time on us. Three, we are reluctant to issue common equity and that has a number of different unfavorable aspects to it. Investment banking firms and analysts like companies that issue lots of common equity. Two, if you issue lots of common equity, people and your equity cap grows. People are more analysts and people are almost required to follow you. People are almost required to own you then, whether they like you or not. This company is very -- I mean the first and foremost issue is -- for us and we think about what we're going to do, is how it impacts on our long-term earnings and our NAV. So we have to do things that are going to both improve NAV and if we're going to issue securities, they have to be -- the deal has to be accretive to any dilutive effect. That's how it impacts somewhat. And I think the management in -- our only way here is reluctant to just sell stock. It's particularly into a market to find investments that we think are not -- do not reflect our risk return hurdles. Carolyn, please? What's your opinion?

Carolyn Tiffany

No, I would agree with that. I mean, we've been trying to solve for this disconnect now for some time and we've -- the feedback that I generally receive is that what Michael referred to, which is the size of the company and the lower center trading volume is a challenge for a lot of investors. Our view is that as long as we continue to improve value, that the shareholders will benefit from that and ultimately, the price will start -- that gap will start to narrow. But we have been very frustrated with it.

Unknown Analyst

It would seem to me that possibly one of the setbacks was the secondary offering that was done towards the end of last year because it appeared as though there was convergence that was beginning to take place. And then given the status of that secondary at such a discount, it's sometimes creating echo or an ongoing concern that there will be additional offering of securities that will be dilutive to the existing shareholder base. Are you willing to [indiscernible]?

Michael L. Ashner

I think, it's a valid position that you've taken. What is interesting is we did not do any subsequent dilutive offerings. Rather, we engaged in recycling our capital and notwithstanding the fact that, that offering was diluted to common equity, that in fact 6 months later, our NAV is higher than it was before. So that the dilutive impact of that offering was offset somewhat by the accretive nature of what we're doing. But it wouldn't have been -- you're right. It would have been self-evident at that time.

Operator

The next question is from Brett Reiss of Janney Montgomery Scott.

Brett Reiss

Is there any way other than like the signing of leases that, I, as an outside observer, can monitor the progress of the 701 Seventh Avenue since it's such a key material project for the company?

Michael L. Ashner

I'll tell you how I think about it. First of all, the moment we have a lease, you'll see me running up and down Park Avenue with a sandwich board tied to my back saying we leased it, we're good to go, this is it. So there will be no hesitancy to give -- provide that information. Having said that, I think, there's one element that people seem to overlook. You have $1 billion, you have a project which is estimated to cost $915 million. We've got a Marriott addition going up there, 450 rooms with food and beverage. One way to figure out what we've already nailed down in value is to research what the value is on a per key basis of Times Square hotels, that information is out there on the sale for -- when these things -- and there's not very -- they're not sold very frequently, but when they're sold, that would give you some insight. I would say to you that, that -- I don't think people would challenge a view that on a per key basis a new hotel should sell more than $1 million a room. And I mean, more than, not $1 million a room.

Brett Reiss

Right. Refresh my recollection, what percentage of this project is ours?

Michael L. Ashner

It works this way. I want to make it simple as I can make it -- as I make it to anyone. Roughly $1,300,000,000. We get back all of our money plus 12% because we -- and at that level we have 62% of the equity capital. There's a gap and that gap is to about another $100 million which all the subordinate equity, it's their money back and return. We have 15.5%.

Operator

We have no further questions in queue at this time. I would like to turn the floor back over to management for any closing remarks.

Michael L. Ashner

Again, we appreciate you joining us for today's call. If you have any additional questions or would like to receive further information about us, please feel free to contact Tiffany or me directly. Our contact information is available on the website. I thank you all, and have a good afternoon.

Operator

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and thank you for your participation.

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