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Retail Properties of America (NYSE:RPAI)

Q1 2014 Earnings Call

May 06, 2014 11:00 am ET

Executives

Michael Fitzmaurice - Vice President of Finance

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

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

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

Analysts

Grant Keeney - KeyBanc Capital Markets Inc., Research Division

Christy McElroy - Citigroup Inc, Research Division

Jay Carlington

Vincent Chao - Deutsche Bank AG, Research Division

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

Operator

Greetings, and welcome to the Retail Properties of America First Quarter 2014 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded.

I will now like to turn the conference over to your host, Michael Fitzmaurice, Vice President of Finance. Please go ahead.

Michael Fitzmaurice

Thank you, operator, and welcome to Retail Properties of America first quarter 2014 earnings conference call. In addition to the press release distributed last evening, we have posted a quarterly supplemental package with additional details on our results in the Investor Relations section on our website at www.rpai.com. On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under federal securities laws. These statements are usually identified by the use of words such as anticipates, believes, expects and variations of such words or similar expressions. Actual results may differ materially from those described in any forward-looking statements, included in our guidance for 2014, and will be affected by a variety of risks and factors that are beyond our control, including, without limitation, those set forth in our earnings release issued last night and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings.

As a reminder, forward-looking statements represent management's estimates as of today, May 6, 2014, and we assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Additionally, on this conference call, we may refer to certain non-GAAP financial measures. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definition of these non-GAAP financial measures in our quarterly supplemental package in our earnings release, which are available in the Investor Relations section of our website at www.rpai.com.

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

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

Steven P. Grimes

Thanks, Mike, and thank you, all for joining us today. This morning, I will touch on our financial and operational results and our ongoing progress on our strategic portfolio and balance sheet initiatives. Angela Aman, our CFO, will provide further detail on our first quarter performance and updated guidance. And then Shane Garrison, our CEO and CIO will provide additional color on our operational activities and external growth opportunities.

2014 is off to a strong start as we continue to execute on our long-range plan and drive incremental value for our shareholders. From an operational perspective, same-store NOI increased 4.5% in the first quarter, driven in large part by our recent leasing efforts. We ended the quarter with a leased rate of 94.6%, an increase of 190 basis points year-over-year. Our strong leasing velocity has resulted in an anchor leased rate of 97.7%, representing an increase of 140 basis points year-over-year. And as we expected, the continued improvement in our anchor occupancy rate has translated into sustained momentum in small shop leasing. In fact, at March 31, the small shop leased rate's at 85.5%, a 410 basis points increase year-over-year.

Last night's press release also highlighted our continued transactional execution with the announcement of our acquisition of 6 shopping centers as part of the dissolution of our MS joint venture in our inaugural unsecured private placement transaction. The dissolution of MS, which is expected to close in June, will result in the acquisition of our partner's 80% interest and 6 high-quality multi-tenant retail assets owned by the venture. This transaction will represent $234 million of acquisition activity against our full year goal of $300 million to $350 million, a very strong start to the year.

In addition, MS represents our last investment property unconsolidated joint venture, and we're pleased to have considerably reduce the company's complexity over the last 2 years with the dissolutions of our RioCan, Hampton and now MS joint ventures. The MS portfolio include Huebner Oaks Center, a dynamic lifestyle Center in San Antonio; Gardiner Manor Mall, a power center shadow-anchored by Target in Bay Shore, New York on Long Island; Lincoln Park, a community center in Dallas located across the street on North Park Center; John's Creek Village, a power center located in an affluent submarket in Atlanta; Oswego Commons, a community center located in one of the fastest growing submarkets in Chicago; and Commons at Royal Palm, a well-located center in Miami. On average, there are over 107,000 people within a 3-mile radius of these centers with income of approximately $93,000. Given the quality and strong demographic profile of these centers, we expect this portfolio will contribute above average NOI growth over in the long term. We are thrilled with the upcoming addition of these assets to our wholly-owned portfolio, and we're pleased by the efficiency of this transaction in light of a continued competitiveness of the acquisition environment.

Before I turn the call over to Angela, I want to take a few minutes to reflect in our trajectory over the last several years. We just passed our 2-year anniversary as a listed public company, and we have made tremendous progress on multiple fronts during that period.

With respect to our operations, we have driven occupancy to 93.3%, a 420-basis-point increase since our initial listing. This improvement is a reflection of the quality of our existing asset base and the strength and depth of our asset management and leasing team. We remain committed to further occupancy gains over the next 2 years, and expect to achieve 95% same-store occupancy by year end 2015. We have also made meaningful progress related to the optimization of our portfolio platform and balance sheet. Over the last 2 years, we have sold approximately $1 billion of non-core and non-strategic assets as we concentrate our portfolio on high-quality multi-tenant retail assets in strategic markets for the company. These sales have contributed to a dramatic reduction in the concentration of single tenant assets in the portfolio, enhancing our long-term growth potential. We initially utilized the capital rates through dispositions to solidify our balance sheet and once those efforts were complete, we began recycling proceeds into strategic acquisitions in our target market, where we believe we will deliver incremental value for our shareholders with a proactive engagement of our local and regional operating platforms.

And with that, I'll turn the call over to Angela Aman to discuss our results in more detail.

Angela M. Aman

Thanks, Steve, and good morning. Operating FFO was $0.27 per share for the first quarter, up from $0.23 per share in the first quarter of last year. The improvement in operating FFO was driven by significant interest expense savings as a result of the successful completion of our deleveraging initiatives, as well as growth in same-store NOI. These contributions were partially offset by the impact of our capital recycling activities over the last year. Including nonoperating items, FFO was $0.28 per share, up from $0.19 per share in the first quarter of last year. Nonoperating items this quarter were primarily related to a gain on the extinguishment of other liabilities, which was partially offset by items relating to the early repayment of debt. The gain on the extinguishment of the other liabilities pertain to the straight-line ground rent liability that was extinguished in conjunction with the acquisition of the fee interest in one of our multi-tenant retail properties during the quarter.

Same-store NOI increased 4.5% in the first quarter, based on same-store occupancy growth of 180 basis points. The first quarter benefited from the year-over-year impact of CAM and tax reconciliation. As you may recall, the outcome of reconciliations had a negative impact on same-store NOI in the first quarter of 2013 of approximately $1.3 million, while reconciliations this quarter had a positive impact of approximately $550,000, resulting in a year-over-year variance of approximately $1.8 million, or 200 basis points of same-store NOI growth.

On last quarter's call, we discussed the expected negative impact of the Gateway on same-store NOI growth during 2014, which we quantified as between 25 and 50 basis points. Due primarily to the net impact of a property tax refund, the Gateway was neutral to same-store NOI growth during the first quarter. We continue to expect that the Gateway will have a 25 to 50 basis point impact on 2014 same-store NOI growth, but that impact will be concentrated in quarters 2, 3 and 4.

Turning to the balance sheet. Our net debt-to-adjusted EBITDA ratio ended the quarter at 5.9x, and our leverage ratio remains relatively unchanged at 39.6%. In addition, our fixed charge coverage ratio continue to demonstrate market improvement ending the quarter at 2.4x.

As we've discussed on previous calls, we remain very focused on continuing to grow the size and enhance the quality for unencumbered asset base. As a result, subsequent to quarter end, we agreed in principle the pricing of $250 million of senior unsecured notes to be issued to institutional investors consisting of $150 million of 10-year notes priced at 4.58%, and $100 million of 7-year notes priced at 4.12%, for a weighted average coupon of 4.4%. This is our inaugural issuance in the private placement market and an important next step in the continued evolution of our balance sheet.

We anticipate no purchase agreements to be executed in mid-May, and funding to occur on June 30. Proceeds will be used to repay mortgage debt and amounts outstanding under our revolving line of credit building additional financial capacity for growth going forward. This issuance remains subject to certain conditions, including the execution of definitive documentation and there can be no assurance that these conditions will be satisfied, or that the issuance of the note will occur on the terms as described.

Turning to guidance. Last night, we increased our operating FFO guidance range by $0.03 per share from $0.96 to $1.00 per share to $0.99 to $1.03 per share, reflecting our strong first quarter performance and additional clarity we now have around acquisitions and capital-raising activity.

Our same-store NOI guidance range of 2% to 3% remains unchanged. This full year range reflects our expectations for the remainder of the year, and takes into account out first quarter performance, which includes the positive year-over-year reconciliation variance and the tax refund impact with the Gateway, which I previously discussed.

As always, our same-store NOI guidance range is based on the pool of same-store properties as we expect to own at year-end. As a result of the timing of certain dispositions, we may experience volatility in same-store NOI growth in the second and third quarters that we do not expect to impact the full year outcome. Straight-line rental income was higher in the first quarter than our expected run rate for the remainder of the year due to the reversal of certain straight-line bad debt reserves during the quarter. As a result, the fourth quarter of 2013 represents a better run rate for this line item. I would also like to mention that we chose to early adopt the new discontinued operations standard this quarter and as a result, the income statement activity related to Midtown Center, which sold on April 1 for $47.2 million, and what's presented on the balance sheet is held for sale at March 31, was not presented within discontinued operations on the income statement. And with that, I will turn the call over to Shane.

Shane C. Garrison

Thank you, Angela, and good morning, everyone. I will discuss our operational results and provide an update on our acquisition and disposition activity. Finally, I'll give some color on a significant redevelopment opportunity within our existing portfolio that had recently gained momentum.

During the first quarter, we continue to execute on our leasing and asset management initiatives resulting in occupancy of 93.3% and a leased rate of 94.6% as of March 31. As expected, occupancy was down 50 basis points sequentially, primarily due to the termination of a dark anchor at one of our centers at Atlanta, although this activity did not impact our lease rate as we have backfilled this vacancy with 3 strong national tenants at a combined positive releasing spread of over 20%. Given today's leasing environment and lack of Class A supply, we will continue to be proactive throughout the portfolio with respect to remerchandising opportunities that can help us reinforce the dominance of our centers.

During the quarter, we signed 204 leases representing 1.1 million square feet, our fourth consecutive quarter of leasing volume in excess of 1 million square feet.

Our leasing pipeline remains robust, filled primarily with potential small shop tenants in categories such as quick service restaurants and various health and beauty, and service-based concepts. Additionally, our leasing spreads were very strong with blended cash re-leasing spreads of 7.2% comprised of a 6.3% spread on renewals, and a 32.9% spread on comparable new leases.

Turning to investment activity, in addition to the MS transaction that Steve discussed, we also acquired 1 multi-tenant retail center during the first quarter for $18 million. Heritage Square is located in Seattle MSA, situated in the major retail corridor of a high barrier-to-entry submarket and has great visibility of I-90. In addition, as Angela mentioned, we also acquired the fee interest in our existing multi-tenant retail assets in the Miami MSA for approximately $10 million.

In total, MS, Heritage Square, and that fee interest acquisition represent $262 million of activity at a weighted average cash cap rate of approximately 6.5%, relative to our acquisition guidance range of $300 million to $350 million. We are extremely pleased with our progress on the acquisition front in terms of pricing, asset quality and strategic fit, and we will continue to demonstrate discipline with respect to capital allocation decisions as we move through the year.

As for dispositions, we completed the sale of 1 nonstrategic single center retail asset for $9.3 billion during the first quarter, and subsequent to quarter-end, we sold a multi-tenant retail asset located in Milwaukee, Wisconsin for $47.2 million. This sale represents our multi-tenant retail exit from the state of Wisconsin.

I would like to spend a few minutes discussing the Boulevard Capital Centre located in the Washington, DC MSA, one of our target markets. We have owned Cap Centre since 2004. This center is in a prime location with easy access and conservative frontage on the Beltway and adjacent to Largo Town Center, Washington Metro Station, which is the last stop on the eastern terminus of the Blue Line. In recognition of the centers unparalleled access and following an extensive RFP process, the center has been approved as the location for the new Dimension Healthcare, University of Maryland Regional Medical Center, a $650 million teaching hospital that will contain approximately 280 beds. Cap Centre is subject to a ground lease with Prince George's County. As contemplated, we will effectively purchase adjacent land and swap approximately 1/4 of our site in exchange for the fee interest to the remaining 51 acres. The hospital will build its own building on a portion of the parcels that we will contribute to the county. However, we will retain significant development rights on the remainder of that parcel. Throughout the negotiation process in coordination with the county, the sector plan has been updated to allow for a significant increased density on the side, providing for approximately 2 million square feet of mixed-use space versus the 400,000 square feet of retail space on the site today.

Although it is very early in the planning process, we had significant interest from multiple new uses, including medical office, hotel and multifamily. Over the next 12 to 18 months, we will be developing our plans for the assets and making determinations regarding which components we will develop ourselves and which components we will monetize to developers with expertise in those categories.

Over the next couple of quarters, we will provide you with update on our plans with respect to anticipated capital requirements and timing. The transformation we expect to occur at Cap Centre over the next 5 to 10 years, reinforces our view that the right real estate attributes are more important to our ability to drive long-term value per shareholders than the current configuration or tenancy of any assets.

And with that, I'd like to turn the call back over to Steve for his closing remarks.

Steven P. Grimes

Thank you, Angela and Shane. We're quite pleased with how our team has continued to deliver strong operating results. Our measurable progress on our leasing and asset management efforts this quarter and since listing, along with how far we have come on simplifying our balance sheet is a testament to our team's focus on our strategic plans. We appreciate your support as we continue to deliver solid result and execute.

And with that, I'd like to turn the call back over to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question today is coming from Todd Thomas from KeyBanc Capital Markets.

Grant Keeney - KeyBanc Capital Markets Inc., Research Division

It's Grant Keeney on for Todd, I'm with Jordan as well. Shane, you mentioned that you're pleased with the pricing you're seeing so far on the acquisitions. Just wondering if you can comment on what the expected cap rate is on some of the properties you're seeing in the pipeline? And also, if you guys can comment on the cap rate on the disposition that you had subsequent to the quarter?

Shane C. Garrison

Yes, on the acquisition side, I think we referenced in the script that we're at a blended, call it, mid-6-point right now, and I think looking at the underlying quality of the acquisitions to date, the lion's share obviously being MS. Very happy with the execution there and I think pricing aside, we just don't see assets of that quality even come to market now. So very happy with the execution to date. I think the pipeline, we're at probably $500 million in the pipeline right now. Most of that product is in Seattle, DC, Baltimore and the New York Metro. We continue to get great traction given our finite market focus there. But those cap rates are probably a little tighter than what we've achieved year-to-date. Where we're at right now, we're probably low end of the range looking at what's closed or announced and what's under contract to close, probably $300 million, call it. So we're in a great position to be opportunistic through the rest of the year and, obviously, happy, where we're at right now.

Grant Keeney - KeyBanc Capital Markets Inc., Research Division

Anything on the disposition side?

Shane C. Garrison

Dispositions have been, I think, we're at just under $60 million for the year. Call it mid- to higher-7s from an execution standpoint. We do have a few other assets under contract right now that should close in the next couple of weeks that are in the mid-6s. So I think on a blend year-to-date, we're probably closer to mid-7, I think for the year, we guided 7%, 7.5%, and we're still comfortable in that range.

Grant Keeney - KeyBanc Capital Markets Inc., Research Division

Okay. And then just touching on the MS joint venture portfolio, Steve, I appreciate the color there. Just wondering if you can just comment a little bit maybe about some of the value-add opportunities if any, also just kind of what the average occupancy is? Just any kind of -- anything you're seeing there in terms of increasing the yield on that going forward?

Steven P. Grimes

Yes. The MS venture started back in 2007, when we didn't really have too much availability for capital, and it was reaching its natural maturity date. So to Shane's credit went to them as a JDV partners, similar to what he'd done with RioCan and negotiated a deal whereby we were able to unwind that venture pretty much on schedule. The proposition for us is fairly simple. These are assets that are in our strategic market, currently in the mid-90s from an occupancy perspective, really good growth potential for the assets and the demographics are very compelling. I had articulated some of those things in my opening remarks, but we'll reiterate them here. These assets, I think are going to be very core to our portfolio on a long-term basis.

Grant Keeney - KeyBanc Capital Markets Inc., Research Division

Okay. And then just lastly, obviously, the strategy to become a little more market-centric over the long term. I was just wondering if you could share with us just what your markets saw some strength and weakness in the quarter? Suspecting you may have had some impact from winter weather, snow. Yes, you guys haven't really commented on that, I was wondering if that impacted growth there on the quarter?

Shane C. Garrison

I'll take the operational side and Angela would love to, I'm sure, fill in the same-store. But -- snow, I don't think it was as impactful for us as we've seen in others. Operationally, we typically fix probably 50% of our snow contracts in those markets that we see as more variable. Obviously, you win some, you lose some, but I think in this case, we were able to hold a lot of our tenants' occupancy cost lower and I think that's favorable to us on renewal conversations and otherwise.

Angela M. Aman

Yes. I mean snow expenses were up during the quarter about $1 million, and that's what drove what was about an 8% increase in operating expenses, but as Shane mentioned much of that was recoverable or almost all in that was recoverable. So there wasn't an impact or a material impact on growth during the quarter's result.

Operator

Our next question today is coming from Christy McElroy from Citi.

Christy McElroy - Citigroup Inc, Research Division

Angela, sorry if I missed this in your opening remarks. I just want to make sure that I'm clear on sort of the drivers behind the $0.03 guidance increase rate. I think you mentioned that the 2% to 3% same-store NOI growth guidance is unchanged and I get sort of the offsetting factors with the CAM and tax reconciliation in Gateway, but I just wanted to make sure, are you maintaining that the $300 million to $350 million acquisition and disposition ranges? And did you talk about sort of the impact of the timing of acquisitions on how that impacted guidance?

Angela M. Aman

Sure. Of course the acquisition and disposition guidance ranges have been maintained at $300 million to $350 million. I would say $0.02 to $0.025 of the guidance raise was related to a combination of better-than-expected execution, excuse me on the acquisition side both from a timing and a pricing perspective, as well as better-than-expected execution on the capital raise, the unsecured notes offering that we announced last night, as well. And the remaining $0.01 was really related to some noncash items I talked about. We had higher straight-line rental income during the quarter, as a result of the reversal from straight-line bad debt expense. So $0.02 to $0.025 from just better execution, investment and balance sheet side and then $0.01 from noncash items.

Christy McElroy - Citigroup Inc, Research Division

Got it, okay. And if I think about sort of all the moving pieces that you have from a funding perspective, you have the MS Inland deal closing in June, you've got the bond deal closing in June, and then you got some dispositions, it sounds like, in the pipeline. Can you talk about sort of permanent funding of the equity piece of the MS Inland deal? And I think Shane mentioned some dispositions under contract. I didn't get what the volume of that was? Can you talk about sort of the volume of dispositions under contract, and the timing there?

Angela M. Aman

Well, let me take it from a broad perspective. I think the capital plan for the year, and then Shane can comment on the numbers on exactly what's under contract at this point. But as we mentioned, the acquisition and disposition guidance ranges are unchanged, so the plan for the full year -- when we initiated 2014 guidance last quarter and that plan remains is that all of the acquisition activity is effectively funded with disposition activity. The only change really from what we announced last quarter is the fact that the MS assets do come with some assumed secured debt just over $110 million based on our partner's 80% share. So the difference really from a funding perspective is that now, we're going to have incremental proceeds from the disposition that we're going to be able to use to further pay down the line, but otherwise, the capital plan remains unchanged. From a fundamental perspective the acquisitions are being funded with disposition proceeds.

Shane C. Garrison

Just a follow-on from a disposition standpoint. We have $25 million, I think, under contract, 2 centers in Florida, $250 million-or-so, the OMs are done or out in the market right now, and to the extent they're not, they will be in the market for Vegas. So we would expect most, if not all of that product to close between Vegas and call it, Q3. It's all unencumbered, so it should be a fairly easy process.

Angela M. Aman

And given -- I would just add to that, given the capital plan is effectively self-funding for the year, and we've got some moving pieces with the opportunistic capital raise and greater pay downs on the line than maybe we had anticipated at the beginning of year, we do expect that leverage will remain roughly at this level, sort of right around 6x at year end.

Christy McElroy - Citigroup Inc, Research Division

Shane, we've heard a lot about sort of continued cap rate compression out there. If you think about your sort of dispositions goals, is it possible that given the strength of the market, given the success that you've had with acquisitions earlier in the year, that you might sort of come up on exceeding that dispositions guidance or is it sort of too early to tell at this point?

Shane C. Garrison

I think it's too early to tell. To your point, there's no doubt that the dispositions or the market to sell into remains extremely compelling. I think it's just balance for us at this point.

Christy McElroy - Citigroup Inc, Research Division

Okay. And then can you disclose what the same-store NOI growth was on the MS Inland portfolio assets that you're buying in over the last year?

Angela M. Aman

I don't have that handy. I don't think it was markedly different than the portfolio overall but we can follow-up off-line about that.

Operator

Our next question today is coming from Jay Carlington from Green Street Advisors.

Jay Carlington

Shane, I think in the last call, you mentioned that you're expecting kind of maybe 10 to 20 transactions to get to your acquisition goal kind of implying purchases to be in that roughly $15 million to, call it, $30 million. Are they just limited bigger purchases that you're seeing out there? Or is it just a very fragmented market? Or how should we think about the size of the deals as you're going to be doing?

Shane C. Garrison

I think MS moves that up considerably, but yes, I think you're spot on -- that depends on the market, Jay and ultimately, where we execute. Seattle, I've been very happy with what we've achieved in Seattle. We've only closed one deal, obviously, but we've actually had 5 deals under contract this year, have dropped 3 for various reasons and that's a market that's $15 million, $20 million, maybe $25 million at a shot that we touched on previously. New York, obviously, it's a much larger number, here typically $100 million north. And then, I think the other markets we're in, Chicago, DC, Baltimore and Dallas, you're typically $25 million to $50 million. I think there's a couple in those markets that are north of $100 million, right now, that we've looked at and are not interested in. But yes, it's just -- it depends, where we hit, simply to your point.

Jay Carlington

Okay. And then maybe on same-store NOI. I know Angela, you kind of fleshed out where some of the weakness could be but 2% to 3% guidance this year a strong first quarter. I think last quarter, you mentioned occupancy bogie was kind of the 93.5% and you're already at 93.2%. Where should we think about the weakness in the back half of the year?.

Angela M. Aman

Yes, I wouldn't really categorize it as weakness. Like I said, you have got a 200 basis point delta relative to the first quarter just related to reconciliations, and then we did say there was going to be weakness related to the Gateway in the back half of the year. But I think you can expect the contributions, the same-store NOI growth from rental income to be pretty consistent as we move through the year. It was about 200 basis points during the quarter. I would expect to see that continue.

Jay Carlington

Okay. But you're looking at like kind of a mid-2 or kind of low-2s to get to even the midpoint there. Is that the right way to think about it?

Angela M. Aman

Yes, 4.5% during the quarter, 200 basis points related to the reconciliation, right, gets you to sort of the mid-2 that you mentioned. And then you've got the drag from Gateway, about 30 basis points for the year. So it will be a little bit more than that, if that spread over just the 3 quarters and you're looking at it on a quarterly basis. So I think that kind of -- those pieces kind of get you to the lower half of the range for the next 3 quarters. We get you to kind of the midpoint of the range for the full year.

Jay Carlington

Okay, that's fair. And then just finally, Steve, maybe on the Miami purchase for the MS Inland and, I guess, the fee interest purchase is, is that kind of a core market you're thinking about longer term?

Steven P. Grimes

It's interesting, Jay. We talk about when we're going to officially announce the 11th to 15th market in our strategic plan. Miami, in particular, these assets were quite small. I think with respect to purchasing the fee interest is just fairly simple math. You want to own it there and underneath here it was an opportunity for us to that. With respect to the MS venture, the asset, it's roughly about $9 million asset. So not very large in scale, but Miami is a decent market for us and we felt it was an opportunity to take that asset along with the balance of the MS portfolio.

Operator

[Operator Instructions] Our next question today is coming from Vincent Chao from Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

Just a quick question going back to the Inland dissolution. Was there a [indiscernible] fee that gets lost as a result of that? And is that sort of captured in the net cap rate just part of the discussion?

Angela M. Aman

No, it's not part of the cap rate discussion. The fee income for all of our joint ventures has always been below operating expenses and other income net. It was about $300,000 of the $400,000 and some we booked during the first quarter.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. And then on the ground lease that was required. It sounds like there was a straight-line impact for the quarter, but just curious what the cash portion of that was? If it was meaningful or not, it sounds like maybe not? Sounds like maybe not.

Shane C. Garrison

Yes, it was a 5 handle on the cap rate.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. Appreciate that. And then, I guess, just maybe another question, just in terms of the acquisition environment. Obviously, you started off with a big deal here to start of the year, but just taking all the spinoff that we're seeing in the sort of local retail space, so just curious if that is creating any opportunities for you as those -- I know they haven't closed yet. So maybe it's too early to talk about it, but if that might create some opportunities as they look to sort of rejigger their own portfolios?

Shane C. Garrison

Yes. There's certainly been a bunch of spinoff announcements. I think time will tell. We have not seen anything compelling lately, whether it's asset quality or structure from an ask standpoint. But that could certainly break something free in the future.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. And then just -- maybe a last question on the MS Inland acquisition. I mean, it's sounded like the growth profile -- you expected that to be above the average versus the portfolio, but I thought I heard the occupancy was sort of in the mid-90s already. Just curious if you can comment on sort of the mark-to-market opportunities you see in that portfolio maybe what kind of rent -- spread trends or rent trends you've seen in those assets?

Shane C. Garrison

Yes, that's a good question. As you know, occupancy isn't always indicative for growth. To your point, I think there are some pockets where we are under-market or in some cases, dramatically under-market when you look at, for example Lincoln Park across the Northpark Mall. I think that's one of the most compelling real estate in Dallas. You got Container Store on one end, you got Cheesecake and you have Tom Thumb on the other. I think that asset today is 91-or-so economic and 93%, 94% leased. So we'll continue to drive incremental rent. I think that's always been a good performer from the same-store perspective. Gardiner, I think we've got some opportunities in Long Island there to take some boxes back or to re-demise some locations and take some smaller space back. And incrementally, there should be some ability to drive value through that in addition to outside same-store -- stabilized same-store. And Huebner has always been a great performer. That has some of the best-performing retail locations for renting to our retail partners in the MSA. And we think there, we can drive, again, very compelling same-store incrementally even though it's highly occupied currently.

Vincent Chao - Deutsche Bank AG, Research Division

Okay. Just to add to that. One other question. In Houston, Maryland, it looked like the occupancy there dipped down a fair amount, quarter-on-quarter, just curious if there's anything specific going on there?

Shane C. Garrison

That's Cap Centre. I referenced Cap Centre a bit in my prepared remarks, but that's an asset that is now in the beginning stages of converting from low FAR retail to much higher density mixed-use. And appropriately, we've had to start positioning tenants to month-to-month than actually moving tenants throughout the projects. So you're going to see some disruption there. It is in the occupancy number, but that is the one asset that is not in our same-store count for obvious reasons.

Operator

Our next question is coming from Chris Lucas from Capital One Securities.

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

Just a quick question on Office Depot. They announced this morning, I guess, that they had sort of laid out a skeleton for their store closing plan, 150 this year, 400 over the next couple of years. And they haven't been definitive at all about what stores, but, I guess, I was just curious in terms of your conversations with them as they have sort of moved forward, what's your sense about the risk that you have in your portfolio for the stores that you have? And then how are you thinking about sort of your backfilling if there's risk there?

Shane C. Garrison

Yes, we've got 20 -- I think, 24 remaining locations that's just a little under 500,000 feet, so the average store is, call it, 20-ish. ABR's mid-13, I think we're very comfortable with that, generally from a market rent perspective. We have, like, no different than most of our retail partners, trying to be very proactive with that relationship. Through the M&A process, they've been pretty quiet. I think they've recently engaged Bain to help them or provide them on the path to store closures through the M&A. So we're hopeful we can get some more concrete decisions and quicker decisions in the future. We have no remaining renewals in 2014, and I think only a couple in 2015 at this point. But generally, very comfortable with the real estate and certainly, very comfortable with the mark-to-market in this environment. Looking at the portfolio today, we've only got 7 boxes north of 20,000 feet vacant, so supply especially in Class A remains extremely tight. And we're certainly excited about our ability to drive rent through at this part of the cycle.

Operator

[Operator Instructions] Our next question is a follow-up from Vincent Chao from Deutsche Bank.

Vincent Chao - Deutsche Bank AG, Research Division

So I just want to clarify on the MS acquisition. I think Angela, you've said that the straight-line rent was skewed this quarter and fourth quarter will be a better run rate, but just curious is there going to be much than FAS-141 impact from the MS acquisition given the mark-to-market opportunity?

Angela M. Aman

No, at this point, we don't believe so. We're still going through purchase price accounting, but based on our early read of that, we don't think there will be a significant as impact.

Vincent Chao - Deutsche Bank AG, Research Division

Okay, so no unusual accounting changes? Or things that you wish to expect from that deal closing?

Angela M. Aman

No, not at this point.

Operator

We reached the end of our question-and-answer session. I'd like to turn the floor back over to management at this time.

Steven P. Grimes

Great. Well thank you, all, for your time this morning. We're very excited about the results of this quarter. We're even more excited about a couple of events coming our way over the next couple of months that being ICSC, NAREIT. Hope to see many of you there. Take care, everybody.

Operator

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.

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Source: Retail Properties of America's (RPAI) CEO Steven Grimes on Q1 2014 Results - Earnings Call Transcript
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