AmREIT's CEO Discusses Q1 2014 Results - Earnings Call Transcript

| About: AmREIT (AMRE)
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AmREIT Inc (NYSE:AMRE) Q1 2014 Earnings Conference Call April 30, 2014 11:00 AM ET


Amber Lewis – Vice President-Investor Services

H. Kerr Taylor – Chairman, President and Chief Executive Officer

Chad C. Braun – Chief Financial Officer, Chief Operating Officer, Executive Vice President, Treasurer and Secretary

Charles Scoville – Senior Vice President, Director - Leasing/Property Management


Jonathan Pong – Robert W. Baird

Paul Morgan – MLV & Co.

Brandon Cheatham – Suntrust Robinson Humphrey, Inc.

Christopher Lucas – Capital One Securities, Inc.


Good day, and welcome to the AmREIT Inc. First Quarter 2014 Earnings Call 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.

Now, I’d like to turn the conference over to Amber Lewis. Ms. Lewis, Please go ahead?

Amber Lewis

Thank you, Keith, and good morning, everyone. Thank you for joining us today to discuss AmREIT’s first quarter 2014 results. On the call today are Kerr Taylor, Chairman and Chief Executive Officer; Chad Braun, Chief Operating Officer and Chief Financial Officer; Charles Scoville, Director of Real Estate Operations; Tenel Tayar, Chief Investment Officer; and Brett Treadwell, Chief Accounting Officer.

The first quarter 2014 results as well as notice of the accessibility of this conference call on a listen-only Internet basis were released yesterday afternoon in a press release that has been covered by the financial media. For those of you who did not receive a copy of the first quarter earnings release, you can request a copy from us at 713-850-1400 or download the file at, click Investors, and then quarterly earnings.

Also for those who want to listen to a recording of the prepared comments today, we will have a replay available by phone or via webcast on the website.

Before we begin the call, I would like to remind you that some of the statements made in this call are forward-looking statements, and as such are subject to many factors that could cause actual results to differ materially from the company’s expectations. These factors are described in the company’s SEC filings. AmREIT undertakes no obligation to publicly update or revise any forward-looking statements.

Now, I’ll turn the call over to Kerr.

H. Kerr Taylor

Thank you, Amber. Good morning. Since our IPO 22 months ago, we’ve continued to build what we call the Irreplaceable Corner Company. Simply put, our value proposition for shareholders is to own the highest quality retail and mixed use portfolio in the real estate space.

Our properties are strategically located in some of the most densely populated and affluent submarkets within five of the nation’s most dynamic metropolitan markets. Our value proposition is under-girded by the ability to create exceptional long-term growth for our local sharpshooter advantage, and our institutional joint venture business, which provides a proprietary pipeline for acquisition of these exceptional properties.

Additionally, our business model is enhanced by our peer leading value creation potential through our core redevelopment and our emerging vertical mixed use redevelopment. So how are we doing? AmREIT continues to put up top of peer group metrics.

Excluding properties under redevelopment, we are in the top of the peer group for same-store NOI growth at 3.2% since 2010. Since our IPO, we’ve grown our platform at a higher rate than our peers during that time. And we now have total platform assets of approximately $1.1 billion, our growth rate exceeding 15% per annum. Excluding properties under redevelopment, occupancy is 95%.

For the quarter, core FFO was $0.23 per share, which beat our guidance. Reported FFO was also $0.23 per share. Same-store growth excluding redevelopment was 3%. Comparable new cash leasing spreads were up 22.2%, and on a GAAP basis, we’re up 29.2%.

For renewals of existing leases, our team put up 8.7% cash spreads, and under GAAP, growth of 12.3%. These are very good numbers. But I’m even more excited about what AmREIT will be able to accomplish, both over the near term and over the long term. Let me give some color.

At the heart of AmREIT’s strategy and value proposition for shareholders is the ownership of the highest quality retail and mixed use portfolio within the shopping center sector. We remained focused on the dense infill submarkets of five of the top growth markets in the country; Houston, Dallas, San Antonio, Austin and Atlanta.

Houston, which is the energy capital of the world was recently added to AFIRE’s list of top four global cities for real estate investment. Dallas is the home to more Fortune 500 companies than any other city outside of New York. Austin was recently ranked the number one city on where America’s jobs are created and sustained by the Milken Institute.

And in a recent publication by the Brookings Institute, measuring economic performance from 2007 to 2013, Texas swept the county with the top four rankings, Austin, number one; Houston, number two, Dallas, number three; and San Antonio, number four.

We recently had the Nielsen Company update the demographic analysis of our portfolio in each of our peers’ portfolio, over 1,200 individual properties. The analysis proved we continue to have the highest quality portfolio in the shopping center space with average household income within one mile radius of our properties of over $120,000; and density of over 52,000 households within a three-mile radius.

Further, Nielsen’s demographic projections using U.S. Census Data predicts that our affluent, dense submarkets will grow at a faster pace than our competitors through 2019. As our submarkets grow in affluence and density, we believe we’ll be able to grow rents at a faster pace than projects located in inferior demographic communities.

Let me give you a couple of recent examples that support this statement. You may remember that we bought the number two ranked shopping center in Dallas, Preston Royal about 14 months ago in an off-market transaction.

You may also remember that we said, ABRs were in the mid-20s, and that we believe the market was substantially higher. We are currently beginning to bring the project up to AmREIT standards.

But even before we finish this activity, our operations team is making good progress. For instance, this last quarter, we signed a lease with a regional handcrafted foot concept at Preston Royal at $40 a foot, a 45% lift in rate over the prior rent, and 18% over our budgeted rate for the space.

We are also seeing strong tenant sales uplift in our other Irreplaceable Corners. For instance, sales for HEB, the grocery market at Lake Houston were up 7% in 2013 increasing their already outstanding sales per foot to over $1,000. Esther Wolf, our luxury women’s apparel store at Uptown Park Houston reported a 27% increase over 2013 to over $1,100 per square foot.

And M Penner, our luxury men’s apparel store in the same project was up by 21% over $800 per square foot. We realized that owning the highest quality portfolio is a strategic advantage. But we also understand, we need to grow at a faster rate than our peers.

Our second value proposition addresses this issue. As a local sharpshooter, we are able to acquire the best assets in our markets, because we have longstanding personal relationships with many of the sellers, and we know our market is better than anyone else. Simply put, we don’t miss Irreplaceable Corners in our markets. To this regard, over the past decade, over 60% of our acquisitions have been off-market.

We believe one of the reasons we will be able to continue to grow at a strong rate is because we’re local, we know our properties that we desire to own, and we know the sellers on a personal basis.

An example of our local sharpshooter advantage is the story of Post Oak Boulevard in Houston’s Galleria district. Approximately, 40% of our Houston property NOI is derived from projects on Post Oak and Westheimer, the two preeminent streets in what is quickly becoming one of the highest quality shopping districts in the nation. For over a decade, we have been accumulating projects in this promising area.

I sit on the Uptown District Board, and have been working with my colleagues on the board to bring our new transit line down what will become a world-class boulevard. As headquarters for Apache, Compass Bank, BHP, Frost Bank and others are built along Post Oak, our projects will be a beneficiary.

The second reason we believe we will continue to achieve exceptional growth over our peers is because we have the strategic advantage of our institutional joint venture business. AmREIT’s platform consists of over $1.1 billion in total assets. Approximately $600 million of that is wholly owned by AmREIT and comprises our Irreplaceable Corner portfolio. The other approximately $500 million is owned primarily for the institutional joint ventures with firms such as Goldman Sachs and JPMorgan.

This Advised Fund business serves two strategic purposes. First, in a very challenging acquisition market, it provides visibility and access to a pipeline of high quality properties in our core markets. HFF reports that retail sales during the first quarter of 2014 were down over 50%, $15.2 billion in 2014 compared to $32 billion during the first quarter of 2013.

In a supply constrained market environment, having visibility and control over this $0.5 billion potential pipeline is a considerable advantage over our peers. We experienced the benefits of this activity during the second half of 2013 with the acquisition of Woodlake Square. This was a $42 million grocery and drug anchored property at the front door of the memorial villages in Houston. The going-in cap rate was around 5.7% and was 88% occupied.

This past quarter, we signed a lease with one of the most admired restaurant offerings in Houston, El Tiempo, which will occupy 7,000 square foot out parcel building with rents scheduled to commence June 2014. Today, the shopping center is 97% leased with a stabilized yield of around 6.7%.

We are also moving forward on the anticipated acquisition of Lantern Lane Shopping Center, which is owned in our Advised Fund platform, and anchored by Fresh Market and CVS. We’ve gone through the appraisal process on this potential acquisition, and believe we may be able to close on this acquisition opportunity during the second quarter.

Our value proposition of exceptional growth is supported by the twin advantages of being a local sharpshooter in great markets, and having a robust institutional joint-venture business acting as a pipeline to outsized growth.

Another value proposition for our shareholders is our ability to build peer leading value-creation opportunities. This advantage encompasses our core redevelopment, and our emerging protocol mixed-use redevelopments. While we believe there are strong opportunities to grow in our core markets through our Advice Fund platform in our local sharpshooter knowledge, we know through almost 30 years of experience that our highest return on invested capital is the judicious investment into our core properties particularly through redevelopment.

One example of this is Fountain Oaks in Atlanta. We’ve been investing in Atlanta for over two decades, and we know the market very well. When we acquired this property last June, our going-in cap rate was around 5.9%, and we knew that Kroger wanted to expand their very successful store.

Since acquiring the property last year, we’ve been working with Kroger in the City of Sandy Springs regarding a potential expansion of Kroger from 60,000 square feet to 90,000 square feet.

We will commit approximately $7.5 million for this expansion and will receive an incremental 8.25% return on this investment or approximately $620,000 in additional NOI. Kroger will also provide us with a new 20-year lease.

We have also begun our AmREIT standard process on the entire project that will allow us to attract the next tier of tenants which belong in this affluent, dense submarket in Atlanta. I believe that project has already achieved a 50-basis-point value creation to their agreed expansion of Kroger and the extension of their lease to 20 years.

Another value creation advantage is vertical mixed use redevelopment. We recently announced our first vertical mixed use project, which we call the Baker Site located on a 17-acre campus at Post Oak in Loop 610. There were over 25 potential redevelopment partners to choose from and we are extremely pleased to announce that we have entered into a definitive agreement with our development partner, Crimson Real Estate Advisors.

Crimson is a investment firm controlled by the Patrinely Group, a national development firm specializing in corporate build-to-suits and luxury residential projects in dense urban markets. Patrinely has been an active partner with USAA for 27 years, during which time they have completed dozens of development projects. Patrinely recently completed the second headquarters for Anadarko in The Woodlands.

An Omnibus Agreement was fully executed on April 9 with Crimson Real Estate Advisors to develop a 26-storey luxury for rent residential tower with ground floor retail and two levels of below-grade parking dedicated to the retail, and $250,000 of earnest money was deposited. The total project budget is $90.7 million. The Omnibus Agreement provides for execution of a 99-year ground lease agreement with rent increasing each year based on CPI with a minimum increase of 1.75% and a maximum increase of 3%. USAA has issued an LOI to provide 70% of the required equity based on 65% construction financing.

Crimson and AmREIT have preliminarily agreed to form a joint venture for development of the tower with each entity contributing 50% of the management equity of approximately $4.8 million each. AmREIT will be a co-general partner, but Crimson will assume all completion and cost overrun guarantees and any other non-recourse core balance.

The existing NOI for Baker Site is approximately $350,000. The ground lease with the venture starts at $850,000 for the first year. This represents an increase in NOI of $500,000 upon commencement of the ground lease. Capped at 5%, the ground lease alone at Baker will create $10 million in shareholder value.

We believe the NOI generated from the retail and parking improvements should stabilize to around $900,000 per year. Assuming the same 5% cap rate, this equates to a value of $18 million, and with anticipated cost of $12 million results in net value creation for shareholders of an additional $6 million.

Between the ground lease and retail improvements, we believe we will create $16 million in value. Our strategy is to invest approximately 30% of that value into the vertical improvements as a co-general partner, but with no further balance sheet risk. We anticipate the general partner investment will result in a 2x multiple on equity, bringing the potential creation of value for shareholders to $20 million on this first of seven potential sites at Uptown Park.

Obviously, you don’t create this type of value without enormous effort and there are lots to do in order to move potential to reality, but we’re making good progress. Further, we continue to make progress in our redevelopment plans for Courtyard located at the intersection of Post Oak and San Felipe down the street from Uptown Park. HFF has been actively in the market seeing a co-developer partner for the site and we are now in the interview process.

While there has been significant interest in the site, we will reserve further comments until we have a definitive transaction. As we indicated in our development table in our supplemental, we do not anticipate Courtyard to have any financial impact or contribution to our 2014 estimates.

With the highest quality portfolio in our space generating very strong operational results, exceptional growth opportunities as local sharpshooters in our five core markets, a pipeline of growth opportunities through our institutional joint venture business, and peer-leading value creation potential through our core vertical mixed use redevelopments, we’re looking forward to the future.

Now, I’ll turn the call over to Chad Braun, our Chief Financial Officer.

Chad C. Braun

Thanks, Kerr. As [Amber] (ph) mentioned earlier, we filed our first quarter combined earnings release and supplemental financial information last evening which you can download from our website.

We announced core FFO of $4.6 million for the quarter or $0.23 per share which was $0.01 ahead of our first quarter guidance of $0.21 to $0.22. There were no adjustments or reconciling items between core FFO and FFO which was also $4.6 million or $0.23 per share for the quarter.

Within our portfolio, we reported occupancy of 94.2% which was flat when compared to our year-end occupancy of 94.2% at 12/31/2013. We continue to have vacancy related to our properties under redevelopment, approximately 9,600 square feet at the Courtyard at Post Oak and approximately 12,800 square feet at Uptown Park. Together, this represents approximately 1.5% of our total GLA.

On a same-store basis, our portfolio was 97.6% occupied which is a 20 basis point increase when compared to 97.4% as of March 31, 2013. Our leasing and tenant demand remained healthy throughout the portfolio. During the quarter, we executed a total of 23 leases for 71,040 square feet or approximately 4.6% of our total GLA.

Our cash leasing spreads on comparable leases were an increase of 11.4% and our GAAP basis leasing spreads were an increase of 15.7%. Looking at our leasing spreads, net of tenant improvement has also been very positive. New cash leasing spreads were approximately 22.2%, and net of TI were approximately 17.3%.

Our cash renewal leasing spreads were 8.7% and our unadjusted for TI as these renewals were done on an as-is basis. Our remaining expirations for 2014 include approximately 96,590 square feet and is all space that individually is less than 20,000 square feet and has an average expiring rent of $26.97.

As Kerr mentioned earlier, our same-store NOI excluding redevelopment properties was an increase of approximately 3% for the quarter. Our total same-store NOI increase was burdened by the vacancy associated with our redevelopment properties as we leased down space and structured tenant relocations resulting in an increase of approximately 2% for the quarter.

This is consistent with our published same store guidance excluding redevelopments of 2.5% to 3%. Our same store NOI growth came as a result of our positive leasing spreads and increases in rental rate combined with improvement in our recovery percentage and less leakage at the property level as a result of improved tenant A/R recovery.

Now, let me reiterate our full year guidance and provide some updates on the individual assumptions. We are maintaining our core FFO guidance for the remainder of the year, which as previously announced is $0.23 to $0.24 for the second quarter, $0.25 to $0.26 for the third quarter, and $0.33 to $0.34 for the fourth quarter resulting in full year core FFO guidance of $1.02 to $1.06.

Similarly, we are maintaining our FFO guidance for the remainder of the year also which as previously announced is $0.22 to $0.23 for Q2, $0.23 to $0.24 for Q3, and $0.32 to $0.33 for Q4 resulting in full year FFO guidance of $0.98 to $1.02 per share. As a reminder, our only reconciling item between core FFO and FFO are the acquisition cost related to our anticipated acquisitions.

Now for some of the detailed assumptions. Same-store NOI growth remains on track for our annual guidance of 2.5% to 3% excluding redevelopment and our first quarter results were at the high end of this range. We have approximately 96,590 square feet of scheduled lease maturities remaining in 2014 and believe that on average these leases are below market presenting an opportunity to increase rents and grow NOI at the property level.

Of the 96,560 square feet, approximately 34,000 square feet have contractual renewal rates that represent an increase of 10.3%. 7,000 square feet have fair market value renewals, and 56,000 square feet do not have stated renewal options. At 94.2%, we are tracking slightly below our previously stated average portfolio occupancy of 94.5% to 95.5%. However, as of March 31, the portfolio was 94.9% leased. Through leasing gains anticipated during the remainder of the year, we believe this occupancy range remains achievable.

We continue to target $50 million in acquisitions and an additional $70 million in joint venture activity. Kerr mentioned the Lantern Lane shopping center, which is an anticipated acquisition through our advised funds. We expect that this acquisition will close in June and are working through the requisite approvals now. The anticipated purchase price is approximately $22.7 million that would be funded through a combination of cash on hand in our credit facility. And finally, our annual G&A run rate continues to track at approximately $8.8 million per annum.

Lastly, from a balance sheet perspective, we do not have any short-term floating rate debt outstanding. We do not have any 2014 debt maturities and we are undrawn on our unsecured credit facility. In other words, our balance sheet is well positioned to accomplish our 2014 growth objectives.

With that, I’d like to turn the call back to Keith to facilitate any questions you might have.

Question-and-Answer Session


Yes. Thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question comes from Jonathan Pong from Robert W. Baird.

Jonathan Pong – Robert W. Baird

Hey. Good morning, guys.

H. Kerr Taylor

Good morning.

Jonathan Pong – Robert W. Baird

I was just wondering if you can provide a little more detail on the Uptown Park JV, particularly around the [promote] (ph) structure you’d get as co-general partner. And then as you think about the other six development parcels within the site, I know this might be a ways off, but is this the kind of JV ownership structure in mall you’d be thinking of for those as well?

H. Kerr Taylor

Hey Jon, this is Kerr. Thank you for the question. I think at this point, we probably need to kind of keep the guidance as to what we republished – what we published. We feel very good about the path before us. As you know, building a $90 million project is going to – there’s still a lot of moving parts. But I think the parameters that we set forth in the earnings call hopefully give you a good guidance, and we’ll be updating those over the next quarter probably as we finish that work with our partner.

Chad C. Braun

And Jonathan, this is Chad. I would just add that as it relates to the future development sites that you referenced whether throughout Uptown Park or at Courtyard, our desire is to facilitate a comparable structure to what we are doing on the Baker Site which would be to lead with a ground lease, maintaining control over the overall site, own the retail physical improvements and then potentially joint venture and have an equity stake in the vertical improvement.

So I think you’ll see that structure continue as we announce future projects. At least that’s our goal.

Jonathan Pong – Robert W. Baird & Co.

All right. That’s helpful. Thanks. And then infrastructure-wise, as you think about adding more and more density to this project, do you envision the underground parking at Baker Site, I guess being sufficient to handle those future needs and Kerr, is there an update from the Uptown district on a delivery time – time line for the new trend decision, system you guys are talking about?

H. Kerr Taylor

Yeah. Good questions. First, on your question regarding Uptown Park, we are very excited about taking that surface parking and bring it underground. We are excited about the first project at Baker being able actually do that hopefully with two levels.

And so, we do have a sequential plan across the 17-acre campus to bring most of the parking in the future down below. Obviously, that’s a long-term plan for us, but there’ll be a wonderful density there. We brought in SWA, probably one of the best planners anywhere. They do work all over the world.

Again, they’ve joined our team to help us craft the horizontal improvements on our projects. So, yes, we’ll have underground parking and bring a lot more pedestrian traffic to that wonderful corner.

Relative to the work going down Post Oak, still in progress but the EPA has approved the project which is a big step under John Breeding’s leadership, coming down Post Oak, I believe, we’re on track, it’s funded.

The connectivity to memorial park which is twice the size of Central Park is being funded as well and projects are currently being executed on that project. It is going along very well and when we meet with you in NAREIT, I’ll be able to show you some of the schematics that – the transformation that’s happening there aren’t posted up but what they plan to have. It’s on schedule.

Jonathan Pong – Robert W. Baird & Co.

All right. Great. Thanks a lot, guys.


Thank you. And the next question comes from Paul Morgan from MLV.

Paul Morgan – MLV & Co.

Hi. Good morning.

H. Kerr Taylor

Good morning, Paul.

Paul Morgan – MLV & Co.

As you look at acquisitions beyond Lantern Lane, you just kind of getting comments on how active the pipeline looks to be, whether there’s much activity in your kind of three big markets and whether you may be kind of seeing any shifts in pricing this year?

H. Kerr Taylor

Yeah. Great question, Paul. And the – I’m comfortable with continuing to grow our platform at 15% which is a nice, steady, aggressive growth. We have visibility to both joint venture assets and opportunities as well as core. We also have visibility to a couple of very unique opportunities.

We’re having to do maybe what I would call local sharpshooter type of steps in order to get to the project, but that is underway as well. And I think we will be able to continue our growth from what we’ve seen in our five markets. That’s not saying that it’s not without an enormous amount of work and effort.

Cap rates seem to be stabilized. And again, as you saw from the last transactions that we’ve been able to put up. I’m gratified that I think we’re able to continue to bring assets on our platform and maybe 50 basis points better than what we see in the open market. And a lot of that, I think, is because we’re able to get them off market often.

And then as you saw in Fountain Oaks, we’re able to stabilize occupancy pretty quickly because the tenants that we know want to land on those properties. So a long-winded way of saying I think we’re going to meet our objectives. It’s tight. It takes a lot of hard work, but we’ll continue our growth.

Paul Morgan – MLV & Co.

And would you consider projects that are kind of value-added sort of redevelopments if they’re in your core submarkets, but really maybe concentrate a bit more of a redevelopment and development project on day one. Is that something you’d look at other than just kind of an existing high-quality property?

H. Kerr Taylor

Oh, absolutely. No, no, as we look at CAGR, as we look at our ability to – compounded annual growth, a big slug of our capital allocation is into projects that have issues that we can fix, whether it’s at Fountain Oaks where we’re just going to do a kind of light redevelopment taking a Kroger from a 60 to a 90, or whether it’s a Westheimer where we have to tear down the grocer and rebuild it on the ground lease. Every project we look at, they really excites us, has some issues that we, as a local group, can solve and move the needle on both occupancy and on ABR.

So the answer is yes. We’re constantly looking for great Irreplaceable Corner locations that have challenges to them. Actually, it’s harder for us to buy a property with a bow around it, that’s widely marketed and try to make sense out of a five-cat deal.

Paul Morgan – MLV & Co.

Great. And this is my last question on Uptown Park. I mean, what are the main hurdles you have to clear in near term before we know kind of for sure in terms of the timing of the ground lease commencement and construction activity and everything? I mean, you hedged a little bit in terms of giving us all the details on the structure of the JV. How much more do we have to go before we get those?

H. Kerr Taylor

Yeah. I think again, we’re down at the city, working on our permits. We’re doing our traffic studies. We’re doing all the 15 check-at-the-boxes that need to be done to be sure that we will be allowed to build the building.

Market continues to be very strong in Houston. That’s always a concern. But I believe over the next 90 days, we’ll have those issues resolved and we’ll be able to show you what the project is going to look like and have a little bit more definitive answers for you.

We’re comfortable where we are now with this project. We’re delighted to have Dean Patrinely as our partner, well recognized across the country, ex-Hines; done over many, many projects. And USAA has been his partner for 27 years. So that’s – we’ve partnered with them because we believe there is a much higher likelihood of success in the project.

Paul Morgan – MLV & Co.

Okay, thank you.


Thank you. And the next question comes from Brandon Cheatham with SunTrust.

Brandon Cheatham – Suntrust Robinson Humphrey, Inc.

Hi. Good morning. I’m here with Kevin [ph] as well. Just...

H. Kerr Taylor

Good morning.

Brandon Cheatham – Suntrust Robinson Humphrey, Inc.

Good morning – piggybacking on the acquisitions, when you compare, I guess, the high quality acquisitions with a bow on it as you described, what’s the spread between that and I guess the more value-added opportunistic ones that you’re looking for?

H. Kerr Taylor

That’s a good question. Again, I think just look at real life where we have been in the last 12 months, where we’re able to bring in our 14 months Preston Royal at a 6 cap rate. That was an off-market transaction. I think if we saw that today, we would be in the 5 cap rate today.

And we’re just enormously pleased with that Fountain Oaks at a 5.7 that is stabilizing now at 6.7. It had some issues relative to redevelopment. The Lantern Lane that we’re going to bring on the platform is pretty much has the bow around it. It has some issues that we’re going to continue to resolve. But that will be a 6, 6.25 cap rate.

To a highly marketed kind of a perfect bow around the project, you’re looking at 5.25 in our markets, may be 5. Very few of them are out because the people are holding on to their premium assets. But there’s probably a 50 to 75-basis point different where we can come in on a great location and add value. And that’s why we like those properties.

Brandon Cheatham – Suntrust Robinson Humphrey, Inc.

Thanks. That’s helpful. I’m just wondering particularly in your Atlanta market were there any impacts from weather this quarter?

H. Kerr Taylor


Charles Scoville

This is Charles Scoville on the operation side and it was very short term actually. The centers were generally shutdown for two or three days during the peak of the ice storms but there was no long-term effect beyond that. We didn’t lose any tenants and no one asked for rent relief. So, by those measures, no.

H. Kerr Taylor

And Brandon I would just add really no discernible increase in operating expenses. I think you know to just piggyback on Charles’s comment. Across the board while the folks in Atlanta certainly had to bear the brunt of the storm, we really had no financial impact from that.

Brandon Cheatham – Suntrust Robinson Humphrey, Inc.

Okay. Thanks, that’s all I have.

H. Kerr Taylor

Thank you.


Thank you. The next question comes from Chris Lucas with Capital One Securities.

Christopher Lucas – Capital One Securities, Inc.

Good morning, everyone. And Chad, just to follow up on that on the same store operating expenses, they were up 9% year-over-year. What’s the drivers behind those, that sizable increase?

Chad C. Braun

Yeah. The biggest impact, Chris, is property taxes which is as we talked about before, ad valorems have just been under attack in our markets again with our portfolio occupancy and pass through, all of that is recoverable. And so you’ve seen a good trend line on our overall recovery. But the bulk of those, of the increase in the expenses is tax-related.

Christopher Lucas – Capital One Securities, Inc.

Okay. And then, Kerr, just to ask a couple of more questions on Uptown. What other factors beside sort of financial terms were you guys looking at in choosing a partner? And then sort of part B of that question is I’m assuming that Crimson will be the operator of the asset post construction, is that correct?

H. Kerr Taylor

Yes. Yes. Two questions. Thank you, Chris. One is we had 25 candidates that were interested in this project. One of the real threshold issues was that we wanted a ground lease which is very important to us. And so, Dean and his team have built in New York, in other markets all over the country where that type of financial structure was dealt with. That gave us a lot of comfort.

He’s been – he’s just a first rate group. His partnership with USAA as a preferred developer was a very attractive additional reason why we chose Dean as our partner. And yes, to your second question, he will be the operating partner post-development.

Christopher Lucas – Capital One Securities, Inc.

Okay. And then just to follow up on the – or the term that was sort of new that you guys talked about which is the right of first offer. Is there a timeframe under which an event has to happen? Or is that just an open-ended right of first offer?

H. Kerr Taylor

That’s open ended.

Christopher Lucas – Capital One Securities, Inc.

Okay, great. Thanks, guys. Appreciate it.

H. Kerr Taylor

Thank you.

Chad C. Braun

Thanks, Chris.


Thank you. (Operator Instructions)

H. Kerr Taylor

All right. Thank you everyone for your participation today. We encourage you to visit our website where you can download a copy of the first quarter earnings release, get detailed information on our properties including a virtual property tour videos. Thank you again for your time today.


Thank you. The conference call is now concluded. Thank you for attending today’s presentation. You may now disconnect. Have a nice day.

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