Retail Properties of America, Inc.
Q1 2013 Earnings Call Transcript

Published: 8 May 2013

[Operator:]

Greetings and welcome to the Retail Properties of America First Quarter 2013 Earnings Conference Call. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Fitzmaurice. Thank you. Mr. Fitzmaurice, you may begin.

[Mike Fitzmaurice:]

Thank you, operator, and welcome to the Retail Properties of America first quarter 2013 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, estimates, expects, intends, may, plans, projects, seeks, should, will, and variations of such words or similar expressions. Actual results may differ materially from those described in any forward-looking statements, including in our guidance for 2013, 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 10-K, 10-Q, and other SEC filings. As a reminder, forward-looking statements represent management's estimates as of today, May 7th, 2013, and we assume no obligation to update publicly any forward-looking statement, 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 such as same-store results, EBITDA, FFO, operating FFO, and combined-net-debt-to-combined-adjusted-EBITDA ratio. You can find the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures in our quarterly supplemental package and our earnings release, which are available on 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; Angela Aman, Executive Vice President, Chief Financial Officer and Treasurer; and Shane Garrison, Executive Vice President, Chief Operating Officer and Chief Investment Officer. After their prepared remarks, we will open up the call to your questions. With that, I will now turn the call over to Steve Grimes. Steven Grimes Thanks Mike, and good morning. Thank you all for joining us today. The last 12 months have been quite active for RPAI as we have refocused our portfolio, improved our balance sheet and streamlined and enhanced our operating platform. At the beginning of April we celebrated our first full year as a publicly traded company and we are grateful for the continued support of the shareholders during this transformational period. We started 2013 on strong footing, with a clear vision of our strategic direction and we remain committed to successfully executing on our internal growth, balance sheet and portfolio repositioning objectives. Our first quarter results were in line with our expectations and we remain optimistic for the remainder of the year. Operating fundamentals in the shopping center industry continued to exhibit the positive momentum we saw at the end of 2012 and Landmark are well positioned to take advantage of both an improving macro-economic backdrop as well the continued dearth of new supply in our industry. For RPAI this has translated into sustained improvements in economic occupancy and our best quarter of comparable new lease, releasing spreads, since we began reporting this metric last year. In addition our forward leasing pipeline saw significant growth during the first quarter and we are well positioned for occupancy and lease trade gains as we move through the year. As we have discussed, one of our primary goals since our IPO in April 2012 has been the migration of our balance sheet to investment grade. In last night's release we announced another substantial step forward with the anticipated recap and upsize of our credit facility. While Angela will discuss the details in a moment I'm pleased with not only the improvement in our cost-to-capital but also with the enhanced operational flexibility we will be creating on the right side of the balance sheet which will assist us in our growth objective and portfolio repositioning efforts over the next several years. I will also like to spend time today providing additional clarity on our portfolio repositioning plan, which we have alluded to here in our previous calls. Today we have $6 billion in assets located in 35 states and over 80 markets. We view the size of the portfolio today to be close to ideal but believe we can better optimize our footprint. We are large enough to be relevant to the retail partners and sustain our robust platform. That said we believe strongly in the benefits of scale and operating leverage in individual markets. Within our existing Dallas portfolio which is comprised of 22 properties in a 30 mile radius, we continually see the benefit created by unique adjacency, resulting in significant leasing and operational efficiency. Being on the ground everyday also helps to make better capital allocation decisions both within the existing portfolio and also when considering new acquisitions or dispositions. Over the long run you will RPAI continue its evolution into a more geographically concentrated company with a leading presence in 10 to 15 core target markets but this process will take time and will require patience. As you have seen, we've been keenly focused on our near term objective, but we are mindful of the fact that our long range opportunity is one that narrows our focus in markets where we can create our Dallas like synergy. We believe this is the right strategy for driving long term growth and evaluation for our shareholders and we look forward to sharing additional details with you on our Investor Day in Dallas in June. I would like to take a moment to discuss the dissolution of our joint venture with RioCan, which was also announced yesterday. Our relationship with RioCan has been incredibly valuable and important for the company, beginning with our first contribution through the joint venture in 2010 and I would like to think that RioCan in keen for their partnership over the last several years. The venture has allowed us not only to raise capital at a time when we had no access to public equity market but that it allowed us to remain active in the acquisition through one of our core geographic region. The announcement of dissolution is an indication of our view that all of the goals that we set out to achieve have now been realized. And with that, I would like to turn the call over to Angela Aman, our Chief Financial Officer to discuss our results for the quarter.

[Angela Aman:]

Thank you, Steve, and good morning. Operating FFO was $0.23 per share for the first quarter, including non-operating NM-FFO of $0.19 per share. The non-operating items were primarily related to the early repayment of our outstanding mezzanine debt on February 1, and also included the joint venture entry level impairment charge associated with our Hampton joint venture. At quarter end, we had one remaining property in the Hampton joint venture and we expect that that asset will be sold and the joint venture will be wound down during the second quarter. Same-store NOI was 50 basis points in the first quarter, with same store occupancy growth of 100 basis points and comparable blended leasing spreads of 5.6% on a cash basis. These positive overall fundamental trends were partially offset by the impact of annual CAM reconciliation, as well as our continued remerchandising efforts of a handful of higher ABR property. As it relates to the CAM, the outcome of the annual CAM reconciliation process for 2011 had a positive impact on same store NOI in the first quarter of 2012, of nearly $1 dollars but the outcome of the reconciliation process for 2012 had a negative impact on same store NOI and the first quarter of 2013 of approximately $750,000. As a result, the year over year changes that it relates to the CAM reconciliation de-tracked approximately 170 basis points of growth from first quarter 2013 same store NOI. In terms of remerchandising efforts, the Gateway in Salt Lake City, which we have discussed on prior calls, detracted approximately 130 basis points from same store NOI growth in the first quarter. But we anticipate that Gateway will continue to act as a headwind to same store NOI growth as we move to 2013. The impact will be lower in the future period but the majority of move-outs of the center occurred towards the end of the first quarter of 2012, making the year over year comparison easier in the second, third and fourth quarters of this year. As a result we remain comfortable with our full year same store NOI guidance at 2% to 2.5%. Turning to the balance sheet, as we discussed on in last quarter’s call, we repaid all of outstanding mezzanine debt on February 1st, using capacity created through our non-preferred equity offering in December of last year. From a modelling perspective please note that the $6.25 million cash prepayment penalty, as well as $2.5 million of non-cash charges relating to the write-off of loan deal associated with the mezzanine debt are included in consolidated interest expense for the first quarter. These charges which were partially offset by a $1.4 million write-off of mortgage premium booked an equity and loss of unconsolidated joint venture together make up the $7.3 million operating FFO add back related to impact from early debt extinguishment. In early March we established an after-market equity program which will allow us to issue up to $200 million of common equity over the next several years. During the quarter we issued approximately 56,000 shares at a weighted average by a $14.94, generating net proceeds of $700,000. Subsequent to quarter end we sold an additional 640,000 shares at a weighted average price of $14.90, generating net proceeds of $9.4 million. Looking back for a moment, it’s with noting what a significant transaction this is for RPAI. Thirteen months ago we effectively had no access to public market. And since then we have successfully accessed both the common equity and preferred equity markets, and have now positioned ourselves through the ATM program to opportunistically access the common equity market in a very cost-effective manner, further our balance sheet progress and strategic growth objective. The most significant capital markets activity year-to-date was related to our new unsecured line of credit. As Steve mentioned, we have obtained commitments for an amended and reinstated credit facility that we are currently in the process of finalizing and expect to close in the next couple of days. The new facility will upsize the existing facility to $1 billion, an increase of $350 million, while extending the term by two years, improving pricing by approximately 35 to 40 basis points on average across the leverage grid and lowering the applied cap rate by 25 basis points to 7.25%. The revised cap rate will allow us to migrate to a lower tier in the leverage grade resulting in additional saving. The incremental capacity provided by this facility will enable us to continue to unencumber assets as mortgages mature, consistent with our strategy of migrating to an investment grade balance sheet. We are grateful for the support we have received from our Bank group who recognize the substantial improvements we have made to the Company’s leverage and overall risk profile over the last year and we look forward to continuing to execute on our balance sheet strategy. Turning to guidance, last time we reiterated 2013 operating FFO guidance with a range of $0.88 to $0.92 per share based on same-store NOI growth of 2% to 2.5% which will be weighted to the second half of the year as we discussed half quarter. Disposition activity is now expected to total $400 million to $500 million, an increase from the $400 million to $450 million we originally expected. As a results of the RioCan transaction which was not contemplated in original guidance. During the quarter we hold $40.2 million of assets including our pro rata share of the disposition within the Hampton joint venture. The RioCan transaction as announced would make up another $95.5 million of disposition activity representing the sale of our 20% interest in the eight assets RioCan were holding on contemplation. Acquisitions are expected to total $100 million to $200 million. No acquisitions were completed during the first quarter, which is consistent with our previous expectations that acquisition activity would be concentrated in the second half of year. The RioCan transaction will make up $99.9 million of acquisition activity, representing our acquisition of the 80% interest in the five properties that RPAI were holding upon contemplation. The $11.3 million of non-operating adjustment in our operating FFO guidance primarily relate to prepayment penalties and the write off of loan fees associated with the early extinguishment of debt, $7.3 million of which were booked in the first quarter and also include the add back of the joint venture entity level impairment charge of $11.7 million, related to the Hampton joint venture that was booked in the first quarter. And with that I will turn the call to the Shane.

[Shane Garrison:]

Thank you, Angela. We continue to make solid progress with our leasing first during the quarter. Transaction velocity was strong with over 900,000 square feet of total retail leasing activity, resulting in volume for the last 12 months of approximately 3.7 million square feet. Comparable cash leasing spreads were up 5.6% in the first quarter on a blended basis with comparable new lease spreads up 13.1% and comparable renewal spreads up 5%, all allow our comparable new leases during the period working small chunk space providing some valuable insight into level of demand for most tenants in today’s marketplace. While we do expect the new lease spreads will continue to be somewhat violate in future periods we are pleased without results this quarter and encouraged by the overall tone of the market today. We ended the quarter with a lease rate of 92.7%, up130 basis points year-over-year and economic occupancy of 90.6%, up 50 basis points year-over-year. While our lease rate was down 20 bips sequentially; economic occupancy was up 10 bips from year end, and the forward leasing expanded by more than 40% during the quarter and now stands that over 700,000 square feet of new deals, approximately half of which represent small shop space. The sequential change in the leased rate has not altered our expectations for the full year and we continue to expect that we will end 2013 with economic occupancy of 92% to 92.5%, a substantial increase from where we stand today. During the quarter, we closed on 40.2 million of asset of sales, including our pro rata share of the joint ventures sales. Sales during the quarter included an office asset, three nonstrategic retail assets, a vacant land parcel and our notes. Subsequent to quarter end we have sold or have under contract an additional $125 million including the RioCan transaction and the one remaining asset within the Hampton joint venture as Angela alluded to earlier. When we initiated 2013 guidance back in February, we highlighted our expectation that we come active in acquisition market for the first time since 2008. Since then we’ve evaluated a wide range multitenant retail transactions, including one-off acquisitions as well as portfolio deals. Today’s acquisition market is very competitive and sourcing compelling opportunities consistent with our long term strategic objective is very challenging. Accordingly, we believe that $99.9 million RioCan acquisition met several strategic directives, including an expanded wholly-owned footprint in Dallas and Houston, as well as 100% ownership in five core assets that are 98% leased with compelling weighted average three mile demographics of $103,000 in average household income and $98,000 in population. While we look forward to expanding on 10 to 15 core market strategy at our Investor Day in June, it is assets like these that expand our already impressive scale while adding to unique agencies that will be paramount to our strategy going forward. Given our strategic geographic focus and analysis in terms of current market pricing on a risk adjusted basis, we are content to be a net seller during 2013 and will remain very disciplined as it relates to putting new capital to work. As a result we are biased toward the lower end of the previous acquisition guidance range; we gave of $100 million and $200 million. Lastly the Class A market remains extremely tight from supply perspective and we continue to focus on leveraging our platform to create added value within the current portfolio. In addition to pushing rents, as evidence by our compelling new lease spreads we will start our first redevelopment projects with Lakewood Town Center this month where we will demolish 120,000 square foot former Goshawk's building and replace it with dining and entertainment based retail, directly adjacent to a newly digitized AMC theater. While not a large development from a total investment standpoint at approximately $5 million, the return cost is approximately 25%, demonstrating our availability and commitment to mind every opportunity within the portfolio. Going forward, we are focused on driving long term growth through first a number of identified value creation opportunities such as the Lakewood redevelopment project, second our continued proactive remerchandising approach with both concepts that are in transition or spaces that are below market, third our intense focus on leasing to continue to drive portfolio occupancy gains along with rental increases and the renewal process and lastly through a better defined core markets velocity that will create greater operating leverage and and synergies across the platform. And with that, I would like to turn the call over to Steve for his closing remarks.

[Shane Garrison:]

In closing I would like to thank Angela and Shane and our employees for yet another awesome quarter for our RPAI. As I look forward to the rest of the year, our leasing pipeline is robust, our capital sources are diverse and our asset recycling opportunities are already underway, all of which position us nicely to execute on our objectives for the remainder of the year. With that, I would like to turn the call back to the operator for questions.

[Operator:]

(Operator Instructions). Our first question comes from the line of Quentin Velleley with Citigroup. Please proceed with your question.

[Quentin Velleley:]

Could you maybe just talk a little bit more about the dissolution of the RioCan joint venture, maybe outline some of the reasons for the split? And then secondly, the process for the asset split, how was that split decided?

[Steven Grimes:]

This is Steve. We did talk a little bit about the dissolution of the RioCan venture on the opening remarks but specifically the announcement really is just because mutually we have achieved the objective that we have set out for the venture. RioCan came out in 2010 at a time of need for us; it was a good opportunity for them. We set out to create a great portfolio together focused primarily in the Texas market, but as evidenced by traction that we've made in our portfolio re positioning plans and our balance sheet improvement; we are now in a position to really be earning and operating and acquiring for our own account now. RioCan can speak for themselves but obviously everybody knows about what their interests are here in the state and Texas as a market focused for them that they look to concentrate on and I think they are prepared to take ownership of the assets that they set out to take and do so willing and we are parting ways on good terms. It's been a great relationship for us and I'll let Shane talk a little bit more on the color of how the assets were divided up.

[Shane Garrison:]

Yes, again this was just about our access to liquidity as Angela pointed out as markedly better, cost-to-capital along the same lines, but for us the simplification and just strategic focus continue to refine our portfolios in the markets that we value longer term. I think this made a lot of sense. Additionally the acquisition market is extremely tight. We got better rights by five assets that you have owned for going on probably five years on average. So at the table having the discussion Rio Con their credits are very practical and grounded team top to bottom and it was just a very relatively easy negotiation and I think what made it even easier in addition to their thought process is the fact that the assets (inaudible) is a very high quality across the grid so I think arguably probably split this portfolio 10 different ways and we'd be happy in all cases.

[Quentin Velleley:]

What were the net fees being generated from the joint venture?

[Angela Aman:]

It's about $500-600,000 a quarter of gross fees, you know net obviously there's some cost associated with generating those fees in G&A but the gross fees but with another property income on the (inaudible) financials and that's about $500,000-600,000 a quarter.

[Quentin Velleley:]

Okay, great. Last one from me. It is for Angela. Just contend with transitioning the balance sheet to more of an unsecured structure ultimately. How much unencumbered NOI do you have now, or unencumbered asset value have you got now?

[Angela Aman:]

We're right at about a $1.7 billion today based on the disposition or capital plan that we laid out for 2013 and our ability to unencumber all the remaining maturities this year, you know, we hope to approach the $2 billion mark within the next call it, four quarters, we do have continued work to do just on the percentage of NOI coming from unencumbered asset pool, we've been pretty candid about the fact that the unencumbered NOI and the fact that the debt maturity schedule is so well staggered today presents some challenge for us getting there more quickly, but we are being proactive with respect to the balance sheet pulling forward any longer dated maturities that we can in an economically efficient fashion and we hope to find additional opportunity to do that over the next 12-18 months.

[Operator:]

Our next question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

[Todd Thomas:]

Just first question sticking with the balance sheet. I was just curious with the ATM now in place, you said that it was minimal thus far, but with the stock now where it's at. I was curious how you think about using equity capital from the ATM here to help delever further and move closer to your objectives?

[Angela Aman:]

Yes, thanks Todd, like you mentioned we were active on the ATM during the first quarter, the ATM was put in place the first or second week of March so there wasn't much opportunity for using the program during March, we were active also subsequent to quarter end but before the blackout period started so we do like having a program in place and our ability to now be opportunistic with respect to using it. As Shane mentioned in his prepared remarks we will continue to evaluate external growth initiative and taking into account not only where the stock price is and our broader balance sheet objectives but also broader strategic repositioning effort, we are trying to undergo as it relates to the portfolio, we are interested in continuing on to execute on the program if and when we think we can use the program to create value for the shareholders by furthering the no longer term strategic plan.

[Todd Thomas:]

Is there any issuance embedded in guidance?

[Angela Aman:]

Not today I think that the guidance range as it stands today does give us some flexibility to the extent we find incremental opportunities outside of what we provide in the guidance either from external growth perspective, or as I mentioned earlier, other opportunities to accelerate debt repayment earlier, to take advantage of those opportunities and find the most attractive source of funding them.

[Todd Thomas:]

Shane, in terms of acquisitions, you mentioned that the market is very challenging and competitive. I was just wondering if you could talk about pricing a bit for some of the assets that you have been evaluating and then I was wondering if there is a focus on the property type today for RPAI, as you think about deploying capital either in power centers or more neighborhood grocery anchored strips?

[Shane Garrison:]

The pricing is very competitive, it’s not the year one cap rate but I think it has been a deterrent, it’s the lack of growth or the lack of justification for the year one cap rate and that’s been a source of frustration for us. I don’t think it’s a secret that year one cap rates grocery is in some cases five right today. Our issue is the lack of growth in some of those deals just from an asset type allocation you know again we are relatively agnostic as to grocery, power, community or even lifestyle in these case if that spread asset that fit with our adjacent fees in those markets that we cover longer term.

[Todd Thomas:]

Okay. And then you mentioned in the past that exiting California was also an objective. I was just curious if you can give us an update there, and what the time frame might look like to fully exit?

[Shane Garrison:]

Yes, there are a few assets that are encumbered in our bigger JP pool we did in the beginning of 10. Those are long dated long dated maturities, I believe that are up in 19. So the biggest which is Fullerton, that will be a longer drawn-out process. But Temecula and a few others ones are clear but I think 15, It will be granular, I think Todd, that is the unique hook that we have that not a lot of players have that are looking to expand in certain markets in that, we are going trade assets in other markets that are core to somebody, just not for us for geographic reasons, very high grade properties, we are actually having a few conversations right now around that specific time consideration or trade where we will trade an asset in, Florida for example for an asset in Texas, so those are ongoing and we have been very vocal, in conversations about that unique ability to trade. There are a lot of people looking to going to California or on other markets where we are looking exit, and we think that’s a distinct advantage here going forward.

[Operator:]

Our next question comes from the line of Vincent Chao of Deutsche Bank; please proceed with your question.

[Vincent Chao:]

Hi everyone, just continuing the investment theme here. Just one of the things that we have heard over the course of earnings season so far here is that some traction in the B assets, and sort of the secondary markets. Just curious if you are also seeing that trend in your dealings out there, and if that has possibly increased your thinking on dispositions beyond what you have just raised it to the 400 to 500, and would you potentially sell more than that to what seems to be an improving bid?

[Shane Garrison:]

It’s a good question. We are just now starting on multi-tenant pool into the market of the OEM process. You know the pool as a reminder the 400 to 450 originally was half single tenant and half multi-tenant, the RioCan disposition is what pushed up our guidance on the distal side, I would absolutely back up that commentary that the secondary market pricing is extremely compelling based on a couple of the LOIs we have in place now on assets that we intent to trade this year.

[Vincent Chao:]

Okay. Is that causing you to reevaluate the total pool of dispos, or is it more of a use of proceeds issue or a tax issue where you wouldn't necessarily do it?

[Shane Garrison:]

Yes, I think it’s more of use procedures, just you wouldn’t and that yes, we just don’t have a compelling pace to put the money at this point. The balance sheet, I think Angela pointed out is, we are very happy where it is today and you know we are actually at a point, I think next year we will just dollar-for-dollar trade, dispose versus acquisitions.

[Vincent Chao:]

Got it, okay. Just going back to the leasing comments. I think you said the pipeline of new leasing activity is pretty strong, I think $700,000 is what I heard. Looking at the quarterly new leasing volume, it seemed like that was a little lighter than it has been in quite some time. Is there anything to read into that? Is it just the fact that it is mostly smaller deals, or is there something else going on? Just wondering if you could find some color there?

[Shane Garrison:]

No that’s a very good point. It is mostly smaller deals almost exclusively so we’re pushing 97% at the anchor level right now on a leased rate 81.5 I believe in line which is about 100 basis points up year-over-year still very granular one step one step back process. And I think we’ve signed a 130,000 feet of new deals in Q1 again more in line more granular and I think that will be more the methodology here going forward, given where we are at above and below 100,000.

[Vincent Chao:]

Okay, thanks and just one last one for me. We haven't spoken since Schulze has been brought back into the mix there at Best Buy. Just wondering if you’ve seen any strategic changes from them as a result, or how if you have seen any changes in how they are managing the business since his return?

[Shane Garrison:]

I think our perception would be they seem much more focused than they were at least from what we will say perspective and as landlord we certainly appreciate that.

[Vincent Chao:]

Okay, I mean, has that resulted in additional sort of discussions about specific assets, clarity on what they are going to be doing with some of those?

[Shane Garrison:]

They’ve been more proactive in regards to early renewal process and we completed one strategic renewal early this quarter and certainly have a couple of more circled for the year, so we think that’s new approach for them.

[Vincent Chao:]

Okay. Thank you.

[Operator:]

Thank you. Our next question comes from the line of Cedrik Lachance with Green Street Advisors. Please proceed with your question.

[Cedrik Lachance:]

Thank you. How do you guys decide at what price is appropriate to issue equity?

[Angela Aman:]

No, we obviously take into account variety of different factors including but most importantly for us where we’re trading relative to NAV.

[Cedrik Lachance:]

So are we to assume that you trade above NAV as you are issuing equity right now?

[Angela Aman:]

And we’re very pleased with how the stock is performed certainly over the last 6 to 12 months and we do think that we can find compelling opportunities from an investment standpoint and the broader strategic plan we’re executing on and as I mentioned earlier we do think we can create value for the shareholder by issuing the prices we issued out and executing on the strategic plan.

[Cedrik Lachance:]

Okay. It is confusing a little bit about looking at concentrating a little more on 10 to 15 markets. Can you give us a sense of how that selection process is going to unfold, and what it might mean for the need for portfolio repositioning over time?

[Shane Garrison:]

We have been focusing a lot on the multitenant retail portfolio this year as you, you know, take look back at last year our focus was definitely on the noncore and some of more nonstrategic and balance initiative, that’s been, said we have gone through a very extensive review of the portfolio and identified these 10 to 15 markets that we alluded to on the call but I think it’s important to know that that is a very long range strategy and when you look at the 10 to 15 markets, what that means to us today is really our focal points where we going to live to acquire properties and again guiding to the lower end of the range on acquisitions based on the fact that’s it's incredibly competitive out there. I don’t know if you’re going to see a significant amount of acquisition velocity in those 10 to 15 markets. But we talk a lot about Dallas. We know that everybody appreciate Dallas in the state of Texas for what it is and when we look through our portfolio we do have a lot of opportunities to have a more Dallas like focus in markets that we currently have good concentration. You know, as an example we’ve got a million square feet in Seattle area, Seattle shares a lot of the same characteristics the Dallas has with good industry there, no state income tax, things of that nature which are areas that we would like to focus and improve our concentration and again create that more Dallas like focus. We will be announcing lot more detail on market that we focused in our Investor Day but just wanted to share with you kind of example of what we’re looking for and just to reradiate again the 10 to 15 market to the very long range plan but thinking it in terms of where we look to acquire today that’s what that means to us today.

[Cedrik Lachance:]

That is helpful. And then finally, you have been in negotiation with lenders on the University Square mortgage loan. Is there any progress there? Anything that may come to resolution?

[Shane Garrison:]

No more progress to report right now, Cedrik, we continue negotiations.

[Operator:]

(Operator Instruction) our next question comes from the line of Yasmine Kamaruddin with JPMorgan. Please proceed with your question.

[Yasmine Kamaruddin:]

Just a short question on the leasing spread side. I know you said that new leasing spreads will be volatile for the next few quarters. Is the 5.6% or 5.5% sticky for the rest of the 2013 for the total lease spread?

[Shane Garrison:]

I think it’s in the fair way, I think our guidance has been kind of low-to-mid single digits and we think that’s still the right number.

[Yasmine Kamaruddin:]

Did I get that right that for 2014 your disposition activities would be sort of offset by potential acquisition activities?

[Shane Garrison:]

Yes. I think 2013 is the last year we intend to be a net seller.

[Yasmine Kamaruddin:]

And what is your view on your non-core assets, as in what is left in the pool right now to dispose?

[Shane Garrison:]

In regards to the Austin Industrial product or?

[Yasmine Kamaruddin:]

Yes. With regards to single tenant retail, industrial, what is the picking order on this?

[Shane Garrison:]

The Austin Industrial remains a priority just because it's so far away from what we consider core obviously. 11 assets left, we are down to a little over 2 million feet around what those greatest disposition in Q1; 21-22 million I believe in NOI and that's just remains very granular process. Those are leases that are; remain lease term of less than four years now; the good news is those are simple tenant investment grade assets that as we extend the leases that's a great market to sell into. So, I think we intend to solve three to four maybe even five of those assets again this year.

[Yasmine Kamaruddin:]

Okay. Of the single tenant retail assets?

[Shane Garrison:]

No, despite the option does of the single tenant retail that's north of 60 property still 30 or so drug stores and that was to be a granular process as well.

[Operator:]

Mr. Grimes there are no further questions at this time. I would like to turn back the floor back to you for closing comments.

[Steven Grimes:]

Thank you everyone for your time today. We understand the earnings season fatigue; it's probably setting in right now so we appreciate your attention. We have a big couple of months ahead of us with ICSE this month maybe next month in our first investor day next month as well we have seen many of you there and again, thanks, for your time and we will remain keenly focus on the business throughout the second quarter as we look to migrate the balance sheet even further as well as capitalized on the leasing opportunities in the portfolio. Take care everyone.

[Operator:]

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