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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good day, and welcome to the Brixmor Property Group Inc’s. First Quarter 2018 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.
I would now like to turn the conference over to Stacy Slater. Please go ahead.
Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer as well as, Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Leasing, who will be available for Q&A.
Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially. We assume no obligation to update any forward-looking statements.
Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website.
Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue.
At this time, it's my pleasure to introduce Jim Taylor.
Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer as well as, Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Leasing, who will be available for Q&A.
Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially. We assume no obligation to update any forward-looking statements.
Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website.
Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue.
At this time, it's my pleasure to introduce Jim Taylor.
Thanks, Stacy and good morning everyone. I’d like to begin my comments by expressing my deep gratitude to the entire Brixmor team for delivering yet another outstanding quarter and the execution of our balance soft funded business fund.
Our team’s performance demonstrates how we are capitalizing on this environment to drive sustainable growth and cash flow and importantly, unlock the value embedded in what we earn and control. Let’s look at the facts.
We once again delivered a sector leading volume of 2 million feet of new and renewable leases, with cash spreads of 16.7% which included over a million feet of new leases at average cash spreads of 36.7%.
Importantly, that cash growth was not purchased since both CapEx and average churn held steady. We also set new records in terms of small shop rents of $23.56 and an anchorage square footage with 715,000 square feet of anchor leases executed in the quarter.
A few of you also noticed that we grew our average in place rent to $13.61, also a record for the company. Importantly, we are setting up our future growth. Over the trailing 12 months, we’ve generated over $43 million of new ABR or 4.6% of total ABR of which $37 million is signed but not yet commenced.
These signed leases drive our confidence and our forward growth outlook. In fact, 35% of those rents don’t commence until 2019, and they further demonstrate our strong execution on space recaptured for redevelopment or from tenant bankruptcies.
On both fronts, we are not only unlocking significant value, we are setting up our centers for longer-term growth. In fact, we continue to realize significant gains in small shop occupancy for centers where redevelopment or an anchor repositioning has been completed.
Looking forward, we expect to regain control of the 11 toys boxes this quarter, and have been actively generating leases and NOI so that we can outperform the backdoor of these faces as we did with Sports Authority last year.
As I have mentioned many times before, we believe that you measure the quality of a real estate investment based on your ability to drive growth, without having to rely on ABR inflation or ca rate compression.
In that regard, we stand apart. We also continue to bring great new users to the portfolio, such as Hopdoddy's Burger Bar [Indiscernible] Prince Valley market among many others. While we continue to drive better and intrinsic lease terms and capture market-leading share with the strongest retailers in the industry today.
Additionally, our forward leasing pipeline remains very robust with over 480 leases comprising 2.7 million feet and over $46 million of ABR. As we look out over the next four years with 4.7 million feet of anchor leases expiring, without options at average rents of $8.51 which compares to the average achieved rents over the last 12 months of $12 a foot, we get even more excited about our long-term plan to drive sustainable growth.
Our strong leasing also continue to drive accretive redevelopment and reinvestment, as we added new projects bringing our active pipeline to 288 million at a 9% incremental return. Importantly, we also delivered eight projects with a total investment of $32 million at a 10% return.
For the quarter, book another 19 million, that’s right, 19 million of value creation as we continue to accelerate the pace of reinvestments and close that on our annual standard deliver goal of 200 million.
We also continue to demonstrate attractive pricing and liquidity for assets not core to our long term strategy. Closing on a 138 million of dispositions year-to-date, at an average cap rate of 7.7% in markets such as Dubuque Iowa, Fairview Heights Illinois and Hermitage Tennessee.
We had another 240 million under contract out of this call at even more attractive cap rates, putting us on pace to greatly exceed last year’s volume in a market where we continue to see capital being raised to acquire assets such as ours.
We feel very good about our ability to hit our recycling goals this year. We recycled their sale proceeds and reducing leverage and share repurchases. At quarter end, we have only 135 million of maturities remaining this year and nothing drawn on our 1.3 billion credit facility.
We also repurchased 1.9 million shares of common stock during the quarter, at a price of $15.47, which was below the view our plan for the open trading window. In so doing, we recaptured nearly 20 million of NAV discount, while importantly also reducing leverage.
Expected to continue to capitalize on current low share prices as we recycle capital. As Angela, we also reaffirmed our current year FFO and same-store guidance. Our current quarter results track with our plan that we detailed at our investor day in December and we remain confident in achieving our 2019 outlook, which underscores the ongoing execution of our plan.
I’m extraordinarily proud of the results this team continues to deliver as we capitalize on the opportunities embedded in what we own and control and importantly, remain very disciplined with the capitals that we’ve been entrusted with.
In short, we are delivering value now across all facets of our plan. Angela?
Thanks, Jim and good morning. FFO was $0.51 per share in the first quarter based on same-property NOI growth of 70 basis points. Base rent growth contributed 130 basis points to same-property NOI growth during the quarter and was negatively impacted by approximately 100 basis points of drag associated with 2017 bankruptcy activity and recent proactive termination.
The strong base rent growth in the first quarter despite the outside impact of bankruptcy and proactive termination activity highlights the realization of the sector leading leasing productivity accomplished over the last 12 months.
Base rent growth was further offset by a fully anticipated 60 basis points attraction from the provision for doubtful accounts, which we discussed with you last quarter, primarily driven by a difficult year-over-year comparison due to successful recoveries of previously reserved, written off announced in the prior period.
The provision recognized in the current quarter was approximately 75 basis points of total revenues, which was in line with both our expectations and longer-term historical level. We’ve affirmed our 2018 FFO and same property unlike gross guidance. As previously communicated, this guidance assumes an acceleration and same property NOI growth in the second half of the year.
On last quarter’s earnings call, I highlighted for you $10 million of expected and the rent commencements during 2018, weighted to the second half. These anchor openings were not only indicative of our progress over the last year and addressing bankruptcy impacted space, but also the continued progress we are making on our value enhancing reinvestment pipeline.
Specifically as it relates to our in process redevelopment pipeline, we expect growth to meaningfully accelerate within this pool of assets as we progress through the year, driven by both the completion and stabilization of projects such as Sagamore Park Center, Ventura down, Gateway Plaza and the first phase of Maple village, but also by significant rent commencements at projects not fully stabilizing until 2019, including the village at Messa where we will be opening sprouts in just a few weeks and [Indiscernible] later this summer.
In addition, the year-over-year drag associated with office that are currently being prepared for future redevelopment will peak in the second quarter before moderating in the second half of the year.
While this is an important consideration, as it relates to the trajectory of growth in 2018, it’s important to not lose sight of the fact that we will continue to carry excess vacancy at these center throughout the year as we finalize our plans and begin to execute on the next wave of redevelopment activity setting the stage for growth in 2019 and beyond.
I would also note that the drag associated with the majority of the 2017 bankruptcies in our portfolio including hhgregg [ph] Gordmans and Ultra Food will also moderate in the second half of the year.
As a result, even though the impact from Toys "R" Us is not expected to be fully realized until the third quarter, we do expect an overall moderation in the drag associated with bankruptcy activity in the second half of 2018.
At the end of the fourth quarter, we had 12 toys leases in the portfolio. Since then Galleria comments were sold in January and the lease our Arborland Center was acquired by Brixmor in April.
As a result, today we had 10 remaining leases that are still working their way through the bankruptcy process. But we do not have perfect clarity on the eventual outcome or timing for the locations we have assumed in our guidance that rent increases at all remaining locations towards the end of the second quarter.
As we execute on facets of our business plans to strengthen overall flexibility of our balance sheet remains a key priority. We sit today with significant liquidity, including our undrawn $1.25 billion revolving credit facility and we are generating approximately $100 million of cash flow after dividend which we are accretively deploying into redevelopment.
As a result, only a small amount of proceeds from dispositions will be required to sustain the value enhancing pipeline, even at our run rate level of $200 million of annual spend. Accordingly, the majority of disposition proceeds will be used to reduce leverage and repurchase stock. With only $135 million of remaining maturities in 2018, it’s worth noting that our 2019 maturities are comprised of term loan debt which can be repaid at any time with our penalty allowing us significant flexibility to continue to deleverage as we execute on asset sale.
And with that, I'll turn the call over to the operator for Q&A.
[Operator Instructions] The first question comes from Samir Khanal from Evercore.
Good morning. Hi, Jim. We’ve seen a fair amount of closures over the last few months I mean – you’ve got toys and there are more categories that folks are sort of increasingly becoming more concerned about – and I guess how does that factor into your view of sort of growth picking up in 2019 as you laid out at Investor Day of getting back to that, you know 3% to 4% growth same-store NOI?
You know, I appreciate the question. I’ll tell you we remain very confident and you have to look at the composition of our tenancy and the types of categories that are generally at risk right now, which we’ve been actively managing over the last couple of years to reduce our exposure to. So without naming specific tenants, if you just look at our top 20 tenants, you can see some movement in that that reflects a real focus on managing that risk.
So as we look out over the coming year and also factor in the tremendous amount of leasing that we are doing, so that when we do get that space back we continually are able to get it at a better rent to the new tenant for unlocking value, which as I mentioned in my remarks when you look at what that gap is between build and lease today at its widest of about 230 basis points, again, that represents about 37 million of signed rent it’s not yet commenced, about 35% of which isn’t commencing until 2019.
So I’m really proud of how the team has been proactively managing at risk tendency, which I think is very moderate, relative to others in the industry, and importantly, being proactive about releasing that space and releasing it to better tenants which as I also alluded to gives us a benefit about follow-on, small shop leasing, when you are replacing in a less relevant concept with a more relevant one as we are doing, you really increase the momentum in that small shop side as well.
Okay, and then I guess my second question is on the 240 million that’s sort of in the pipeline that’s on a contract; I mean how does pricing compare to that versus what you sold in the first quarter you know sort of in light of where interest rates have gone maybe around that would be helpful.
It’s actually better in terms of cap rates. And again it’s driven by the mix of what’s in the pipeline, but we feel very good about the visibility that we are getting our liquidity, particularly for the assets that aren’t core to our strategy. So you know consider some of the markets that we exiting as I highlighted in my remarks. We are pleased that we are finding good liquidity for those assets and right now of course we’ll be recycling that back into reducing leverage and our shares at some point in the future, you might see as recycling in acquisitions, but right now the value in our shares is just too compelling.
Okay, thanks very much.
You bet.
The next question comes from Craig Smith with Bank of America.
Well good morning. I just wanted to focus on Southeastern grocers. I’m showing 14 leases in your top 10 report, and I’m obviously not worried so much about the ABR there as I am that they made the anchoring the centers. What is your sort of backup plan for Southeastern grocers, and can you replace these kinds with anybody other than another grocer?
Craig, yes this is Brian. As you mentioned, in terms of Southeastern, it is a prepackaged bankruptcy that we expect to be approved here in May, so limited exposure to us. This year, we had two locations that are within the guidance range and we are expected to get back and from a credit perspective, as we mentioned on the last call, we have guarantees and so we feel pretty comfortable about that.
In terms of the actual opportunities, these are some great locations that traditional grocers other traditional grocers and other users have been trying to look out for some time, and there’s upside in the rents. They are established in few locations, so we feel pretty good about ultimately the marketability of those if we were to get them back. And there are grocer opportunities; there are home opportunities, opportunities from value, basically the categories that we’ve been seeing expanding and thriving in this space.
So overall, we feel pretty good about the opportunity there.
Great. Would the expansion be like Sprouts or are you meaning like a public or somebody?
Both I would say. I mean we have seen both specialty operators and it’s an interesting point on
to greet him it would be expense to be like a sprouts or are you meaningless call public to somebody I would say we have seen both specially operators and it’s an interesting point on Publix is one of the things that we’ve been pleased with is some traditional grocers that have used the disruption in this environment to gain additional share and markets. Operators like giant, operators like Publix who are finding infill locations and we’re in discussions with. So it’s one of the things that we’ve been pleasantly pleased with here to start the year.
Okay, thank you.
The next question comes from Christine McElroy with Citi.
Hey good morning everyone. To start, your sharp occupancy rate is down about 40 basis point year-over-year. Can you just remind us the main drivers for that and many of your peers have continued to grow sharp occupancy despite the tougher environment. And around that 84% level, do you still perceive – that will be lease up of shop space and a runway for growth going forward.
Yes let me answer the first part of that. We do see it as a significant growth opportunity and importantly Christine when you look at what we’ve moved in the redevelopment and repositioning, there’s small shop occupancy for that holds about 400 basis points to 500 basis points lower than overall. So just what we have in the pool is driving us meaningfully on the overall average, and Brian.
Yes, we also had a 40 basis point drag from Payless and rue. But I think the main point that Jim is making is what we look at as a tremendous growth opportunity here. To that it’s about 500 basis points below the rest of portfolio average and 90 basis point drag.
And as we bring more of these projects online, we expect to see similar growth as we have been in the last 36 months, we are driving small shop occupancy by close to 600 basis points in the centers that we redeveloped, so we do still see that as tremendous growth potential for us.
Okay. And then just sort of following up on that redevelopment team, just you know Angela, you made some comments in your remarks about redevelopment impact as you had into the second half, it sounded like you’ll have deliveries, but there is also the offset by seeking through space offline, so it sounds a little like we shouldn’t see much of a difference in same-store NOI growth with and without redevelopment as we move into the second half.
And then just wanted to get a sense from your comment to me, it sounds like you are reaffirming the 3% to 4% range in 2019, how much should we expect the redevelopment to impact that number?
Yes, I mean thanks Christine, I think you know in terms of the expectations as we move through the year, the pieces I did call out were that drag from future redevelopment which is going to be at its widest point in the second quarter of this year, before moderating in the second half of the year, and you will start seeing those deliveries as stabilization and completions. I mentioned in my prepared remarks over the course of 2018, but most significantly in the second half of the year. Both, again from projects you can see on that page in the supplemental are actually completing and stabilizing the share, but also from and current commitments and then from some of the projects that aren’t stabilizing till 2019.
But you’ll see significant growth from those assets as well. In terms of redevelopment on 2019, we had quantified at investor day that we thought the impacts would be 50 to 100 basis point of ABR growth. In 2019, I think we are still very comfortable with that level.
Thank you.
The next question comes from Alexander Goldfarb with Sandler O’Neill.
Hey good morning over there. I had two questions. First, Angela, can you just comment on the stock buyback activity. You guys, it sounds like from Jim’s comments on mix, the cap rates are going to ebb and flow a little bit, let’s just call it 7.5 that you are selling at to a lot of income to give up, you guys have debt you know 135 that you want to pay down, you’ve got re-developments that you need to fund. Can you just talk a little bit more about your thoughts on stock buyback and you whether the 30 billion or so that you did in this quarter is really the limit that you guys can do based on debt repayment, leverage and redevelopment funding?
Yes, I mean like we talked about at Investor Day, Alex I think it’s a great question. You know we tried to emphasize both at investor day and in my remarks today, that there is really a very small amount of redevelopment that needs to be funded outside of free cash flow. So while a portion of disposition proceeds will go to the redevelopment pipeline, it’s really pretty small, which means that for most of the proceeds from dispositions, this point going forward, it really will to your question be split between deleveraging and stock buyback.
And you know we said at investor day and I think the execution are both in the fourth quarter as also first quarter of this year, demonstrates our commitment to executing on the buyback and you know methodical and programmatic way based on the level of disposition proceeds that at any given point in time.
Okay, and then the second question, and this goes to sort of what Christy was asking before is obviously there’s a lot of pressure in the market, and a lot of hopes that you guys really follow through on server backup acceleration than into 2019. A lot of companies talk about back half recovery. I mean, that's been a staple of relent for a long time. As you guys went through the budgeting whether any elements from when you did your Investor day through where there were parts that maybe sell out a bit, but were replaced by other things that allow you to be confident in maintaining this accelerating outlook? Or has everything pretty much stayed true in your underwriting, in your planning of the portfolio that really there has been no deviation?
It's been remarkably consistent. I'd say things as always move budget-to-budget, forecast-to-forecast, so timing of the bankruptcy moves a little bit. On the other side of that we've been more productive from a leasing perspective and more successful in compressing the time between signing of lease and recommencement. So on balance we're feeling particularly, Alex, given the visibility that I mentioned on the leasing and the rents that have yet to commence, we're feeling even more confident in that round.
Okay. Thank you.
You bet.
The next question comes from Todd Thomas with KeyBanc Capital Markets.
Hi. Thanks.
Good morning.
Good morning. So just regarding the some of the new leasing activity and the backfills that you're pursuing; just wondering if you could talk a little bit about the competitive landscape for the space maybe provide some color around the competition whether it's multiple options that you're looking at for these spaces, would you say that it's a little bit more surgical nature as you approach these backfills and anchor repositionings?
Well, we're very intentional as it relates the types of uses that were putting in our center for the last part of the question. So we really do ask ourselves what's needed in that particular sub-market and we're using data to a level that we've never done before to look at sale that are leaving that particular trade area to look at in more precise term, how the centers are actually trading, not simply using rings, but we're overlooking at cellphone [ph] data on and off the properties that properly draw where that asset trade. And then as we think about uses we're being much more intentional about marketing to the use that we think can be most relevant and going to drive the highest sale.
Remember from a competitive standpoint that all of us on the public side generally our competition is not each other but rather a lot of private owners. I think probably 12% to 15% of the open-air centers that there of institutional quality are owned by the REIT. So it's still a pretty disaggregated universe. And in this environment the scale and importantly the trust and relationships that we built with these leading driving retailers is incredibly important.
And it's something that we're also measuring. I alluded to it in my remarks that we are building market share. I think we have leading market share with a lot of the tenants who are thriving today. And we the trust within that we will execute. So, as many of these tenants are looking at going into different types of formats, downsizing, looking increasingly relocating, we are a net beneficiary of that.
So, we're being much more intentional about uses. Much more targeted in terms of how we're marketing the space that both that we have vacant plus, as I alluded to earlier those uses that we are less confident and going forward reducing our exposure to them, and then, leveraging that local market knowledge that we have with the great national accounts coverage that we have to make sure that we're outperforming as we compete in each of these local markets.
Okay. Thanks. And then just two quick questions for Angela, the 60 basis points detraction from the same store in the quarter, the provision for doubtful accounts, I think you mentioned that was in line with expectations. How does that drag compared to the full year guidance? And how should we think about that trending throughout the balance of the year? And then also just wondering if you could comment on the impairment that was taken in the quarter, just what that was for and do expect to recognize additional impairments in the quarters ahead?
Sure. Thanks, Todd. In terms of the 60 points drag from that debt, if you remember at Investor Day when we quantify the components of our same property, NOI gross guidance, we did expected 50 basis point drag for the full year. I would note that the first quarter comparison from the Q1, 2017 was probably the most difficult across the whole year, so I think it’s right in line with the guidance we had given back in December.
In terms of the impairment, we did recognize $15.9 million of impairment during the quarter also recognize the $11.5 million of bookings, the impairments were for the most part based on transaction that were completed during this quarter or transactions we expect to complete over the next quarter or two.
Okay. Thank you.
The next question comes from Jeremy Metz with BMO Capital Markets.
Hey. Good morning. I just want to go back to Toys here. You talked about the uncertainty here in terms of the timing of the process but also that you now assumed all rent ceases in 3Q. This is above your initial expectations when you laid out you're same-store guidance at the start of the year which at the time assumed you get one back and lower rents on another six. So I'm wondering if you're removing any of these stores from same-store as you kickoff larger repositionings? Or should we be thinking about the low-end of the same store NOI range? Or is it really just is better than expected lease commencements relative to your initial expectations as leaving you confident in the range today?
Yes. Jeremy thanks for the question. I would say, you're right on Toys last quarter we did communicate. We expected one rejection and rent release at six other locations. We did expect that rent release and rejection to happen much earlier in the year during really towards the beginning of the first quarter. Obviously now we are anticipating as we mentioned in guidance that we will all locations back, but that's not going to happen until much later in the year. So the net impact on 2018 was actually pretty similar relative to our original expectations.
Okay. And so none of these will be removed for a larger repositionings?
Yes. On that point, I mean, the only thing I would say is that remember that our full same property NOI guidance includes all redevelopment. So nothing comes out of the pool or impacts the guidance we give since that is given on including redevelopment basis.
So the drag would be in there. Okay. Just sticking with some of the leasing commentary, Brian, I'm wondering if you give us in color on your conversations with the pet supply stores. Feels like that there is mounting pressure there particularly on the brick-and-mortar stores. So just wondering if they're coming and you looking for any rent relief or trying to get out of any leases earlier, any color you can provide us would be great?
No, Jeremy, and thanks for the question. They continue to be our major pets store operators continue to be good partners; PetSmart and Petco. We haven't had those types of discussion. I would say overall we haven't done a tremendous amount of new pet leases. We've done more of the smaller operators throughout the portfolio. So hasn't from an expansion standpoint we haven't seen a tremendous amount of new activity in our portfolio from them.
Thanks.
Our next question is from Nick Yulico with UBS.
Hi, good morning. This is Greg McGinniss for Nick. Just another question regarding the Toys "R" Us leases. When do you see the potential economic benefit from releasing those boxes? I know, traditionally they pay pretty low rents and do you envision mostly it will be cut up, or there's still demand for the box size in the market?
Yes. It’s a great question. So we're looking at a number of different ways. In terms of the upside we feel pretty good about the fact we got rent to 950 a foot and as we're looking at the upside in the LOIs and leases that we're negotiating so far, we're expecting that range to be in the 20% to 30% range as we're looking at it. Those rents will be higher if we cut those boxes up. And interestingly the categories that we're looking at the backfill of those spaces are a broad mix. We've got traditional fitness operators like 24 hour LA Fitness. We've got smaller operators like Ulta and Total Wine who would be really been increasing our share with across the board categories and home. And then in addition to that the value operators that continue to expand. So, we feel pretty good about the demand and the activity that we had on the boxes so far.
Great. Thanks. And then shifting dispositions, how was the plan to exit or densify the single asset market is progressing. Does this plan remain the focus for current asset dispositions or does asset type such as moving power center exposure a matter more right now?
It's really focused on markets and hold IRR. Every cap allocation decision that we make is we view through the lines, well, it help us grow or not. And then as it relates to market strategy is that a long-term hold market for us. So, in particular if you look at the dispositions that we've been completing, we've been very methodically getting out of these single asset markets and I'm very pleased with the progress that we made this past quarter getting out of several more and that we found liquidity in those markets.
On the other side to your question, at least right now while it's a long-term priority for us to reinvest in markets that we like the cluster and densify in, our stock is too much of a compelling value to justify acquisition. So expect us to be much more disciplined in terms of the other side of that capital recycling as we focus on our redevelopment, reducing leverage and opportunistically buying back our stock every quarter.
Great. Thanks, Jim.
You bet.
The next question comes from Ki Bin Kim with SunTrust.
Good morning.
Hey, Ki Bin.
Hey. So, before going back to the PetSmart question, if I look at the ABR per square foot is certainly higher than the Toys "R" Us spaces 15 to 16 bucks a square foot. So my question is I'm sure you've already done some contingency planning, how does the backlog demand for those type of spaces look like today, and would you be able to kind of hold rent flat overall?
Again, we have not been in any real. To the earlier question it's not comment us about rent relief or anything along those lines. I would say the demand for that 22,000 to 25,000 square foot box remains very high. And the locations where we're getting those spaces back really across the board we're finding good demand from retailers that have large open device and are striving in this environment. So as we look out, we're in constant conversations really with all of our national tenants in terms of what our exposure looks like on those stores. So we feel pretty good about where we sit with them today.
Okay. And this is just a broader question and I know it's probably hard to get this data, but do you have a sense how well your retailers are doing in your centers across portfolio in terms of sales volume and operating margin over time?
Actually, we are very focused on it and we talk a lot about the grocer segment where we have much broader reporting. And our grocer sales performance remains very good, and importantly remains very good relative to chain average. We also key then hold our national account team responsible for tracking sales productivity, those tenants who are not required to report under leases. So those represent estimates, which we sort of back check every time there's an event on the lease that allows us to determine where those sales are and there as well we're seeing good performance generally across the board.
And importantly really very reasonable occupancy cost, where we the situation in the portfolio with higher than what we believe to be healthy occupancy cost, that's what prioritizes our releasing decisions than marketing decisions going forward. So, we're really looking out not just the next 12 months, 24 months, we're looking 36 months out and beyond to make sure that we're staying ahead of it and also importantly capitalizing in an environment where we're finding that the retailers are planning further and further out.
I've said this on prior calls but you'll note that retailers are planning store opening today for 2020 and even in 2021. So by being proactive about tracking our best estimate of the occupancy cost and getting ahead of that we can capitalize it, but I would tell you that across the board some of you've done some research on this, look at our tendency, is they're doing pretty well. They're generally showing good same-store sales growth and importantly the locations in our portfolio are healthy and doing well and obviously we're in constant communication with these tenants to determine where we have any locations at risk and we're doing everything we can to get ahead of us.
So net-net we're in this interesting environment where we're seeing great net demand for our space, yet I think there's a backdrop of fearing concern about what the next shoe to drop is going to be. And quarter after quarter we keep demonstrating it and we're demonstrating in our pipeline. We're going to continue to demonstrate that we're able to take this environment of disruption given the low rent basis in our asset and actually make money and putting usage that are better than what preceded them. So it's an interesting time because I think at least within this company and platform there's a lot of excitement about how we're creating and unlocking value that actually capitalizes on some of this disruption that's occurring.
Okay. Thanks, Jim.
You bet.
The next question comes from Vincent Chao with Deutsche Bank.
Hi. Good morning everyone.
Good morning.
Quick question on the private market side, it seems that the number of your peers have indicated that conditions are may be improved a little bit, liquidity maybe improved a little bit as new capital forms. Just curious if that's consistent with what you're seeing in the private markets? And then just in terms of the disposition plans trying to get down to 400 the assets over time, it's about 80 away from where you are today. I know you don't give guidance on that particular number, but do you think looking at 30 a year is a reasonable way to think about that plan?
It's not unreasonable. I think we're going to take advantage of the open market windows of liquidity. And as we talk about it Investor Day, Vince, asset sales are always going to be a part of our continuing plan if you well, because the decision to hold an asset is an investment decision and we really focus very much on that, hold IRR. As we alluded to at the Investor Day, we do expect to be larger on the disposition front this year than we do on an ongoing basis. We capitalize on the liquidity that we see is there. Mark, I'll let you to maybe talk little bit about the private market.
Yes. I think we would concur that. We continue to see capital formation for open-air retail centers and I think it's really driven by lot of commentary. Brian is giving you from the tenancy base lot of the private type. See what Brian is talking about demand for space, demand for open-air centers and when you can bind that with the wide-open financing environment, they're coming into the space and putting the capital to work today.
Okay. And then just another question, you pretty clear that dispositions will largely be used to fund either deleveraging efforts or share repurchases and the commentary has been very positive on demand side, I think some of the concern out there is that there's still and elevated level of store closures in the market overall and we're sitting here in the longest – one of the longest recoveries in history. And so there is concern that the next recession is not too far away. I guess as you think about a dollar deployed towards deleveraging versus share repurchases how do you weigh the two?
Well, as we've talked about for a while we have portfolio that is well below market from an EBITDA perspective, and we're generating significant cash flow to fund most of the reinvestment activity that we're doing in the portfolio. So from that standpoint I think we said pretty well, our dividend is very well covered and we continue to be in a position to unlock some of that growth. And as we think about the net disposition proceeds beyond that we do think about deleveraging first, right. We're conservative by background. If you look at steps that we've taken with the balance sheet since joining we've raised nearly $5 billion of capital to term out our debt to – I think we're almost 100% fixed at this point.
Angela alluded to the fact that we have some flexibility to pay down future maturities in an efficient basis. So we are constantly managing towards the strongest and most flexible balance sheet that we can have. So deleveraging is an important part. And then beyond that and if you look at what we did this quarter then I think it sends a pretty clear signal. We delever but we also bought stock back. When you think about the opportunities embedded in this portfolio and the quality, a visibility on growing cash flows which is the real estate investor is what you look to. Our stock is incredibly cheap right now. So the ability for us to systematically not try to define the market but as we recycle this capital and we evaluate what to do with the remaining capital that we have, we think the share buyback is a very prudent use with where we're trading on implied cap rate basis where we're trading on a multiple bases and importantly where we're trading relative to our visibility on future growth.
Okay. Thanks.
The next question comes from Haendel St. Juste with Mizuho.
Haendel.
Hey, good morning there. Hey, Jim. So, hey, a question I guess on grocer, certainly an important element in your portfolio. I guess how – what's your willingness to help them get to the right format, right? So they're – I guess they are going away. It seems like many will be looking to provide the format of their storage going forward which requires capital from them -- from you. In fact, the right thing to do to allow that grocer in for long time, but not risk losing it to a neighboring center with free space. So is that something where we'll see increase re-debt spend going forward and all these economic fields that we should think the more is loss leader anchored type field?
Hey. This is Brian. Look, putting our grocers in the best position they can be in our centers has been and will continue to be part of our redevelopment pipeline whether you look at the Kroger expansions that we've done over the years, the location with Publix in Sarasota where were caring that down and building a new prototype and we've got tremendous pipeline with them. And then you look at the specialty operators that are coming into the market. I don't think it's really any different than what it's been in the past and that we're constantly in conversations with our grocers trying to put them in the best position to succeed and then helping them with the initiatives that they're doing to drive traffic to their stores like Kroger with ClickList, like other operators that are trying to see how they can integrate the technology portion to continue to engage with their customer further. So if anything its going to continue to be part of our plan and we feel really good about the fact we have the dialogue if we do with these operators.
And Haendel, I would just also note that we're seeing grocers increasingly investing in their existing store which oftentimes will be in conjunction with the investments that we're making in the broader shopping center to leverage off the improvement that they expect through that capital. So – but Brian spot on the relationship with these grocers and making sure that we are great partner and aligned with their driving sales growth is important.
And what we've done most of that activity has been highlighted for you I think in our redevelopment pipeline and we been driving really accretive returns on that capital spend.
Okay, okay. Thanks for that. On the transaction side, I guess going back to your respond to an earlier question. I guess I'm curious what's driving the better pricing you're alluding to for the 240 million under contract. You still six in the first six centers in the first quarter, five new grocers. So are no power centers in the new mix with the better market? Are you just seeing better demand, there are any portfolio buyers among that. Just curious as to what's driving that expectation about better pricing?
Its really the specific assets themselves and its interesting when you look at the mix and what happened in the first quarter, really half of them are more boxy sort of traditional power centers with a grocery component and then half of them were sort of the more traditional 120,000, 130,000 square foot grocery anchored center. And we still to what's implied in your question, still we see much more demand for the traditional grocery anchored asset. But with that said, across the board with assets that we are choosing to sell we're seeing a competitive bidding field and we're able to move pricing from early first round indications to where we're ultimately closing.
And our success rate in terms of what we're closing based on what we're marketing remains strong. And while we talked a lot about cap rates what we're really most focused on in that hold IRR. So we're not overly focused on trying to achieve particular cap rate. What we're most focused on is where is that NOI going and what kind of capital will it take us to keep that NOI in place or grow it and we're being conservative importantly in terms of what we think the reversionary cap rate would be as we assess that hold IRR because as with intuition assuming that they will be less attractive than where they are today. So growth matters. And that centers that were selling not only are non-core in terms of markets et cetera, but we see limited accretive growth opportunities.
Appreciate that. Just a follow-up if I could. Are you seeing any maybe portfolio buyers emerging for at least the grocer anchored? And then any – I guess are there still financing challenges on the power center side? Thanks.
To the first point on portfolio, I think what we're seeing is smaller portfolio buyers emerged that can get to attractive pricing. It's been our strategy to maximize pricing and assets that we're selling so we continue to really be transacting on one off basis, but we are starting to see more interest on the portfolio side of things. With respect to financing environment that continues to be wide-open; we're seeing very attractive financing quotes that we're selling both in the CMBS market and bank market.
That's for the grocery side, right. I mean the power centers..?
No. We're certainly seeing good demand in pricing for power centers and the real key frankly on the power center side is where the rents? In our portfolio we think rents are well below market and then you have power centers where you have well below market rent. You get good pricing and you very good financing indications whether or not that that's really where I think you're seeing some of the trust you might be referencing.
And to that point then it's really matters there. Assets that were developed in kind of that 2000 mid-2000 array tend to have higher in price rent. Our average asset age is about 32 years. So by definition our rents are generally low and below where we think market.
Thank you, guys. Appreciate it.
You bet.
The next question comes from Karin Ford with MUFG Securities.
Hi. Good morning. Given the increasing capital formation for shopping centers and maybe even arrives as you said in small portfolio buyers. Do you think there could be an emerging privatization bid out there for shopping center given the current NAV discounts?
I think so. We don't see it yet, but capital always finds the level and when you look at the risk-adjusted returns that are available on this space they are pretty compelling, particularly relative to other types of real estate today. And I think as Mark alluded to earlier that the net demand that we're seeing from retailers who are figuring out how to thrive in this environment is strong and they're leveraging their physical location either investing in their stores, they refining their prototypes and remaining relevant and increasingly moving towards the open-air format. You know, a lot of the innovation that we're seeing is toward the open-air format. So the private capital beginning to see that, but I don't see it Karin to your question, yes in terms of real large portfolio or but capital finds a level at some point it will happen.
Great. Thanks for that. My second question is just going back to the Toys boxes, I know it's still earlier in that process but could you give us a rough idea of what you think the downtime will be for those boxes?
Sure. If you look at Brian, you'd better be sure.
Yes. Karin, we expected to be consistent in terms of rent paying with in line with where were with sports authority with 12 to 18 months in terms of rent commencements. So to Angela's point we're expecting to get those back in the middle of the year and we expect those rents to come online in later 2018 and early 2019.
And importantly as I alluded to in my remarks we're working deals on all this spaces now to put us in the position to outperform how we backfill and you'd going to expect us to as we've done before give you sort of that ongoing progress as we backfilled our space.
And Karin my apologies. I meant late 2019, early 2020 when I said 12 to 18 months, so apologies for that.
Right. Got it. And just, I'm sorry if I miss this early. Did you say – do you have any Letters of Intent of any of those boxes yet?
We do, we do on several of the boxes, I see close to half of them right now we have leases or LOIs in place.
Great. Thank you.
The next question comes from Vince Tibone with Green Street Advisors.
Good morning.
Good morning.
Can you provide some additional color on the high seven disposition cap rate? The disclosure in supplemental or period to apply a cap rates in the high nines, can you bridge back up in terms of whether you quoting a buyer cap or trailing cap rate and just helping us getting better understanding of that metric?
Yes. What we're quoting into market cap rate. What is the underwritten in place rents and that's what the brokers would quote in the marketplace in terms of how those assets would sell. I would also point out to you is that these assets in particular were lower margins assets given the markets that they were located in. So you got a factor that and they're trying to back into the cap rate just off ABR and the other element is we did have I think in one of them a Toys box that was obviously coming out and not part of the underwritten NOI on the assets.
So really when you think about those three things that it helps you understand where the cap rate was relative to the ABR calculation that you got. Because we look at and the market looks at that underwritten NOI there are some quarters when we have deal sign that we didn't get rend for in the preceding quarter. So it kind of go both ways, but that's effectively how we do it and I think that's the industry standard.
That's very helpful. Could you provide the cap rate just on a trailing 12 month basis, just trying to get to the right forward pro forma NOI?
I think for this quarter it would be higher. I don't have the actual number of basis points. It wouldn't be up at the levels you're calculating, but it would be higher on a drilling for this quarter.
Okay. Thank you. And then one last one, it seems like Publix being an active buyer of shopping centers so far this year and its one of the few active portfolio buyers. I mean would you consider deviating from selling in single market assets and maybe take an opportunity to sell some of your higher-quality centers to a motivated buyer?
Yes. We have sold a few assets to public than in some cases they are the right buyer for the asset. Again the portfolio bid hasn't emerge yet as strong as what we're finding for the individual asset based, Mark I don't know if you want to comment further.
Yes. I would say we have transacted with Publix there. They are great transaction partners to the extent that they were the best buyer for assets who would certainly continue to transact with them. But I don't think again as we've said is we have capital formation that really push downs into that high quality, really had some high quality asset to get a portfolio bid done.
Okay. Thank you. That's all I have.
You bet.
The next questioner is Floris van Dijkum with Boenning.
Thanks guys. Quick question. How many – Jim, as you're selling your down the portfolio how many single asset market did you or do you plan to exit this year? And maybe touch upon any impact on G&A and sort of efficiencies as you alluded that some of the property sold had lower margin than the overall portfolio?
I think you know when you go back to what we done over the last 18 months or so I think we've exited 15 plus single asset markets. And what's interesting is it's less about the G&A savings in my opinion and more about what happening with the ABR at the asset, when you only own one asset in the market you are not going to be as good in driving ABR growth as you are when you on two or three or four.
As we look at G&A spend you'll note that our G&A is trending down, part of that is obviously legal expenses, but other part of it is we are very focused on making sure that we're efficient with our spend and that we're investing in areas that that create value such as redevelopment and transaction and that were becoming more efficient in areas that don't generate as much value. The long-term floor as I do think that being in fewer markets will help with the G&A, but what we've done today hasn't really resulted in G&A savings.
But in terms of what you have in your pipeline on the contract, how many more single asset markets do you think would be there. Is it half of the properties or..?
Yes. I think that we'll get out of another 15 to 20 over the next 12 to 18 months.
Thanks guys. That's it from me.
The next question comes from Wes Golladay with RBC Capital.
Hi, everyone. Are you noticing more of willingness by retailer truly relocated to another center? And if so what is the big driver? Is it the quality of the center? Is it the rent level? Is the retailer looking for a new prototype? And then as a follow-up are the private landlords able to keep up with the more capital-intensive environment?
Look, it’s a great question. I think retailers are focused on getting in their best footprints in the markets in which they operate. And a lot of the reasons you mentioned are the reasons that they are looking for additional sites whether it's prototype, putting new capital into stores, I think we are big beneficiary of that and we've seen that in our production here over the last 12 to 18 months and I think its infact it’s due to the platform that we have.
Our teams that are local in the markets are experts in those markets, they have an understanding of trends and when things will potentially come available for instance, one box leaves what that triggers for another opportunity for us and then our international account team is in front of all of our major tenants and looking to Jim’s point earlier, three years out at what the opportunities could be, whether it’s smaller stores, larger locations.
The other thing that I point out to is we’ve been a big beneficiary of a downsizing as well. From tenants like – if you look at our redevelopment of malls [ph] and crossing outside of Philadelphia we’re able to bring a Sprouts market into that and almost pick up the rent by 60% on what Burlington was paying, get them right size and bring in a new anchor. So we’ve been pretty pleased with the progress and have been using tenants willing just to relocate really to drive our performance.
Yes as Brian alluded to, I think it’s a tremendous competitive advantage in this environment and you’re seeing us capitalize on it.
Okay, thank you.
You bet.
The next question is from Michael Miller with JPMorgan.
Yes, hi just a couple of quick numbers questions here. Angela, for maintenance CapEx you picked up in 2017 relative to 2016 and 2015 by a decent amount. I was wondering when you look forward does it feel like 2017 is a little bit more of a better run rate or was it a little bit more of an anomaly?
No I think you should expect we had about $40 million of maintenance CapEx spend in 2017 and that’s probably a good run rate going forward.
Got it. And then last question, given all the dispositions that had been going on and for what’s planned for the balance of the year. As you look at the FAS 141 burn off out in 2019, do you have any color on what that adjustment could be at this point?
Yes, it’s a good question. I don’t right now have any comments to make. It’s going to depend a lot on the pool of assets that it might get sold or when that transacts on it. It’s also going to depend a lot on changes with respect to the retail environment as well. Right as we have situations like Toys "R" Us you might see an acceleration of some of that FAS income that would have been further out into the current periods. So there are a lot of moving pieces, you know we kind of David Investor Day our best assumption for this year which was $0.04 drag relative to 2017 for non-cash income, so both straight line and FAS 141 and more of something we’re watching I don’t have any better guidance than that at this point.
Got it. Okay, that was it. Thank you.
Thanks Mike.
The next question comes from Linda Tsai with Barclays.
Hi, have you like ordered the location quality of the toys boxes you could be getting back and the potential rent upside associated with each one. You know how evenly distributed is the rent upside across the boxes, or is it sort of bifurcated. Brian, I think you said 20% to 30%?
I didn’t. I think it’s bifurcated pretty much evenly across or it’s pretty even across the portfolio. We’re fortunate in fact that we did not have many stores that were done, the combo stores that were done in the mid-2000s or – mid 2000 and mid 2010, we only had one. The majority of our locations are older vintage, as Jim pointed earlier and that’s what makes us feel good about the opportunity to drive the upside in these boxes when we are sitting here at 950 it feels like getting them back.
And part of what you know as Brian alluded to before, what’s driven our activity level with and leases on half.
Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Stacy Slater for any closing remarks.
Thanks everyone. We’ll see many of you at ICSC anyway [ph].
The conference has concluded. Thank you for attending today’s presentation. You may now disconnect.