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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.
Greetings, and welcome to Brixmor Property Group Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference call is being recorded.
I would now like to turn the conference over to your host, Stacy Slater. Thank you. You may begin.
Thank you, Operator. And thank you all for joining Brixmor fourth 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, Stacy. Good morning, everyone. And thank you for joining our call.
This Brixmor team has again delivered both for the quarter and for the full year. Importantly, the acceleration that began last quarter by delivering sector leading same-store NOI growth of 5.1%, and we brought the full year of 2019 to 3.4%. More importantly, the continued execution of our balance plan generates significant momentum for us into 2020 and beyond, a period of time when some platforms may begin to struggle to deliver growth.
In short, the results we are delivering now position us to continue to outperform on all fronts. Allow me to dig into the results and show you how. During the quarter we signed an additional 1.7 million feet of new and renewal leases continuing our blistering pace for the year. We achieved cash spreads of over 33% on those new leases, and drove record small shop occupancy to 86.2%. We commenced 17 million of ABR in the quarter and importantly have an additional 45 million of new ABR signed that will commence over the next several quarters.
I would also note that our anchor lease is rolling over the next several years are nearly 40% below where we are signing leases today. We signed key leases with relevant thriving and growing tenants like Burlington, HomeGoods, ALDI, Ulta Beauty, Old Navy and LA Fitness, demonstrating both the continued strong demand for our older well located centers, and our increasing market share with retailers who are relevant to today's consumer.
We also leverage that demand to continue to reduce our watch-list tenancy, which is down over 10% for the year, and as many of you have noted, one of the lowest in our sector. This robust leasing activity continue to drive our preleased reinvestment pipeline, which at year-end represents over 410 million of investments at an average incremental return of 10%.
During the quarter, we delivered another 47 million of projects bringing our year-to-date deliveries to over 160 million, also at a 10% incremental return. Those deliveries in 2019 created over 100 million of incremental value above our investment, while also improving the appearance of our centers, and importantly the momentum of our small shop leasing. As I've said before, our reinvestment program is a value multiplier, not only driving accretive returns, but also increasing the intrinsic value and future growth of our centers.
Allow me to pause and observe that the 410 million now underway is the equivalent of over 1.5 billion of ground up development in terms of value creation. And we are creating that value at much, much lower risk and in much shorter timeframe at sector leading incremental returns.
Simply put, the best way to deliver value in this environment is reinvesting in existing shopping centers where you have upside and rents and can realize double-digit growth both in ROI and in intrinsic value. That value multiplier simply does not exist where you have rents that are at or above market, or where you're developing ground up.
We also continue to drive operational enhancements at our shopping centers, implementing solar power generation, efficient LED lighting, and attractive low maintenance landscaping improvements that are not only environmentally responsible, they generate double-digit returns through expense savings. You can see some of the impact of these initiatives in our same property operating margins, which improves 60 basis points to nearly 74% for the year. I expect that we will continue to see enhancements in margin as we commence sign leases, and continue to improve the operations of our assets.
From a capital recycling standpoint, we closed an additional 52 million of dispositions during the quarter, finding attractively priced liquidity in some very tertiary markets, while bringing our year-to-date activity to a little over 300 million.
We also closed on approximately 78 million of acquisitions during the year. As discussed in prior quarters, we have pivoted in 2020 to being more balance. And I'm encouraged by the opportunities we have in our acquisition pipeline that fit with our thesis of driving growth in ROI through leveraging our platform strengths. Stay tuned here.
From a balance sheet perspective, we have virtually nothing drawn under our $1.2 billion credit facility as of year-end and no debt maturities until 2022. That together with our free cash flow and access of our dividends provides us ample flexibility and capacity to fund our balanced business plans for the next several years. In short, the Brixmor team continues to deliver on plan, on time, and as promised.
I'd like to turn the call over to Angela for a more detailed review of our results and guidance before providing some additional commentary on our outlook. Angela?
Thanks, Jim and good morning.
I'm pleased to report a successful conclusion to 2019 as we fully delivered on the expectations we shared with you at the beginning of the year, and continue to set the stage for long-term growth and value creation.
FFO in the fourth quarter was $0.47 per share or $0.48 per share excluding items that impact comparability, including litigation and other non-routine legal expenses. For the full year, FFO was a $1.91 per share or $1.93 per share excluding items that impact comparability.
Same property NOI growth in the fourth quarter was 5.1% as the contribution from base rent further accelerated to 390 basis points due to significant rent commencement activity in the third and fourth quarters.
We also experienced positive contributions across all other line items, as our property management team work to drive margin improvement through continued proactive OpEx management and CapEx deployment, and our specialty leasing team continued to expand on opportunities for ancillary income generation across our portfolio.
On a full year basis, same property NOI growth was 3.4%, 15 basis points in excess of the high end of our previous guidance range. Our sector leading growth was achieved despite approximately 20 basis points of year-over-year net drag associated with the Sears/Kmart bankruptcy.
As of the end of January, we have taken back all 11 of the Sears/Kmart locations we had at the time of the filing. And already during the fourth quarter, we delivered the first two anchor repositioning projects related to these spaces.
In addition, we have executed leases or are currently at LOI on all of our remaining boxes, indicating the strength of tenant demand for these locations, and the ability of our team to quickly capitalize on disruption in the market to transform our asset base and create significant value within our portfolio.
We have initiated 2020 FFO guidance of $1.90 to $1.97 per share, which reflects same property NOI growth expectations 3% to 3.5%. We have great confidence in our ability to again post same property NOI growth, at the top end of our sector as our balanced business plan to harvest the value embedded in our portfolio is well located below market assets delivers.
On our fourth quarter call last year, we reported a spread between build and leased occupancy of 350 basis points, representing approximately $47 million of contractually obligated, but not yet commence rent. These leases were a significant driver of our 3.4% same property NOI growth in 2019. But despite the fact that we hit our commencement dates in 2019, and delivered on the growth we had expected, the efforts of our leasing team have continued to refill the pipeline. And as we move into 2020, we have $45 million of signed, but not yet commence rent, again, providing us with significant visibility into our forward growth profile.
As Jim highlighted in his remarks, we have made significant progress over the last several years in improving the credit of our tenancy and the quality of our cash flow. That said, our 2020 same property NOI range includes a bad debt expense assumption of 75 to 100 basis points consistent with our historical experience.
This assumption is in addition to specific property level income assumptions for recently announced or anticipated store closures, and a portfolio level assumption for unidentified or unanticipated closures we may experience during the year. We are cognizant of the retail environment and believe that we have appropriately addressed the associated risks in our forecasts. As always, we would remind you that same property NOI growth is an inherently volatile metric. And we do expect some quarterly variability in our results as we move through the year.
In terms of FFO, as we have discussed on many prior calls, we do expect continued deceleration from non-cash GAAP rental adjustments, including straight-line rent and FAS 141 or below market rent income. While these items have no impact on AFFO or other cash flow metrics, they are expected to detract $0.01 to $0.03 per share from NAREIT FFO growth in 2020.
In addition, please remember that our guidance does not assume any litigation or other non-routine legal expenses. While all legal proceedings related to the 2016 Audit Committee Investigation are behind Brixmor, the company does remain obligated for certain expenses related to ongoing proceedings against the individual.
Turning towards our balance sheet and overall financial flexibility, we were rewarded early in 2020 with a positive outlook from Moody's, which follows the positive outlook we received from Fitch in 2019, recognizing our financial stewardship, the significant improvements we have made to our balance sheet over the last four years and the successful execution of our portfolio transformation.
During the quarter, we also reinstated both our share repurchase and ATM equity programs, ensuring that we retain our ability to capitalize on a wide range of equity market condition.
And with that, I'll turn the call back to Jim for some final remarks.
Thanks Angela.
Whenever we look forward, we always expect ongoing disruption in the retail sector. It's a healthy, inevitable and recurring part of our business. And as Angela just discussed, I believe we've been appropriately conservative in our outlook and guidance for 2020.
With that said, I know that many of you are focused on what retail or might be next, or whether the pace of disruption will be greater this year than it was last. Those are important questions. But from a durability standpoint, I think the most critical question to consider as an investor is whether you can make money and create value, as well as consider what you have risk during these inevitable periods of disruption.
I'm excited that we've already begun to reveal in this environment how well positioned Brixmor is, to not only continue to perform, but significantly outperform. Given the proven demand for our older well located shopping centers by tenants that are actually growing today, as demonstrated by our sector leading leasing volumes and market share of new store openings. Our leasing readapt, construction and operation teams that have earned the trust of these key tenants to deliver on time and to prototype.
Our below market in-place rents not only drive growth on rollover, but allow us to accretively reinvest in our shopping centers and drive growth and ROI. Our $45 million pipeline is signed but not commenced ABR in the bank that will continue to deliver over the next several quarters, the diversity and credit strength of our top tenants, a watch-list that is one of the lowest as a percent of ABR in the sector, and finally, the incredible quality of our overall team for him are beyond grateful and who continue to exceed my expectations every day. Our best performance as a company lies ahead.
With that operator we’ll turn the call over for questions.
Thank you. [Operator Instructions] Our first question comes from Christy McElroy with Citigroup. Please proceed with your question.
Just in regard to your dispositions completed in the fourth quarter, but also as you look to do more deals in 2020. Wondering if you could sort of give us a general sense for what you're seeing in terms of pricing and other trends in the transaction market and where the opportunities are in your view for both asset sales as well as acquisition?
Yes, let me start and Mark maybe you can chip in. I mean, first as I alluded to in my remarks, we're pleased to still find attractive really price liquidity even in tertiary markets as we continue to consolidate our portfolio into our longer term markets. And from an acquisition standpoint, I'm encouraged by what we're seeing as opportunities to really leverage our platform to drive ROI.
We're not simply trying to find assets that are core, we're trying to identify those assets that are in the markets that we currently own and operate shopping centers in, where we're not relying on a third-party to tell us what the rents are. But where we really have an opportunity to take our national account coverage team, our redevelopment team, construction team, operations team and assess whether or not we have the ability to not only earn a good current return but drive that growth and return over time.
And I think that's an area where platforms like ours, we're certainly not the only one, have a pretty distinct advantage in this environment. So similar to what you saw us do this past year with Plymouth meeting expect us to make some acquisitions that really fit with the context of our portfolio.
It is competitive, the capitals out there chasing deals, but I think where there is opportunities for us to significantly upgrade tenancy, we're going to stand apart and have the ability to really create some value. So Mark, I don't know if you want to add anything.
Well Jim I agree, and what I would say on the overall market is that for open air retail the markets very healthy and its liquid and what's occurring in the market today is that the whole business is benefiting from what we're seeing over in the mall space. So those tenants are seeking to move out of malls and to open their retail given the cost savings and ability to transfer sales.
Some of that capital that's traditionally looked at regional malls is also following through seeing more interest in open air retail today than we have over the last couple of years. As Jim said, we're not the only platform looking at it out there today, but our benefit is really our platform and our ability to see assets where we can take advantage of the ops team, the leasing team, the redevelopment team that we have to really drive value.
Okay. And then just in the context of the remarks around capital allocation, but also just given the projection for cash EBITDA growth in 2020, maybe Angela, how should we be thinking about the leverage trajectory over the next year?
Yes, we're very committed to continuing to work our leverage level down to the six times debt-to-EBITDA range acknowledging that obviously given how far below market, the portfolio is that number is going to - we're going to continually trend towards that number as we mark the portfolio to market and execute on the redevelopment plan.
Between now and getting there, you're going to see some quarterly volatility I think in the metrics that's really going to speak to the pace of redevelopment spend and how much capital we have in redevelopment projects that are not yet fully stabilized or producing the EBITDA associated with those. But as those projects deliver, and as we demonstrated, they delivered over the course of 2019, you're going to continue to see that metric work down towards the six times number.
And that's really going to be the key driver from here is the delivery of that EBITDA that's in the $410 million of redevelopment that we have underway. Much of which is pre-leased, we think it's low risk and at very attractive incremental returns, much less gross returns, which are several 100 basis points higher than what we're showing as an incremental return as those returns kick in, it really allows us to turbo drive if you will debt-to-EBITDA number.
Our next question comes from Craig Schmidt with Bank of America. Please proceed with your question.
I guess my question is on leashing spreads. You guys have had better than average leasing spreads for the past 14 quarters. I wonder is that expected to kind of trend down now that you're starting to take advantage of the lower rents. But I am just curious what you think the run rate is on the strong performance on leasing spreads?
They're kind of two parts of that question. And both of them are drivers for us. The first part is, what do we have rolling over the next three to four years, and as I alluded to in my remarks, the average rent to the Anchors that we have rolling are in the $8 range, and we're signing new Anchor deals 40%, 50%, even 80% higher than where those in place rents are.
So as those rents roll, we have a lot to harvest, and I would say it's several years rollover. That remains for us to harvest, but there's another element that I'm equally focused and excited about and that is - as we continue to improve our center, the market rate in those centers continues to improve.
As you replace a tired old Kmart with a specialty grocer, a great fitness use maybe a value retailer, you see an appreciable pickup in those small shop rent Craig as we've talked about many times, that's not factored into our incremental returns where we're not touching the space. So the short answer is, it's a sustainable and durable plan. So that gives us many years of view on that outperformance, which I think if you're sitting on a portfolio that's got rents that are at or above market, you don't have the same levers to pull, you're certainly not going to drive growth on ROI as we've been doing.
So, what I'm most excited about honestly, in this environment is we're starting to show the relative strength of this platform even in a year with some turmoil, I think will be at the top of the chart in terms of same-store NOI, and we've got great visibility on it, one. And two, we're not taking great risks to deliver that. Brian,
Jim I think you hit it on the head. The team has done a great job in taking advantage of the mark-to-market opportunity we have in the portfolio and the visibility we have to Jim's point is several years out. So as we continue to make investments as we continue to bring better Anchors in to backfill the space that we're taking back, we're going to continue to see that upside in our base rents.
And then do you know what percent of the rents that are expiring in '20 have already been renegotiated?
Craig, this is Brian. This time of year in terms of the expirations that are coming up if that's your question, we're usually about half of our expires throughout the year. Many of our Anchors typically had expirations at the beginning of the year, and we're addressing a lot of those and had addressed a lot of those in '19. But at this point in the year, I'd say we're around half of those that have been addressed.
Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.
Just first a quick follow-up question on the leverage, it did increase slightly in the quarter. Do you expect to see leverage rise further in the near term, as you bring on more redevelopment spend. Maybe you could just talk about the base case for where leverage might be at year-end also?
On a trend basis, we expect it to continue to go down. In a particular quarter remember that metric is an annualized number for that particular quarter. So, you can have timing of transactions in the quarter impacted, but importantly, we're going to continue to see that trend down, and also importantly, you've got remember a lot of signed rent there that's not yet in that number. So it gives us tremendous visibility and delivering that growth in EBITDA as we move forward.
And then Angela, you talked about the bad debt reserve of 75 to 100 basis points, which is in addition to the property level, ground up budgeting that you completed for 2020. And I think there was another assumption in there as well that you mentioned, can you just run through the mechanics of that the provision for doubtful accounts and sort of that more general assumption it sounded like you've also embedded in the guidance. I'm just trying to understand that a bit further, if you can clarify your comments there?
Sure, absolutely. So, - and this has been consistent with the way we've provided guidance over the last several years. We typically assume from a bad debt expense perspective about 75 to 100 basis points per year, 2019 that level was 89 basis points, 2018 it was about 80 basis points. So we've always been kind of right in the middle of that range. And that feels like a good level going forward.
Bad debt expense really captures revenue that's already been recognized in the income statement that may or may not be collectible, but it doesn't really pertain to future distress or disruption that might occur down the road.
So 75 to 100 basis points is a bad debt assumption but what I mentioned in my prepared remarks was that in addition to that, we obviously, property-by-property as we do our base budgeting process, I account for any anticipated or known store closures or move outs we expect to have during the course of the year, which obviously includes things like dressbarn and assumption around something like an A.C. Moore.
But in addition to that, after we're done with our space-by-space budgeting process, Jim and Brian and I sit down and look at the watch-list and really kind of probability wait our assumptions for anybody that might be unexpected credit event, in the course of 2020 as well. And so all of those roll up into our assumptions which gets us to the 3% to 3.5% same property NOI guide for 2020.
And then as we think about some of the lines below the base rent, they have bounced around a bit in prior quarters, are there any headwinds, or is there any volatility, I guess in tenant recoveries or ancillary, and other income or anything else worth noting as we move into 2020?
I think the first thing we noted as Angela referred to in her remarks is that on a quarterly basis, all of these metrics are inherently volatile, right? They just are couple hundred grand of excess recoveries can help you one quarter, hurts you in the next.
But importantly, from a trend perspective, and what we see in the overall year, we feel very confident about that guidance range we've given you. And then what I'm honestly trying to highlight for folks and have people begin to focus on is look at the trends also in our NOI margins as we drive occupancies, we continue to improve operations, become more efficient with our spend.
Importantly, from an ESG perspective invest in making our centers more efficient as it relates to water, electricity, landscaping, et cetera. So, those are all things that are small things individually, but really across the board continue to drive better and better performance. And, I'm real pleased with how the team has embraced that challenge. And frankly - how what they're executing is already showing in the numbers.
But, Todd, one quarter recoveries maybe up - maybe slightly down and inevitably on a quarterly basis, and I think that's why Angela sort of prefaced in her remarks, NOI will be volatile quarter-to-quarter.
Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Just two questions from us. First great job obviously on starting to contract the build vers occupied and obviously good to hear that, you have a better rents coming out of small shop. But just a question right now you guys around 86%. When do you think that we could see this get towards 90% is that something that you think is achievable this year or next or this sort of 85%, 86% maybe we get to 87% is sort of where small shop is because of whether it's churn or what have you?
Well as I've talked about, it's a great question Alex, and as I've talked about on prior calls. You will see that continue to trend and we think over the next couple of years, three years or so, that will trend closer to 90%. But remember, part of what we're doing is reinvesting in these shopping centers. And if you look at our overall occupancy statistics, they're actually dragged by 190 to 200 basis points, if not more by what we have actively in the reinvestment pipeline.
Some of which is delivering 18 to 24 months out. So as we continue to deliver that, we do expect small shop growth to accelerate. And then again, everything else that we're doing is making sure that we realize that growth responsibly. What do I mean by that it's not as simple target of let's get to 89%. Let's get to 89% through bringing the best tenants, the growers, the ones who are going to be relevant to the community, versus trying to manage for a particular statistic.
So you will see that that metric move up and down in any given quarter, but you're going to see it continue to climb. And frankly, if we continue to deliver growth on an unlevered basis where we are and we still have some gas in the tank on the small shops. I'm going to be very excited.
And then the second question is, if we just look at your FFO growth versus NOI obviously NOI is very strong FFO is muted part of that is from portfolio reposition. Jim, you just spoke about the small shop. But the other thing that keeps coming up is the IPO legacy the FAS?
Yes.
So Angela, is this sort of - are we getting towards the end of the burn off or do you see several more years where we're going to have at the upper end, $0.03 of drag as the FAS burns off?
One point that I just want to make on this Alex since you raise it, is we're talking about a non-cash item, right the FAS 141 adjustment. Angela?
And so, if you look and we do have some disclosure on this in our 10-K as well but the regular deceleration from FAS 141 income which is really the IPL legacy item there is about $0.01 to $0.015 a year. So all else being equal, you should expect that over the next several years, four or five years, we continue to have $0.01 to $0.015 of FAS 141 deceleration.
The impact is potentially more significant this year or as we move into 2020 because of the impact of deceleration of straight-line. I talked pretty extensively on the last call about the fact that straight-line had outperformed our expectations in 2019 as a result of how wide the gap between build and leased occupancy had grown to, and how many tenants were in possession of space prior to rent commencement.
And we begin straight lining at the possession - that created sort of an outside straight-line impact in 2019 that we expect to decelerate as we move into 2020. I would expect that you see most of that deceleration between 2019 and 2020. But again, we'll have the $0.01 to $0.015 of FAS 141 deceleration on a longer term basis
Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.
Jim, I appreciate the earlier commentary on the transaction market. And we know that Brixmor plans to take a more balanced approach to acquisition and dispositions this year. But we're curious if this balance is going to be primarily based on transaction value to help match funding or on NOI contribution to minimize dilution any guidance you can provide on expected transaction volumes or cap rates on acquisitions and dispositions would be appreciated?
Well, we don't provide specific levels of transaction guidance. I think as an owner, you can appreciate that we're going to always be very disciplined and opportunistic, about identifying investment opportunities. And the real bar for us, as I was alluding to before is finding assets that are in our existing markets where we have the opportunity to apply our platforms strengths, to drive our performance.
So by necessity we will be opportunistic. Importantly, we have liquidity to be opportunistic, we've got the balance sheet strength to be opportunistic. And we also have demonstrated through our disposition activity, just how disciplined we've been. We've not been trying to hit specific targets, but rather we've been selling assets one at a time where the valuations are the greatest.
And when you look at the 1.6 billion over time that we've sold I submit to you that we probably recaptured well over $100 million of additional proceeds by being patient and opportunistic. So the good news is, as we look forward, the balance sheet strong, we've exited most of the markets that we want to exit. So now we can just shift to being a bit more opportunistic. And I'm particularly encouraged by - what we have in the pipeline today.
I can't promise that we’ll execute on any of it. But I'm particularly encouraged by what we're seeing even with, in environment and backdrop as Mark was alluding to, there is no shortage of liquidity, chasing shopping centers. I think, our focus is going to be on those shopping centers where we have the ability to additional value.
Great, thanks.
You bet.
And then Angela, Angela just wanted to talk about same-store NOI growth a little bit as well. Obviously addressing tenant bankruptcies and other move outs with effective leasing has been a fairly significant boost to same-store growth over the last couple quarters. There's also the benefit from a healthy development pipeline. So I'm curious what that ultimately means for more reasonable long-term same-store NOI growth expectation is 3% fair over the long-term?
Yes I mean, I think if you go back to the Investor Day we held at the end of 2017 as we really talked about our longer term expectations for the portfolio. It certainly included strong core growth and an ongoing benefit of 50 to 100 basis points from redevelopment activity. And so I think certainly the levels that we put up in 2019 and 2020, based on continued execution of the plan, and continued progress on the redevelopment pipeline should put up growth but that's in and around these levels.
And then so 3% over the next five years visible?
Obviously we give guidance for 2020. We're not giving guidance for 2021 or anytime after that, but we do feel like what you're seeing, what you saw in 2019 and what you're seeing in 2020, is representative of the plan and what this portfolio and this platform can deliver.
And, you know, I think what's also important to recognize is that opportunity and that growth is embedded in what we own and control today. And much of that growth is already in the bank, if you will, with respect to leases that are signed and reinvestment that's underway. And we're delivering that growth against the backdrop of ongoing tenant disruption. So, I think really what it speaks to overall is I think we have better visibility in many platforms on how we're going to grow going forward.
And it's not based on a hope or a premise that rents in certain markets will continue to inflate. It's based on what we have in place. The tenant demand to be in our centers, and the leasing activities that were that were generating, coupled with really the balance of better operations, as well as really getting in better improvements to our shopping centers that, it's what honestly, excited me so much when we joined almost four years ago now and it became what we set up at our Investor Day.
And I know that oftentimes people have investor days and they make big promises about what's going to happen. We've delivered and I couldn't be prouder of how we've executed in this environment, and spot us in environment where there's no tenant disruption, and then we're really cooking with gas. But what's interesting about this environment of tenant disruption is, it's accelerating if you will the pace with which we can reinvest in assets.
Angela alluded to this on prior calls, but Kmart turned into a huge opportunity for us and remember that when we joined, we had 22 Kmart boxes. We've got none now, and we are at least or delivered on all 11 that we just recaptured in the bankruptcy. So, yes I think that really speaks to not only the opportunity embedded in the asset, but a team that's all over it. And, I'm convinced that as other inevitable disruptions occur, we're going to outperform.
Our next question comes from Jeremy Metz with BMO Capital Markets. Please proceed with question.
Hi Angela, going back to that - your last comments here can you tell us exactly how much benefit redevelopment did have in 2019? What's in 2020 for comparison, and does that include anchor repositioning work as well as the redevelopment activity?
Yes I mean, if we look at just redevelopment sort of a larger scale redevelopment projects on their own. As we talked about throughout the course of the year, and I go back to what I just said in response to the last question, which was at the Investor Day, we talked about it being a 50 to 100 basis point impact on an annualized basis as we were at that kind of consistent spend and delivery level of $150 million to $200 million.
As we moved into 2019 originally, I think I communicated that we thought it'd be a little bit below the low end of that range, really, because we're incorporating all of the drag associated with Sears/Kmart into the impact in 2019. So I think it's fair to say redevelopment - again the larger scale redevelopment projects probably had a 25 to 50 basis points impact on the 3.4% same property NOI growth that we posted in 2019.
As we look forward to 2020, I think it's fair to say that the redevelopment contribution embedded within the 3% to 3.5% guidance is at the higher end of that range, so call it 50 to 75 basis points contribution within the 3% to 3.5% same property NOI growth numbers.
And is anchor repositioning on top of that or is that included?
Yes, no those are just the larger scale redevelopment projects anchor repositioning is not included in the numbers I just quoted.
And just sticking with the pipeline over $400 million is this, the comfortable level where you think it will be or do you think you ramp it further here. And just to confirm, it sounds like $150 million to $200 million of spend is how we should be thinking about it again for this year?
I think that's right, we may be towards the higher end of that spent level just given the opportunities that we have. And you should expect to see what we have underway and that's active, it's generally pre-leased - around that $400 million perhaps $450 million. And what I'm proud of - and we've highlighted in several quarters is, we delivered $160 million of redevelopment last year in anchor repositioning.
Our pipeline has actually grown a little bit from around $390 million to $410 million. As we continue to work hard on what's in the pipeline and deliver to the active we’ll have additions, while at the same time we do expect our deliveries this year to be in that $150 million to $200 million of deliveries of investment. So, you think about it and what was not an exceptionally long period of time.
We not only identify these reinvestment opportunities, lease them, we've executed and began delivering so that we're now at a pretty steady run rate. We're not telling you hey wait, or hey we're really ramping up. We don't need to and that's part of I think the benefit, if you will of having relatively shorter duration type projects in a pipeline like this. So expect us to be kind of at a similar level this year and frankly next year and the year that follows.
Our next question comes from Ki Bin Kim with SunTrust Robinson, Humphrey. Please proceed with your question.
Just to follow-up on Jeremy's question. How much would an anchor repositioning add to your 2019 same-store NOI and through 2020 guidance?
We don't really provide specifics on that because when you think about the anchor repositioning it's generally something that's just impacting the anchor box. So it's leasing. What I like about what we show though, is we actually show in our supplement all of what we're doing from a significant leasing standpoint through those anchor repositioning.
So you can see my fundamental point. And my fundamental point is we're putting capital to work accretively as we get these boxes back and release them. But that's more part of our core growth.
And when you look at your shadow development pipeline, is the mix of assets that you're going to be working on in the future years. Are they as attractive as the first batch because presumably the lower hanging, the fruit easier monies, you go for those first?
You think that intuitively, but you've got these pesky things called leases in place that really govern when you can get to the opportunity and some of our very best opportunities aren't even in our active pipeline yet. So I'd expect us to continue to be generating these types of nice incremental returns. We do have and we don't talk a lot about complimentary uses that could increase density on some of our sites. But don't expect us to really talk about that for the next year or two.
And when we do expect us to be responsible about how we're putting capital to work to realize the highest and best use from some of these properties. But the good news is we've got plenty in the larger - in our core competency, which is retail, and it's actually even more excited about some of the opportunities that we have in the pipeline in terms of asset level transformation and real value creation.
And now and see if I can squeeze in a third one. Do you have a line item called other value enhancing CapEx is about $33.5 million in 2019, compared to almost $15 million in 2018 its been increasing. How do you differentiate what you call other value enhancing CapEx, which if you look at the footnote it sounds like it's up - it includes things like LED lighting upgrades and things like that versus putting it in the same-store expenses?
I guess, remember taking a big step back all of our activities in the same-store pool. Our same-store pool represents 98% or 99% of our properties. So it really is all same-store the distinction between a core expense versus a value enhancing expense has no determination whether or not it's in the same-store pool. So just to clarify on that point, but what does show up in that line, like you mentioned, includes smaller scale projects, solar LED lighting, some of the things that Jim called out in his remarks.
Other assets beautification projects, the specific assets that aren't keyed off of major leasing transactions, but we think are driving improvement and rate across the balance of the center. Projects or additional capital spend that really are justified by returns that are in line with what you're seeing on our other value enhancing projects, but are generally small dollar amount.
Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.
Hi, couple of questions. First, I guess where do you see the 89.3% occupancy trending by year-end what’s embedded guidance there. And then can you talk about rough ranges for cap rate expectations for what you're seeing on the acquisition side and disposition side?
Yes I mean, I do think you're going to continue to see our build occupancy and leased occupancy trend higher as we move through the year. Obviously, you're going to see some fluctuations in that on a quarter-to-quarter basis. One thing I would note is that our occupancy numbers at 12/31 still include the dressbarn space. You're going to see that roll off in Q1 and some volatility early in the year associated with some of those known events.
But we do expect based on that $45 million of signed, but not yet commenced rent. And that 310 basis points spread between leased and build occupancy that you will continue to see both numbers move higher over the course of the year.
And I just - on your question about cap rates, cap rates is always are only part of the equation, right. But in terms of where we think about asset sales, it's likely going to continue to be in that 7% to 8% range that we've been reporting all along. And then on the acquisition side likely probably a 100 to maybe 150 basis points inside of that. It's really going to be driven there Mike by what do we see is the growth in ROI.
What’s our ability to take that initial in place return and really grow it, and what kind of visibility do we have on growth. Again, not betting on market rate inflation, but rather on known tenant demand from the tenants that we do a lot of business with and we have a very kind of clear view in terms of how they might be allocating their capital, which is a really important benefit. We have a large scale platform to understand, as well as opportunities to reposition, add our parcels to kind of bring our whole toolbox if you will to there - to drive that ROI accretively.
That's really where I think you make money in this environment. And so, I just really want to highlight that because I appreciate from a modeling perspective, the need to sort of have an idea of where cap rates are. But we're not focused on cap rates with blinders as it relates to the investment side.
Our next question comes from Floris van Dijkum with Compass Point. Please proceed with your question.
Thanks for taking my question, good morning guys. Just a question on - as I look at your future development pipeline, I see Davis, I see Mira Mesa, Arborland, Mall 163rd Street, bigger projects, some of them - couple of them in fact are mixed use. What's the update on the entitlement process there I guess the first question and number two, when you're doing mixed use as you would be in Davis and Mira Mesa potentially in particular, will those get included in your same-store pool or would that be because you're adding a new use, will that not fall into your same-store and thus not boost your same-store NOI growth?
Well, we take kind of a comprehensive view of what should be included in your same-store pool and we include reinvestment in that pool. As you think about where we are on entitlements on these projects, we're working really hard across the board, not just for the few that you’ve mentioned but frankly, all of our projects, to make sure that we can bring additional uses to these sites.
Because honestly for us, where you create the most value is in getting those entitlements that - almost all of your quote unquote development profit then gets reflected in that land value. What we're going to be very careful about though is to be simple in our execution in other words, leveraging others capital to deliver some of those additional uses on our sites. And sticking to our core competency, perhaps co-investing so that we can retain some control of what happens with the site.
But I think we will generate the most value for our shareholders by sticking to our core competency, which is retail and by getting the entitlements in places like UC Davis and Ann Arbor, Mall At 163rd, when we're down in Dallas. I mean, there are lots of great sites that this company has, where we have the ability to create additional value beyond retail. But I think you should expect us to be smart and stick to our knitting really retail first.
And so thanks, Jim for that. But if you were to stick to your knitting, does that imply that you're going to find an operating partner to JV with you in those things? Are you looking for institutional capital to partner with you on that or how should we think about that?
Best-in-class partners and whatever the product type might be. And we're in a position to have competition amongst those best-in-class platform whether it's market rate, multifamily, student housing, senior housing, limited service hotels. I mean, there are a lot of additional incremental and I think contribute to our uses that are properties that we don't need to stake the majority of the capital and to deliver I think, real value to our shareholders.
Our next question comes from Samir Khanal with Evercore. Please proceed with your question.
When I look just getting back to same-store NOI growth, when I look at that sort of 3% to 3.5% same-store growth seems like a pretty narrow range with all that sort of tenant disruptions we've talked about potential on the call. I mean on the positive side, we got the visibility to get 45 million no that will commence over time. I guess what gives you that confidence that using that sort of same similar credit loss reserves as you did last year, is going to be enough with sort of potentially more disruption this year versus last year?
We're not using that same reserve, I think Angela did a really nice job. I'll let her answer that kind of laying out for you the detailed steps we take, as we assess what's going to happen over the next four to eight quarter?
Yes I mean, just to reiterate the 75 to 100 basis points, we have a lot of history with the portfolio and what the credit loss reserve, relative to outstanding AR balance has done across this portfolio. And even in this environment, which we've been operating in over the last few years, that has continued to be the right level. And we have a lot of confidence, especially based on Jim's remarks.
In his prepared comments that all the improvements we've made to the watch-list allow us to keep the number in and around that band, because we've made so many improvements in the quality of the tenancy. But in addition to that, we have known store closures that are already out of our forecast and reflected in the numbers that represents between dressbarn and what may happen on an A.C. Moore basically 60 basis points of NOI that's already kind of addressed and out of the 3% to 3.5% outlook.
And then in addition to that, the third piece really reflects unanticipated store closures bankruptcy activity, any other kind of disruption that we think might occur over the course of the year, based on everything we're hearing directly from our tenants, everything we're hearing from other industry participants, and probability waited for what we think will happen or what the impact will be on this portfolio in particular.
But stepping back from all of that, I would really stress that as Jim's comments sort of underlined, we expect the current environment of tenant disruption to continue and possibly even accelerate. And so, you should expect that that third bucket embedded in our 3% to 3.5% guidance related to unanticipated store closures or bankruptcy activity is higher than it was at the same point last year.
And we still feel confident remember going into 2019, we also had a 50 basis point range. We were 2.75% to 3.25%, and ended up exceeding that expectation, but felt comfortable in the narrowness of the range based on everything we know about this portfolio and our own execution.
Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.
So first question for you, I guess JVs I know we've talked about in the past and your preferences to keep the story simpler, cleaner, but I'm curious if your view on that might evolve at all. We've seen some of your peers print some fairly advantageous pricing in some JVs in the last year or two. So I'm curious if that could play a role in your capital plans at all if your view on that has changed?
The only time it ever would is if you actually get a value through the joint venture that's better than through a sale of the fee. And I still don't think the market has moved to that place. So, as we look at being efficient in our capital recycling of course, we'd love to set up joint ventures, but I would maybe quibble with the point that you're getting a better execution through the joint ventures then you do through an absolute sale, based on what we're seeing.
So that from a capital allocation standpoint, is somewhat how we think about it. We did mention joint ventures as it relates to additional uses on our properties where you're bringing an operating partner in who might be a best-in-class student housing operator, that's not our business. We might roll our land value into the joint venture, but we would expect that partner to contribute the majority of the capital.
And that would be another way that you might see joint ventures enter into our strategy, but big picture, a joint venture clouds the balance sheet. It also clouds your control over what to do with the asset. And I think people sometimes don't think about from a capital allocation standpoint that encumbrance that a joint venture, by necessity places on the asset. And for that reason, we're just always going to be very measured as it relates to implementing joint venture strategies.
And then maybe a follow-up on the acquisitions, there's been some chatter the last couple of months about institutions wanting to reduce retail exposure and not being able to sell more. I guess I'm curious if you're seeing more evidence of that, as maybe some of these guys look to sell perhaps shopping centers?
And then how you're thinking about underwriting, are you more focused on IRRs or maybe the initial cap rate because there are some, perhaps some great growth assets out there that may require a lower day one yield, but could ramp up fairly quickly?
We're always a total return investor. Nothing about the return is ever more certain than what you have in place today. So obviously, we are focused on where that going in return is and importantly, where we can take that return over the intermediate timeframe, say three to five years, which I believe is where you have the best visibility in terms of where the rents are versus market, what's rolling, what additional investment opportunities do you have.
And importantly, as we think about being a total return investor, we always assume that cap rates at the end of the whole period are higher than where we're going in. So that puts additional focus, if you will, on how are we going to drive that return. Mark, I don't know if you're still on but maybe you can address the first part of the question which relates to what we're seeing in the market as institutional investors lighten up on retail.
I'd say it's been a mix certainly, as I mentioned earlier seeing institutional investors recycle out of malls to the extent they can and that's definitely increased some interest from some investors into open air. While we've seen deals come to market from institutional investors who are saying that they just want to reduce retail exposure.
And ultimately, having a platform like we do that's really an advantage for us to find those assets where folks are saying I'm out and we're saying geez, it's a great example or great opportunity for us to drive value. So we're excited about assets that are out there to buy.
We've reached the end of the question-and-answer session. I'd now like to turn the call over to Stacy Slater for closing comments.
Thanks, everyone for joining us today.
This concludes today's call. You may disconnect your lines at this time. And we thank you for your participation.