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Good morning and welcome to the SITE Centers' Reports Fourth Quarter 2019 Operating Results Conference Call. 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 Brandon Day with Investor Relations. Please go ahead.
Good morning and thank you for joining us. On today's call, you will hear from Chief Executive Officer, David Lukes; Chief Operating Officer, Michael Makinen; and Chief Financial Officer, Conor Fennerty. Please be aware that certain of our statements today may constitute forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements are subject to risks and uncertainties and actual results may differ materially from our forward-looking statements. Additional information about these risks and uncertainties may be found in our earnings press release issued today and in the documents that we file with the SEC, including our most recent reports on Form 10-K and 10-Q.
In addition, we will be discussing non-GAAP financial measures on today's call including the FFO, operating FFO, and same-store net operating income. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release. This release, our quarterly financial supplement, the accompanying slides maybe found on our Investor Relations section of our website at www.sitecenters.com. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning and thank you for joining our fourth quarter earnings call. Our 2019 performance is a great start to the five year business plan we laid out at our Investor Day a little over a year ago and I am enthusiastic about our teams focus on execution. Fourth quarter results capped an excellent full year for SITE Centers with same store NOI growth and OFFO significantly ahead of our expectations. Key drivers for the quarter were better than expected property NOI and Lower G&A, which were consistent themes throughout the year as our operations team delivered on revenue and proactively managed expenses.
The fourth quarter also included a number of transactions, including the announcement of expected JV from our Teachers sale and $195 million equity offering, along with a significant repayment of our Blackstone preferred investment and three new acquisitions. Each of these actions are accretive to the company's long-term growth profile and position us well for 2020 and the years ahead. I'd like to put my comments on our fourth quarter and full year 2019 results into context with the three components of our five year business plan; leasing, acquisitions, and redevelopment. It's these three activities that underpin our 2020 guidance assumptions and the steady growth within the portfolio.
First, we are a leasing story. Our biggest opportunity for growth is to fill our valuable real estate with strong tenants. At the top of the list are the 60 anchor opportunities we've been highlighting over the past year. We've now executed leases or LOIs on 43 of those spaces at a blended 38% leasing spread. Our success over the past year was the primary driver of same store NOI growth, the largest component of our business plan, which was 5.1% for the fourth quarter of 2019. The acceleration from the third quarter was boosted by early anchor openings and outperformance versus our budget driven by a number of positive variances. Full year growth of 3.6% was also well ahead of the five year average we laid out at Investor Day, supporting the most important part of this plan. As anchors and shops recently signed start to open and pay rent they'll provide a steady tailwind of growth for the next several years and are a key driver behind 2020 same store NOI guidance of 2.5% and the midpoint of our range, including redevelopment and 1.5% excluding redevelopment. I'm particularly pleased with the outlook considering the difficult comparisons in 2019 and several announced bankruptcies in the first weeks of the year.
The second component of our business plan is acquisitions. As a reminder our five year plan calls for $75 million of annual investments funded via capital recycling, a goal we achieved in 2019 through the acquisition of three properties in the fourth quarter. I discussed our vintage plaza deal in Austin, Texas last quarter and I'm now excited to announce two other investments in Tampa and Portland. Both are consistent with vintage, where we expect vacancy and below market leases to produce NOI and cash flow growth well in excess of our portfolio average. Additionally, despite different formats, both properties benefit from adjacent natural traffic drivers. Southtown Center in Tampa, Florida, is a collection of service oriented shops surrounded by top performing Sprouts and Publix grocery anchors in an affluent submarket.
The blocks in Portland, Oregon is a bit more unique as is collection of urban retail condos at the base of 10 different apartment buildings in the Pearl district. This submarket at the footsteps of Downtown Portland has seen significant population growth, with 5,800 apartments constructed since 2011 alone. The majority of the leases in our properties, which are occupied by a mix of restaurants, banks, and fitness users, were signed prior to the population growth I described providing a significant opportunity to increase cash flow upon lease expiration.
Retail properties with true rent growth are challenging to identify. But our ability to use customer data gives us a much clearer picture of the economic demand for space, and it allows us to be less concerned with the retail format and more focused on retail traffic. Both of these recent investments have very high customer traffic and a proven roll up in market rents. With the scarcity of competition and a measurable mark-to-market on renewals, we are confident that economics on these acquisitions deliver a return that's high enough to warrant our use of capital. We remain optimistic that we'll be able to source additional investments over the course of 2020, all of which will highlight our bottom up format agnostic approach while at the same time be mindful of our cost of capital.
Finally, we're continuing to make progress on the third component of our business plan, redevelopment. We started the second phase at West Bay Plaza during the fourth quarter and are seeing very strong demand for the remaining space which will complete the transformation of our center. Tenants are also set to open over the course of 2020 at Venice [ph] and at the collection of Brandon Boulevard wrapping up those projects.
Finally, work continues on our pipeline of large scale entitlement projects, and we remain focused on realizing value on these sites, whether it means capturing profits early through a sale, mitigating risk through a joint venture, or executing on our own. In summary, SITE ended the year with a much stronger portfolio of assets, a better balance sheet, and significant embedded cash flow growth, all of which supports our five year plan. I expect 2020 to be another successful year as we continue to benefit from an occupancy uplift driven by strong tenant demand and flexibility to invest opportunistically.
Lastly, we were very fortunate to appoint Conor Fennerty as our new Chief Financial Officer during the fourth quarter, and on behalf of all of our staff and the Board of Directors, I want to welcome him to the Executive Team. Conor has a proven track record as an investor and has earned tremendous respect throughout our organization over the past three years with his leadership of our finance and FP&A departments. I also want to thank Matt Ostrower for his incredible contributions to this company and his friendship over the past five years. We wish him well at his next adventure and are sure he will make a successful impact like he did here at SITE Centers. And with that, I'll hand the call over to Mike Makinen to discuss our operating results.
Thank you, David. I'm extremely pleased with our operational results for the fourth quarter and full year 2019. Quarterly NOI was ahead of plan due to lower bad debt, bankruptcy settlement claims, higher overage, and percentage rent and earlier rent commencements. Anchor and shop leasing volumes remain robust and we are encouraged about the prospects to backfill spaces occupied by tenants that have recently filed for bankruptcy. Since the RVI spin, we have repeatedly demonstrated that when we get space back from tenants, we can re-lease at a healthy mark-to-market to a diverse group of tenants. We opened four consolidated anchors in the fourth quarter, the majority of them earlier than expected, and now have 25 of the 60 anchor spaces identified at our Investor Day open and rent paying. Another 13 are signed but not yet open and five are in advanced lease negotiation. As David mentioned, we expect these openings along with the backfill of 2019 and 2020 small shop bankruptcies to provide a multi-year tailwind.
New lease spreads and net effective rents for the quarter were right in line with our trailing 12 month averages since the spin. Renewal spreads were softer though due in part to several grocery anchors that exercised flat options as well as two short-term renewals of anchor tenants at redevelopment properties which were included in our renewal spreads. As I've mentioned a number of times previously, our smaller denominator will create some volatility in our operating metrics.
The lease rate for the portfolio was down 40 basis points this quarter, largely due to the dress barn closures. Strong leasing activity partially mitigated these move outs with our operations team completing the highest quarterly shop volume in two years. Demand for shop space is deep and I feel very good about our momentum. Finally, our commenced rate was effectively unchanged and the 290 basis point leased occupied GAAP provides confidence in our ability to achieve our five year 2.75% same store NOI growth target even with a 1.5% annual average NOI reserve for tenant bankruptcies. With that, I'll hand the call over to Conor.
Thanks, Mike. I'll comment first on our balance sheet, discuss fourth quarter and full year earnings, and then close with thoughts on 2020 guidance. First on the balance sheet, our position remains very strong with pro rata debt to EBITDA in the quarter at 5.5 times compared to 6.5 times in the third quarter of 2018, despite the mid-quarter closings of the Tampa and Portland acquisitions. Our maturities also remain in great shape with the weighted average term of 5.2 years. We have significant liquidity as of year-end with almost full availability on our $950 million line of credit and just three of our 70 consolidated properties encumbered as of today.
Additionally, we have three other sources of future capital. First is the $170 million of gross proceeds we expect to receive from the closing of the Teachers joint venture in the coming weeks. The second is the $113 million remaining preferred investment in our Blackstone joint venture. We received almost $47 million of the preferred in the fourth quarter with the sale of ESUM [ph] Center as the joint ventures continue to unwind. The third source is the capital we eventually expect to receive through the ultimate liquidation of RVI. We received the second half of the original 34 million receivable in the fourth quarter and have the $190 million preferred remaining. All of these sources, proceeds from Teachers, the Blackstone preferred, and the RVI preferred along with growing EBITDA positioned the company to remain well below our stated long-term leverage maximum of six times net to EBITDA while strategically deploying capital where we find attractive opportunities. That said, as David mentioned, we are mindful of our cost of capital and don't expect to close anything in the near term.
Turning to fourth quarter and full year 2019 results. For the fourth quarter as previously mentioned, we benefited from a number of positive variances versus our budget. First, operations were ahead of plan due to the factors outlined by Mike, which were fairly broad based. Second, bankruptcies had a much smaller impact than anticipated and we recognized $650,000 of revenues from Dress Barn and Forever 21, which we did not expect to occur. Lastly, G&A includes a $1.8 million onetime benefit which positively impacted results by a penny. The significant outperformance in the fourth quarter pushed our full year results to $1.27 per share compared to the top end of our guidance range of $1.22. Importantly, results demonstrated measurable OFFO growth from 2018 after adjusting for the impact of spend, highlighting this company's ability to execute and drive cash flow per share.
I'll turn now to our 2020 guidance. We're introducing OFFO guidance of $1.10 to $1.14 per share driven by same store NOI excluding redevelopment of 1% to 2% and including redevelopment of 2% to 3%. The same store NOI increase is driven in part by the anchor rent commencements David and Mike discussed, partially offset by a 60 basis point headwind from $1.8 million of bankruptcy claims settlement proceeds received in 2019 and bad debt favorability due to the adoption of a new lease accounting standard. Guidance for 2020 JV fees of $16 million to $20 million is unchanged with the sale of our stake in the Teacher's joint venture, the largest driver of the year-over-year decline. I would expect roughly a third of JV fees to be recognized in the first quarter, with the remaining quarters equally balanced. In terms of RVI fees based on asset sales completed to date, RVI fees will be outmost $19 million in 2020 assuming no other assets are sold. That said, we expect the company to continue to execute on its business plan to realize value so our guidance reflects additional asset sales. Interest income will also be lower in 2020 due to a lower average balance of our Blackstone preferred and the mezzanine loan repayment in the fourth quarter.
Lastly, there are a number of moving pieces from the fourth quarter 2019 to the first quarter of 2020. First, weighted average shares will be higher at roughly 195 million due to the fourth quarter impacts on the equity offering. Second, G&A will be higher as we won't have the onetime benefit recorded this quarter. Third, ancillary and other income is expected to be lower by $1.5 million due to non-recurring revenue received in the fourth quarter. And fourth, in addition to typical seasonality that leads to lower NOI in the first quarter we also will not have revenue from Dress Barn, Bar Louie, and Village Inn [ph] totaling $650,000. As Mike mentioned, we are excited about the backflow prospects, but there will likely be limited revenue from these spaces in 2020. With that, I will hand the call back to David for some closing comments.
Thank you, Conor. In conclusion, our first full year post spin provides evidence of this organization's ability to grow, take decisive actions, and execute on transactions. We remain ahead of schedule and executing on the operational redevelopment and opportunistic investing goals that underlie our plan to produce compelling growth over the next five years and expect another successful year in 2020. Now operator we are ready to take questions.
Thank you. [Operator Instructions]. And the first question will come from Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Hi, thanks. Good morning. First question, so 2019 was clearly a less impactful year from closures and bankruptcies and I think last quarter you commented that in your view it was more timing related and that you anticipate more transition. So, to start the year we've seen some announcements, perhaps there's more to come but what's your updated view on the health of the retailer environment in general, are conditions improving at the margin, or are they getting worse, what's your sense around the level of retail disruption that you're seeing?
Hey Todd, good morning, this is David. I would say that our opinion of the changes occurring in the retail landscape really haven't changed. What has changed is the ones that we thought were risky last year turned out to be less so. And some of the ones that we did not think were risky turned out to be more so. So if you take the surprises to the positive and the surprises to the negative, I think we feel like our stance on the continued changing of a tenant roster continues.
The one thing I'd add to that Todd is remember at our Investor Day we included a 150 basis points of annual reserve. So we're anticipating more closures or we can absorb more closures over the course of a five year budget. And the exciting part is you'll see years like 2019 where we have very limited closures and you can see outperformance. But in years where there are more closures, we can absorb that and our least occupied GAAP helps us for this year on that front.
Got it. And then with regards to that 150 basis points, how should we think about this year if you could maybe help break out a little bit of detail around sort of the budget for the year in terms of the property level budgeting that you've done relative to that additional cushion that might be embedded in the guidance?
Sure Todd, I will let Conor speak specifically to the budget. But I would -- I kind of referenced you back to our Investor Day conference which was just a little over a year ago. And what we said at that point in time was that the disruption in retail is going to give this company opportunities. But we should assume some churn and the churn that we have been witnessing allowed us to give a five year plan that included 150 basis points, which was the sum of credit loss and bankruptcy reserve. But that was a blended average over five years. If I were to kind of tilt you towards a thinking process, I think it's fair to assume that on average 150 basis points a year is going to be our budget.
And just to add on that Todd, so for 2020 as David mentioned we're using assumptions consistent with the five year plan. So it's 150 basis points of combined bad debt and bankruptcy reserves.
Okay, and you recaptured, I guess, a few restaurants. I think you mentioned Bar Louie specifically. Is that tenant specific or are you seeing any concerns or challenges at all in the restaurant sector?
This is Mike. Those two were somewhat surprising Village Inn [ph] and Bar Louie across the portfolio, the restaurant business tends to be quite healthy.
Okay, got it and just a quick last one, the bills that's listed in the supplement, the last tenant on your top 50 is that Bealls a separate entity from the Bealls that is owned by Stage Stores or is that…?
The Bealls that you're referencing is separate and unrelated to Stage Stores.
Got it. Alright, thank you.
The next question will be from Christy McElroy with Citigroup. Please go ahead.
Hey, good morning everyone. Just to follow up on Todd's question in regard to the buffering [ph] guidance, I think we're all in tune with some of the sort of major drivers there, including the management and RVI seeing common, interesting common, there was also the G&A impact. I just -- in terms of sort of reconciling and bridging the gap from that $0.33 in fourth quarter into what -- a much lower $0.20 quarterly run rate next year, just wanted to try to gauge the level of conservatism here in that 150 basis points? And Mike, you mentioned that operations were ahead of plan. Are you being extra conservative here or more realistic, I guess we're just -- I'm just trying to figure out of that $0.33 how much of that is sort of operations and vacancy, which I mean, it seems like your same store NOI growth pace seems pretty good, so just trying to reconcile those two?
Hey Christy, it is David. You know, one of the benefits of only having 70 wholly owned assets is that it's easy for us to do bottom up budgeting on every single suite with a lot of frequency. So I would say that anytime we come out with a budget on a portfolio of this size, you can assume that it's based on individual suites and therefore it's a realistic budget. If you look at last year, a couple of things happened number one, the construction team at the company were able to get a number of anchor tenants opened a little bit earlier than we had expected and a lot of that comes down to permitting and asking the tenant to open in their blackout period. So I think we pulled forward some revenue that was a little bit unexpected. But from a budgeting standpoint, it really is a realistic budget for 2020.
The one thing I'd add Christy to your point on the moving pieces, the three biggest pieces for next year attributing or contributing to the decline are JV fees, RVI fees, and interest income. And those three pieces alone are about $0.14 of headwinds. So that's really the biggest driver of the year-over-year change. To your point, it's February 13th where we have a bottoms up budget. We feel very comfortable with the budget today. But to David's point, there are a number of other factors, assumptions could change our timing and estimates over the course of the year.
And Conor, you mentioned G&A next year but I'm wondering if you could give a range of what's embedded in FFO especially in regard to the how the RVI fee income is changing and sort of your expectations around being able to lower G&A with RVI coming off?
Sure. So we talked about 2019 as kind of the trough year for G&A. And so we stopped providing disclosure on that because if you think about the last three years, we are a company in transition. There are a lot of moving pieces and we're trying to provide the investment community with as much clarity as we could provide. For next year, we're not a company in transition anymore especially for this year. I would expect to call it $58 million to $59 million of G&A for the year. And again, we've kind of completed the hand-off of RVI fees and lower G&A. And so I'd expect there'd be that those kind of breakdown or the correlation to lower G&A and lower RVI fees to end in 2020.
Okay, and just lastly, I think you mentioned Mike that you do expect more dispositions this year, what -- how are you thinking about sort of the GV asset sales that will continue versus assets that you would sell in the wholly owned site?
Yeah in the wholly owned site Christy we don't have anything budgeted to be selling. It doesn't mean that opportunistically we might decide to recycle a property, but we're budgeting for wholly owned dispositions. On the JV side it's a little bit out of our hands. The Blackstone joint venture continues to sell assets but really, it's under their guidance and direction. And any of the other joint ventures that have dispositions, it really has more to do with the partner than it does us.
Great, okay, thank you.
The next question will be from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning guys. First of all, thank you for the transparency on same store NOI guide with and without redevelopment. But I want to go back to maybe the 2.75% same store NOI growth for your five year plan that you disclosed at your Investor Day. I think that excluded redevelopment and obviously redevelopment is a big part of your story. So would you be willing to think about your five year plan for NOI growth, including redevelopment in light of the additional disclosure this morning?
Rich, that's a very good comment. You are indeed correct. The Investor Day presentation that presented at 2.75% average same store NOI growth was excluding redevelopment. The reason that we have not talked about a five year plan for including redevelopment as a lot of it depends on whether we're going to invest in the redevelopment assets once we achieve entitlements or whether we're going to dispose of that land and air rights and use it to invest in other properties. So far to date, when we have entitled mixed use or multifamily property we have selected to sell the property, sell an out parcel or ground lease it. And so those have different effects that are pretty dramatic on same store. And so that's why I don't think it's all that wise for us to look ahead over the next couple of years. Having said that, on an annual basis when we come out with guidance I do think it's appropriate that we give you as much clarity as we can.
Got it, but just to clarify that and add to that, one way or another, total NOI growth should be going up because you're either going to be redeveloping it, which should be a positive or you wouldn't do it or you're going to be having proceeds and you will be able to reinvest those proceeds in other properties or pay down debt or something else. Is that sort of the fair way to think about it? What I'm trying to quantify is there upside?
Yeah. I mean, I think of it as if we entitle a piece of property that has real value, if we ground lease it, that's going to show up in same store. If we redevelop it, it'll take CAPEX and it'll show up in the redevelopment inclusive of same store. And if we sell the land and reinvest it in a new property, it's not going to show up in same store because it's not in the pool.
Yeah, the only thing I would add Rich on that last comment from David, remember the 2.75 was the static portfolio that we owned at the Investor Day. So, one of the things David talked about the three assets we bought this quarter, we're really excited about. And one of the reasons we're excited about it is if we think it's additive to our growth rate. So it will take time for those assets come into the pool, etc. But that's another factor to consider as you think through same store NOI and NOI growth for the whole portfolio.
Got it. And David going back to some of the prepared remarks and the significant amount of cash that you're coming -- that you have coming in, can you just talk through how you might allocate that cash right now and how you're thinking about it versus paying down debt, buying new properties, or maybe other sources of use of cash?
Yeah, I'd love to. We do have an exciting tilt here where I expect us to have some capital. If you look at the last year we paid down debt, we paid down press, we bought assets, and we bought back stock. And I think depending on what we see in the open market, depending on our debt maturity schedule, depending on where the stock is trading I think we'll make prudent decisions. The reality is we've tried very hard to be good stewards of shareholder capital and the amount of shareholder capital that's coming back to this company could be significant which means we need to think very carefully about the acquisitions and where we put money.
Got it, okay guys, that's it for me. Thanks.
Thanks Rich.
The next question comes from Alexander Goldfarb with Piper Sandler.
Hey, good morning. So just a few questions here. First, just going into the guidance and the 150 of cushions that's here for BKs and closings. Is Pier 1 on top of that or is Pier 1 in that 150?
So Alex you know Pier 1 nothing's been announced today. There was a publicly disclosed list where we had four wholly owned properties but as of today they're paying rent and we have leases with them. So it's kind of a status quo for Pier 1 today.
Okay, but presumably Conor I mean you guys budgeted something in your numbers, I'm assuming that those foreclosed just to be on the safe side correct?
Presumably we're aware of all the announcements to your point Alex and we've done this before and we're anticipating the worst or we can anticipate the worst.
Okay, great. And then on the RVI it seems like the U.S. is fine on the liquidation side. Just curious the update on Puerto Rico, it sounds like it's still a pretty tough retail disposition market, but maybe as you guys look at RVI dispositions for this year you don't need to sell anything from there to continue at a healthy pace liquidation, so maybe you can just give us some framework around peso liquidation and how much of that depends on being able to target the Puerto Rican market for asset sales?
Hey Alex it is David, good morning. I really don't feel comfortable commenting on RVI's business strategy or execution. It has a separate board as you know. They do press release and the press releases I think you can look at the pace of asset sales and whether they've been Puerto Rico or U.S. and I think you can make a reasonable judgment about the pace of dispositions in 2020 which is what we do when we look at our internal budgeting.
Okay, and then just finally, I appreciate your comments on that you're not really looking for any wholly owned asset sales, continue to focus on JVs, but you've been acquiring assets that have either all small tenant or predominately small tenant to help NOI growth. So David as you look at what you're thinking about targeting for acquisition, whether it's this year or next year how do you think about these smaller tenant assets as improving the overall NOI growth profile of the company, do you expect that through these acquisitions you grow 20 or 50 basis points of extra NOI that you'll be able to get in the run rate or how should we be thinking about that and what you're looking at?
Yes Alex it's a really good question. As you imagine with the amount of capital we might have to invest we've spent a lot of time thinking about how we want to deploy capital. And I've mentioned several times the fact that retail landlords have a lot more data than we all used to have even two years ago. And if I look at the markets today I see low construction deliveries, high development cost, high occupancy levels, and scarcity of good space in wealthy submarkets. As this company SITE Centers starts to get through our occupancy build in the next two years, as you can imagine we're going to become a renewal story. And when you're buying properties and in high income submarkets that are highly occupied, the renewal is really what you're depending on for NOI and rent growth. And that's why we're using a lot of customer data to really look carefully at what each tenant is paying, compare that to other tenants that are similar in the market, and figure out where we can build an NOI growth that's arguably a lot higher than our internal core. We're not specifically avoiding anchor spaces, it's just that as we look to the market and say where can we get real growth, the rent growth is really coming from smaller shops in wealthy submarkets.
The one thing I will just highlight Alex as David mentioned in his prepared remarks, we are format agnostic, right. You'll see us buy a wide range of properties. You're absolutely right, this past quarter we bought three assets that were majority shops but you're likely to see us buy kind of across the retail spectrum in terms of format. We are bottoms up format agnostic.
Thank you.
And the next question will be from Ki Bin Kim with SunTrust. Please go ahead.
Thanks. Just to go back to same store NOI guidance, you guys mentioned in your opening remarks that Village and Bar Louie accounted $650,000 in rent, is that in your budget and the 150 basis points is on top of that? [Multiple Speakers]
I missed the first part of your question, you said the $650,000.
Yeah. Is that on top of the 150 basis points reserve or would that be a rounding out of that reserve?
No. So the Bar Louie, the Dress Barn, and the Village Inn that's income we are no longer receiving, that's in our budget. That's not part of the reserve. The reserve are for future bank pursuits that haven't been announced today. So again just to repeat the point Bar Louie, Dress Barn, and Village Inn are in our budget, in our 1% to 2% same store and are not part of our future reserve.
Got it and can you just comment on any kind of CAPEX trends you're seeing as it comes to tenant negotiations and if there's anything noticeable?
You know Ki I think a portfolio of this size it's hard to make any broad comparisons but I'll let Mike answer that.
I mean as you can see by our reported net effective rents, I mean the CAPEX has remained fairly consistent. The anchor tenants are still expecting similar packages that they were expecting over the last several years. And on our shop CAPEX that remains relatively modest.
Okay, but when I looked at the CAPEX at least the tenant allowance part as a percent of your rent value it does seem like it's creeping higher, I know it's just one quarter but…?
I think you just -- the answer to it is just one quarter and I think you're going to see a little bit of bumpiness quarter-to-quarter with the portfolio of this size. But aggregately speaking we're not seeing any substantial trends or changes.
I mean Ki, one of the things that we always we always like to remind people is that as long as we're in a lease up scenario especially lease up of larger spaces, CAPEX is going to maintain a fairly elevated state. Once that starts to wear thin and the lease to occupy gap closes the company becomes more of a renewal story. And on renewals in high income areas I think you can imagine you're renewing with very little TI which is why our assumption is that our NOI growth is also going to flow through to AFFO growth.
Okay, thank you.
The next question comes from Vince Tibone with Green Street Advisors. Please go ahead.
Hey, good morning. Could you discuss how the Pier 1 closures are being negotiated, are you expecting to get any lease term fees from this or are they using maybe similar to Dress Bran, the threat of bankruptcy to get out of its leases early without paying anything to landlords?
Vince I would love to speculate and good morning, but I think I'll withhold simply because we're not under any knowledge that would help us shed any light on it.
Fair enough. And then maybe just shifting gears, are you able to share the cap rates on the acquisitions or can you just talk to me a little bit more broadly as well about what you're seeing in the private transaction market today?
Yeah, sure. Well as a reminder the investments that we made last year were made possible by recycling capital when we did a joint venture with a Chinese institution about a year ago. The proceeds from that transaction were used to pay down debt, buyback stock, and make some acquisitions so that the blended return of all those activities was far in excess of what we think the return is on our stock. Having said that, the acquisitions on their own blended to six cap rate.
Okay, great and then just broader -- are you seeing any big shifts in the private transaction market, changes in debt availability or capital interest are pretty similar to the last let's say six months or so?
And I certainly in the last six months I haven't seen anything that's been noteworthy that the ability to secure debt seems readily available. And we've sold a lot of properties out of joint ventures and so I think we've got a pretty good window on the disposition outlook. On the acquisition side it seems like the larger properties are pretty actively pursued by larger institutions and the smaller properties it's a little bit more of a mixed crowd with some private and some public. But the demand for acquisitions is still pretty steep.
Okay, interesting. And one last one for me, could you just share a little bit more additional detail on the redevelopment projects, they are expected to contribute this 100 basis points to same store this year and just to clarify I want to make sure I understand all the major redevelopments are excluded from same store still, is that correct?
So Vince the major redevelopment will be included in the same store with redevelopment. And so the assets contributing this year are the collection of Brandon, Vandas [ph] and then the first phase, excuse me, of West Bay.
Got it, okay. I just wanted to clarify that. Thank you.
Absolutely.
The next question is from Wes Golladay with RBC Capital Markets.
Yeah. Good morning guys. Looking at the reserve on the preferred equity investment, is that driven by a cap rate assumption change or NOI at the property?
So Wes as you know each quarter we mark to market that valuation reserve, excuse me, on the preferred balance and we go property by property working with our transactions and our funds team. I can't recall specifically what drove the $3 million change this quarter. If you recall last quarter we mentioned it was really just an anchor not renewing. Just given the size of that portfolio and the size of our preferred it is really sensitive to input so it's a long way of saying I can't recall what drove it this quarter but it's usually a one or two items that move it. To David's point it's really not a cap rate question. We haven't seen cap rates move. It's typically an operation change.
Okay, that makes sense. And then looking at the 17 acres of the 60 that you're still working on, are you actively marketing all that space and then since the Investor Day have you gotten any more anchorage back?
That's a good question. The answer to are we marketing all of that space, the answer is no. If you look at page 17 of our supplement you'll see some of the major redevelopments have a TBD next to them. In those cases we're sitting on boxes and we're holding them from being leased but they're part of that 60 that we mentioned at Investor Day because we're working on entitlements.
And in terms of have we got anchors back, absolutely Wes and there's a normal amount that comes back every single year. It's a point that's not lost on us and it highlights the relevance of the 60 anchors. You know we're excited about the tailwind for next couple of years but they're diminishing in terms of importance and there's other kind of more material anchors that we have that are either in lease up or vacant today. So it's a long way of saying absolutely yes to other anchors that have come back to us in the last 18 months since our Investor Day. And that's kind of part of our normal course of business.
And I guess a follow up to that would be for those anchors I expect you would continue to get some back. Is the new rent lease going to be comparable to what you are doing with the 60?
Yeah. It will be part of our same store pool and our comp pool for our spreads. And you have seen our new lease spreads kind of hover in that low double-digit area and so they would be included in that pool Wes.
Not included but the comparable level like you get from the 60, you highlighted the big pop?
Yeah, we have a certain number of boxes come back every single year.
Okay thanks.
The next question comes from Hon Sang with J.P. Morgan. Please go ahead.
Yeah, hi guys, just a quick question for me. Just looking at your footnote the notes you give, sorry, same store excluding lost rent related to lease terminations is that basically like the same store excluding bankruptcy number?
So Hon the reference there is starting the third quarter of 2019. We provided same store NOI with and without the impact of loss rent from termination fees starting in 2020 to be comparable to our peer group. We are excluding any impact from termination fees, where that's loss rent over the term fee itself and so that footnote was simply a call out to let the investment community know that starting in 2020 again we will have no impact from term fees as well as loss rent or the term fee itself going forward. If you look in 2019 the impact of the loss rent from term fees was fairly immaterial, I think it was about 15 basis points. But again just to improve our comparability to the peer group we exclude all lease term impact for 2020 and onwards.
Yeah, thank you.
You are welcome.
The next question will be from Floris van Dijkum with Compass Point. Please go ahead.
Great, and thanks guys for taking my question. Just a question on the 150 basis points of reserve that you have, have you guys -- what's the breakdown between rents -- lost rents as well as cam reconciliations and how is that compared to historic levels?
Floris, we haven’t provided that level of detail. What I would just say is we focus on loss revenue. So whether that's base rent, whether that's percentage rent, over rent, cam it's all the same to us, it's loss revenue. The other piece that Dave and I both mentioned is there's a bad debt component. So we saw bad debt. We have a separate bad debt assumption that is related to income or revenue, excuse me, which is cam plus base rent as well. So again we're not going to provide that level of detail, what I would just tell you is we focus on loss revenue which includes all the factors you identified.
Okay, thanks. That's it.
Next up is Linda Tsai with Jefferies. Please go ahead.
Hi, what's your occupancy goals for 2020 and it seems like the lease to occupy narrowed this quarter versus third quarter, would you expect this trend to continue?
Linda, it is David. We are very happy with the amount of leasing production out of the team. We had a fantastic year last year. I will say that our goals have more to do with leasing space to the right tenants and we don't have occupancy goals for the leasing team or for the company which is why we really don't mention occupancy goals in the guidance.
Thanks. And then on the renewal spreads understanding there were a couple onetime items and you're more focused on leasing up right now. What level would you expect to generate for renewables overall in 2020 understanding it's pretty volatile?
I would expect the overall renewal rate to be similar to what we've seen in the past several quarters. We did have some onetime events this quarter that tended to soften a little bit.
And Linda if you remember from Investor Day we talked about a blended spread of 7.5% and the range of 5% to 10%. So we're kind of consistent with our range [indiscernible] basis.
Thanks for that. And then just one final one, sorry if this is an obvious question but for your separate bad debt assumption does that include spaces where you don't expect a tenant to renew and it might be hard to fill that space right away?
No, so that debt is really just about revenue recognition, right. So that's tenants that are in place today that either to Floris' point don't pay cam or don't pay base rent. So it's really a function of existing tenants just sit on the income statement for rent paying tenants. The bankruptcy reserve is a function of tenants that go bankrupt and just stop paying rent.
Okay.
I'm happy to. If you want I'm happy to talk about that offline as well.
Okay, great. Thanks.
The next question will come from Chris Lucas with Capital One Securities.
Hey, good morning guys. Maybe a little color on so you've got 25 of the anchors that have begun paying rent. What's your expectation for this year in terms of openings and the cadence of those anchor openings for 2020?
Chris, typically as you know anchors like to open around the holidays. So you'll see those back half weighted or back end weighted I should say in the fourth quarter. That's consistent with the trends we saw in 2019 and 2018. You know absolutely you could have some folks open mid-year but the majority will be kind of a back half or fourth quarter waiting.
Any sense as to the number of anchors that will open this year?
No, I mean if we have a lease signed typically you'd open up in the same year but there's always folks that have larger build outs, more complicated build outs, or permitting issues that could push it to 21. So the other thing I'd say is we're providing the anchors by count. Within that count there is a wide range of brands, right. So you could have anchors that pay much higher rents in a higher income area. That could be more material than one that pays lower income or lower rent excuse me. So again I think you just see the impact likely in the fourth quarter but you could see some other ones slip as well but count is not what's going to drive growth.
Okay, and then David I don't know if I heard the answer. Did you provide the cap rate for the two assets you described in the investor presentation?
I did but I had a long soliloquy before I mentioned it. Yeah, the acquisitions last year all in aggregate blended to a six cap.
Okay. And then the investment thesis behind the two assets can you describe here, is it mostly below market rent related or is it remerchandising opportunity, what is sort of the driver there?
For these two in particular the opportunity is renewal spreads.
Okay. And then last question for me just last time you guys bought stock back was I think stock was around 11 75. How do you think about the relative value today given the portfolio significantly derisked the balance sheets to much better shape etcetera, etcetera?
Well, I agree the balance sheet is in better shape. And I think the company's been de-risked. I do think we do have some complexity still you know, when Conor goes through the sources of capital this year, there's a number of them. And that complexity, I think, can sometimes show up in the discount. So I think, we'll see what happens over the course of the next couple of quarters. But we feel pretty good about the business plan.
Thank you. That's all I had.
Your next question is from Samir Khanal with Evercore.
Hey, Conor, good morning. I'm sorry if I missed this, but I know there's a lot of focus on the same store NOI growth. But when I look at your FFO, I mean I know there's a lot of variability with fee income, RVI fees, I'm just trying to figure out at what point can we start to see a bottom from an FFO standpoint, any color around that would be helpful?
Sure. So let me walk you through some of the big moving pieces for 2020 versus 2019. And I think they have applied some color on the kind of future growth rate of the company. So as I mentioned too, I think as Christy JV fees, RVI fees and interest income are about 13% of headwinds. On top of that we've got the G&A or higher G&A and a higher share count, which are roughly two to three pennies as well. And then lower other income in terms fees year-over-year is another call, two pennies. That takes you from a $1.27 to call it $1.09 round numbers. And then from there we have NOI growth. What you're seeing in 2020 and this is something we've tried to highlight over the last couple of years since our Investor Day Samir is the kind of handoff from lower RVI fees to the reinvestment of capital that both David and I have talked about.
So it's really going to be a function of when and how we reinvest that capital in the back half of this year and into 2021 Samir. What I would just tell you is we feel really good about our five year business plan and the 5% OFFO growth that we outlined. And so, as you see us reinvest that capital of course in 2020 I think you'll start to see a lot more visibility on 2021 and future growth.
So it's fair to assume that that sort of 2020 is the bottom and then that's sort of you will start to see the inflection at this point?
I think you'll start to see that growth profile develop over the course of the year Samir, correct.
Okay, alright, thanks.
You're welcome.
Ladies and gentlemen, this concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.
Thank you all for joining our call and we will see you either next quarter or at any conference.
The conference has now concluded. Thank you for attending today's presentation, you may now disconnect your lines.