Good day, ladies and gentlemen, and welcome to the first quarter 2018 American Assets Trust, Inc. earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. If you have a question or comment, you may press star one to ask a question. If anyone should require assistance during the conference, please press star then zero on your touch-tone telephone. As a reminder, this conference call may be recorded. I would now turn the conference over to Adam Wyll, senior vice president, general counsel. You may begin.
Good morning. I'd like to thank everyone for joining us today for American Assets Trust 2018 first quarter earnings conference call. Joining me on the call are Ernest Rady and Bob Barton. These and other members of our management team are available to take your questions at the conclusion of our prepared remarks. Our 2018 first quarter supplemental disclosure package provides a significant amount of valuable information with respect to the company's operating and financial performance. The document is currently available on our website. Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information, as well as statements referring to expected or anticipated events or results.
Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our future operations and our actual performance may differ materially from the information contained in our forward-looking statements, and we can give no assurance that these expectations will be attained. Risks inherent in these assumptions include but are not limited to future economic conditions, including interest rates, real estate conditions, and the risks and cost of construction. The earnings release and supplemental reporting package that we issued yesterday and our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operations. Additionally, this call will contain non-GAAP financial information, including funds from operations or FFO, earnings before interest, taxes, depreciation, and amortization or EBITDA, and net operating income or NOI.
American Assets is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in the company's supplemental operating and financial data for the first quarter of 2018, furnished to the Securities and Exchange Commission, and this information is also available on the company's website at www.americanassetstrust.com. I'll now turn the call over to our chairman, president, and CEO, Ernest Rady, to begin discussion of our first quarter results. Ernest?
Thanks, Adam, and good morning, everyone. Thank you for joining American Assets Trust first quarter 2018 earnings call. As we transition into 2018, our focus is on, first, leasing. We have very active effort in this regard and are enjoying some good successes in the office portfolio. As you can see in the first quarter leasing statistics, where we have leased in excess of 200,000 square feet of office at an average cash basis percentage change over the prior rent of 11.6%. We expect to see more leasing success in the second quarter as well. Second, renovation and lease up at the Kmart building at Waikele Center in Hawaii. We are having very active interest in this property and are looking forward to beginning the demolition and renovation of this building within 60 days from now.
Third, transformation of one of our existing buildings at Oregon Square in Portland, Oregon, into creative office space. We are looking forward to the completion of this transformation towards the end of 2018, and the market's interest in this new product seems to be significant. Fourth, continued focus on the growth of net asset value for our shareholders, which we believe will ultimately result in increasing cash flow and dividends paid out to our shareholders. Fifth, maintain a low leverage investment-grade balance sheet. In addition, as I've said before, we believe that our high-quality, diversified portfolio in high barrier West Coast markets will outperform our peers over the long run. That our stock has been disproportionately impacted by prevailing retail headwinds, despite our diversification and the strength that we're seeing in our office and multifamily segments.
Nevertheless, I encourage you to read our 2017 annual report letter, now available on our website, for additional commentary on how we intend to transform our visions into value over the next several years, as well as what we believe favorably distinguishes American Assets Trust from our competitors. Again, on behalf of all of us at American Assets Trust, we thank you for your confidence in allowing us to manage your company, and we look forward to your continued support. I'll now turn it over to Bob Barton, our Executive Vice President and CFO. Bob?
Good morning. Thank you, Ernest. Last night, we reported first quarter 2018 FFO of $0.51 per share. We also reported a net loss attributable to common stockholders of $0.01 per share for the first quarter, primarily the result of the acceleration of depreciation associated with the Kmart building at our Waikele Center in Hawaii over the first 6 months of 2018 as we embark upon the redevelopment of that building to a higher and better use in the current marketplace. The company's board of directors has declared a dividend on its common stock of $0.27 per share for the quarterly period ending June 30th, 2018.
The dividend will be paid on June 28, 2018, to stockholders of record on June 14, 2018. Our retail portfolio ended the quarter at 96.6%, combined with the highest annualized base rents amongst our peers. On a year-over-year basis, our retail occupancy was down approximately 30 basis points from the first quarter of 2017, leaving approximately 109,000 square feet vacant in our 3 million-plus square foot retail portfolio. A significant portion of the retail vacancy is primarily attributed to the space that had been previously leased to Sports Authority at Waikele Center in Hawaii, which consisted of approximately 50,000 square feet. We are in the process of finalizing the remaining lease comments and construction plans with a national grocer and remain optimistic that a lease will be signed shortly. During the trailing four quarters, 79 retail leases were signed, representing approximately 337,000 square feet or 10% of our total retail portfolio.
Of these leases signed, 69 leases consisting of approximately 319,000 square feet were for spaces previously leased. On a comparable basis, the annual cash basis rent decreased 3.8% over the prior leases, primarily as a result of the renewal of the 155,000 square feet Lowe's space at Waikele Center in the second quarter of 2017. Excluding the Lowe's renewal, we leased approximately 164,000 comparable retail square feet at an average cash basis rent increase of 5.2% during the 12-month period ended March 31st, 2018. Our office portfolio ended the quarter at approximately 94.6%, an increase of approximately 100 basis points on a year-over-year basis, primarily due to an increase in occupancy at our Torrey Reserve campus in San Diego, leaving a vacancy of approximately 5.4%, or 138,000 square feet of our 2.6 million square foot portfolio.
During the trailing four quarters, 65 new leases were signed representing approximately 489,000 square feet or 19% of our total office portfolio. Of these leases signed during the year, 45 leases consisting of approximately 385,000 square feet were for spaces previously leased. On a comparable basis, the annual cash basis rent increased 15.8% over the prior leases. Our office portfolio in San Francisco and Bellevue, Washington markets are seeing strong pricing and demand. As you may recall, we had two tenants expiring in the fourth quarter at City Center Bellevue, consisting of approximately 91,000 square feet at year-end. During the first quarter, all of these expiring spaces have been re-leased to new tenants at approximately a 24% cash basis increase over the prior comparable lease and increasing City Center Bellevue's percentage leased from 89.5% at the end of Q4 2017 to 97.7% at the end of 1Q 2018.
Let's talk about same-store NOI for a moment. Same-store retail cash NOI increased in the first quarter to 5.2%. The increase primarily relates to increased rents at two of our San Diego retail property locations, combined with the incremental NOI from the acquisition of the Forever 21 building in the third quarter of 2017 at Del Monte Center on the Monterey Peninsula. We previously owned solely the land and then acquired the building that we didn't own in the third quarter of 2017. The incremental NOI from the Forever 21 building is approximately 130 basis points. Absent the Forever 21 building, the same-store NOI is still a healthy 3.9%. Same-store office cash NOI increased 7.9% in the first quarter, primarily due to rent growth at the following properties: Torrey Reserve Campus in San Diego, The Landmark at One Market in San Francisco, and the Lloyd District portfolio in Portland, Oregon.
Same-store multifamily NOI was up 2% on a cash basis for the first quarter. Multifamily revenues increased 4%, which were partially offset by an increase in rental expenses. Waikiki Beach Walk, our mixed-use property consisting of the Embassy Suites Hotel and Waikiki Beach Walk Retail, reported a combined increase in same-store cash NOI of 13.1% for the first quarter. Broken down further, this represents the Embassy Suites Hotel up 24.5%, in significant part due to the one-time large bad debt expense of approximately $500,000 recorded in the first quarter of 2017 relating to the Japanese wholesale partner who declared bankruptcy that we did not experience in the first quarter of 2018. In addition, Waikiki Beach Walk Retail was up 3.1%. Tenant sales remain high at $1,138 per sq ft for the rolling 12 months as our tenants continue to benefit from the excellent location and good economy.
FFO increased approximately $0.05 to $0.51 per FFO share compared to the fourth quarter. The first quarter results include the following activity. Office portfolio activity increased FFO by approximately $0.02 per share. Multifamily portfolio first quarter results increased FFO per share by approximately $0.01, primarily due to increased annualized base rent at both our Hassalo on Eighth and Pacific Ridge properties. A reduction in G&A expenses resulted from the one-time non-cash stock option modification expense in 4Q 2017, provided for an increase in FFO per share of approximately $0.01.
We had approximately $370 million in liquidity, comprised of $55 million of cash and cash equivalents and $315 million of availability on our line of credit, which was increased to $350 million as of the beginning of 2018. Our leverage, which we measure in terms of net debt to EBITDA, was 6.7 times, which is still high by our standards. We have an internal roadmap to get our net debt to EBITDA down to 5.5 times by the end of the fourth quarter of 2019, which we continue to evaluate. One thing for sure is that management and the board are focused on continuing to improve our leverage ratio. That plan consists of paying down our existing debt maturities as they mature, combined with organic growth in our portfolio.
Our interest coverage and fixed charge coverage ratio ended the quarter at 3.4 times. Let's talk about the 2018 guidance. Lastly, we are reaffirming our 2018 FFO guidance range of $2.01-$2.09 per share, with a midpoint of $2.05 per share. As always, our guidance excludes any impact from future acquisitions, dispositions, equity issuances or repurchases, future debt refinancings or repayments other than what we've already discussed. Our guidance assumes that we will receive the remaining two months of Kmart's lease rent in 2018 at Waikele Center, which expires at the end of June 2018. We will continue our best to be as transparent as possible and share with you our analysis and interpretations of our quarterly numbers. We are well-prepared with an even stronger balance sheet than in prior years to capitalize and execute on the opportunities that we believe will present themselves over the coming quarters.
Operator, I'll now turn the call over to you for questions.
Thank you. Again, ladies and gentlemen, if you have a question at this time, please press star and then the one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Our first question comes the line of Richard Hill of Morgan Stanley. Your line is now open.
Hey, guys. I guess good morning. Good morning for me on the East Coast, too.
Morning.
Hey, just wanted to maybe come back, and looks like a pretty good quarter to us relative to 4Q and 3Q. How should we think about, and I'm sorry if you mentioned this previously, how should we think about your ability to meet the top end of the FFO range? Maybe any updates on how we should think about the same-store NOI guide, given some of the changes in the same-store pool?
I think how you should think about it is that we're going to do our very best, and we think the properties will give us that opportunity. The market is something over which we have no control. We're hopeful, we're prayerful, and we hope it comes about. I think the guidance speaks for itself. Bob, do you want to add something?
Yeah, Rich. Hey, thanks for your questions, too. In terms of the same-store pool, the disclosure in the supplemental shows that the same-store retail was up approximately 5%, but it includes Forever 21 building. We've included that in the fourth quarter and the first quarter. The incremental amount is 130 basis points. Without that, it's 3.9%.
We thought it was the right thing to do is to include that, but disclose it, because we already own the land underneath it, versus separating that out. In terms of what we've pulled out on Waikele building, we pulled that out of same store in the first quarter. That was included in our assumptions for our 2018 guidance.
Okay, that's helpful.
Yeah. We haven't changed anything different on that. Our same-store retail is still consistent with our original guidance of approximately 3% for the year. That incorporates also the assumption of Kmart not paying rent beginning July 1st. We're hopeful that they'll pay the remaining two months.
All right. Ernest, I appreciate your response, it leaves me wanting a little bit more, given what we thought was a pretty decent quarter. I think what I'm hearing from you, and not to put words in your mouth, look, uncertain environment, you're going to try your best, you want to maintain being conservative at this point. Is that fair, Ernest?
Right. We have some properties which do offer significant upside. Whether we'll be able to take advantage of those opportunities is something that negotiation and the time it takes, the market, and the availability of those opportunities will play out over the next little while. That will determine whether we're on the top end, the middle end, or the lower end. As Bob said, we're reaffirming our projection.
Okay. In the interest of giving other people a chance, I'll jump back in the queue with any more questions. Thanks, guys.
Thank you.
Thank you very much.
Thank you. Our next question comes from the line of Brian Hawthorne of RBC Capital. Your line is now open.
Hi. Can you provide an update on the FamilyC are space in Portland and what happened there, and were you able to backfill it?
Yes. I'm going to ask Steve Center, who's taken over, in a very efficient and effective way, our office leasing, and has done a great job with this. He signed the agreements that we have.
We're in lease documentation.
We're in lease documentation. We better not say anything. It looks like we've got a very favorable outcome. We're reluctant to say anything until the documentation is signed. We do have a very favorable outcome, and we'll let you know as soon as we are absolutely certain, because the documents are signed. Count on that-
Okay
Count on that to be favorable. I'm counting on it. Steve's counting on it. He's done a great job in repositioning that space.
Okay, great. Another question on the office space. Have you had discussions with salesforce.com regarding its lease at one market? Of the three tranches that expire, are they all the same size?
Salesforce has notified us that they're moving out. That space is rented to them at a rental rate that's considerably below the market. We've started to market that space now, and we've had considerable interest at rental rates that are significantly higher than what Salesforce was paying. What the outcome will be, again, negotiations are taking place, and I don't think I can say much more than that. Bob, Steve, you want to add anything?
Yeah. To your question, the spaces are approximately the same size, so as they expire, it's a third, a third, and a third.
Yeah. Thanks, Bob.
Okay, great. Oh, sorry. Go on.
It's an opportunity, a significant opportunity, and not something that we have to bear. It's a significant opportunity because there is such a difference between the rental rates that Salesforce has and what the market now appears to be.
Sure. Okay. One last one. There was a good pickup in leasing activity in Pacific Ridge in San Diego. Was this simply putting the right team on the ground, or is there something else behind that improvement?
It was significantly Well, when we took it over, Frank, I would have to say, with all due restraint, that it was not well managed. We have a new team in place, and the person in charge is sitting across the table from me, and it's now humming. We're gaining experience as we manage it, and we'll know better over the next 18 months exactly what the potential is. I think what we have come to the conclusion is that we did make a good buy, and that there is opportunity, and we're now exploring the opportunity to see how much results we can get or how significant the results will be. Is that a fair statement? Abigail Rex, who's in charge, is nodding her head. She's got stage fright. I think she agrees with me. We've got a good team on the ground now.
It's straightened out, and we're on the march to the best results that we can produce out of that significant property.
Okay, that's it for me. Thank you for taking my questions.
Well, thank you for your interest, sir.
Thank you. Our next question comes from the line of Craig Schmidt of Bank of America. Your line is now open.
Thank you. What is your assumption for same property NOI for the office for the rest of the year?
Is this Craig?
Yeah.
Yep.
It didn't come through clearly. I didn't know it was Craig either because it kind of came through garbled. Craig we know for sure. Craig, welcome.
Yeah. Craig, right now, we're affirming guidance, 2018 guidance. Our guidance made the assumption that office was going to be flat. Same store office would be flat for 2018 because of the space that we had to lease at City Center Bellevue. The revenue from that 91,000 square feet that has been leased in the first quarter, we probably won't see that on a straight line basis until probably in the third quarter, at this point in time. We're updating our numbers as we speak, and we'll see what that impact has on that. For right now, the guidance of $205 midpoint makes the assumption that that's going to be leased later in the year.
Great. Then, looking at tenant improvement, leasing commissions, and maintenance CapEx, is the first quarter a good run rate, or is it somewhat elevated?
I think overall, I think it's a good run rate. I think last year we ended with about $38 million for operational CapEx. I think this quarter was down from the fourth quarter. I think it's a fair trend on a runway.
Actually, the more leasing we do, the more CapEx there's going to be, the more upside there's going to be. I think it's fair to say that we have a lot of activity in office leasing, which makes me hopeful. Steve, would you express it in any other term?
No, we've got great assets, and we're taking advantage of what the market will give us.
Yeah. We've got great assets, great location, and great management, and we're taking advantage of the opportunities that are available to us.
Great. Thank you.
Thank you, Craig.
Thank you. Our next question comes from the line of Todd Thomas of Keefe, Bruyette & Woods. Your line is now open.
Hey, good morning, guys. This is Drew on for Todd.
Good morning.
Hey, guys. I just noted that Torrey Point was placed back in the development pipeline. I wanted to see if you could just give us an update on that asset.
Go ahead, Bob. I do put it back in.
Yeah. We just put it in there just to show you our leasing statistics as we're going along. We have one tenant in there, and we've seen a lot of activity in the marketplace. The rates, we've seen the rates going anywhere that would lead us to on the high end of the range to rates that would take you to the lower end of the range. We're just showing you the range that's out there. We're very hopeful of that product, and we think that we'll have good news for you in the future.
On account of the range, that project was six months late coming online. We've really only been able to show it effectively for the last, what, quarter. We've had a lot of interest. We have one tenant that looks really solid. We had another tenant that we thought and turned out to not be a tenant. There's a lot of interest in the remaining space, and it's a great piece of property. It's just a question of when we land somebody that will be a great tenant at the right rate.
Was that potential tenant, did they decide not to solidify because of the asset at all, or was it more something on their side of the equation?
They put up a letter of credit. We didn't lose anything on them, and we collected some of the rent they'd promised. They couldn't raise the rest of their funds, and they eventually just evaporated. They were hopeful, we were hopeful they were going to raise significant amounts of money, which did not come about.
I see. Thanks for that. On the acquisition side, are you guys seeing anything? Are you guys interested? Can you talk about that at all?
We continue to look. As Bob pointed out, the first thing on our agenda is to maintain our conservative financial profile. If we were to take some of our liquid resources and acquire something, that would set back that objective. We continue to look at opportunities, those opportunities would have to present more upside than something we have in-house, which we would have to sell. Frankly, what we have in-house is so elegant that it's very difficult to find something better, we do continue to look.
I see. Are you guys favoring any property types when you look or not favoring others at all? Can you talk about that?
Sure. Well, obviously, retail has taken on a different hue than it has before, the quality of our property prices have not come down. I don't know that there's an opportunity there. In apartments, the prices are still sky-high, we have some development opportunity in Portland that we're trying to avail ourselves of. Office, we're doing so well in office, I've become so optimistic on office that if I had some change, we might look at it, find an office building to reposition. Frankly, we're so busy with what we have that we probably couldn't take it on anyway. I think we're considering that our opportunities lie in our existing portfolio and doing as well with them as we can. That's a long answer.
Great. Just my last-- Sorry, guys. Just my last follow-up on that. Are you guys considering stock buybacks any more heavily than you were last quarter, just given the discount versus your published $50 NAV?
Yeah. The discount is pathetic, if you want to know the truth. That's the best word I can come up with. We can't buy back stock because we're a smallish to mid-sized REIT as it is, and we'd like to grow and have the economies of scale. As you know, when the window is open, I have been buying shares personally, but I don't see the logic of taking money out of the company and shrinking.
Plus when we have places where we can allocate the money, like the renovation of Waikele, for a yield that we think is accretive to our investors.
That's true. We have more opportunity in the portfolio. That's a good point, Bob.
I see. All right. Thanks, guys. Appreciate the time.
Thank you, sir.
Thank you. Our next question comes from the line of Mitch Germain of JMP Securities. Your line is now open.
Good morning.
Good morning, guys. Most of my questions have been answered. I guess there's just one. I know that the Sports Authority grocer backfill, I know we've been hearing about that for a couple of quarters. That leads me to ask, are tenants just taking a bit more of a cautious stance toward signing leases? Is this something that you're seeing throughout the portfolio, or is this really just one circumstance?
I think it's just one circumstance. Chris Sullivan sitting here may have a different view, Everybody seems to be moving a little slower. On the other hand, it is making progress, and we are in the process of reviewing it in legal. Chris, do you want to add anything?
Just briefly, Mitch. Those sort of anchor leases are always quite time-consuming, quite involved. You're working with very large companies with quite a pipeline, so it's a process with the documentation, and it's also quite a process to get a store's construction resolved and all the issues. Most of those larger anchors aren't going to execute on a lease until they know absolutely for certain that the construction and everything else with their operations. It's just a long process with an anchor.
This is no different-
It's no different. It's probably like many retailers, they're checking the boxes twice, maybe three times in some situations. It's never been easy, Mitch.
Understood. Thanks for your time.
The differentiating factor is our own impatience. Thanks, Mitch.
Thank you. Our next question comes to the line of Vince Tibone of Green Street Advisors. Your line is now open.
Good morning.
Morning, Vince.
Morning, Vince.
Just a quick follow-up on the last question on Waikele. I think you previously thought the grocer would be hopefully in there by 2019, and then the Kmart box would be probably rolling or stabilizing in 2021. Do you think that's still the case, or is maybe the grocer purposefully delaying the lease to maybe open at the same time as the broader center redevelopment? Just any updates on capital spend and timeline on Waikele would be appreciated.
Do you want to take that, should I take it?
Vince, it's not a timing issue like that. It's just a process issue. The building process in any city with the entire process of permitting environmental and everything you got to go through, it is just very time-consuming. I know you travel around a lot. Most of the larger cities, you see cranes everywhere. The pipeline of those building departments to get those cranes up, it's just taken an enormous amount of time.
Is it safe to say the process has been proceeding at a normal pace?
Yes.
Both legal, construction, and permitting. It's just our impatience which leads to the frustration.
Okay, thanks. One on the office side. Just can you expand on your comment about converting Oregon Square into more creative office space? Were you referring to maybe leasing that space to a WeWork type tenant, or this is more of a refurbishment to attract a solid tenant?
The one building there that qualifies for refurbishing. There is one building, the only one building there that qualifies for refurbishing. As far as the tenant goes, we would like to have the best quality tenant we have at the highest rent we can possibly get for the longest lease with a bent in place and protection. The first thing we have to do is make it so it's visibly appealing, and that we're in the process of implementing.
Okay. I saw the Lloyd District portfolio, the lease percentage shot up from the fourth quarter. Is that at all related to the Oregon Square, or I just wanted to make sure I understand all the moving pieces here.
Yes, because we're starting to renovate that one Oregon Square building into creative office space. We pulled that out and put it into construction progress and redevelopment. We historically have not, for the last year and a half, almost two years, we have not had any operations coming out of Oregon Square. We pulled that out, and that shot that up.
Got it. Okay. Thank you. That's all I have.
What's happened with Oregon Square is, of course, we have the entitlement to build, what, a 650-unit apartment building. Rents have not risen enough to justify it, and construction costs have risen. We have lots of ambition, the availability, lots of entitlement, and the economics just have to make sense before we can say something to our stockholders that we've done you a good deed. Thanks for asking.
Thank you. Our next question comes from the line of Haendel St. Juste of Mizuho. Your line is now open.
Hey, Haendel. Good morning.
Hey. Good morning, Ernest. I guess a question for you first on the office side. TIs were up $80 a foot in the first quarter, assume that was Bellevue. I'm curious, what implications do you think that has for your San Francisco office portfolio in the space that Salesforce is vacating there shortly? As we think about the significant gap between what they're paying currently, I think somewhere in the high 50s versus market rents that we hear are probably above $100. Care to share any thoughts on what type of TI package you might need to put together there for a new tenant to capture this significant opportunity?
I said something now, I would either be misleading myself or misleading you. Until it actually comes to documentation, I don't want to say. I tell you, the economics are compelling. That's whatever we spend, we are going to get back and then some. The economics are compelling, and I don't know that I can add to that other than we're excited about the differential between the rent that Salesforce is paying, what the market indicates, and what we have to do to get to the money. That is a significant opportunity for this company.
No, certainly understand that. Just any color more on the TIs in the first quarter, or is it safe to assume that was Bellevue?
Yeah. TIs in the first quarter on the leasing statistic page really relate to Bellevue. We had quite a lot of leasings done and a big majority of that related to Bellevue.
Okay. Bob, while I have you, question for you. Maybe can you give us some more meat around your roadmap to get to that 5.5x debt to EBITDA by year-end 2019? Sorry, I can't let you drop a teaser like that and not try to get at least some more color from you.
He tried to put one over me, yeah, he just couldn't do it, could he, Haendel? Okay, Bob.
Totally.
Yeah, well, Haendel, I'm sorry, what?
I was going to say, getting to your target implies about $250 million-ish as we see it right now based on current numbers. I'm curious how much of that is dispositions versus perhaps organic free cash flow? What, if any, read-through does that have for your near-term redev activity? Maybe as part of that, you could talk about potential new starts on the redev side.
Well, there's an internal We, like most every other REIT, has a corporate operating model, we have different assumptions that go into that. We have access to all the tools in the toolbox that most REITs have. We're counting on the increase in the EBITDA. There's five or seven catalysts that will help us get there, which we think it's just a matter of timing. That's going to be a significant step towards that accomplishment of reducing our net debt to EBITDA to five and a half. We also have other opportunities. We could sell a low-hanging property, something that we may not feel at a certain time that is core to the portfolio. We could use those proceeds. Obviously, if the market is at the right point, we could raise some equity through an ATM or other.
What we'll do on a quarterly basis, we're going to look at all the opportunities to get there. I think that the real focus is that you got a management team, and you got a board that is focused on getting that net debt to EBITDA down to 5.5. Our best estimate right now is by the fourth quarter of 2019. It may take a quarter longer than that or 2, but our focus is getting it back down to 5.5 or less.
Needless to say, selling any of our properties is not anything that warms the cockles of my heart, and neither does selling stock at this discounted price. Our best bet and the thing that would be most appealing to all of us is to do it through operations.
I understand that, Ernest, and certainly appreciate you for making that point because I was wondering, could you get to that target without dispositions or without issuing equity?
We're going to try like hell.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Brian Hawthorne of RBC Capital. Your line is now open.
Good thanks. This is Michael Carroll with Brian. I just wanted to kind of dive into the disposition question that was just asked. What do you have to see to actually pursue an asset sale? Is that something that you want to do? I guess I know, Ernest, that you don't like selling assets too much, but at what point would you do that type or pursue that outlook?
First of all, if we found something better than what we had, we would sell something to trade into something else. Second of all, if the operations don't produce the multiples that Bob has promised, we have one property which I'd hate to part with because it's a great piece of property, but we might have to do it. I'm not going to do it without a lot of pain, suffering, and tears.
Agree. Can you touch on, sorry if this was already asked, the apartment market going on in Portland right now. It seems like there is some decent activity that you had at Hassalo. Has that market been improving over the past few quarters?
I think it has. Not to the extent that we'd like, but it certainly hasn't gotten any worse. It's gotten somewhat better, and the city economy is still buoyant. The construction costs now are out of whack with rental, so eventually it's going to catch up. As I've said before, that cost us about $190 million to build, and we think the replacement cost is somewhere between $230 million and $250 million. Nothing's coming on stream that's going to undercut us, and the property is only going to increase in value with the improving economy in Portland and the inflation tailwind helping us increase the productivity.
The absorption of the oversupply.
Yeah.
Yeah.
Yeah.
What is the availability right now in that market? Do you have that on hand?
No, I don't.
There's some availability that has to be sopped up, and it's a complicated market. Again, we've got a jewel of a property in an excellent location, an improving location, and as good a property as anybody could afford to build. We're just going to sit back. We're going to try and maximize the return from that property as quickly as we can.
Okay, great. Thank you.
Thank you.
Thank you.
Thank you. I'm showing no further questions. At this time, I'd like to hand the call back over to Mr. Ernest Rady, CEO, for any closing remarks.
Okay. Again, thank you all for your confidence, and thank you all for your interest. If we left you with one conclusion today, that is we are dedicated to performing for all of our stockholders as well as we can. We have the tools, and we have the assets, and we have the opportunity, and we'll do our best to take advantage of it. Thank you again so much for your time.
Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Everyone have a great day.