Good day, and welcome to the Brixmor Property Group, Inc. 1st Quarter 2018 Earnings Conference Call and Webcast. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Stacy Slater.
Please go ahead.
Thank you, operator, and thank you all for joining Brixmor's Q1 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 and 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 1 or 2 per person. If you have additional questions regarding the quarter, please re queue. At this time, it's my pleasure to introduce Jim Taylor.
Thanks, Stacey, and good morning, everyone. I'd like to begin my comments by expressing my deep gratitude to the entire Brixmor team for delivering yet another outstanding quarter in the execution of our balanced self funded business plan. Our team's performance demonstrates how we are capitalizing on this environment to drive sustainable growth and cash flow and importantly unlock the value embedded in what we own and control. Let's look at the facts. We once again delivered a sector leading volume of 2,000,000 feet of new and renewal leases, the cash spreads of 16 point 7%, which included over a 1,000,000 feet of new leases at average cash spreads of 36.7%.
Importantly, that cash growth was not purchased as both CapEx and average term held steady. We also set new records in terms of small shop rents of $23.56 and an anchor square footage with 715,000 square feet of anchor lease leases executed in the quarter. A few of you also noticed that we grew our average in place rent to $13.61 also a record for the company. Importantly, we are setting up our future growth. Over the trailing 12 months, we've generated over $43,000,000 of new ABR or 4.6 percent of total ABR, of which 37,000,000 is signed but not yet commenced.
These signed leases drive our confidence in our forward growth outlook. In fact, 35% of those rents don't commence until 2019 and they further demonstrate our strong execution on space recaptured for redevelopment or from tenant bankruptcies. On both fronts, we are not only unlocking significant value, we are setting up our centers for longer anchor repositioning has been completed. Looking forward, we expect to regain control of the 11 toys boxes this quarter and have been actively generating leases and LOIs so that we can outperform the backfill of these spaces as we did with Sports Authority last year. As I've mentioned many times before, we believe that you measure the quality of a real estate investment based on your ability to drive growth without having to rely on ABR inflation or cap rate compression.
In that regard, we stand apart. We also continue to bring great new uses to the portfolio such as Hot Dottie's Burger Bar, CoreLife, Maya Cinema and Prince Valley Market among many others. While we continue to drive better intrinsic lease terms and capture market leading share with the strongest retailers in the industry today. Additionally, our forward leasing pipeline remains very robust with over 480 leases comprising 2,700,000 feet and over $46,000,000 of ABR. As we look out over the next 4 years with 4,700,000 feet of anchor leases expiring without options at average rents of $8.51 which compares to the average achieved rents over the last 12 months of $12 a foot, we get even more excited about our long term plan to drive sustainable growth.
Our strong leasing also continue to drive accretive redevelopment and reinvestment as we added new projects bringing our active pipeline to to $288,000,000 at a 9% incremental return. Importantly, we also delivered 8 projects with a total investment of $32,000,000 at a 10% return. For the quarter, book another $19,000,000 That's right, dollars 19,000,000 of value creation as we continue to accelerate the pace of reinvestment and close in on our annual spend and deliver goal of $200,000,000 dollars We also continue to demonstrate attractive pricing and liquidity for assets not core to our long term strategy, closing on $138,000,000 of dispositions year to date at an average cap rate of 7.7 percent in markets such as Dubuque, Iowa, Fairview Heights, Illinois and Hermitage, Tennessee. We have another $240,000,000 under contract as of this call at even more attractive cap rates, putting us on pace to greatly exceed last year's volume in a market where we continue to see capital being raised to acquire assets such as ours. We feel very good about our ability to hit our recycling goals this year.
We recycled the sale proceeds into reducing leverage and share repurchases. At quarter end, we had only $135,000,000 of maturities remaining this year and nothing drawn on our one $1,300,000,000 credit facility. We also repurchased 1,900,000 shares of common stock during the quarter at a price of 15.47 dollars which was below the VWAP then for the open trading window. In so doing, we recaptured nearly $20,000,000 of NAV discount, while importantly also our current year FFO and same store guidance. Our current quarter results track with our plan that we detailed at our Investor Day in December and we remain confident in achieving of our plan.
I'm extraordinarily proud of the results this team continues to deliver as we capitalize on the opportunities embedded in what we own and control and importantly remain very disciplined with the capital that we've been entrusted with. In short, we are delivering value now across all facets of our plan. Angela?
Thanks, Jim, and good morning. FFO was $0.51 per share in the Q1 based on same property NOI growth of 70 basis points. Base rent growth contributed 130 basis points to same property NOI growth during the quarter and was negatively impacted approximately 100 basis points of drag associated with 2017 bankruptcy activity and recent proactive terminations. The strong base rent growth in the Q1 despite the outsized impact of bankruptcy and proactive termination activity highlights the realization of the sector leading leasing productivity accomplished over the last 12 months. Base rent growth was further offset by a fully anticipated 60 basis point detraction from the provision for doubtful accounts, which we discussed with you last quarter, primarily driven by a difficult year over year comparison due to successful recoveries of previously reserved or written off amounts in the prior period.
The provision recognized in the current quarter was approximately 75 basis points of total revenues, which was in line with both our expectations and longer term historical level. We have affirmed our 2018 FFO and same property NOI growth guidance. As previously communicated, this guidance assumes an acceleration in same property NOI in same property NOI growth in the second half of the year. On last quarter's earnings call, I highlighted for you $10,000,000 of expected anchor rent commencements during 2018 weighted to the 2nd half. These anchor openings are not only indicative of our progress over the last year in addressing bankruptcy impacted space, but also the continued progress we are making on our value enhancing within this pool of assets as we progress through the year, driven by both the completion and stabilization of projects such as Sagamore Park Center, Ventura Downs, Gateway Plaza and the First Phase of Maple Village, but also by significant and current commencements at projects not fully stabilizing until 2019, including the Village at Mira Mesa, where we will be opening Sprouts in just a few weeks and Besmo later this summer.
In addition, the year over year drag associated with assets that are currently being prepared for future redevelopment will peak in the 18, it's important to not lose sight of the fact that we will continue to carry excess vacancy at these centers throughout the year as we finalize our plans and begin to execute on the next wave of redevelopment activity, setting the stage for growth in 2019 and beyond. I would also note that the drag associated with the majority of the 2017 bankruptcies in our portfolio, including HH Greggs, Gordmans and Ultra Foods will also moderate in the second half of the year. As a result, even though the impact from Toys R Us is not expected to be fully realized until the Q3, we do expect an overall moderation in the drag associated with bankruptcy activity in the second half of twenty eighteen. At the end of the 4th quarter, we had 12 toys leases in the portfolio. Since then, Galleria Commons was sold in January and the lease at Arborland Center was acquired by Brixmor in April.
As a result, today we have 10 remaining leases that are still working their way through the bankruptcy process. While we do not have perfect clarity on the eventual outcome or timing for these locations, we have assumed in our guidance that rent ceases at all remaining locations towards the end of the second quarter. As As we execute on all facets of our business plans, the strength and overall flexibility of our balance sheet remains a key priority. We sit today with significant We sit today with significant liquidity, including our undrawn $1,250,000,000 revolving credit facility, and we are generating approximately $100,000,000 of cash flow after dividends, which we are accretively deploying into redevelopment. As a result, only a small amount of proceeds from dispositions will be required to sustain the value enhancing pipeline even at our rate level of $200,000,000 of annual spend.
Accordingly, the majority of disposition proceeds will be used to reduce leverage and repurchase stock. With only 135 $1,000,000 of remaining maturities in 2018, it's worth noting that our 2019 maturities are comprised of term loan debt, which can be repaid at any time without penalty, allowing us significant flexibility to continue to deleverage as we execute on asset sale. And with that, I'll turn the call over to the operator for Q and A.
The first question comes from Samir Khanal from Evercore.
Good morning. Hi, Jim. We've seen a fair amount of good morning. We've seen a fair amount of closures over the last few months. I mean, there's you've got toys and there are more categories that folks are sort of increasingly becoming more concerned about.
And I guess how does that factor into your view of sort of growth picking up in 'nineteen as you laid out at Investor Day of getting back to that 3% to 4% growth same store NOI?
I appreciate the question. I'll tell you, we remain very confident on it. And you have to look at the composition of our tenancy and the types of categories that are generally at risk right now, which we've been actively managing over the last couple of years to reduce our exposure to. So without naming specific tenants, if you just look at our top 20 tenants, you can see some movement in that that reflects a real focus on managing that risk. So as we look out over the coming year and also factor in the tremendous amount of leasing that we're doing, so that when we do get that space back, we continually are able to get it at a better rent to the new tenant We're unlocking value, which as I mentioned in my remarks, when you look at what that gap is between build and lease today at its widest of about 2 30 basis points.
Again, that represents about $37,000,000 of signed rent that's not yet commenced, about 35% of which isn't commencing until 2019. So I'm really proud of how the team has been proactively managing our at risk tenancy, which I think is very moderate relative to others in the industry. And importantly, being proactive about releasing that space and releasing it to better tenants, which as I also alluded to gives us a benefit of that follow on small shop leasing. When you're replacing a less relevant concept with a more relevant one we're doing, you really increase the momentum in that small shop side as well. Okay.
And then I guess my second question is on the $240,000,000 that's sort of in the pipeline that's under contract, I mean how does pricing compare to that versus what you sold in the Q1 sort of in light of where interest rates have gone maybe around how long that would be?
It's actually better in terms of cap rate. And again, it's driven by the mix of what's in the pipeline, but we feel very good about the visibility that we're getting on liquidity, particularly for the assets that aren't core to our strategy. So consider some of the markets that we're exiting as I highlighted in my remarks, We're pleased that we're finding good liquidity for those assets. And right now of course we're recycling that back in reducing leverage and our shares at some point in the future you might see us recycling into acquisitions. But right now the value in our shares is just too compelling.
Okay. Thanks very much.
You bet.
The next question comes from Craig Schmidt with Bank of America.
Good morning.
I wanted to focus on Southeastern Grocers. I guess I'm showing 14 leases in your top tenant report. And I'm obviously not worried so much about the ABR there as I am that they may be anchoring the centers. What is your sort of backup plan for Southeastern Grocers? And can you replace these tenants with anybody other than another grocer?
Craig, yes, this is Brian. As you mentioned in terms of Southeastern, it is a prepackaged bankruptcy that we expect to be approved here in May. So limited exposure to us this year. We had 2 locations that are within the guidance range that we're expected to get back. And from a credit perspective, as we mentioned on the last call, we have guarantees.
And so we feel pretty comfortable about that. In terms of the backfill opportunities, these are some great locations that traditional grocers other traditional grocers and other uses have been trying to look at for some time and there's upside in the rents. They are established infill location. So we feel pretty good about ultimately the marketability of those if we were to get them back. And there are grocer opportunities, there are home opportunities, opportunities from value, basically the categories that we've been seeing expanding and thriving in the space.
So overall, we feel pretty good about the opportunity there.
Great. Would the expansion be like a Sprouts or are you meaning like Publix or somebody?
Both, I would say. We have seen both specialty operators and it's an interesting point on Publix is one of the things that we've been pleased with is some traditional grocers that have used the disruption in this environment to gain additional share in markets. Operators like Giant, operators like Publix, who are finding infill locations and we're in discussions with. So it's one of the things that we've been pleasantly pleased with here to start the year.
Okay. Thank you.
The next question comes from Christy McElroy with Citi.
Hey, good morning, everyone. Good morning. Your shop occupancy rate is down about 40 basis points year over year. Can you just remind us the main drivers for that? Many of your peers have continued to grow shop occupancy despite the tough environment?
And around that 84% level, do you still perceive sort of that lease up of shop space as a runway for growth going
what we've moved into redevelopment and repositioning, the small shop occupancy for that pool is about 400 to 500 basis points lower than overall. So just what we have in the pool is dragging us meaningfully on the overall average. And Brian? Yes, we also had a 40 basis point drag from Payless and Roux.
But I think the main point that Jim is making is what we look at as a tremendous growth opportunity here. To that, to point 500 basis points below the rest of portfolio average, a 90 basis point drag. And as we bring more of these projects online, we expect to see similar growth as we have been in the last 36 months. We're driving small shop occupancy by close to 600 basis in the centers that we redevelop. So we do still see that as tremendous growth potential for us.
Okay. And then just sort of following up on that redevelopment theme, Angela, you made some comments in your remarks about redevelopment impact as you head into the second half. It sounded like you'll have deliveries, but those will still be offset by just taking some space offline. So it sounds like we shouldn't see much of a difference in same store NOI growth with and without redevelopment as we move into the second half. And then just wanted to get a sense for your comment to Sameer, it sounds like you're reaffirming the 3% to 4% range in 2019.
How much should we expect redevelopment to impact that number?
Yes, I mean, thanks, Christy. I think in terms of the expectations as we move through the year, the pieces I did call out were that drag from future redevelopment, which is going to be at its widest point in the Q2 of this year before moderating in the second half of the year. And you will start seeing those deliveries of stabilizations and completions I mentioned in my prepared remarks, over the course of in the second half of the year both again from projects you can see on that page in the supplemental are actually completing and stabilizing this year, but also from anchor rent commencements at some of those projects that aren't stabilizing until 2019, where you'll see significant growth from those assets as well. In terms of re 100 basis points of ABR growth in 2019. I think we're still very comfortable with that level.
Thank you.
The next question comes from Alexander Goldfarb with Sandler O'Neill.
Hey, good morning over there. Hey, Two questions. First, Angela, can you just comment on the stock buyback activity? You guys, it sounds like from Jim's comments on mix, the cap rates are going to ebb and flow a little bit. Let's just call it 7.5% that you're selling at.
It's a lot of income to give up. You guys have debt, dollars 135,000,000 that you want to pay down. You've got redevelopments that you need to fund. Can you just talk a little bit more about your thoughts on stock buyback and whether the $30,000,000 or so that you did in this quarter is really the limit that you guys can do based on debt repayment, leverage and redevelopment funding?
Yes, I mean like we talked about in Investor Day, Alex, I think it's a great question. We tried to emphasize both at Investor Day and in my remarks today that there's really a very small amount of redevelopment that needs to be funded outside of free cash flow. So while a portion of disposition proceeds will go to the redevelopment pipeline, it's really pretty small, which means that for most of the proceeds from dispositions, this point going forward, it really will, to your question, be split between deleveraging and stock buyback. And we said at Investor Day, and I think the both in the Q4 as well as the Q1 of this year demonstrates our commitment to executing on the buyback and a methodical and programmatic way based on the level of disposition proceeds at any given point in time.
Okay. And then the second question is and this goes to sort of what Christy was asking before
is obviously there's a
lot of pressure in the market and a lot of hopes that you guys really follow through on sort of a back half acceleration and then into 2019. A lot of companies talk about back half recovery. I mean that's been a staple of REITLAN for a long time. As you guys went through the budgeting, were there any elements from when you did your Investor Day through now where there were parts that may be still out of bed but were replaced by other things that allow you to be confident in maintaining this accelerating outlook or has everything pretty much stayed true in your underwriting and your planning of the portfolio that really there has been no deviation?
It's been remarkably consistent. I'd say things has always moved budget to budget and forecast to forecast. So timing of some of the bankruptcy moved a little bit. On the other side of that, we've been more productive from a leasing perspective and more successful in compressing the time between signing of lease and rent commencement. So on balance, we're feeling particularly, Alex, given the visibility that I mentioned on the leasing and the rents that have yet to commence, we're feeling even more confident in that ramp.
Okay. Thank you. You bet.
The next question comes from Todd Thomas with KeyBanc Capital Markets.
Hi, thanks. Good morning. Good morning. Good morning. Good morning.
So just regarding some of the new leasing activity and the backfills that you're pursuing, just wondering if you could talk a little bit about the competitive landscape for this space, maybe provide some color around the competition, whether it's multiple options that you're looking at for these spaces or would you say that it's a little bit more surgical in nature as you approach these backfills and anchor repositionings?
Well, we're very intentional as it relates to the types of uses that we're putting in our centers, the last part of the question. So we really do ask ourselves what's needed in that particular submarket and we're using data to a level that we've never done before to look at sales that are leaving that particular trade area, to look at in more precise terms how the centers are actually trading, not simply using rings, but we're looking at cell phone data on and off the properties to properly draw where that asset trades. And then as we think about uses, we're being much more intentional about marketing to the use that we think is going to be most relevant and going to drive the highest sales. Remember from a competitive standpoint that all of us on the public side, generally our competition is not each other, but rather a lot of private owners. I think probably 12% to 15% of the Open Air Centers that are of institutional quality are owned by the REITs.
So it's still a pretty disaggregated universe. And in this environment, the scale and importantly, the trust and relationships that we've built with these leading thriving retailers is incredibly important. And it's something that we're also measuring. I alluded to it in my remarks that we are building market share. I think we have leading market share with a lot of the tenants who are thriving today and we have the trust with them that we will execute.
So as many of these tenants are looking at going into different types of formats, downsizing, looking increasingly at relocating, we are a net beneficiary of that. So we're being much more intentional about the uses, much more targeted in terms of how we're marketing the space that both that we have vacant plus as I alluded to earlier, those uses that we are less confident in going forward reducing our exposure to them.
And then
leveraging that local market knowledge that we have with the great national accounts coverage that we have to make sure that we're outperforming as we compete in each of these local markets.
Okay, thanks. And then just two quick questions for Angela. The 60 basis point detraction from the same store in the quarter, the provision for doubtful accounts, I think you mentioned that was in line with expectations. How does that drag compared to the full year guidance and how should we think about that trending throughout the balance of the year? And then also just wondering if you could comment on the impairment that was taken in the quarter, just what that was for?
And do you expect to recognize additional impairments in the quarters ahead?
Sure. Thanks, Todd. In terms of the 60 basis point drag from bad debt, if you remember at Investor Day when we quantified the components of our same property NOI growth guidance, we did expect a 50 basis point drag for the full year. I would note that the Q1 comparison from Q1 2017 was probably the most difficult across the whole year. So I think it's right in line with the guidance we had given back in December.
In terms of the impairment, we did recognize $15,900,000 of impairment during the quarter, also recognized 11 point $5,000,000 of book gains. The impairments were for the most part based on transactions that were completed during this quarter or transactions we expect to complete over the next quarter or 2.
Okay. Thank you.
The next question comes from Jeremy Metz with BMO Capital Markets.
Hey, good morning. I just wanted to go back to Toys here. You talked about the uncertainty here in terms of the timing of the process, but also that you've now assumed all rent ceases in 3Q. This was above your initial expectations when you laid out your same store guidance at the start of the year, which at the time assumed you get one back and lower rents on another 6. So I'm wondering if you'll be removing any of these stores from same store as you kick off larger repositionings or should we be thinking about the low end of the same store NOI range?
Or is it really just as better than expected lease commencements relative to your initial expectations that's leaving you confident in the range today?
Yes. Jeremy, thanks for the question. I would say you're right. On toys last quarter, we did communicate we were we expected one rejection and then, rent relief at 6 other locations. We did expect that rent relief and that rejection to happen much earlier in the year, during really towards the beginning of Q1.
Obviously now we are anticipating as you mentioned in guidance that we will get all locations back, but that's not going to happen until much later in the year. So the net impact on 2018 was actually pretty similar relative to our original expectations.
Okay.
And so none of these will be removed for larger repositionings?
Yes. On that point, I mean, the only thing I would say is that remember that our full same property NOI guidance includes all redevelopments. So nothing comes out of the pool or impacts the guidance we give since that is given on a including redevelopment basis.
So the drag would be in there?
Okay. Just sticking with some of the leasing commentary, Brian, I'm wondering if you can give us some color on your conversations with the pet supply stores. Feels like there's mining pressure there, particularly on the brick and mortar stores. So just wondering if they're coming to you looking for any rent relief or trying to get out of any leases earlier? Any color you can provide us would be great.
No, Jeremy, and thanks for the question. They continue
to be our major pet store operators continue to be good partners at Smart and Petco. We haven't had those type of discussions. I would say overall we haven't done a tremendous amount of new pet leases. We've done more of the smaller operators throughout the portfolio. So it hasn't been from an expansion standpoint, we haven't seen a tremendous amount of new activity in our portfolio from them.
Thanks, guys.
Our next question is from Nick Yulico with UBS.
Hi, good morning. This is Greg McGinnis on with Nick. Just another question regarding the Toys R Us leases. What do you see as the potential economic benefit from releasing those boxes? I know traditionally they pay pretty low rents.
And do you envision most lien to be cut up or is there still demand for that box size in the
market? Yes, it's a great question. So we're looking at it a number of different ways. In terms of the upside, we feel pretty good about the fact we've got rents at $950,000,000 a foot. And as we're looking at the upside and the LOIs and leases that we're negotiating so far, we're expecting that range to be in the 20% to 30% range as we're looking at it.
Those rents will be higher if we cut those boxes up. And interestingly, the categories that we're looking at to backfill those spaces are a broad mix. We've got traditional fitness operators like 24 Hour LA Fitness. We've got smaller operators like Volta and Total Wine who we've really been increasing our share with across the board categories in home. And then in addition to that, the value operators that continue to expand.
So we feel pretty good about the demand and the activity that we've had on the boxes so far.
Great. Thanks. And then shifting to dispositions, how's the plan to exit or identify in single asset markets progressing? Does this plan remain the focus for current asset dispositions or does asset types such as lowering power center exposure matter more right now?
It's really a focus on markets and hold IRRs. Every cap allocation decision that we make is viewed through the lens of will it help us grow or not. And then as it relates to market strategy, is that a long term hold market for us? So in particular, if you look at the dispositions we've been completing, we've been very methodically getting out of these single asset markets. And I'm very pleased with the progress that we made this past quarter getting out of several more, in that we found liquidity in those markets.
On the other side of your question, at least right now, while it's a long term priority for us to reinvest in markets that we'd like to cluster and densify in, Our stock is too much of a compelling value to justify acquisition. So expect us to be much more disciplined in terms of the other side of that capital recycling as we focus on our redevelopment, reducing leverage and opportunistically buying back our stock every quarter.
Great. Thanks, Jim. You bet.
The next question comes from Ki Bin Kim with SunTrust.
Thanks. Good morning. Hey, Ki Bin. Hey. Hey.
So just going back to the PetSmart questions, if I look at the ABR per square foot is certainly higher than the Toys R Us spaces, dollars 15 to $16 a square foot. So my question is, I'm sure you've already done some contingency planning. How does the backlog of demand for those type of spaces look like today? And would you be able to kind of hold rent flat overall?
Well, again, we have not been in any real to the earlier question has not been a comment to us about rent relief or anything along those lines. I would say that demand for that 22,000 to 20 5,000 square foot box remains very high. And in the locations where we're getting those spaces back really across the board, we're finding good demand from retailers that have large open device and are thriving in this environment. So look, as we look out, we're in constant conversations really with all of our national tenants in terms of what our exposure looks like on those stores. So we feel pretty good about where we sit with them today.
Okay. And this is just a broader question. And I know it's hard to get this data, but do you have a sense of how well your retailers are doing in your centers across your portfolio in terms of sales volume and operating margins over time?
Actually, we are very focused on it and we talk a lot about the Grocer segment where we have much broader reporting. And our Grocer sales performance remains very good and importantly remains very good relative to chain average. We also keep in hold our national accounts team responsible for tracking sales productivity of those tenants who are not required to report under leases. So those represent estimates which we sort of back check every time there's an event on the lease that allows us to determine where those sales are. And there as well we're seeing good performance generally across the board and importantly really very reasonable occupancy costs where we have those situations in the portfolio with higher than what we believe to be healthy occupancy costs.
That's what prioritizes our releasing decisions and marketing decisions going forward. So we're really looking out not just at the next 12 months, 24 months, we're looking 36 months out and beyond to make sure that we're staying ahead of it. And also importantly capitalizing in an environment where we're finding that the retailers are planning further and further out. I've said this on prior calls, but you'll note that that retailers are planning store openings today for 2020 and even in 2021. So by being proactive about tracking our best estimate of the occupancy costs and getting ahead of that, we can capitalize it.
But I would tell you that across the board, some of you have done some research on this, look at our tenancy. They're doing pretty well. They're generally showing good same store sales growth. And importantly, the locations in our portfolio are healthy and doing well. And obviously, we're in constant communication with these tenants to determine where we have any locations at risk and we're doing everything we can to get ahead of it.
So net net, we're in this interesting environment where we're seeing great net demand for our space. Yet I think there's a backdrop of fear and concern about what the next shoe to drop is going to be. And quarter after quarter, we keep demonstrating it and we're demonstrating it our pipeline. We're going to continue to demonstrate that we're able to take this environment of disruption given the low rent basis in our assets and actually make money and put in uses that are better than what preceded them. So it's an interesting time because I think at least within this company and platform, there's a lot of excitement about how we're creating and unlocking value that actually capitalizes on some of this disruption that's occurring.
Okay. Thanks, Tim. You bet.
The next question comes from Vincent Zhou with Deutsche Bank.
Hi. Good morning, everyone.
Good morning.
A quick question on the private market side. It seems that a number of your peers have indicated that conditions have maybe improved a little bit, liquidity has maybe improved a little bit as new capital forms. Just curious if that's consistent with what you're seeing in the private markets? And then just in terms of the disposition plans, trying to get down to 400 assets over time, which is about 80 away from where you are today. I know you don't give guidance on that particular number, but do you think looking at 30 a year is a reasonable way to think about that plan?
It's not unreasonable. I think we're going to take advantage of the open market windows of liquidity. And as we talked about at Investor Day then asset sales are always going to be a part of our continuing plan, if you will, because the decision to hold an asset is an investment decision and we really do focus very much on that hold IRR. And as we alluded to at the Investor Day, we do expect to be larger on the disposition front this year than we do on an ongoing basis to capitalize on the liquidity that we see is there. Mark, I'll let you maybe talk a little bit about the private market.
Yes, I think we would concur that we continue to see capital formation for Open Air Retail Centers. And I think it's really driven by a lot of the commentary Brian is giving you from the tenancy base. A lot of the private equity types see what Brian is talking about, demand for space, demand for open air centers. And when you combine that with a wide open financing environment, they're coming into the space and putting capital to work today.
Okay. And then just another question. You're pretty clear that dispositions will largely be used to fund either deleveraging efforts or share repurchases. And the commentary has been very positive on the demand side. I think some of the concern out there is that there's still an elevated level of store in the market overall and we're sitting here in the longest one of the longest recoveries in history.
And so there is concern that the next recession is not too far away. I guess as you think about a dollar deployed towards deleveraging versus share repurchases, how do you weigh the 2?
Well, as we've talked about for a while, we have a portfolio that is well below market from an EBITDA perspective and we're generating significant cash flow to fund most of the reinvestment activity that we're doing in the portfolio. So from that standpoint, I think we sit pretty well. Our dividend is very well covered and we continue to be in a position to unlock some of that growth. And as we think about the net disposition proceeds beyond that, we do think about deleveraging first, right? We're conservative by background.
If you look at the steps that we've taken with the balance sheet since joining, we've raised nearly $5,000,000,000 of capital to term out our debt to I think we're almost 100% fixed at this point. Angela alluded to the fact that we have some flexibility to pay down future maturities on an efficient basis. So we are constantly managing towards the strongest and most flexible balance sheet that we can have. So deleveraging is an important part. And then beyond that, if you look at what we did this quarter then, I think it sends a pretty clear signal.
We delevered, but we also bought some stock back. When you think about the opportunities embedded in this portfolio and the quality of visibility on growing cash flows, which is a real estate investor is what you look to, our stock is incredibly cheap right now. So the ability for us to systematically not try to time the market, but as we recycle this capital and we evaluate what to do with the remaining capital that we have, we think the share buyback is a very prudent use with where we're trading on implied cap rate basis, where we're trading on a multiple basis and importantly where we're trading relative to our visibility on future growth. Okay. Thanks.
The next question comes from Haendel St. Juste with Mizuho.
Haendel? Hey,
good morning there. Hey, Jim. So, hey, a question I guess on grocer, certainly an important element in your portfolio. I guess, how what's your willingness to help them get to the right format, right? So, I guess they're not going away.
It seems like many will be looking to provide their format of their stores going forward, which requires capital from them, from you and it's probably the right thing to do to lock that grocery in for a long time and not risk losing it to a neighboring center with free space. So is that something where we'll see increased readout spend going forward? And are these economic deals or we think of them more as loss leader anchor type of deals?
Hey, this is Brian. Look, putting our grocers in the best position they can be in our centers has been and will continue to be part of our redevelopment pipeline. Whether you look at the Kroger expansion that we've done over the years, the location with Publix in Sarasota, where we're carrying that down and building a new prototype and got a tremendous pipeline with them. And then you look at the specialty operators that are coming into the market. I don't think it's really any different than what it's been in the past and that we're constantly in conversations with our grocers trying to put them in the best position to succeed and then helping them with the initiatives that they're doing to drive traffic to their stores like Kroger with ClickList, like other operators that are trying to see how they can integrate the technology portion to continue to engage with our customer further.
So if anything, it's going to continue to be part of our plan and we feel really good about the fact that we have the dialogue that we do with these operators.
And Haendel, I would just also note that we're seeing grocers increasingly investing in their existing stores, which oftentimes will be in conjunction with the investments that we're making in the broader shopping center to leverage off the improvement that they expect through that capital. So, I bet Brian spot on. The relationship with these grocers and making sure that we are a great partner and aligned with their driving sales growth is important.
And where we have done most of that activity has been highlighted for you I think in our redevelopment pipeline and we've been driving really accretive returns on that capital spend.
Okay. Okay. Thanks for that. On the transaction side, I guess going back to your response to an earlier question, I guess I'm curious what's driving the better pricing you're alluding to for the $240,000,000 under contract. You sold 6 centers in the Q1, 5 were grosser.
So are there no power centers in the new mix? Are there better markets? Are you just seeing better demand? Is there any portfolio buyers amongst that? Just curious as to what's driving that expectation of better pricing?
It's really the specific assets themselves. And it's interesting when you look at the mix of what happened in the Q1, really half of them are more boxy sort of traditional power centers with the grocery component. And then half of them were sort of the more traditional 120,000, 130,000 square foot grocery anchored center. And we still to what's implied in your question, still do see much more demand for the traditional grocery anchored asset. But with that said, across the board with assets that we are choosing to sell, we're seeing a competitive bidding field and we're able to move pricing from early first round indications to where we're ultimately closing.
And our success rate in terms of what we're closing based on what we're marketing remains strong. And while we talk a lot about cap rates, what we're really most focused on is that hold IRR. So we're not overly focused on trying to achieve a particular cap rate. What we're most focused on is where is that NOI going? And what kind of capital will it take us to keep that NOI in place or grow it?
And we're being conservative importantly reversionary cap rate would be as we assess that hold IRR because as with Intuition assuming that they will be less attractive than where they are today. So growth matters. And the centers that we're selling not only are non core in terms of markets, etcetera, but we see limited accretive growth opportunities.
Appreciate that. Just a follow-up if
I could. Are you seeing any maybe portfolio buyers emerging for least the grocer anchored? And then any I guess are there still financing challenges on the power center side? Thanks.
To the first point on portfolios, I think what we're seeing is smaller portfolio buyers emerge that can get to attractive pricing. It's been our strategy to maximize pricing and assets that we're selling. So we continue to really be transacting on a one off basis, but we are starting to see more interest on the portfolio side of things. With respect to the financing environment, it continues to be wide open. We're seeing very attractive financing quotes that we're selling both in the CMBS market and the bank market.
That's for the grocer side though, right? I mean the power
centers, we're
certainly seeing good demand in pricing for power centers. And the real key, frankly, on the power center side is where are the rents. In our portfolio, we think rents are well below market. When you have power centers where you have well below market rents. You get good pricing and you could get very good financing indications.
Whether or not, that's really where I think you're seeing some of the stress you might be referencing.
And to that point, vintage really matters there. Assets that were developed in the kind of that 2000s, mid-2000s era tend to have higher in place rents. Our average asset age is about 32 years. So by definition, our rents are generally low and below where we think market is.
Thank you, guys. Much appreciated.
You bet.
The next question comes from Karin Ford with MUFG Securities.
Hi, good morning. Given the increasing capital formation for shopping centers and maybe even a rise, as you said, in small portfolio buyers, do you think there could be an emerging privatization bid out there for shopping center REIT given the current NAV discounts?
I think so. I don't see it yet, but capital always finds a level. And when you look at the risk adjusted returns that are available in this space, they're pretty compelling, particularly relative to other types of real estate today. And I think as Mark alluded to earlier, the net demand that we're seeing from retailers who are figuring out how to thrive in this post Amazon environment is strong and they're leveraging their physical locations. They're investing in their stores.
They're refining their prototypes and remaining relevant and increasingly moving towards the OpenAir format. A lot of the innovation that we're seeing is towards the Open Air format. So the private capital is beginning to see that. But I don't see it, Karen, to your question yet in terms of real large portfolios. But capital finds a level at some point, it will happen.
Great. Thanks for that. My second question is just going back to the toys boxes. I know it's still early in that process, but could you give us a rough idea of what you think the downtime will be for those boxes?
I'm looking at Brian, it better be sure.
Yes, Karen, we expect it to
be consistent in terms of rent paying with in line with where we were with Sports Authority with 12 to 18 months in terms of rent commencement. So to Angela's point, we're expecting to get those back in the middle of the year and we expect those rents to come online in later 2018 early 2019.
And importantly, as I alluded to in my remarks, we're working deals on all of those spaces now to put us in the position to outperform how we backfill. And you can expect us to, as we've done before, give you sort of that ongoing progress as we backfill that space.
And Karen, my apologies, I meant late 2019, early 2020 when I said 12 to 18 months. So apologies for that.
Right. Got it. And just I'm sorry if I missed this earlier. Did you say do you have any letters of intent on any of those boxes yet?
We do. We do. On On several of the boxes, I'd say close to half of them right now, we have leases or LOIs in place.
Great. Thank you.
The next question comes from Vince Tibone, Green Street Advisors.
Good morning. Good morning.
Can you provide some additional color on the high 7 disposition cap rate? The disclosure in the supplemental appears to apply a cap rate in the high 9s. Can you help bridge that gap in terms of whether you're quoting a buyer's cap rate, a trailing cap rate and just helping us get a better understanding of that metric?
Yes. What we're quoting is the market cap rate, what is the underwritten in place rents and it's what the brokers would quote in the marketplace in terms of how those assets would sell. I would also point out to you that these assets in particular were lower margin assets given the markets that they were located in. So you've got to factor that into trying to back into the cap rate just off the ABR. And the other element is we did have I think in one of them a toys box that was obviously coming out and not part of the underwritten NOI on the asset.
So really when you about those three things that it helps you understand where the cap rate was relative to the ABR calculation that you've done. Because we look at and the market looks at that underwritten NOI, there are some quarters when we have deals signed that we didn't get rent for in the preceding quarter. So it can kind of go both ways, but that's effectively how we do it and I think that's the industry standard.
No, that's very helpful. Could you provide the cap rate just on a trailing 12 month basis just trying to get to the right forward pro form a NOI?
I think for this quarter, it would be higher. I don't have the actual number of basis points. It wouldn't be up at the levels you're calculating, but it would be higher on a trailing for this quarter.
Okay. Thank you. And then one last one. It seems like Public's been an active buyer of shopping centers so far this year and is one of the few active portfolio buyers. I mean, would you consider deviating from selling in single market assets and maybe take an opportunity to sell some of your higher quality centers to a motivated buyer?
We have sold a few assets to Publix and in some cases they are the right buyer for the asset. Again, the portfolio bid hasn't emerged yet as strong as what we're finding for the individual asset bids. Mark, I don't know if you want to comment further.
Yes, we I would say we have transact with Publix. They're a great transaction partner. To the extent that they're the best buyer for assets, we would certainly continue to transact with them. But I don't think again, as we've said, we haven't seen that capital formation to really push down into that high quality, really high quality asset to get a portfolio bid done.
Okay. Thank you. That's all I have. You bet.
The next questioner is Floris Van Dykem with Boenning.
Thanks, Scott. Quick question. How many Jim, as you're selling your down the portfolio, how many single asset markets did you or do you plan to exit this year and maybe touch upon any impact on G and A and sort of efficiencies as you alluded that some of the properties sold had lower margins than your overall portfolio?
I think when you go back to what we've done over the last 18 months So I think we've exited 15 plus single asset markets. And what's interesting is it's less about the G and A savings in my opinion and more about what's happening with the ABR at the asset. When you only own one asset in the market, you are not going to be as good at driving that ABR growth as you are when you own 2 or 3 or 4. As we look at our G and A spend, you'll note that our G and A is trending down. Part of that is obviously legal expenses, but other part of it is we are very focused on making sure that we're efficient with our spend and that we're investing in areas that create value such as redevelopment and transactions and that we're becoming more efficient in areas that don't generate as much value.
The long term florist, I do think that being in fewer markets will help with the G and A, but what we've done to date hasn't really resulted in G and A savings.
So but in terms of what you have in your pipeline under contract, how many more single asset markets do you think there'll be? Is that half of the properties or? Yeah.
I think that we'll get out of another 15 to 20, over the next 12 to 18 months. Great. Thanks, guys. That's it for me. The
next question comes from Wes Golladay with RBC Capital.
Hi, everyone. Are you noticing more of a willingness by a retailer to relocate to another center? And if so, what is the big driver of it? Is it the quality of the center? Is it the rent level?
Is the retailer looking for a new prototype? And then as a follow-up, are the private landlords able to keep up with the more capital intensive environment?
Yes. Look, it's a great question. I think retailers are focused on getting in their best footprints in the markets in which they operate. And a lot of the reasons you mentioned are the reasons that they are looking for additional sites, whether it's production here over the last 12 to 18 months. And I think it's in fact due to the platform that we have.
Our teams are local in the markets. They're experts in those markets. They have an understanding of trends and when things will potentially come available, for instance, if one box leaves, what that triggers for another opportunity for us. And then our national account team is in front of all of our major tenants. And looking to Jim's point earlier, 3 years out at what the opportunities could be, whether it's smaller stores, larger locations.
The other thing that I point out too is we've been a big beneficiary of a downsizing as well Tenants like Burlington, if you look at our redevelopment at Marlton Crossing outside of Philadelphia, we're able to bring a Sprouts Farmers Market into that and almost pick up the rent by 60% on what Burlington was paying, get them right sized and bring in a new anchor. So we've been pretty pleased with the progress and have been using Tenet's willingness to relocate really to drive our performance.
Yes, as Brian alluded to, I think it's a tremendous competitive advantage in this environment and you're seeing us capitalize on it.
Okay. Thank you. You bet.
The next question is from Michael Mueller with JPMorgan.
Just a couple of quick numbers questions here. Angela, for maintenance CapEx, it picked up in 2017 relative to '16 and 'fifteen by a decent amount. And I was wondering when you look forward, does it feel like 2017 is a little bit more of a better run rate or was it a little bit more of an anomaly?
No, I think you should expect we had about $40,000,000 of maintenance CapEx spend in 2017 and that's probably a good run rate going forward.
Got it. And then last question, given all the dispositions that have been going on and what's planned for the balance of the year, as you look at the FAS 141 burn off out in 2019, do you have any color on what that adjustment could be at this point?
Yes, it's a good question. I don't right now have any comments to make. It's going to depend a lot on the pool of assets that might get sold or we might transact on. It's also going to depend a lot on changes with respect to the retail environment as well, right? As we have situations like Toys R Us, you might see an acceleration of some of that FAS income that would have been further out, into the current period.
So there are a lot of moving pieces. We kind of David and bastard at our best assumption for this year, which was a $0.04 drag relative to 2017 for noncash income, so both straight line and FAS 141. And while it's something we're watching, I don't have any better guidance than that at this point.
Got it. Okay. That was it. Thank you.
Thanks, Mike.
The next question comes from Linda Tsai with Barclays.
Hi. You rank ordered the location quality of the toys boxes you could be getting back and the potential rent upside associated with each one? How evenly distributed is the rent upside across the boxes or is it sort of bifurcated? Brian, I think you said 20% to 30%?
I didn't. I think it's bifurcated pretty much evenly across or it's pretty even across the portfolio. We're fortunate in the fact that we did not have many stores that were done, the combo stores that were done in the mid-2000s or 2000 mid-two thousand and mid-twenty 10. We only had 1. The majority of our locations are older vintage to Jim's point earlier and that's what makes us feel good about the opportunity to drive the upside in these boxes when sitting here
at 9.50 a foot getting them back. And part of what as Brian alluded to before what's driven our activity level with LOIs and lease is on half. Thanks.
This concludes our question and answer session. I would like to turn the conference back over to Stacy Slater for any closing remarks.
Thanks, everyone. We'll see many of you at ICSP and E REIT.