Good morning, and welcome to the SITE Centers reports fourth quarter 2019 operating results conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. 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 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, and the accompanying slides may be found on our investor relations section of our website at sitecenters.com. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning. 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. I'm enthusiastic about our team's 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 our expected JV from our Teachers sale and a $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% in 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 it's a 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 a scarcity of competition and our 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, being 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 Van Ness and at The Collection at 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. 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.
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 multiyear 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 Dressbarn 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. I feel very good about our momentum. Finally, our commenced rate was effectively unchanged. The 290 basis point leased occupied gap 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 5.5x , compared to 6.5x 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 a 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 Eastland 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, position the company to remain well below our stated long-term leverage maximum of 6 x debt 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 Dressbarn and Forever 21, which we did not expect to occur.
Lastly, G&A includes a $1.8 million one-time benefit, which positively impacted results by $0.01. 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 spin, highlighting this company's ability to execute and drive cash flow per share. I'll turn now to our 2020 guidance. We are introducing OFFO guidance of $1.10-$1.14 per share, driven by same-store NOI, excluding redevelopment of 1%-2% and including redevelopment of 2%-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 claim settlements proceeds received in 2019 and bad debt favorability due to the adoption of the new lease accounting standard. Guidance for 2020 JV fees of $16 million-$20 million is unchanged, with the sale of our stake in the Teachers 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 at most $19 million in 2020, assuming no other assets are sold.
We expect the company to continue to execute on its business plan to realize value, 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. There are a number of moving pieces from the fourth quarter of 2019 to the first quarter of 2020. Weighted average shares will be higher at roughly $195 million due to the full quarter impact from the equity offering. Second, G&A will be higher as we won't have the one-time 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.
Fourth, in addition to typical seasonality that leads to lower NOI in the first quarter, we also will not have revenue from Dressbarn, Bar Louie, and Village Inn totaling $650,000. As Mike mentioned, we are excited about the backfill 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 in 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. Operator, we are ready to take questions.
Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question will come from Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Hi, thanks. Good morning. First question. 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. 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? Are they getting worse? What's your sense around the level of retail disruption that you're seeing?
Hey, Todd. Good morning. It's 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. 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 only thing I'd add to that, Todd, is remember at our Investor Day, we included the 150 basis points of annual reserve. We are anticipating more closures, or we can absorb more closures over the course of our five-year budget. The exciting part is you'll see years like 2019 where we have very limited closures and you can see outperformance. In years where there are more closures, we can absorb that, and our leased occupied gap helps us for this year on that front.
Got it. 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'll let Conor speak specifically to the budget, but I would kind of reference you back to our Investor Day conference, which was just a little over a year ago. 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. The churn that we had 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. 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.
Just to add on that, Todd, specifically for 2020, as David mentioned, we're using assumptions consistent with the five-year plan. It's 150 basis points of combined bad debt and bankruptcy reserves.
Okay. 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 and Bar Louie. Aggregately across the portfolio, the restaurant business tends to be quite healthy.
Okay. Got it. Just a quick last one. The Bealls that's listed in the supplement, the last tenant on your top 50, is that Bealls a separate entity from the Bealls that's owned by Stage Stores, or is that part of that?
The Bealls that you're referencing is separate and unrelated to Stage Stores.
Got it. All right. 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 buffer and guidance, I think we're all in tune with some of the sort of major drivers there, including the management and RVI fee income and the interest income, and there was also the G&A impact. In terms of sort of reconciling and bridging the gap from that $0.33 in fourth quarter into what's a much lower $0.28 quarterly run rate next year, just wanted to try to gauge the level of conservatism here in that 150 basis points. Mike, you've mentioned that operations were ahead of plan. Are you being extra conservative here or more realistic? I guess I'm just trying to figure out of that $0.33, how much of that is sort of operations and vacancy. Which, it seems like your same-store NOI growth pace seems pretty good.
Just trying to reconcile those two.
Hey, Christy. It's David. 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. I would say that any time 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. A lot of that comes down to permitting and asking the tenant to open in their blackout period. I think we pulled forward some revenue that was a little bit unexpected.
From a budgeting standpoint, it really is a realistic budget for 2020.
The only thing I'd add, Christy, to your point on the moving pieces, the three biggest pieces for next year contributing to the decline are JV fees, RVI fees, and interest income. Those three pieces alone are about $0.14 of headwinds. That's really the biggest driver of the year-over-year change. To your point, it's February 13th. We have a bottoms-up budget. We feel very comfortable with the budget today. To David's point, there are a number of other factors and assumptions that could change our timing and estimates over the course of the year.
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 how the RVI fee income is changing and sort of your expectations around being able to lower G&A with RVI coming off the.
Sure. We talked about 2019 as kind of the trough year for G&A. We stopped providing disclosure on that because you think about the last three years, we were a company in transition. There are a lot of moving pieces, and we're trying to provide the investing community with as much clarity as we could provide. For next year, we're not a company in transition anymore. Excuse me, for this year. I would expect to call it $58 million-$59 million of G&A for the year. We've kind of completed the handoff of RVI fees and lower G&A. I'd expect there'd be the kind of breakdown or the correlation between lower G&A and lower RVI fees to end in 2020.
Okay. Just lastly, I think you mentioned in your remarks that you do expect more dispositions this year. How are you thinking about sort of the JV asset sales that will continue versus assets that you would sell on the wholly owned side?
Yeah. On the wholly owned side, 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 aren't 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. Any of the other joint ventures that have dispositions, it really has more to do with the partner than it does us.
Right. 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. I wanted to go back to maybe the 2.75% same-store NOI growth for your five-year plan that you disclosed at your I nvestor Day. I think that excluded redevelopment, and obviously, redevelopment is a big part of your story. 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 a 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 is 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 multi-family property, we have selected to sell the property, sell an out parcel, or ground lease it. Those have different effects that are pretty dramatic on same-store. 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. Just to clarify that and add to that, one way or another, total NOI growth should be going up, though, because you're either going to be redeveloping it, which should be a positive, or you wouldn't do it. You're going to be having proceeds, and you'll 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 their upside.
Yeah. 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'll take CapEx, and it'll show up in the redevelopment inclusive same-store. 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. 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 we think it's additive to our growth rate. It will take time for those assets to come into the pool, et cetera, but that's another factor to consider as you think through same-store NOI and NOI growth for the whole portfolio.
Got it. David, going back to some of the prepared remarks and the significant amount of cash 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 the 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've paid down debt, we've paid down pref, we've bought assets. We bought back stock. 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. Just a few questions here. First, just going to the guidance and the 150 of cushion that's for BKs and closings. Is Pier 1 on top of that, or is Pier 1 in that 150?
Alex, Pier 1, nothing's been announced to date. 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. It's kind of the status quo for Pier 1 today.
Okay. Presumably, Conor, you guys budgeted something in your numbers. I'm assuming that those four closed 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. 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. 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. Maybe you can just give us some framework around pace of liquidation and how much of that depends on being able to target the Puerto Rican market for asset sales.
Hey, Alex, it's 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, the press releases, I think you can look at the pace of asset sales and whether they're in 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. Just finally, I appreciate your comments on that you're not really looking for any wholly owned asset sales, continue to focus on JVs. You've been acquiring assets that have, you know, either all small tenant or predominantly small tenant to help NOI growth. 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 tenanted assets as improving the overall NOI growth profile of the company? Do you expect that through these acquisitions, you'll grow 20 or 50 basis points of extra NOI that you'll be able to get in the run rate? How should we be thinking about that and what you're looking at?
Yes, Alex, that'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. 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. If I look at the market today, I see low construction deliveries, high development costs, 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. When you're buying properties in high-income submarkets that are highly occupied, the renewal is really what you're depending on for NOI and rent growth.
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 only thing I would just highlight, Alex, is, as David mentioned his prepared remarks, we are format agnostic. 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. 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.
The next question will be from Ki Bin Kim with SunTrust. Please go ahead.
Thanks. Just to go back to your same-store NOI guidance. You guys mentioned in your opening remarks that Village Inn and Bar Louie accounted for about $650,000 of rent. Is that in your budget and the 150 basis points is on top of that? Does that eat into that?
I missed the first part of your question. You said the $650,000.
Yeah. Is that on top of the 150 basis points reserve?
Oh, got it.
Eating into that reserve?
No. The Bar Louie, the Dressbarn, 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 bankruptcies that haven't been announced to date. Again, just to repeat the point, Bar Louie, Dressbarn, Village Inn are in our budget, in our 1%-2% same-store, and are not part of our future reserve.
Got it. 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?
Ki, I think a portfolio of this size, it's hard to make any broad comparisons, but I'll let Mike answer that.
As you can see by our reported net effective rents, the CapEx is remaining fairly consistent. The anchor tenants are still expecting similar packages that they were expecting over the last several years. On our shop CapEx, that remains relatively modest.
Okay. When I looked at the CapEx, at least the tenant allowance part, as a percent of the new rent value, it does seem like it's creeping higher. I know it's just one quarter.
Yeah, I think you just said the answer. It's just one quarter. I think you're going to see a little bit of bumpiness, quarter- to- quarter with a portfolio this size. Aggregately speaking, we're not seeing any substantial trends or changes.
Ki Bin, one of the things that 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 leased to occupied gap closes, the company becomes more of a renewal story. 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 Dressbarn, 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. Maybe just shifting gears, are you able to share the cap rates on the acquisitions, or can you just talk maybe a little bit more broadly as well about what you're seeing in the private transaction market today?
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, buy back stock, and make some acquisitions. 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 a six cap rate.
Okay, great. Just broadly, are you seeing any big shifts in the private transaction market, changes in debt availability or capital interest, or pretty similar to the last, let's say, six months or so?
Yeah. Certainly in the last six months, I haven't seen anything that's been noteworthy. The ability to secure debt seems readily available. 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. The demand for acquisitions is still pretty steep.
Okay, interesting. One last one for me. Could you just share a little bit more additional detail on the redevelopment projects that are expected to contribute this 100 basis points to same-store this year? Just to clarify, I want to make sure I understand, all the major redevelopments are excluded from same-store still. Is that correct?
Vince, the major redevelopments would be included in the same-store with redevelopment.
Got it. Okay.
The assets contributing this year are The Collection at Brandon, Van Ness, and the first [audio distortion], excuse me, of West Bay.
Got it. Okay. 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?
Wes, as you know, each quarter we mark- to- market that valuation reserve, excuse me, or the preferred balance. 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. Given the size of that portfolio and the size of our preferred, it's really sensitive to input. It's a long way of saying I can't recall what drove it this quarter, but it's usually 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. Looking at the 17 anchors of the 60 that you're still working on, are you actively marketing all that space? Since the Investor Day, have you gotten any more anchors back?
Those are good questions. 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.
In terms of have we gotten anchors back, absolutely, Wes. 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. We're excited about their tailwind for the 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. It's a long way of saying absolutely yes, there are other anchors that have come back to us in the last 18 months since our Investor Day. That's kind of part of our normal course of business.
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're doing with the 60?
Yeah. They'd be part of our same-store pool and our comp pool for our spreads, right? You've seen our new lease spreads kind of hover in that low double-digit area, and so they'd be included in that pool, Wes.
No, not included, but the comparable level, like you're getting from the 60 because you highlighted the big populace.
Yeah, we have a certain number of boxes come back every single year.
Okay, thanks.
The next question comes from Hong Zhang with JP Morgan. Please go ahead.
Yeah. Hi, guys. Just a quick question from me. Just looking at your footnotes you give. Sorry. Same-store excluding lost rent related to lease terminations. Is that basically like a same-store excluding bankruptcy number?
Hong, the reference there is starting in the third quarter of 2019, we provided same-store NOI with and without the impact of lost rent from termination fees. Starting in 2020, to be comparable to our peer group, we are excluding any impact from termination fees, whether that's lost rent or the term fee itself. 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, whether it's the lost rent or the term fee itself going forward. If you look in 2019, the impact of the lost rent from term fees was fairly immaterial. I think it was about 15 basis points. Again, just to improve our comparability to the peer group, we exclude all lease term impact for 2020 and onwards.
Yeah, cool. Thank you.
You're welcome.
The next question will be from Floris van Dijkum with Compass Point. Please go ahead.
Great. Thanks, guys, for taking my question. Just a question on the 150 basis points of reserve that you have. What's the breakdown between lost rents as well as CAM reconciliations? How does that compare to historic levels?
Yeah, Floris, we haven't provided that level of detail. What I would just say is we focus on lost revenue. Whether that's base rent, whether that's percentage rent, overage rent, or CAM, it's all the same to us. It's lost revenue. The other piece that David and I both mentioned is there's a bad debt component, right? Our 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. Again, we're not going to provide that level of detail. What I would just tell you is we focus on lost 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 are your occupancy goals for 2020? It seems like the lease to occupied narrowed this quarter versus third quarter. Would you expect this trend to continue?
Linda, it's David. We were 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. On the renewal spreads, understanding there were a couple one-time items, and you're more focused on leasing up right now, what level would you expect to generate for renewals 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 one-time events this quarter that tended to soften it a bit. Linda, if you remember from our Investor Day, we talked about a blended spread of 7.5% and a range of 5%-10%. We're kind of consistent with that range on a trailing 12-month basis.
Thanks for that. Just one final one. Sorry if this is an obvious question, for your separate bad debt assumption, does that include spaces where you don't expect the tenant to renew and it might be hard to fill that space right away?
Bad debt is really just about revenue recognition, right? That's tenants that are in place today that either, to Floris's point, don't pay CAM or don't pay base rent. It's really a function of existing tenants. You'll see it 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.
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, 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. 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. Absolutely, you could have some folks open mid-year. The majority will be kind of a back half or fourth quarter waiting.
Any senses to the number of anchors that will open this year?
No. If we have a lease signed, typically you'd open up in the same year. There's always folks that have larger build-outs, more complicated build-outs, or permitting issues that could push it to 2021. The other thing I'd say is we're providing the anchors by count. Within that count, there's a wide range of rents, right? You could have anchors that pay a much higher rent in a higher income area that could be more material than one that pays lower income or lower rent, excuse me. 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. 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. The investment thesis behind the two assets, again, you described here, is it mostly below-market rent related, or is it re-merchandising opportunity? What's sort of the driver there?
For these two in particular, the opportunity is renewal spreads.
Okay. Last question from 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 is significantly de-risked, the balance sheet's in much better shape, et cetera?
Well, I agree the balance sheet's in better shape, and I think the company's been de-risked. I do think we do have some complexity still. 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. I think we'll see what happens over the course of the next couple of quarters. We feel pretty good about the business plan.
Okay. Thank you. That's all I had.
Thanks, Chris.
The 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 same-store NOI growth. When I look at your FFO, 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. If any color around that would be helpful.
Sure. Let me just walk through some of the big moving pieces for 2020 versus 2019, and I think that provides some color on the kind of future growth rate of the company. As I mentioned to, I think it was Christy, JV fees, RVI fees, and interest income are about $0.13 of headwinds. On top of that, we've got a higher G&A and a higher share count, which are roughly $0.02-$0.03 as well, and then lower other income and term fees year-over-year is another, call it $0.02. That takes you from $1.27 to call it $1.09, round numbers. From there, we have NOI growth.
What you're seeing in 2020, 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. 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% FFO growth that we outlined. As you see us reinvest that capital over the course of 2020, I think you'll start to see a lot more visibility on 2021 and future growth.
It's fair to assume that 2020 is the bottom, and then that you'll 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. All right. 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 the conference.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.