Good morning, and welcome to the SITE Centers Reports First Quarter 2019 Operating Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Brandon Day.
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, Matthew 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 yesterday and in the documents that we file with the SEC, including our most recent reports on Form 10 ks and 10 Q. In addition, we will be discussing non GAAP financial measures on today's call, including FFO, operating FFO, same store net operating income.
Reconciliation of these non GAAP financial measures to the most directly GAAP measures can be found in yesterday's press release. This release and our quarterly financial supplement are available on our website at atwww.sitecenters.com. For all of you on the phone who would like to follow along viewing today's presentation, please visit the Events section of our Investor Relations page and sign in to the earnings call webcast. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning. I'm thrilled with our Q1 results, which were measurably above our expectations due largely to better than expected operations, resulting in an increase in our guidance. Most importantly, same store NOI growth, which is the key driver of our 5 year growth plan we articulated at our October Investor Day, was 2% in 1Q versus our plan for a relatively flat start to the year. Additionally, our leasing team continues to make progress leasing our 60 anchor opportunities, half of which have now been leased, which will be a key driver of future growth. I haven't felt better about operating prospects since I joined SITE Centers 2 years ago and I'm equally enthusiastic about delivering on our plan to invest opportunistically.
Our 5 year program calls for $75,000,000 of annual investments funded via capital recycling. During our last conference call, I indicated that we had already achieved our 2019 spending goals through the acquisition of free assets from our joint ventures and and will bring occupancy up from 75% to 88% and will increase ABR by over 22% at the 3 properties in just a few months. Our ongoing opportunistic focus also resulted in 2 new transactions
in the
Q1. First, we signed a management agreement with Credit Suisse providing them advisory and operational services for 83 assets to Shopko on which they had recently foreclosed. Importantly, the agreement came with rights of first refusal for 10 assets in the portfolio and allowed us to leverage our existing operating platform to generate nearly 100% margin on any fees we received. Credit Suisse's needs were ultimately short lived, but we nonetheless earned $1,000,000 in the process, which was a contributor to our strong quarterly results. This transaction isn't large relative to our enterprise value, but it represents part of SITE Centers future, leveraging relationships and our operating platform to source opportunities, create value and generate profits.
We will continue to seek involvement in situations like this that are a bit contrarian, complex or involve distress where we can source mispriced assets and make money for our stakeholders. The second advancement of our opportunistic investment program during the quarter came from the sale of our Vista Village asset near San Diego for an approximate 6% cap rate. This transaction is a case study in how we think about capital deployment. At a high level, Vista Village is attractive, especially in the public markets, given its strong demographics, high ABR per square foot, coastal location and grocery anchor. But our prioritization on returns and IRR means that this property's slow growth profile and attractive After 2 years of robust asset sales, the cap rates on our remaining portfolio are not surprisingly lower, which increases our ability to grow earnings through capital recycling.
We expect to redeploy the proceeds from Vista Village and are now encouraged by a growing pipeline of acquisitions We are highly focused on sustainable earnings and given our high cost of capital, I feel confident we'll able to find something exciting in 2019 to acquire. Lastly, we're also making progress on our redevelopment plans, the 3rd component of our 5 year growth strategy. Work continues on 3 active projects following the completion of West Bay Plaza this quarter, which came in 8% under budget and a quarter early. And we are advancing the entitlement
And
with that, I'll hand the call over to Mike to discuss. And with that, I'll hand the call over to Mike to discuss our operating results.
Thank you, David. I'm very pleased with our reported 2% same store NOI growth in the quarter, which was ahead of plan due to several earlier than expected rent commencements, higher than expected overage rent and lower bad debt. The Q1 saw more of the robust leasing activity that we've seen over the last 24 months with high volumes despite our now more focused portfolio. We have now signed half of the 60 anchor leases identified at Investor Day with another 15 in advanced stages. This compares to 15 executed leases in October when we first announced this goal and 23 at the end of the 4th quarter.
These 45 deals represent a blended 37% leasing spread with 33 different brands. Noteworthy deals this quarter include Burlington at Nassau Park Pavilion, which completes the backfill of the former Kohl's box, 5 Below at Terrell Plaza in San Antonio and 24 Hour Fitness at Flat Acres Marketplace in Parker, Colorado. All of this leasing activity has generated an increase in our pro rata portfolio lease rate to 93% with a 360 basis point spread to our commence rate of 89.4 percent, which is almost 150 basis points higher than our average spread in 2018. Leasing spreads for the quarter were solid with new leases up 23% and blended spreads of 10.7%. Importantly, these metrics are at or above trailing 12 month trends, which we believe is the best way to look at our operating metrics given our now smaller portfolio and consequently more volatile quarterly metrics.
Net effective rents, an indicator of the overall economics of the leases we're signing, were also in line with our trailing 12 month numbers as we continue to lease space at compelling economics. We remain confident in our ability to continue driving shop leasing and to achieve the 94 percent shop goal we articulated as part of our 5 year plan. To that end, our shop lease rate rose this quarter to 89.4 percent after a dip in Q4 that was largely attributable to transaction activity. The final liquidation of Payless and Gymboree in the second quarter along with additional tenant bankruptcies remain risks to shop occupancy, but our lease volumes remain elevated and encouraged by our team's momentum. Overall, tenant demand remains high across our portfolio given the superior quality of our assets in the top quartile of the country's retail landscape and we continue to expect anchor rent commencements in the back of the year to be significant driver of growth in 2019 2020.
With that, I'll hand the call over to Matt.
Thanks Mike. I'll first comment on our balance sheet, then I'll touch on some earnings matters including how the new lease accounting standard has affected our financial statements and I'll close with some comments on guidance. First, on the balance sheet, our position remains strong with an incremental decline in pro rata debt to EBITDA in the quarter to 5.5 times driven by our strong operations and the recent closing of the Vista Delish asset sale. We are happy with current leverage and pleased to put the dilutive asset sales process behind us in order to focus on driving FFO and NAV per share growth. Beyond improved leverage, our maturities are also in great shape with a weighted average consolidated term of 6 years.
As David mentioned, we expect to deploy capital during the year, but the impact of this spending will be mitigated over time by 3 factors. First, ongoing ramp in our EBITDA primarily from the growth in same store NOI. 2nd, the ongoing repayment of our $170,000,000 Blackstone preferred as that JV continues to liquidate. We received $12,000,000 of repayments of this preferred in the Q1 of 20 19 and payments of $75,000,000 throughout all of 2018. And finally, over a longer time period, we expect to receive $234,000,000 of total capital through the liquidation of RVI and the related repayment of our receivable and preferred investment in that company.
All this means we continue to see 6 times debt to EBITDA as a long term leverage maximum rather than
a goal to work towards.
I'd like to now comment on several accounting and earnings matters. First, our financial statements reflect the adoption of the new lease accounting standard otherwise known as ASC 842. While our bottom line will not change much, there is some impact from the standard to our income statements presentation. First among these is a change in the presentation of bad debt, which is now included as a deduction to rental income rather than as an operating expense previously. The current quarter, this means a reduction of revenues of $441,000 We are unable to restate prior periods, so year over year comparison of GAAP revenue and expense line items will be made more challenging.
While we are constrained in how we present the GAAP income statement, we have provided footnotes in our supplement highlighting and reconciling these changes. We also have additional details on Page 9 of our earnings slide presentation. A second change to the income statement is how we account for real estate taxes paid directly by our tenants to local taxing authorities. This expense had previously appeared as both an operating expense as well as recovery income at a 100% rate. The new standard mandates omission of this expense and recovery from our own financials, which means a reduction of both revenue and expenses by the same amount and a subsequent reduction in our reported recovery rate by approximately 1 in the Q1.
The bad debt and property tax expense presentation changes have no impact on GAAP net income, EBITDA, FFO, OFFO or net operating income. I'd like to now highlight several additional earnings considerations that will affect the progression of OFFO in 2019. First, we recognized approximately $10,000,000 of fees from RVI during the quarter. Roughly $7,000,000 of this consisted of recurring asset and property management fees, which we include in both NAREIT FFO and operating FFO. We also recognized $1,100,000 of disposition fees and a $1,800,000 fee from the recently completed refinancing of the $900,000,000 RVI mortgage.
Both of these amounts or roughly $2,900,000 were included in NAREIT FFO, but excluded from OFFO. 2nd, you will notice we recognized $2,600,000 in lease termination fees in the Q1. We had budgeted these fees and will obviously lose the income from the tenants from 2Q onwards, but we are excited to re lease the spaces with more dynamic tenants at a positive mark to market. 3rd, as you update your earnings models, please keep in mind that our Q1 included roughly $250,000 of revenue from Gymboree and Payless stores that have since closed and are no longer paying rent. Finally, I'd like to remind you that percentage rent is seasonal in our business with larger contribution in the 1st 4th quarters.
All of these items, the lease termination fees, bankruptcy liquidations and seasonality of percentage rent should contribute to a deceleration of OFFO from the first to the Q2 of 2019. Turning to our guidance update, we have increased our OFFO expectations by a penny at the midpoint and increased our expected same store NOI growth by 25 basis points at the bottom end of the range. This is a product of our better than expected Q1 operating results tempered by ongoing caution about potential tenant bankruptcies throughout the remainder of the year. As we have previously noted, the $1,000,000 decline in 2019 RVI fee income forecast resulting from year to date disposition has been offset by a $1,000,000 decline in our 2019 G and A forecast as well. We expect any additional reductions in the RVI fee forecast to be offset by G and A reductions throughout the remainder of 2019.
Please recall from our previous commentary that we expect G and A to decline by a lower amount than fees in 2020. Finally, we have increased our expectations for 2019 JV fees by $1,000,000 to reflect better performance. The increase in reported fees from the Q4 was related to the Credit Suisse deal that David outlined as well as a full quarter of the China Dividend joint venture. We expect JV fees to decline over the course of the year as the Blackstone joint venture sells down its remaining 19 properties. To summarize, we expect a decline in OFFO from the 1st to the 2nd quarter.
We also expect store closings to cause a deceleration in same store net operating income in the 2nd and third quarters. That said, we are encouraged by our leasing momentum to date and continue to expect an acceleration in 4th quarter same store NOI growth fueled by anchor rent With that, I will hand the call back to David for some closing comments.
Thank you, Matt. In conclusion, the last 6 months provide increasing evidence of this organization's ability to pivot to growth. We are now demonstrably ahead of schedule in executing on the operational opportunistic investing and redevelopment goals that underlie our plan to produce average OFFO and NAV growth over the next 5 years. Operator, we're now willing and ready to take questions.
Thank The first question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.
Hey, good morning. So just the first question, Matt, I just want to make sure I heard correctly and just get your take. The Gymboree and Payless, the impact in the Q1 that will not reoccur, I think you guys said it was 250,000. Is there anything additional like as far as all the headline announcements we've seen for bankruptcies, etcetera, is there anything additional that's coming out of your numbers for this year in addition to that? I think you guys said 250?
In terms of headlines, there's nothing that we're aware of yet. The 250 is correct. That's what I mentioned in my prepared remarks for Gymboree and Payless, so that number is correct. Keep in mind that we did have the lease term fees, so you know we're losing some revenue associated with those that that we do think will actually occur throughout the remainder of the year, but nothing has yet been announced.
Okay. And what was the NOI associated with those lease terms?
About $300,000 annually.
Okay. And then the second question is, going on your first earnings sorry, the Q4 call, you guys mentioned one of the risks to this year was just getting the local approvals and all the things necessary to get those anchor leases opened for later in the year. Just want to see how you guys are trending on this. You guys leased now 29 up from 23 before. But as far as your ability to get these stores open later in the year, is that still an open end risk or you guys feel more comfortable that you'll everything will be in place that you'll have I don't know what number you're anticipating having, but having a certain amount and maybe you can articulate that open for this year?
Good morning, Alex. It's David. I think it is an open risk still, but we're also fairly confident that we're proceeding according to usually means permitting and entitlements becomes more difficult. But our construction group has been working pretty diligently as we've been and it's still an open item, but we're feeling fairly positive.
Okay. Thank you.
Our next question comes from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning guys. I appreciate the color on maybe some of the deceleration from 1Q to 2Q. Maybe you
could give us just a little bit
of color about how much lease termination income benefited same store NOI in 1Q just to give us maybe a sense as to what we could expect in 2Q once those are seasonally off the table?
There is no that doesn't really hit our same store NOI, Rich, the way you're describing it.
Okay. Well, let me ask you maybe a different way then. Given that same store NOI is expected to decelerate, you obviously put up 2% in the Q1. You raised the low end of guidance, which I appreciate. You guys seem pretty bullish.
Why not raise guidance even more than you did?
Hey, Rich, it's David. I think it's because we're only at the end of the Q1 and there's a lot of runway left. There's still some headlines over tenants potentially closing stores. So we're bullish on all of the good news, but we're also fairly cognizant of the fact that there's some bad news out there. So we're remaining cautiously optimistic.
Got it. And then, look, I think in prior earnings call, there has been some focus on CapEx spend, and it looks like CapEx spend was actually came down somewhat meaningfully this quarter despite even as leasing spreads improved pretty significantly. How are you thinking about that? Are you seeing tenants demand less CapEx spend? I mean, you're obviously pretty active.
So any color around new leases relative to CapEx spend would be helpful.
Sure. That is an excellent question. I think that goes to the heart of how we're allocating capital right now. Our highest return on capital is leasing CapEx. We have great real estate.
We've got great vacancies that we have to work with. The inventory is strong, but it's expensive. So if you're seeing a quarter to quarter bump around, I wouldn't read too much into that because the company is so much smaller now, it's hard to read quarter to quarter. I think you should expect that our leasing CapEx will remain elevated as long as we have high quality vacancies left. Matt, I don't have anything to add.
No, yes. I mean, I think you will see volatility if the bankruptcy picture gets a lot better and we see a lot fewer bankruptcies over the course of 12 to 24 month period, then our CapEx will come down, simple as that.
Got it. Okay. Thanks guys. I appreciate it.
Our next question comes from Christy McElroy with Citi. Please go ahead.
Hi. Good morning everyone. Just with 2018 having been a relatively good year in terms of leasing volume, new demand for space has held up well, rent spreads have held up well. Just as we've progressed into 2019, the overall retail environment has shifted a bit, retail sales momentum has slowed. There's been more pressure on retailer margins.
David, you just commented that you continue to remain cautious given what's out there. Have you seen any impact at all in your leasing discussions from the shift in the environment? Any early changes in tone with regard to retailers committing to new
space? I'll ask Mike to comment in a second, but I don't think we've seen any noteworthy change in tenant conversations. Seen any noteworthy change in tenant conversations. We're dealing with a much smaller amount of inventory right now in pretty high income trade areas. And those are always desirable from tenants.
We have ICSC coming up in a couple of weeks. So we'll probably get a little bit more information just because there's a lot of dialogue over a couple of day period. But I think the only thing that you could really point to is when the occupancy and the robust nature of leasing goes on for long period of time, which it has, I think a landlord needs to be very careful about mark to market. And to the point circling back to our Vista Village disposition this quarter, sometimes you end up with a property that has a very high occupancy, but it's also got a mark to market that we don't feel confident about. And so to me that's a more important issue than changes in the demand from the tenants.
Mike? Right.
The only thing I would add to what David just said is the fact that in general, the tenants that are expanding aggressively right now, the tone and the overall conversation we're having with them hasn't really changed over the last several years. They're very eager to get stores open because that's what's driving their business. And the overall conversations we're having candidly haven't changed that much over the
last several years. And just to circle back a little bit, just to remind you in the prepared remarks, Christy, we talked about 33 brands for 45 spaces, right. So, the demand remains at least on the margin, our incremental activity continues to show diversity of demand in a high level.
Okay, thanks. And then just following up on the Credit Suisse Shopko deal, David you mentioned in your opening remarks potentially seeking out other distressed opportunities like this. How are you sourcing these types of deals? And is this more sort of one off opportunistic or could this become a more sizable platform for you?
Yes, I don't envision this type of transaction being programmatic. I think it really is opportunistic. We've done an awful lot of financing with Credit Suisse. Connor had a great relationship with the folks there. And I think we were able to move very quickly to help them out of out of assets and get rovers on 10 properties that we thought might be acquisition opportunities.
They turned out not to be, but I think from a conceptual I look under the hood, we can really start to look at some assets and our leasing folks, Look under the hood, we can really start to look at some assets and our leasing folks can decide whether there is an opportunity to buy some properties. So it didn't work out with us buying properties, but we basically got paid along the way pretty well to do the homework.
Okay, great. Thank you all.
Our next question comes from Jeff Donnelly with Wells Fargo. Please go ahead.
Good morning, guys. Matt, thanks for providing the bridge from your Q1 FFO to your annual guidance. I think all the items that you delineated account for about $0.03 a share of deceleration in your quarterly numbers. And I'm just curious what would and which would still put you towards the top end of your annual guidance? I guess what would need to come to pass to push you towards the low end?
Well, you're just simply taking some things out of the first quarter, which I understand the math of what you're doing. But keep in mind, we are talking about a further deceleration, right, in particularly in the fee side of the equation, right, as Black continues to liquidate. So and again, we have a range, right, and so we're just building in a variety of scenarios, some more positive at the top end and some more negative at the bottom. A lot of this would have to do with what happens with bankruptcies.
And maybe one other question is, how is your outlook for bad debt or credit loss in your updated guidance compared to what your assumption was in your initial guidance? Has that changed at
all? No, not really.
And maybe one last one for you guys is, how is the tenant appetite for CapEx expenditures evolved? Are you seeing a stronger preference from retailers to use landlord funds for their stores or is it seem pretty constant over time?
It's funny to say it's constant over time. There are 2 notable changes maybe over the last 5 years. One is that construction costs in certain markets have accelerated, labor in particular and some raw materials. And so that has had some impact. But remember when a tenant opens their prototype, they have a work letter and the work letter has a description of exactly what finishes and materials and fit out they have.
So, it's difficult for a tenant to start requesting a significantly more amount of capital when we have the work letter and we know exactly what the store is going to be built. So it really has to do with labor and materials. But that's not I wouldn't say that's a number that's going to surprise anybody. The real CapEx cost is when you to reconfigure the size of the space. And so when we do box splits or we do any other reconfiguration, that's usually when the costs come in higher.
What's offsetting that is that the rents are higher. So I think you see elevated CapEx for box office, but you're also seeing a much larger leasing spread. So I think the return profile is very similar.
Thanks, David.
Our next question comes from Collin Mings with Raymond James. Please go ahead.
Hey, good morning. Just as it relates
to your comments on redeploying the proceeds from Vista Village, can you maybe just expand upon the comments about the growing pipeline of acquisition opportunities you're seeing? And then just along those lines, discuss the type of opportunities you're most focused on right now, just given your emphasis on growth?
Sure. Well, it's certainly part of the business we're most excited about. I mean, we're in a great position balance sheet wise. We've had plenty of time to be out there trying to source deals. And I guess if I could put it succinctly, I would say that our acquisition strategy, we've defined as opportunistic, but I think that's simply because we think there are assets in the retail world that are mispriced.
And we very much are looking for mispriced opportunities because we can generate higher risk adjusted returns. It doesn't mean that we're not focused. Our focus and our discipline is starting with 2 different attributes. One is that we believe that strong communities are an important feature and they have to be the 1st filter in an acquisition strategy. The second is that the property within that strong community has to be convenient.
Convenience is a big part of our leasing culture, understanding which tenants drive their sales from convenience. And if we use those 2 components as the departure then from then on, it's really a matter of measuring risk adjusted returns. As excited as we are, we're not in a great hurry to increase AUM for the sake of growth. But we are very aggressive right now in seeking growth assets where we can use this operating platform to grow FFO.
Okay. And then maybe just along those lines with the rights you have as part of the Credit Suisse agreement, which again seemingly that would lead to potential opportunistic deals. Was there maybe a recurring theme on one of why none of those deals made sense to you?
Yes. The primary component was that the entire portfolio was sold.
Okay. Fair enough.
Yes. Look, I think that we're agnostic to the format. Could be big box, it could be multiple box, could be unanchored, could be community anchored, could be grocery anchored. I think we're really looking for assets where we can buy growth and use our operating platform and that gives us a lot of flexibility because I don't think we're backed into a corner other than strong communities, convenience to customers and a great risk adjusted return. Okay.
Appreciate the color. Thank you.
Our next question comes from Samir Khanal with Evercore ISI. Please go ahead.
Good morning. David, you guys did the venture with the Chinese institutional partner. I guess what's the appetite at this time to do more for these types of JVs with the same or potential partners now that sort of time has passed and since you did the JV and perhaps there's been some stability it sounds like in pricing for these larger open air centers or power centers if you call them?
Well, I think I'm assuming when you say what's the appetite, you mean from our side or from a partner or capital partner side?
I guess both sides.
I mean from our side, we really look at the joint venture business as having to have a purpose. One purpose is to allow us to buy things that we maybe couldn't buy without a partner. And the second is to be able to recycle stable slow growing assets, recycle that capital and use our platform number of with a number of relationships and have talked about the deal that we got done in December. And we would hope to be able to continue to source great future partners that have long term sources of capital and are looking for consistent dividend returns.
Okay. And I guess my second question is around your leasing spreads. I mean despite all the closures that we've had, it's been pretty impressive when you look at the numbers where the renewals have kind of fairly stayed constant over the last several quarters at this kind of high single digit range. Do you think that will continue to be the case as you kind of get more headwinds as you've talked about potentially from other closures here?
Hey, Samir. This is Mike. To answer that, I think we do expect it to continue. As I mentioned in my prepared comments, we're seeing an anticipated 37% cumulative leasing spread for the overall group of anchor tenants that we're backfilling based on both the ones we've executed as well as the ones that are in progress. And one of the things that we're seeing here as was also mentioned, among that group of 45 deals, there's 33 basically becomes a bidding war on the tenant side.
And we've had many conversations debating which tenant to go with and we end up basically wearing them out and
they end up getting in a little bit
of a trade war to go after space and it results in great rent. And so we've seen a lot of that and so therefore we do anticipate it to continue.
The only thing I would add from a number side, Samir, is that just remember the portfolio is quite a bit smaller now. So you are going to these numbers are going to get more volatile. We're going to keep focusing people on the trailing 12 month number because I know one of the next 2 or 3 quarters you're going to see a low leasing spread and the a little bit of the volatility in the numbers.
Okay. Thank you.
Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead.
The commence rate declined by more than
suggested from the toys impact. And could
you talk about what else impacted that?
I don't know. I don't know the answer to that.
I don't think outside of seasonality, I don't think there's anything material. It didn't surprise us,
I guess I'll put it that way.
Okay. And then what annual escalators are you guys able to work into new and renewed leases?
It really depends on the lease. I mean, I would say that the majority of anchor leases are still consistent with 3%, 4%, but it's somewhere in that range. It really depends on the lease.
And I guess lastly and just quickly, how competitive has the bidding process been for the recent acquisitions, especially for the highest quality assets that you guys are probably looking at?
That's a really good question. I think the assets we've been looking at generally don't have a significant amount of competition since we've been looking at opportunistic purchases that are a little bit more value add oriented. But again, we haven't closed any deals in the last quarter. So it's hard to make a comment on that. I still think that there is a pretty strong demand for Tier 1 cities and coastal assets.
And the debt markets right now are wide open. And so I think you are still seeing a fair amount of demand for most asset types.
Yes. I just want to we're not going trophy asset hunting, right? This is not the traditional let's just improve the portfolio quality through the recycling process and kind of the top down way whether it's demographics or ABRs that people tend to look at. We are David's point about opportunism is about balancing risk and reward, but more importantly driving for growth and returns, right? We have a high cost of capital buying a coastal grocery anchored center at a 4 cap is really not what we see as the right use of our capital at this point.
So, we do we think quality can be much more broadly defined than maybe the traditional definitions, but we are not this is not just a trophy acquisitions program.
Makes sense. Thank you.
Our next question comes from Vince Tibone with Green Street Advisors. Please go ahead.
Hey, good morning.
You identified the 60 anchor leasing opportunities in October and have made a lot of progress against that goal. What I'm trying to get a sense of is how many additional bankruptcies have taken place, let's say, over the last 6 months since that October? Like what is the normal amount of tenant churn that we should expect outside of major bankruptcy activity?
Major tenant churn? You're asking how much we add
to the 60 since we announced that? Is that basically your question?
Exactly, yes.
Very little is the answer. There may be 1 or 2. Certainly from a bankruptcy perspective, if you kind of think about what's happened since the Investor Day, there's been very little anchor bankruptcy activity. We obviously have a couple of names on our radar. I'm sure you have them on your radar too.
So that could change going forward. Again, when you think about our 5 year same store NOI growth of 2.5 percent 2.75 percent rather, we built 150 basis point credit loss reserve into that number precisely because we believe we will be adding to the 60 basis points. Our forecast incorporate that possibility. Our numbers this year, our forecast this year assume there will be some of that. But as of right now, nothing has actually happened.
Got it. That's helpful. My next question is on leasing activity. It looks just over the last few quarters, only roughly 30% of new leases were comparable. I was just trying to get a little more color there to understand kind of what's the most common reason these leases aren't comparable?
And if there's any way we can think about the economics behind these leases, whether it's CapEx or spreads or just how we can better think about this pretty big pool of leases?
I'll hand that over to Todd over to Yes. So Vince, so the comparable pool is everything 12 months or less from the tenant move out. So as David and Mike have mentioned a couple of times, we've had a renewed focus on some spaces that have been vacant for longer than 12 months. It also excludes the redevelopment assets. If we were to include those, the spread would be significantly higher.
Got it. Okay. So overall, those actually might have better spreads all in all than even the comparable leases?
Yes. So as Mike mentioned, the 37% comp on the 45 deals, that includes some of the redevelopment assets, which would not be included in that comparable pool.
Our goal has been to just be consistent in our presentation here. Obviously, the numbers could look higher if we broaden that pool.
Got it. Thank you. That's all I have.
Thanks.
Our next question comes from Michael Mueller with JPMorgan. Please go ahead.
Yes. Hi. Just in terms of thinking about fee income coming in, can you talk a little bit about Puerto Rico and just kind of how the for sale market has evolved over the course of the past year or so there?
I thought we would make it through the call without a Puerto Rico question. Sorry. That's okay. No, I think the only thing I have to add, as you know, we have a kind of predetermined policy to not comment on RVI transactions only because we're always out in the market and we're usually negotiating with multiple parties at the same time. So we handle the communication from the RVI sales, including Puerto Rico through press releases once a transaction takes place.
From an operations perspective, we've spent a good amount of time in Puerto Rico. And I feel like we're making progress, but I don't really have much to add on the transaction side.
Got it. Okay. And then maybe sticking with transactions, the 6% cap rate on the asset that you sold this quarter. I mean, how would you think of that in terms of being comparable to the remaining, I guess, portfolio quality of sight? I mean, would you say that's an atypical cap rate on the low side, that's why you flagged it?
Or was it being flagged because you think a little bit more I guess relevant for what you own today?
I think that I've been pretty clear that we went through the trouble and drama of creating a much smaller company through spinning off RBI. So you could assume that we're happy with the durability and the growth profile of the assets we have left. From a cap rate perspective, I just don't feel confident describing cap rates across an entire portfolio since we just have such a wide collection of assets. This one happened to be a property that we thought was at the peak of its NOI story and there was a buyer that very much wanted to own the asset, a local buyer. And so when that happens, usually you're able to strike a pretty good deal.
So we're happy with recycling that cash flow into some other asset in the future.
Okay. Okay. Thank you.
Our next question comes from Chris Lucas with Capital One. Please go ahead.
Hey, good morning, guys. I guess just a little bit on the anchor side. David, could you maybe provide some additional color on where negotiations might be for some of the boxes that remain in terms of what sort of activity you're seeing and what expectations might be for finalizing leases before the end of the year on the sort of the remaining bucket?
Sure. Let me Mike can follow-up that. Yes. In general, as mentioned, we're at 15 additional leases in advanced stages and great economics, and we're feeling very confident about that and we've got quite a bit of initial conversations on the balance.
If I could add a little bit
of color, the reality is that the reason you're sensing enthusiasm from this management team is that the demand side of the equation is very healthy. A lot of brands are looking for space in the markets where we have vacancy, we have opportunities. And the supply and demand is tilted in the favor of the landlord. There's no angst around budgets for the next couple of years really have to do with bankruptcies. So the front door is active.
It's the back door that I think we're all concerned about. And that's why you're probably feeling that some conservatism is really based on the bankruptcy profile, not on the demand side.
Okay, great. Thank you. And then, I guess on the expectations for boxes that should see commencement later this year, are there any, what I would call unique circumstances, whether it's a box split or change of use or something like that that might delay or is it mostly straightforward kind of simple backfilling?
I would say it's generally very straightforward. There are some box splits, but we're on task and I think we're in good shape.
Okay, great. And then I guess just on the last question for me, just on the Vista Village disposition. Was there any changes to sort of the interested buyer pool for that? You mentioned there was a local buyer that wanted it, but was it fully marketed? How did that transaction go down?
Are you seeing sort of different capital pools available today than say maybe a year or 2 ago?
It was a fully marketed deal. We decided to sell that property when we really achieved an occupancy level that we were happy with and felt like the rent profile didn't have the growth of the remainder of our portfolio. So it was marketed and I don't think the buyer tool was any different than you would have seen over the last couple of years. I mean, the deal size was kind of mid range. So we had a lot of people looking at the property and I think we had a pretty healthy bidder pool.
Great. Thank you.
Our next question comes from Wes Golladay with RBC. Please go ahead.
Yes. Good morning, guys. With the accelerated anchor leasing, how should we think about CapEx maybe moderating in the out years looking at 2020, 2021? And then maybe can you comment on the CapEx intensity of the anticipated bankruptcies?
Sorry, Wes, I missed your question.
Well, I still think that leasing CapEx is very much tied to occupancy gains. So as long as we're leasing anchors, you're going to see our CapEx remain elevated. And so I think if you're looking at your models and you're thinking however long it takes us to lease these 60 boxes, that's probably the duration of the elevated CapEx unless there's more bankruptcies that grows that pot of existing anchor vacancies.
Okay. So maybe, I mean, you're halfway there now assuming a similar pace. I guess the timing from signing the lease to actually deploying the capital with maybe 2021 look like potentially a peak assuming a normal anchor environment?
Yes. I mean to be honest with you, we don't really run the numbers the way you're talking about them, right? We don't really run a scenario, we say, okay, bankruptcies are done. We 60 over the course of this year. That's why we have a bottom and top end of the range.
So, definitely, if bankruptcy stops today, you would see CapEx continue through 2020 to a very large extent. And then I think you're right, conceptually,
And then maybe can you comment on how you guys look at the dispositions versus acquisitions? Is it mainly an IRR or is it NPV? I mean, what's the main framework there and how different is it, what you're looking at buying versus what you sold in the quarter?
Well, there's no question we're focused on the present value of the future cash flows, which is really also an IRR analysis. But because we have an concerned with the cash flow from the property over time. And if we think a property has a low cash flow due to slow growth and high CapEx, then it's a better candidate for recycling into something that we think has higher growth. We're very, very much returns driven right now in our allocation of capital and
in our dispositions program. When you have 68 assets, it's really easy for us to kind of run an IRR assuming outgoing what are cap rates today for these assets, we can run an IRR on all these assets. And then with 68, we have a pretty granular sense of what the risk of all those assets is. So the constant conversation internally is what is the reward for this asset and what are the granular risks. And we kind of pick the least attractive trade off there and recycle that money.
Okay. All right. Thanks a lot.
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 very much for your time and we'll speak with you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.