Q3 2019 Earnings Call
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Following the company's prepared comments the called will be opened up for questions.
Please note that certain matters discussed in this call today constitute forward looking statements within the meaning of federal Securities laws.
Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions. The company can give no assurance that these expectations will be achieved.
Forward looking statements involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward looking statements in expectations.
Information regarding such risks and factors just described in the company's filings with Securities Exchange Commission, including its most recent annual report on Form 10-K .
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Now I'd like to introduce Stuart Tanz, the company's Chief Executive Officer.
Thank you and good morning, everyone.
Here with me today, it's Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief operating officer.
Before getting started I would like to briefly address the California wildfires well the situation is very serious Fortunately it is not impacted our portfolio were business nor do we expect it to at this time.
Let's say, we continue to monitor the situation closely.
Now turning to our third quarter results. The company posted another active in productive quarter led again by another very strong quarter on the property operations front.
We continue to maintain our portfolio at well over 97% leased and again achieved solid same center NOI growth along with very strong same space releasing spreads.
In fact, our team achieved 36% increase on new leases executed during the third quarter.
Given our strong performance year to date, we're on track to potentially have one of the best years on record for the company in terms of releasing spreads overall leasing activity.
Safe to say that demand across our portfolio continues to be strong and we continue to have good success and making the most of it.
Along with continuing to deliver strong property operating results. We also continued to execute our strategy of disposing certain non core properties, primarily focused on exiting the Sacramento market.
During the third quarter, we sold another property for 30 million, bringing our year to date totaled to 60.5 million.
We also have another property under contract to sell for about 13 million <unk> million, which we expect close by year end beyond that with respect to the final two remaining properties in Sacramento. We just listed one of the properties and with respect to Las Sacramento property, we were in the process releasing an anchor space at the center that once.
We have completed the leasing we will bring that probably the market as well.
We expect these last two Sacramento properties would together generate around 40 million in total so proceeds once completed.
Turning toward Densification initiatives, we're pleased to report that we're making good progress for a number fronts.
At our Crossroads shopping center, we are currently finalizing our development agreement agreement with the city of Bellevue on phase two.
The agreement will enable us to build 220 apartments, along with 14000 square feet of retail space, which is terrific from our perspective.
As the amount of apartments in retail spread space is greater than what we had originally thought the city would allow.
Additionally, we are finalizing the development agreement with the city. We're also close to finishing the detailed value Engineering review of our plan design, which we think could reduce our initial cost projections by approximately 15%.
Assuming everything continues to progress on the current trial, we should be in a position to move forward, we prepare and working drawings starting in the first quarter.
With respect to the two densification opportunities that we're currently pursuing at several of our shopping centers in San Francisco Bay area, both are progressing as well.
I didn't Nevado shopping center, we continue to have productive meetings with the city regarding potentially building 140 to 150 apartments, along with 14 to 16000 square feet of retail space.
We were in the process of preparing design drawings to be submitted to the city at our next scheduled meeting a few weeks from now.
On a per no shopping center, the long time city plant or that we had worked with for many years recently retired. So we are now in the process of engaging the new planner, who thankfully is also very supportive of our Densification plans abadi multifamily to our site potentially around 200 apartments.
Additionally, recently, a prominent international Hotel group approached us with the supported the city above ground lease in a portion of our Densification site. So we're now in the process of exploring the idea potentially incorporating the hotel along with multifamily is part of our Densification plant, which we will be discussing in greater detail with the city.
The next month.
Beyond these three Densification projects. We were also in the beginning stages of pursuing two additional densification opportunities both in the Pacific Northwest.
One of the Seattle market and one in Portland.
At our Seattle property, we started working with the local municipality together with an adjacent property on developing a comprehensive densification strategy for both properties.
The city is highly interested in having a coordinated plan that could potentially include 1000 apartments and total along with more retail space.
Additionally, at one of our shopping centers, the Portland market. We recently approach the local municipality, there about adding a multifamily component, which the city has embraced in fact, they are now in the process of developing a new downtown core Densification Master plan with our property is the focal point.
While these two densification opportunities or just in the early stages of discussion, we're very encouraged by the city Incivek support thus far.
Lastly in terms of acquisitions. We're pleased to report that we currently have three interesting off market opportunities that we are pursuing which together totaled around 85 million.
One of the properties located in the Pacific Northwest and the other two are located in southern California.
All three are grocery anchored shopping centers that are well situated an excellent locations and all three have considerable amount of opportunities for our team to increase cash flow and enhance value going forward.
Additionally, at one of the properties. The seller is interested in taking ROI CEO , that's potentially about 30 million or so thus far valuation discussions have been encouraging and we are currently the process of conducting our due diligence with the goal of having all three properties under contract soon.
Now I'll turn the call over to Mike to take you through our financial results. Mike. Thanks door for the three months ended September Thirtyth 2019. The company is 72.4 million in total revenues and 35 million operating income.
Terms of the first nine months the company had 221.4 might in total revenues and 89.2 million in operating income.
On a same center cash basis net operating income for the third quarter increased by 3% to 48.7 million an increased by 3.6% for the first nine months of 2019.
Turning to net income for the third quarter 2019.
Net income attributable to common shareholders 17.9 million equating to 16 cents per diluted share.
For the first nine months GAAP net income was 38.7 million or 34 cents per diluted share.
In terms of funds from operations for the third quarter 2019, FFO totaled 33.4 billion equating to 27 cents per diluted share, which brings our AFFO for the first nine months to 82 cents per share.
With respect to the company's balance sheet and capital raising activities during the third quarter utilize the proceeds from property so as Stuart mentioned to reduce that.
Additionally over the past couple of months, we read about 26 million of equity through our ATM program being careful to utilize the program lessors have modest trades as market conditions permitted and the pricing that will be within roughly 1% of the stock 52 week high.
The property sale, we utilize the ATM proceeds to further reduce debt as a result during the third quarter, we lowered our net debt to EBITDA ratio down to 7.0.
Looking ahead, we would like to issue some additional equity market conditions permitting between now and year end with the goal of lowering our debt further steps that are not that fever ratio was below seven as we head into 2020.
Taking into account the asset sale equity issuance and Paydown of debt at September Thirtyth. The company of the total market cap of approximately 3.7 billion with roughly 1.4 billion of debt outstanding According to a debt to total market cap ratio 38%.
With respect to the 1.4 billion of that 94% of those effectively fixed right. In fact, the only floating rate that we currently have as our credit line, which had a balance of $92 million at September thirtyth, representing just 6% over total debt outstanding.
Furthermore, we have no debt maturing for the next two years when our credit line comes up for renewal beyond that our maturities are well laddered.
Additionally, our interest coverage continues to be solved specifically it was 3.2 times for the third quarter.
Lastly in terms of AFFO guidance, and what are the asset sale equity issuance and debt pay downs and the fact that we've remained on the sidelines. Thus far this year in terms of new acquisitions, we've adjusted our AFFO guidance range Accordingly, now be $1.10 to $1.12 per share from full year 2019.
The low end of that range assumes we do issuing more equity between now and year end well the high end of the range assumes we do not and also assumes that the pending disposition that sort of mentioned doesnt close until the first quarter now I'll turn the call over to rich to discuss property operations rich. Thanks, Mike.
As Stuart highlighted we are on track to post another very strong year on the leasing from possibly one of the best years on record for the company.
Year to date, we have already leased 1 million square feet of space, which speaks to the success of our hands on proactive approach seeking out opportunities to release space well ahead of scheduled expirations.
Additionally, our strong leasing volume is especially noteworthy given that our portfolio has been a century full for over five years now as we can tune to maintain our portfolio lease rate at well over 97% Stuart touched on.
Including finishing the third quarter at a very strong 97.7% with our anchor space again at 100% leased and our shop space at 95% leased.
Well, the 97.7% is slightly below the record high 97.9% lease rate that we posted last quarter. The slight drop is simply a function of timing between leases in connection with our efforts to capitalize on the strong demand for space.
In today's leasing environment demand in many cases continues to outpace supply, particularly for highly sought after locations where retailers are submitting letters of intent any space that may come available.
As we continue to work creatively capturing this demand our portfolio lease rate is going to fluctuate modestly from one quarter to the next as we move tenants in and out.
Importantly, the demand is increasingly being driven by three emerging factor all within the inline space segment.
First we're seeing a growing number of traditional bricks and mortar retailer seeking to expand their market presence on the west coast with new format Rightsized store tailored specifically to the surrounding communities demographic profile.
Second more and more ecommerce retailers are starting to introduce new physical store concept to compliment their online activity as well as grow their overall business and strengthens our competitive position they too are seeking locations and well located grocery anchored shopping centers.
And third we continue to see increasing demand from traditional mall retailers branching out and seeking inline space at grocery anchored centers.
Needless to say these emerging factors, all bode well for our business, especially as it relates to our ability to continue to diversify our tenant base and enhance the retailer mix at our shopping center.
These demand trends and focus on inline space are clearly evident in our continued strong leasing results.
Specifically during the third quarter, we executed 96 leases in total of which 91 were for inline space.
In total we leased 376000 square feet of space, achieving a 35.7% cash increase on same space, new leases and an 8.7% increase on renewals.
Year to date through the first nine months, we executed 288 leases of which 275 were for inline space.
In total we have leased 1 million square feet year to date, achieving a blended 32% increase in same space, new leases and an 11% blended increase in terms of our renewal activity.
In summary, we continue to excel on the leasing front and are poised for a strong finish to 2019 now I'll turn the call back over to Stewart. Thanks Rich.
As some as you may know, we just celebrated our 10th anniversary as a shopping center right.
When we commenced operations a decade ago. Our objective was to carefully build a portfolio comprised of grocery anchored shopping centers that would serve as a strong foundation and provide the company with the balance of long term stable cash flow and good growth opportunities for years to calm.
Starting with zero properties back in October of 2009 over the years, we've built a portfolio that today stands at 88 shopping centers totaling over 10 million square feet with ROI see recognized as the largest grocery anchored shopping center REIT focused exclusively on the web.
It's coast.
We've built our portfolio not by chasing widely marketed deals, but instead by carefully seeking out off market opportunities focusing on unique shopping centers situated an irreplaceable locations with identifiable opportunities for our team to enhance value overtime, which is precisely what we have done.
Buyer consistently strong portfolio results.
For example for 31 consecutive quarters now dating back to 2012, when we began reporting property statistics, we have grown same center NOI each and every quarter. Additionally, we've increased same space releasing cash rents every single quarter as well and we have.
Maintain a portfolio lease rate at or above a very strong 97% for 21 consecutive quarters now.
Our consistently strong performance is indicative of our discipline focus strategy and unparalleled west coast market knowledge and experience.
Needless to say, we're proud of our accomplishments over the past 10 years, and we look forward to the future as we embark on our second decade of operation at ROI see.
Now, we'll open up the call for your questions.
Operator.
Thank you as a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby well, we compile the Q name roster.
Our first question comes from Collin Mings with Raymond James Your line is now open.
Good day, and calling everyone Hey, good morning start a couple questions for me just first just Mike going back to the guidance can you just elaborate on the changes just given prior guidance at already incorporated some disposition and ATM activity.
Well I was kind of a function of a couple of things the changing guidance is really being driven partly by.
Our asset sales or little bit slower than we originally thought.
We also issued equity a little bit earlier than we thought we would.
Those are the two primary drivers caused the change and that does include call another $30 million of equity if the markets there for us in the fourth quarter.
Got it okay helpful. There and I guess, maybe just along those lines Stuart just can you maybe just discussed the decision to to utilize the ATM here again modestly below kind of consensus and Avi estimates versus just bringing more assets to the market to reduce leverage.
We felt it was important to tap the equity markets.
Michael articulated.
Just off of our all our high for the year for two weeks high we felt it was important to.
Really continue to finish the dispositions that we laid out as well as to get some equity into the balance sheet to prepare us for 2020 as it relates to growing the company and growing our CFO .
Understood and maybe just last one for me and I'll turn it over Stuart just in context, that'd be 85 million of off market opportunities that you're pursuing that you highlighted prepared remarks, you maybe just expand on that a little bit more how did some of those opportunities come together how quickly could some of these deals get across the fish.
Schlein, especially just in context of again guidance for this year, only suggesting 25 million at the upper end on the acquisition front sure.
A number of.
What are the three deals are from very long term relationships in the markets that we've had for the last couple of decades.
In discussions with sellers, there finally warming up to actually selling us these off market deals.
And the third one is really coming through at relationship we've got up and Seattle, which is an o. Pete transaction on a property that we've had our eye on for many years.
That the seller now is that a point, where he is willing to look at transacting. So two in southern California, one of the Pacific Northwest, We do expect to probably subject to due diligence close these transactions towards the end of the year in the first part of next year.
All right I appreciate the color I'll turn it over thanks, Eric.
Thank you.
Thank you and our next question comes from Christy Mcelroy with Citi. Your line is now open.
Hey, good morning.
Hey, just to follow up on Collyns question on the acquisition for the 85 million you discuss sounds like it will be they'll close started towards the end of the year and into next year, but how are you thinking about the funding of though is aside from the LP units you discussed so you've mentioned additional equity issuance, but it sounds like that's your mark to morford.
At reduction.
And I guess, how are you thinking about the pricing of the LP units, because historically, you've you've been able to get a price that's a little bit higher than.
Where your stock trades.
And a two parter there.
Sure I'll have Mike addresses.
First part of the question, but in terms the open units.
The discussion right now is around a price of 1950 or a bit higher.
As far as the funding sources I mean, it's going to be a combination of proceeds from asset sales and equity issuance, assuming the market conditions permit.
We're very sensitive.
Keeping our leverage and Chuck and reducing our net debt EBITDA ratio, which has been a focus of ours for a while now so keeping all that in mind, it's going be a combination vessel sales and equity issuance the via Jim likely.
Okay great.
And then rich just a follow up on your comment to that occupancy.
Lease Commencements you had teed up.
I would've expected build occupancy can move a little bit higher quarter over quarter. Instead of declining maybe you could give a little bit more detail on some of the offsets there in terms of space recaptured during the quarter and it sounds like you're still positive on the demand front, so where would you expect that build the occupancy rate to end the year.
We would expect it to be relatively consistent.
As it has been each quarter this year.
Meaning that we'd expect about another 2 million of that six point Fourmillion will commence in the fourth quarter.
I think it's all driven by you know the opportunistic.
Releasing that we're doing in many cases.
Well ahead of lease expirations, where.
And it may be coming offline touched earlier than we would have anticipated.
Well, we're waiting for the new rent to come in.
Okay. So if you're expecting more lease commencements that another 2 million.
Should we expect that to be incremental or is that is there is there other states coming offline the sort of offsetting that right. Because there's a disconnect right you have leases commencing but theres also that offset in terms of space recaptured or fall as that you have that's kind of that.
That results in that occupancy moving lower rather than higher.
Yes, no I agree I think that it's really just a function of timing and being it's a little bit hard to predict where we're constantly working with tenants that are in place and needing to be repositioned.
And the timing of the replacement leases that it's very hard to predict.
But there's always going to be some.
Variability into at quarter to quarter.
In other words were still playing offense on the West Coast Christy we are still aggressively out there.
Which is obviously noted in the nice releasing spreads that we're getting.
But we're constantly at our you know working with our tenant base to really capture that mark to market as quick as we can as it relates to the real estate that we own but we're still playing offense in terms of the kind of base and that's why you're going to get some of this and consistency going forward.
Okay. Thank you.
Thank you. Our next question comes from Michael Gorman with BTI G airline is now open.
Good morning, Michael guys. Good morning, how are you.
Good how about yourself good things, maybe if we could just stick with the equity for a minute can you guys maybe talk about you've got the 85 million in potential deals.
Some equity marked for some debt reduction.
Can you just talk about as you think about the ATM versus the secondary market. Obviously, the ATM is a lot more efficient, but what's what's kind of the capacity as you think about it on a quarterly basis in terms of what you can do under the ATM before you have to start thinking about looking at the secondary market based on your deal flow.
Well I think you hit it on the button when you said deal flow I mean, it all depends on how our deal flow is looking if we were to accelerate our deal flow as we move into 2020 than we would consider obviously secondary versus using the ATM right now the ATM is certainly the most efficient way due to raise equity for us.
I would agree with that you're doing a like a one off acquisition, it's not not difficult to raise enough to fund the in any given quarter. If you have a larger portfolio transaction come down the road I mean, obviously stronger Canada from market to deal.
Okay, but again, we are we are sensitive Mike as to where that equities being issue just no [laughter] sure. Mike can you just remind us how much you have left under the current ATM.
The original plan was a 250 million program I think we've got at least 200 million still left on it.
Okay got it and then maybe just one for rich.
Can you maybe talk about some of the leases that you pulled forward from this quarter I think maybe about 200000 came out of the 2020 exploration.
Are these early options, where they negotiated renewals and kind of what are your conversations with tenants that are looking to renew their their leases early what kind of conversations you're having there in terms of term or renewal spreads.
Sure Yes some.
Continue to be early exercise of options.
So in those cases, there's really not a lot of discussion the tenants just exercising earlier than they are required to.
And.
Then theres other circumstances, where tenants may come to us and will be willing to give us the space back, but we keep them in place. So while we're out Retenanting and then we pulled the trigger once we have a replacement tenant in place which brings that forward in terms of the timing.
Okay got it thanks guys.
Thank you.
Thank you. Our next question comes from very Oxford with D.A. Davidson. Your line is now open.
Good morning, Barry.
Great. Thanks, guys.
Not to talk about cap rates, but not on the 85 million because I know you don't want to kind of tip your hand in any way, but when you're out there in the marketplace. What does the range of cap rates that.
You are looking at given this kind of stronger retail environment, we have.
So valuations for grocery Dominic grocery drug anchored shopping centers on the west coast of actually begun to go up in cap rates have begun to creep downwards for two reasons number one widely marketed deals that supply mark widely marketed.
Deals in the market have contracted theres not a lot on the market and number two is capital today as it relates to deploying.
Into the retail sector.
What we're seeing out there is really the focus is nothing but grocery drug anchored a product or segment of the retail sector. It's a combination of both of those that is continuing to drive cap rates down in fact, we we believe that we've seen some cap rate compression over the last night.
The 120 days and as we Wouldnt move into 2020, we don't we believe that that valuations for what we own in the markets that were in are going to continue to potentially had downwards and that's why we're a bit more active right now in building the pipeline, but more importantly for.
Yes, it's really finding off market transactions that will deliver very strong NOI growth over a short period of time after buying these that these assets.
Given that cap rates might be compressing a little bit why not push on your development more more so.
Well, we are working on a bit of that de acquisition deal pipeline.
Sure we are working to bid on that aspect through densification.
However, we are not in the development business for a number of reasons and without spending a lot of time going through.
The answer it why we're not in the development business. The reality is through our experience in terms developing in these high barrier markets on the West coast. The entitlement process takes a lot longer than most other markets costs are a lot higher and from an income perspective when the developer.
Business, you typically need at least three or four years really stabilized yearend, Hawaii. It's a combination of all three of those that really keeps us on the sidelines in terms of developments and what we also filed as if we can find a dominant grocery anchored center in our in our backyard our management platform or.
Form has the ability to really drive those yields.
Take away the risk of doing development. So it's all of that.
As to why we're not in the development business and more importantly through all the years of operating on the West coast. The Formula that we continue to work on at our IC has really proved out to be a very successful formula in terms of building shareholder value.
Great. That's it for me guys. Thanks, Mel Thank you.
Thank you. Our next question comes from Jeremy Metz with BMO capital markets. Your line is now open.
Good morning, Jeremy Gary Good morning, guys Hey.
Stuart in terms of the acquisition just going back to that seems like you've been right around that who appear in number of times and nothing has really ultimately come to fruition quite yet.
I know youve insensitive to your cost of capital and monitoring leverage.
Again sounds like you're pretty close here you mentioned the 85 million.
Yes.
How confident are you at this point that all that all 85 gets across the goal line and maybe what it is held up some stuff in the past here in the past 12 to 18 months is it just.
Sellers Retrading, you're getting less comfortable as you've done again more China gauge.
Next bulk endear and getting them to the goal line. Thanks.
Well certainly we've been cognizant of the leverage side really of the net debt to EBITDA in terms of the balance sheet.
We have obviously been very cognizant of our equity in the cost of that equity.
But more importantly, it's really been and we've had some opportunities to dual key deals, but with our stock price the way it's been nonperforming recently, but certainly earlier in the year. We were reluctant certainly moved those those transactions forward just given the discussions around you know the stock price itself.
No the way acquisitions or our pipeline works is that sometimes we can sit for a number of months and work on a series of deals and then all of a sudden it'll come to fruition because of issues relative to the changes in either the retail sector or the overall.
Income or tenant base that the assets, but more importantly, it was really being having some patience keeping the eye on the balance sheet and then more importantly, really getting to a point, where we're comfortable enough to pullback triggered and move a number of these deals that we've had our eye on forward and that's where we're at right now.
2020 were excited for 2020 at this point in looking at ROI see because the fundamentals are holding up so well. We're we're playing offense continue to play off fence and more importantly, we believe we can hit the stride in terms of acquisitions, we will actually start growing our earnings versus having to earnings stay flat as it as.
They've done this year.
Yes, that's going on you mentioned 2020 and in that context is from the Densification side.
So you talked about cross shows getting close.
Starting early next year, just and then a detailed out to two others in San Francisco in the two in the Pacific Northwest, which sounds a little earlier phase how realistic is a good any of those started out of the ground nextshares. It just too early to tell on that front.
Well, we do have a couple of pads that will come online and that will certainly help us in terms of and Hawaii growth next year, but in terms of Densification. The crossroads realistically will not come online in 21.
Because you've got to go through working draw is you've got to build the project and you've got a stabilized and that process alone is going to take at least the year to two years. So I wouldn't look at 2020 as it relates to Densification, but I would look at 20 122 is when you will begin to see the real impact in terms of all the.
Hard work that we've been doing all year as it relates to our Densification.
Yes, sorry, I guess I was more focus on just not not delivering next year, but starting getting one of those are both San Francisco one started out of the ground next year is that team yeah. I mean, the crossroads. It looks like will come out of the ground hopefully next year at the other two should follow shortly thereafter, so it's not right at the ended the year.
It could be right at the beginning of 2021.
Got it and then Mike just one quick one back to US in comments you made on the guidance.
I guess, just thinking through the slow or asset sales should be a benefit I get that the Q equity issuances were early and you have a little more in the fourth quarter, but it feels like there was maybe offset each other here a little ban so is there anything else.
To think about here that could be impacting the move in the guide.
No I was that excuse me is primarily just the of the change and timing of the dispositions in the equity raises through Jim that's the primary drivers.
Alright, thanks, guys.
Thank you.
Thank you. Our next question comes from Wes Golladay with RBC capital markets. Your line is now open.
Hey, good morning, guys, maybe more to Stewart looking at your anchor expirations over than I guess through 2020, you have 10 of them coming due is there any large mark to markets and do you expect to recapture into that space.
Yes, certainly selling we expect as rich so when we expect to recapture on we're currently in the process of working on those.
And.
In terms of the Mark to market a lot of that's going to depend on tenants that have options remaining.
There you know there could be could be flat.
So theres very little control, we have over those.
But there are some that are coming up that are out of options and are significantly below.
Market rent, where we expect to have some really good lifts.
Okay, and then going back to the Densification in Seattle did I hear you correctly, where you said the cost has been reduced by 15% and if so can you elaborate on what happened there.
Sure.
Again, we're in the early stages right now of what we call design engineering, where you're really getting into the what I would call the details of what you're building.
And in doing so we have embarked with a partner who is one of the largest construction companies in the country.
And.
We are talking with them on a joint venture as well as overseeing the project from a construction standpoint, and currently they've got close to $17 billion of construction currently under a going on and one of the things they do bring to the table either as a partner or certainly in doing the actual project.
Is that they are basically having the ability to deliver a lot of that cost less than because of the amount of volume they're doing at less than one a normally would that would normally be under doing just one project. So that that's where a lot of the savings is coming from.
And we're digging into those details very deeply right now, but the good news is that given the has one how much construction they have ongoing they believe with and they've done a lot of business and built a lot in Seattle that will deliver a cost savings to us and that's what they're communicating to what's at the present time.
If you want to add anything to that I think the other part of that is that we look at this very conservatively when we start down this path. So.
We are saying is that our original underwriting.
We try to be realistic about it and.
But now as we're getting closer to moving forward, we're fine tuning the pro forma and utilizing.
This.
Everything we tend to keep the cost as low as possible.
Got it thanks guys.
Thank you.
Thank you in a next question comes from Todd Thomas with Keybanc Capital markets. Your line is now open.
Good morning.
Hi, Good morning, So just a couple of questions following up on the investments just curious what what's your appetite like for incremental investments.
Beyond the 85 million that's in the pipeline today and then once the two other at Sacramento assets are sold are there additional assets being teed up for sale beyond those two and and.
It does does your investment activity. Your acquisition efforts does that cause you to think differently about dispositions going forward.
Well in terms of dispositions I mean.
You know nothing specific at the present time, however, each year, we take a hard objective look at our entire portfolio as it relates to each properties sort of near and long term growth potentials versus downside risk profiles in we determine at that point, whether we will sell those properties, so and we're going to that.
Right now taught in terms of 2020.
So so you know as it sits right now there's nothing yet teed up but again, we made key tee up a bit more on the disposition side on the acquisition side. The focus there in the criteria. There is really to be buying only grocery drug if theres a third anchor that's.
Got to be primarily one of your value you know tenants out there with either a gym or Ross TJ or outside of that were really staying away for it to be buying anything more than having those three elements and that's what's changed in terms of our criteria. So.
We're excited about 2020, and we'll continue to look at both sides of that equation, but from a again from a acquisition disposition side.
You'll probably see on a net basis more on the acquisition than on the dispositions.
Okay, and then in terms of pricing you commented that you're expecting to see.
Potential cap rate compression here have you changed your underwriting or are your return hurdles at all as your as you're looking at these assets today or is there a little more value add or sort of growth embedded in the assets that you are underwriting today.
Its growth I mean, that's the bottom line. The fact is that we've we're paying a five cap or a four eight cap or five three cap or will cost. It's all about what they operating platform can do after we bought the asset and how you know typically we like to see is about a 100 basis point increase within an 18 month period of time of ownership.
That's part of our underwriting criteria, sometimes we meet that are in sometimes we don't but in most cases, it's really finding high quality assets that really offer the ability for long term value creation and growth in Hawaii.
Okay, and then moving over to.
To the same store.
Maybe rich can can comment also.
So the same store NOI growth in the quarter. It was consisted consisted of.
Base rental income growth of 3.3% Youre running a 3.9% year to date for minimum rents and that's being dragged down by.
Net recoveries and other property income below the minimum rent line can you just talk about that and.
What's happening a little bit there and the expectation heading into Fourq, you and also 2020.
Well I don't think we haven't really well sorry, primarily around.
Potential volatility in some of those other lines, both below sort of the minimum rent line.
Yes.
All those line items factor into the intellect overall calculation for the pool same center passionately, it's always a challenging number to precisely predict from one quarter to the next.
The biggest driver is the timing of new tenants, taking occupancy which were to talked about which is more often than that we really don't know how it's going to play out.
During the second quarter was better than we thought during the third quarter was Conversely.
Slower than we thought it would be based on budgets.
We're still tracking you'll sell 3% for this quarter and we're still very comfortable the range of 3% to 4% for the year.
But it's really dependent upon how the tenant base kind of moves around based on our proactive releasing initiatives.
Okay would you expect to see minimum rents accelerate into the fourth quarter I think that was part of the the forecast earlier in the year.
I would I would think so yes, I think there's a couple large anchor tenants that are supposed to start cash paying rent in Q4, we should bring that number back up.
Okay. Thank you.
Thank you.
Thank you and our next question comes from Vince to Bone with Green Street Advisors. Your line is now open.
Good morning, Vince Hey, good morning, I have a few more on the Densification sites I'm just curious how many of these projects would you'd be comfortable developing at one time and do you have any risk parameters in place, which is a threshold them that total dollar amount of total active pipeline just trying to get a sense of how many of these you could put to work at.
On time.
While there I mean in terms of.
In terms of how many of these could be happening into one time I mean, you could at some point as you look into the next you know 21 late 22 had two or three of these going at one time. However, we're not in the business of building multifamily Oh, we're obviously going to partner up on not on every.
One of them, we're still that piece is still moving around but in most cases, we will have a partner come in and oversee the project off from start to finish because it's just not our business. So you can expect more of a sort of a joint venture structure, obviously, that's much less capital from our pro.
Respective.
But that's sort of the program right now as it relates to moving these these three forward and potentially the other two now that are on the drawing board from a capital perspective, Mike. It will if you want to comment on that was completed in any any developments can be incremental to our business, but it's also incidentals where business because it's not our core competencies. So.
Any development.
Developments that we undertake it's not going to be material number two our overall balance sheet. So.
It's incremental but it's also incidental.
Okay that makes sense and I'm, just curious would you consider selling entitled land at any of these sites just to lock in the value today versus you know developing over a few years is that since on the table.
Yes.
Okay fair enough, but all I have.
Thank you.
Thank you at our next question comes from Craig Schmidt with Bank of America. Your line is now open.
Good morning, correct, Greg Thank you.
On the three emerging factors impacting non anchor space I wonder what percent of non anchor leases in 2020 may be impacted by those emerging factors.
Well I think it's already.
It's hard to predict but that is where you know the the tenant demand is coming from so.
I think that you'll see a probably a large percentage that are you know.
Coming from those categories.
Okay, and then the one anchor new lease was that a grocery anchor a general merchandise anchor.
It was a.
A fitness.
Very strong fitness operator, Craig.
Okay. Thank you appreciate it.
Okay.
Thank you and I am showing no further questions in the queue at this time.
Turn the call back to school Stuart Tanz.
Thank you in closing I would like to thank all the view for joining US today. If you have any additional questions. Please contact Mike Richer me directly also you can find additional information in the company's quarterly supplemental package, which is posted on our website lastly for those of you attending may reduce annual conference in Los Angeles, and a few weeks, we look forward to seeing you there.
Thanks, again and have a great day everyone.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.