Regency Centers' (REG) CEO Hap Stein on Q4 2015 Results - Earnings Call Transcript

| About: Regency Centers (REG)

Regency Centers Corporation (NYSE:REG)

Q4 2015 Earnings Conference Call

February 11, 2016 10:00 a.m. ET

Executives

Mike Mas - SVP of Capital Markets

Hap Stein - Chairman and CEO

Lisa Palmer - President and CFO

Mac Chandler - EVP of Development

Jim Thompson - EVP of Operations

Chris Leavitt - SVP and Treasurer

Analysts

Craig Schmidt - Bank of America

Jeremy Metz - UBS

Christine McElroy - Citi

R.J. Milligan - Robert W. Baird

Vincent Chao - Deutsche Bank

Anthony Hau - SunTrust

Jeff Donnelly - Wells Fargo

Jim Sullivan - Cowen Group

Michael Mueller - JPMorgan

Rich Moore - RBC Capital Markets

George Hoglund - Jefferies

Chris Lucas - CapitalOne Securities

Jay Carlington - Green Street Advisors

Operator

Greetings and welcome to the Regency Centers Corporation Fourth Quarter 2015 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Mike Mas, Senior Vice President of Capital Markets. Thank you. You may begin.

Mike Mas

Good morning, and welcome to Regency’s fourth quarter 2015 earnings conference call. Joining me today are Hap Stein, our Chairman and CEO; Lisa Palmer, our President and Chief Financial Officer; Mac Chandler, Executive Vice President of Development; Jim Thompson, Executive Vice President of Operations; and Chris Leavitt, Senior Vice President and Treasurer.

Before we begin, I’d like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

We also request that callers observe a two-question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions, please rejoin the queue.

I will now turn the call over to Hap.

Hap Stein

Thanks Mike. Good morning everyone, and thank you for joining us on the call. The hard work and talent of Regency’s team is clearly visible as we continue to achieve our strategic objectives, highlighted by delivering growth in Core FFO per share, nearly 8%, and total shareholder return well in excess of the peer average on a one, three, and five-year basis. I’m very proud of these achievements.

Results like these are a product of four simple ingredients. First, our irreplaceable portfolio continues to benefit from its inherent quality. Historically, low levels of new supply and tenant demand to locate in the best centers. The result was same property NOI growth at or above 4% for the fourth consecutive year.

Second, our industry-leading development team remains focused on applying a proven disciplined strategy to create and enhance centers at compelling spreads to the cost of acquiring centers of comparable quality. In spite of the limited number of opportunities that meet our criteria, combination of our development, and redevelopment starts, and our pipeline position us to deliver an average of $200 million of exceptional projects annually.

Third, we continue to cost-effectively finance new investments through our match funding strategy. This year we have improved our net debt to EBITDA ratio to 5.2 times, while lessening near-term maturities, and reducing our overall cost of debt. And the last key ingredient is our dedicated team and special culture. You only have to look to our recent promotions to understand the strength and depth of Regency’s bench.

This past November, following the announcement of Brian Smith’s retirement, we were fortunate to move quickly with the appointments of Lisa Palmer as President and Chief Financial Officer, Jim Thompson as Executive Vice President of Operations, and Mac Chandler as EVP of Development. All three have held influential positions with Regency, averaging over 20 years of tenure.

While we are fortunate to welcome Jim and Mac to our Senior Executive Team, we are equally excited to backfill their leadership positions internally, enabling us to maintain our effective regional structure and capitalize on the breadth of talent that we at Regency take pride in cultivating.

Before handing the call over to Lisa, let me quickly say that although we feel Regency is extremely well-positioned for the future, we have a wary eye of the fragile nature of the economy and financial markets. That said, given the quality of our portfolio, our disciplined development program, rock-solid balance sheet, and the focus and talent of our team, we are well-poised to build on our positive momentum, and expect to thrive in good times, while weathering and possibly profiting in difficult times.

Lisa?

Lisa Palmer

Thank you, Hap, and good morning everyone. I’ll be brief today with the recap of results, followed by a summary of our guidance, which we did release in early January.

First, Core FFO for the year increased nearly 8% over 2014. As Hap said, same property NOI growth, of 4.4%, marked the fourth consecutive year of at least 4% growth. Base rent continues to be the largest contributing factor, resulting from gains in leased shop space, strengthening embedded rent steps and strong re-leasing spreads.

Small shop percent leased increased nearly 92% as move-outs remain at historically low levels. In terms of the same property portfolio, we ended the year at 95.8% leased. And this includes an impact of 30 basis points from two Haggen supermarket locations that we successfully recaptured late last year. We’re already well on our way to upgrading these shopping centers with new vibrant anchors, allowing us to create value in the near-term.

The Haggen bankruptcy is a prime example of a triggering event that can lead to unlocking significant value creation through re-tenanting or through redevelopment. These opportunities exist throughout our high-quality portfolio, and our team works actively to harvest them. In fact, including our expectations for 2016 we will have invested more than $250 million in redevelopments over a four-year span at very compelling returns.

Turning to G&A, let me add some color given the elevated level in the fourth quarter. As previously disclosed, please recall that we incurred a one-time expense of $2.2 million in the fourth quarter related to our recent executive management changes. Excluding this charge, net G&A expense for the full year was within the guidance range that we originally provided.

Looking at 2016, our guidance remains unchanged from what we released a few weeks ago. Core FFO per share at the mid-point is expect to grow my more than 6%, with same-property NOI growth in the range of two-and-three quarters, to 3.5%. This includes a positive impact from redevelopments of less than 50 basis points. In terms of occupancy, we expect our same property portfolio to end the year in excess of 96% leased, with the possibility of a modest dip in the first quarter as we have traditionally experienced that.

Turning now to capital markets activity, we continue to cost-effectively strengthen an already conservative balance sheet. By continuing to match fund our investments with property sales or common equity, when that common equity is priced reasonably in line with our view of NAV and a compelling use of funds. Consistent with that strategy, we raised $24 million during the quarter through our ATM, which will pre-fund a portion of our development spend this year. We also continued to experience healthy demand and pricing on the properties we’re taking to market.

Lastly and as you saw in our press release, we announced an increase in our quarterly cash dividend to $0.50 per share. The continued strength of our operating performance and our financial position enables us to increase our dividend, while maintaining a conservative payout ratio.

Thank you for listening, and we now welcome your questions.

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Craig Schmidt from Bank of America. Please go ahead.

Craig Schmidt

Just given your eye on the economic and financial markets; has that impacted your thinking regarding growing the development pipeline at this point, or has that not reached at that point?

Hap Stein

No, it’s just we -- our developments are extremely well-conceived, focused on shopping centers that are going to make sense for the long-term. We do a significant amount of pre-leasing, it’s definitely sponsored by great anchor tenants, and where we have a strong indication of interest from side shop retailers. What we may do though is we may decide as a result of kind of what may be happening out there is, in the environment, is decided to, and we’ve done this in the past, is decide to pay some of the side shop space. But at the same point in time, we’ve got a very focused development program. Our exposure to development is substantially less than it was going into the last down cycle. So we feel like we’re very well-positioned to continue to grow the development program on a disciplined basis.

Craig Schmidt

Okay. And then just, I think you have three sports authority, do you have a sense of where their rents are relative to market?

Hap Stein

I’ll turn that question over to Jim Thompson.

Jim Thompson

We do have three sports authorities. And at the end of the day, we’re not seeing a lot of upside in those deals, but we feel very confident that if we get them back that there’s a good re-let opportunity, and I guess about a 50 basis points of total rents. So our exposure is unanimous.

Craig Schmidt

Okay, thank you.

Hap Stein

Thanks, Craig.

Operator

Thank you. Our next question comes from the line of Jeremy Metz from UBS. Please go ahead.

Jeremy Metz

Hey, good morning. Lisa, I know you guys just settled the forward, but as you're thinking about the sources and uses of capital this year, is that something you’d consider again given the flexibility it gave you, or you just stick with dispositions and the ATM as a means to fund development in any, I guess, potential acquisitions?

Lisa Palmer

Jeremy, an important thing I think to point out for the reason why we actually use the forward is because we had a definite use of proceeds. If you’ll recall, we went under contract to buy University Commons very early in the year, right, when we basically did the forward, with the delayed close. So for a forward to make sense, I think that there needs to be a very definite use of proceeds, with a definite time to sell that. Without that we would simply rely on property sales and the use of equity when it makes sense in terms of how it’s priced relative to our view of NAV.

Jeremy Metz

Okay. And then just in terms of acquisitions, dispositions, are you seeing any movement today in pricing or bidder pools across, I guess, both what you’re trying to sell, which is more, maybe called secondary today? And then how does that compare to the stuff that you’re looking at buying, you know, are your deal guys underwriting or getting more conservative on what they underwrite for new deals today?

Lisa Palmer

Really, I guess, three separate questions. I’ll take each one separately. First, in terms of what we’re trying to buy, we have not seen any changes still highly competitive in nature. There’s not a lot of product even coming to market for the types of centers that meet our investment criteria. And when they do, especially for marketed deals, there’s heightened competition. We haven’t had the need to change how we’re underwriting. We do a look-back on everything we buy and develop. And our underwriting -- our actual performance, from everything that we have bought and developed over the last four to five years has exceeded our underwriting expectations.

From what we’re selling, we’re starting to hear that there’s some softening, but we haven’t seen -- for the secondary lower-quality properties. But we haven’t seen it yet. And I think I’d like to think that even though we’re selling our lower-quality, lower-growth properties, our lower-quality/lower-growth properties, on a relative basis, are still of moderate quality, if that makes sense. So we haven’t seen a whole lot of movement in those cap rates yet.

Jeremy Metz

All right, thanks.

Hap Stein

Thank you, Jeremy.

Operator

Thank you. Our next question comes from the line of Christine McElroy from Citi. Please go ahead.

Christine McElroy

Hi, good morning guys. Lisa, just for the 2.75 to 3.5% same store NOI growth forecast in 2016, what’s the expected impact from redevelopment?

Lisa Palmer

50 basis points plus or minus in 2016.

Christine McElroy

I’m sorry, what was that? How many?

Lisa Palmer

About 50 basis points, 5-0.

Christine McElroy

Okay, great. Got you, thank you. And then just compared to your re-leasing spreads of 9% in 2015, what are you expecting in 2016? And given that your spreads on execution average more like 10% to 11% in the back-half of the year, much of that reflects these that's actually commencing occupancy in 2016?

Lisa Palmer

I’ll answer, and then I’m just going to shoot it over to Jim to add some color. But our expectations for 2016 are that we hope to be in the very high single-digits to double-digits again. And the back-half of the year, so much of the rent growth is going to be driven by if there are anchor leases to be done. So it’s really going to be driven by mix. So it’s not necessarily -- we have really high demand for our space. We’re pretty well-leased, as you know. And we expect that we’ll continue to be able to drive rents as a result of that. Well, Jim, you want to add anything?

Jim Thompson

Not a lot of color. I think the categories we’re seeing the most activity on today would be the restaurants, typically the chef-driven restaurants, the specialty fitness-type uses, as well as the pet category. And as we continue to get space back, our remerchandising, we get some pretty good pops when we go to those categories. We see those rents generally significantly higher than all the rest.

Christine McElroy

Great, thank you.

Hap Stein

Thank you, Christine.

Operator

Thank you. Our next question comes from the line of R.J. Milligan from Robert W. Baird. Please go ahead.

R.J. Milligan

Hi, good morning. I was wondering if any of the macro volatility has given pause to some of the retailers, whether it would be new store openings on signing on renewals.

Hap Stein

Jim, you want to take this? And then back, and talk about from a grocery standpoint?

Jim Thompson

It’s a macro economy. It’s causing retailers to slow down; new store openings.

Hap Stein

We’re not seeing that. Our teams continue to be very bullish about the market. Our pipeline is continually on par or pace with what we’ve seen in the past. So really we’re not seeing a slow down at this point, quite frankly.

Mac Chandler

Yes, I'd say on the develop side it’s almost to the contrary. We’re seeing on the specialty grocers, and the best-in-class traditional grocers, they’re expanding to new markets. So two examples, Wegmans has announced they’ll push into the North Carolina, which is one our favorite markets. And Publix is moving up into Virginia. So, really to the contrary, we’re seeing expansion by these best-in-class grocers.

Hap Stein

A comment on both on the side shop retailers and restaurants, and on the grocers, and secondary anchors, there continues to be good demand for the best base, the best center, et cetera, but one of the things that is reassuring to me, and different from going in the last downturn, is they seem to be making very thoughtful and rational decisions. And that is somewhat comforting to us. Because I think that provides a more sustainable and more positive outlook for the long-term.

R.J. Milligan

Okay, thanks, that’s helpful. And the development, and redevelopment guidance for the years, 125 million to 225 million. Can you talk about the different factors that would drive you hitting either the low-end or the high-end of that guidance range?

Mac Chandler

Well, it’s really no different than most years. We have a very full pipeline of projects. But whether our projects start or not, sometimes it’s dependant on external forces, such as entitlement, such as an anchor lease getting signed in time. So projects can move forward, certainly by external events. And that’s why we got into somewhat wide, but really if you look at the pipeline for ’16, ’17, we’ve got $600 million worth of projects that we’re deep into. And they’re not all unique, but the pipeline visibility looks really good, and they’re best-in-class grocers, we like what we see.

Hap Stein

And that includes - that pipeline includes both developments, and redevelopments.

R.J. Milligan

Okay. So that range isn’t giving sort of a leeway for a potential pause and some of that activity, given the macro environment? This is more entitlement-based? And what projects pencil-out over the year?

Mac Chandler

It doesn’t, but it’s a pretty broad range, as you know. It’s only 30 days old. So we stand behind it.

R.J. Milligan

Okay. Thanks guys.

Hap Stein

Thank you.

Operator

Thank you. Our next question comes from line of Vincent Chao from Deutsche Bank. Please go ahead.

Vincent Chao

Hey, Jim. Good morning everyone. Just sticking with the macro environment, it sounds like the operating environment hasn’t really changed much for you, and best markets haven’t shifted just yet from what you’re seeing. And clearly, your balance sheet has been pretty good shape. I was just wondering if things get -- continue to get worse, would you consider taking leverage down even further from where it is, or are you pretty comfortable where you’re at?

Lisa Palmer

We’re certainly very comfortable with where we are. But that doesn’t mean that we wouldn’t consider taking leverage down further, as the opportunity present itself. We would do it if it only made sense on an opportunistic basis, whether that means issuing equity if equity is priced favorably, in order to invest in a new acquisition or to fund our development program, or if even, though this would have to be a significant, significant premium -- has it made sense to deliver more by using cash, and or equity to reduce the amount of debt we have outstanding.

Vincent Chao

Okay, thanks for that. And then just on the commentary about the 1Q occupancy dip which is traditional, seasonal dip there, just curious based on what you saw in the fourth quarter and so far in the first quarter if there's any reason to think that that seasonal dip might be bigger than it's been historically, anything on the watch list side of things?

Lisa Palmer

No, not at this time, and I think you might recall, last year, we actually didn’t really see that seasonal dip. But 2016 is a different year, and they’re, as we’ve talked about on this call already, the economy is even more fragile than it was 12 months ago. So I think there is just -- we just can’t be certain what may happen for the rest of this quarter.

Vincent Chao

Okay, but that’s not based on anything specifically that you’re following it sounds like?

Lisa Palmer

No, it is not.

Vincent Chao

Right, okay. And then, just last one from me, just as you think about the Fresh Look program, do you have enough data at this point to kind of compare and contrast some of those centers versus the others in terms of from a performance perspective?

Mac Chandler

Well, I guess I'd answer that a couple of ways. Our Fresh Look initiative really permeates the entire portfolio. So some centers are identified as Fresh Look and others are not. Really it’s a philosophy of upgrading tenants throughout the portfolio, and in select redevelopments that help our competitive position. But if you look at some of our recent redevelopments, in those we’ve had the opportunity to really dig deeper into the design aspect of those projects and the remerchandising. Those have performed really well, and you can look at the incremental returns. They are very strong and the spreads on those are very compelling. So we think it’s a successful program, but it never ends. We start over every year. So we think it’s a real competitive advantage for us.

Hap Stein

And what we are also seeing is an uplift in merchandizing related to that -- related to merchandizing part of Fresh Look and place-making part of Fresh Look, we’re also getting better rate growth and better NOI growth even above what we have originally anticipated.

Vincent Chao

Okay. Thank you.

Hap Stein

Thank you.

Operator

Our next question comes from the line of Anthony Hau from SunTrust. Please go ahead.

Anthony Hau

Good morning, guys. Thanks for taking my question. Are there any markets or submarkets that you have concerns about today? And I guess on the flipside, are there any market size you are particularly optimistic about for 2016?

Hap Stein

You want to -- Jim, you want to address…

Jim Thompson

I think in general if you kind of look at the board spectrum of our portfolio and look back at ‘15, I think really every market held it's own and there is really no laggards or challenges.

As we look forward to ‘16, I think the same is true. One market that’s kind of outperformed is Florida, but that was probably quite frankly one of the last to pop back. So it’s throwing up some good numbers over the last three years, but in general, across the board, all the four pillars are performing quite well.

Hap Stein

And one market that obviously has our attention and we're lot focused on is Houston. You might speak to that, Jim.

Jim Thompson

Right. In Houston, we are blessed with a -- I think a very strong top performing portfolio. The assets are well located with average household incomes of $140,000; 98% leased, almost 5% same property NOI growth for 2015, which was over pretty good hurdle in ‘14. So we feel like we’re somewhat insulated from economic headwinds there, but we obviously are -- keep our finger on the pulse and making sure we’re keeping an eye on that. So we feel good about that -- very good about that portfolio.

Anthony Hau

Okay. Just one last question; what’s the component of growth for same store NOI in 2016 in terms of occupancy, rent bonds, and lease spreads?

Lisa Palmer

First, let me answer by saying what ‘15 was because I think that when you think about in relative to ‘16, I think it’s an important comparison. In 2016, we actually had about 100 -- I am sorry, in 2015, we had approximately 150 basis points of our growth came from occupancy list, if you will, so percent lease commenced. And then we had 140 basis points from rent steps and 110 from rent growth. And I know you all get sick of us pointing to our slide in our investor presentation about how we’re going to achieve our 3% same property NOI growth, but it’s really important to think about that. So when you think about ‘16, we should get about 140 basis points from our contractual rent steps. And with rent growth near double digits over the past 12 months and with the same expectation going forward, we should get another 110 to 120 basis points from that. So that gets us very near to bottom end of our range. Then we have 50 basis points plus or minus that we’re expecting from redevelopment. That takes us up to about -- call that 3.25, and so the range moving down the 275 or up to the upper part of our range will really depend on how some of these bankruptcies and/or move-out may impact or the ability just to continue to push our percent lease and our percent commence north of what it is today.

Anthony Hau

Okay. Thank you.

Hap Stein

Thank you.

Operator

Thank you. Our next question comes from the line of Jeff Donnelly from Wells Fargo. Please go ahead.

Jeff Donnelly

Good morning, folks. Lisa, I may be staying with that, I guess what aren’t your re-leasing spreads a little higher in 2016? Because it looks like your in-placed rents on lease is expiring this year are actually lower than they were I think in 2015. And if I am hearing you guys correctly in your commentary and the markets, it sounds like you guys continue to expect to see market rent growth. So I guess am I thinking about that right? I would have thought maybe spreads might have picked up.

Lisa Palmer

Yes, one thing that’s really difficult to communicate to you all is the number of those leases that have stated options. And when you have larger boxes with either smaller increases in rents and their option period or even flat which is very often the case, the lease expiration schedule doesn’t capture that.

Jeff Donnelly

Okay, understood. And maybe just a second question. Just concerning the dividend, I was curious what the thinking was behind the roughly 3% increase you guys put through? Was it just to manage down that payout ratio, I think you talked about, or I was expecting maybe it could have been more in line with FAD growth?

Lisa Palmer

Yes, but our general philosophy on dividend increases is that basically manage it down until we get to the point where we are more or less at our legal limit and the dividend increase will mirror our earnings increase. And reason for that in terms of managing down, you know,, cash is king and we are developer, and to the extent that we can use free cash flow to fund our developments versus issuing equity or selling property, we believe that makes a lot of sense.

Jeff Donnelly

Can you tell us, I mean, how far you are from that target that you’re looking for?

Lisa Palmer

Given that the legal limit is probably somewhere in the low 60s and we’re slightly below 64% on a Core FFO ratio and low 70s on AFFO, and we’re just about 72%; we're awfully close.

Jeff Donnelly

Okay. Thanks.

Operator

Thank you. Our next question comes from the line of Jim Sullivan from Cowen Group. Please go ahead.

Jim Sullivan

Thank you. Good morning, guys. First question, just kind of follow-up to what I think Hap had commented earlier in response to a different question. We tend to think that if we’re going to get an economic slowdown that the small shop tenants being kind of thinly capitalized would be probably more vulnerable to whatever the economic slowdown entails. And I am just curious, Hap, are you hearing at all from small shop tenants request to either renegotiate leases or anybody indicating regret that they have agreed to bumps in their leases or anything that indicates any kind of distress on their part?

Hap Stein

We have a tin ear towards the latter. Obviously we are very close to it and with kind of all the noise that’s out there, we are focused on a couple overall comments is our portfolio given what we’ve sold and what we’ve invested in through acquisitions and development in our view is in much better shape than it was in 2007.

We also believe that through our remerchandising efforts and if those -- also those tenants that have survived through the downturn and they are still operating and still expanding that the health of our tenants are much better from that standpoint. So that’s kind of a macro view. Jim, you want to comment kind of on at the property level, portfolio level what we are seeing?

Jim Thompson

Yes, Jim, you hit it on the head. That is absolutely smoke signal when you start to hear tenants coming back and trying to renegotiate and balking. We are not seeing any of that at this point. But again our property managing folks and folks in the fields clearly understand that is the smoke signal, a warning sign. And our property management folks are also -- sales is a big indicator, so they are out, they are talking to tenants, talking to grocers, and getting anecdotal information almost on a weekly basis. So we are keeping our finger on the pulse.

Jim Sullivan

And then, second question regarding what’s happening among the grocers. We’ve clearly seen a series of announcements recently about major banners looking to expand whether it’s in North Carolina, Virginia, and it is looking to be a very competitive market share battle there.

And I guess that kind of gives rise to kind of a two-part question. On the one hand, that would seem to present some ground up development opportunities for you or even some redevelopment opportunities.

And I just wonder in that respect if you are able to given the competitive situation among the grocers, get better returns on whatever incremental capital you would invest. And kind of conversely the other side of that, to what extend do you get concerned that there might be too new supply planned for those markets?

Hap Stein

Well, I want to scale it, and Mac will speak to little bit of the specifics. But from an opportunity standpoint, I think that allows us to be more selective from a development standpoint, which is a good thing. And not every development opportunity we see is going to meet our criteria. And we are going to make sure that our development program is right-sized.

From an overall competitive standpoint, that’s one of the reasons that we focused on. So there are grocers that are highly productive. And $600 a square foot and $30 million in sales are two metrics that we kind of focus a lot on. And when we are selecting and operator for development, a grocer for development, we’re going to look at who we think is going to generate the sales and also attract the better side shop retailers and not get outflanked either by existing or new competition.

Lastly, I would say is while we haven’t been perfect, I think we’ve got a very good track record as far as being able to navigate the ongoing consolidation, ongoing competition in the grocer business. Mac, is there anything?

Mac Chandler

Yes. The only thing I would add is with tenants expanding in the new markets, I don’t think it provides so much competition that our returns are going up, development still is competitive as always. So, we don’t think that will change. And we’re seeing some markets where people have actually dropped their returns. But in certain of those cases, those are risk adjusted returns. But when we look at new development, we always look at the quality of grocer, the location, and if the center once complete going to be accretive to our quality. So we are very mindful of too many grocers in any one trade area and that’s a big part of our discipline that goes into who we sign up.

Hap Stein

Yes, and key is from our standpoint is we would rather give up a few basis points in returns to have the right risk adjusted -- have the right development and even pass on the development, or we have the right development with the right anchors and the right lineup of side shops and maybe even phases and pick up the return when there is a little bit more certainty out there.

Jim Sullivan

Okay, great. Thanks, Hap.

Hap Stein

Thank you, Jim.

Operator

Thank you. Our next question comes from the line of Michael Mueller from JPMorgan. Please go ahead.

Michael Mueller

Hey, thanks. I know you touched on before what you saw happening to non-core acquisitions and sales and stuff, but if you’re thinking about the core stuff that you tend to buy, what’s happening to that buyer pool? Are you seeing pure buyers? Are you seeing folks back off the accelerator in terms of being aggressive? Same amount of competition -- can you just size that up for us?

Lisa Palmer

I’ll start now, and I will let Hap add any color if he wants, but Mike now, in fact we’re not seeing any change whatsoever. There’s not a lot of supply of that type of center that meet our investment criteria. And when they do come to market -- and it’s very difficult to find them off market transaction as you know. There has to be some type of established relationship connection for that to happen.

So for those at our market, we’re seeing our REIT brothering still competing for those centers and a lot of institutional capital as well. There is evidence of a center that traded recently in San Francisco with an un-levered IRR in the mid size. There is still a lot of capital pursuing the high-quality grocer anchor shopping centers.

Michael Mueller

Okay. Thank you.

Lisa Palmer

Thanks, Mike.

Hap Stein

Thank you.

Operator

Thank you. Our next question comes from the line of Rich Moore from RBC Capital Markets. Please go ahead.

Rich Moore

Hi, guys. Good morning. You have had a lot of stuff on the macro side of things. And I guess the one area that I am still thinking about is the consumer themselves. Have you seen any change in behavior of consumers whether it’s lower sales at the grocery stores or different mix of sales or some of the shops not doing as well as the other shops within the center that kind of a thing?

Hap Stein

Well, once again, we -- we are a little bit of a lagging indicator from that standpoint in that as opposed to malls there is a limited amount of -- we don’t get as much sales information from our tenants, and what we get from the grocers is it’s a year of rears. So what we are depending upon is the conversations we have with the retailers both at macro level that Jim and Mac and the team has, and Lisa and I have, and then what the property managers are hearing. And we are not hearing anything either from a reduction in the amount of new space. There is a certain amount of, as I said, rational caution on the part of the retailer, but we are not seeing anything more today than we saw six months ago. And all of our indicators -- all of our health indicators are fine right now. But our eyes and ears are open. Is there anything you want to add, Jim or Mac?

Rich Moore

Okay. Okay. So the other thing I was going to ask you is, is there any change in mix at the centers in terms of tenants? While there were some of the medical uses in like urgent care centers those kinds of things were getting popular, I mean are you seeing any shift in different types of tenants wanting space?

Hap Stein

Yes, as Jim and Mac said, it’s restaurants, it’s fitness, and it’s pet stores; those are the three, so to speak, [technical difficulty] service users out there.

Lisa Palmer

And I’ll just remind you, Rich, even though we may have had more medical kind of the doc in the box, the dentists, the chiropractors, and we like those uses. It was a never meaningful percentage of our space. It went from 2.5% to 5%. So it’s a meaningful increase, but still a pretty small percentage of our space.

Rich Moore

Okay. All right, good. Thank you guys.

Hap Stein

Thanks, Rich.

Lisa Palmer

Thanks, Rich.

Operator

Thank you. Our next question comes from the line of Tayo Okusanya from Jefferies. Please go ahead with your question.

George Hoglund

Hi, this is George on for Tayo. Just a couple of questions on the overall retail environment, I mean how are you guys feeling relative to three months ago in terms of kind of a store closure and bankruptcy and environment, and what you are seeing? And then also in terms of some of these concepts like the fitness locations; are you starting to get worried about kind of over-saturation of too many concepts?

Hap Stein

Well, I mean I can tell we haven’t seen significant change in the last three months. In terms of broad-based expansion by tenants in all different categories, we feel positive about it. I mean the natural cycle of retailers, you’ll see certain categories get too crowded. We’ve seen that in let’s say burgers for example or frozen yogurt, but they are very small margin. And we’re very selective with the tenants that we sign up and that's because we have the right amount of shop space, and you can see that in our occupancy and you can see in our rent growth. So, no material change from three months ago, but as we mentioned before, we are remindful of that and our ears are to the ground. But we haven’t seen anything to reveal.

George Hoglund

Thanks.

Hap Stein

Thanks, George.

Lisa Palmer

Thank you.

Operator

Thank you. Our next question comes from the line of Chris Lucas from CapitalOne Securities. Please go ahead.

Chris Lucas

Yes, good morning everyone. Lisa, just a quick question on the balance sheet, You have $300 million of debt maturing in June of next year, the stock price is within a couple of bucks of the cycle high and you have the 10-year at 1.6%, today anyways. How are you thinking about maybe dealing with an advance the maturing unsecured debt for next year? And what are your options as you think through the current environment?

Lisa Palmer

Sure. Chris, for better or for worse, we already thought about the fact that we had a pretty chunky maturity in 2017, a couple of years ago. And we have hedged -- we have $220 million of forward-starting slots in place. So our interest rate risk is already hedged, if you will, for approximately -- for a $250-million unsecured bond offering, and we have no other plans at this time to do anything beyond that.

Chris Lucas

Okay, great. And then, I guess, Hap, maybe again going back to the demand side. One of your peers last week talked about demand coming from large boxes, the mom-and-pop's are back. It seems like the tenor of this call is completely different than just a week ago, but I just wanted to make sure that I'm not missing anything that in fact the demand remains broad and deep from the retailer side?

Hap Stein

Demand, I just want to be clear. Demand remains broad and deep. But at the same time, I think anybody in this environment that isn’t cognizant of the macro-events that are going around -- I mean, look, using a baseball analogy, this expansion has lasted a while. Let’s just say we’re in the seventh inning. There is a chance that we -- that this expansion could get rained, postponed due to a recession. And we don’t know whether the recession is going to be very shallow, like 2000, or deep, like in L.A. Most of the recessions in the past, just except for one or two have been pretty shallow. And that 2000 recession had very little impact, if at all on our rent growth, our occupancy, and our NOI growth.

Or, I think there’s still a better chance that we’re going to continue –- the economy is going to continue to muddle on at least to the ninth inning. And it may be even to -- but it’s going to end at some point in time. And the key thing is the things that we can control, is the quality of our portfolio, the quality of our tenants within that portfolio. And the team is intensely focused on that. The quality of our developments and making sure that our development program is right-sized, and it has importance is at all, is the quality of the balance sheet. And our balance sheet has never been in better shape. And those are the ingredients that, well, as I said, not only allow us to thrive if things continue, if the economy continues to grow or muddle through, but also to withstand and weather the next downturn, and maybe even profit from that. So we just wanted to let you know in the call that we’re aware of the macro environment that’s out there. And I would think another key thing is, we haven’t seen any indications yet, whether it’s capital markets, from a demand for our shopping center, whether it’s tenant demand, both on the side-shop basis, or the anchor and the secondary-anchor basis.

Chris Lucas

Great, thank you.

Hap Stein

Thank you, Chris.

Operator

Thank you. [Operator Instructions] Our next question comes from the line of Jay Carlington with Green Street Advisors. Please go ahead.

Jay Carlington

Hi, guys, good morning. Maybe a quick question going back to Jim's question on the small shop leasing. I think you've mentioned that 92% is in your long-term peak occupancy target. I'm curious, what vacancy guidance for small shops this year?

Lisa Palmer

I don’t know that we’ve ever set a feeling of 92%. Let me go back a little back of history, back -- we reached our peak of small shop percent lease of 92.1, I believe in ‘06 or ’07, maybe even early '08, but as Hap just said, our portfolio is of much higher quality today due to a lot of the actions that we’ve taken. So I do believe that we could exceed the 92%. However, we’re not necessarily counting on it. So I go back to my -- the earlier question about the components of growth in our 2016 guidance. And for us, to reach the upper-end or our range, we’re going to have to increase the percent lease of small shops. And I would say the lower end would be more stable.

Jay Carlington

Okay. And maybe just a quick one; you took a $1.8 million impairment in the JV. Just curious what that was related to?

Lisa Palmer

I thought it was 100% owned properties, one that we did have. I’ll have to get back to you on that.

Jay Carlington

Okay.

Lisa Palmer

I’m not aware if we’re in the JV.

Jay Carlington

Okay. Yes, it was just on the JV portion, so, yes, we’ll follow-up offline. Thanks, that’s all I had.

Lisa Palmer

Okay.

Hap Stein

We will be back in touch.

Operator

Thank you. Ladies and gentlemen, we have no further questions in queue at this time. I would like to turn the floor back over to Management for closing comments.

Hap Stein

Thank you for your time on the call. And everybody have a great rest of the week, and a great weekend. Thank you very much.

Operator

Thank you, ladies and gentlemen. This does conclude our teleconference for today. You may now disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

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