Retail Opportunity Investments Corp. (ROIC) CEO Stuart Tanz on Q3 2019 Results - Earnings Call Transcript

Oct. 29, 2019 1:30 PM ETRetail Opportunity Investments Corp. (ROIC)
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Retail Opportunity Investments Corp. (NASDAQ:ROIC) Q3 2019 Earnings Conference Call October 29, 2019 9:00 AM ET

Company Participants

Carol Merriman - IR

Stuart Tanz - CEO

Rich Schoebel - COO

Michael Haines - CFO

Conference Call Participants

Collin Mings - Raymond James

Christy McElroy - Citi

Michael Gorman - BTIG

Barry Oxford - D.A. Davidson

Jeremy Metz - BMO Capital Markets

Wes Golladay - RBC Capital Markets

Todd Thomas - KeyBanc Capital Markets

Vince Tibone - Green Street Advisors

Craig Schmidt - Bank of America

Operator

Welcome to the Retail Opportunity Investments 2019 Third Quarter Conference Call. Participants are currently in a listen-only mode. Following the company’s prepared comments, the call 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. Such 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 and expectations.

Information regarding such risks and factors is described in the company’s filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. Participants are encouraged to refer to the company’s filings with the SEC regarding such risks and factors, as well as for more information regarding the company’s financial and operational results. The company’s filings can be found on its website.

Now, I would like to introduce Stuart Tanz, the company’s Chief Executive Officer.

Stuart Tanz

Thank you and good morning, everyone. Here with me today is Michael Haines, our Chief Financial Officer; and Rick Schoebel, our Chief Operating Officer. Before getting started, I would like to briefly address the California wildfires. While the situation is very serious fortunately it has not impacted our portfolio or business nor do we expect it to at this time. Needless to say we continue to monitor the situation closely.

Now turning to our third quarter results. The company posted another active and productive quarter lead again by another very strong quarter on the property operations front. We continue to maintain our portfolio at well over 97% leased and again achieve solid same center NOI growth along with very strong same space releasing spreads. In fact, our team achieved a 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 and overall leasing activity. Safe to say that the man across our portfolio continues to be strong and we continue to have good success in making the most of it.

Along with continuing to deliver strong property operating results, we also continue 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 total to $60.5 million. We also have another property under contract to sell for about $13 million which we expect to 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 the last 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 to market as well. We expect these last two Sacramento properties will together generate around $40 million in total sale proceeds once completed.

Turning toward densification initiatives, we’re pleased to report that we are making good progress on a number of fronts. At our crossroads shopping center, we are currently finalizing our development agreement, agreement with the City of Bellevue on Phase 2. The agreement will enable us to build 220 apartments along with 14,000 square feet of retail space which is terrific from our perspective as the amount of apartments in retail space is greater than what we had originally thought the city would allow. Additionally, we are finalizing the development agreement with the city. We are 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 track, we should be in a position to move forward with preparing 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 the San Francisco Bay area both are progressing as well.

At our Nevada shopping center, we continue to have productive meetings with the city regarding potentially building 140 to 150 apartments along with 14,000 to 16,000 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. At our (inaudible) shopping center the longtime city planner 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 of adding multifamily to our site potentially around 200 apartments.

Additionally, recently a prominent International Coal Group approached us with the support of the city above ground lease in a portion of our densification site. So we are now in the process of exploring the idea of potentially incorporating the hotel along with multifamily as part of identification plan which we will be discussing in greater detail with the city 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 in 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 1,000 apartments in total along with more retail space. Additionally, at one of our shopping centers in the Portland market, we recently approached 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 as the focal point.

While these two densification opportunities are just in the early stages of discussion, we are very encouraged by the city and civic support thus far. Lastly, in terms of acquisitions, we are pleased to report that we currently have three interesting off market opportunities that we are pursuing which together total around $85 million. One of the properties is 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 in 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 ROIC units potentially about $30 million or so thus far valuation discussions have been encouraging and we are currently in the process of conducting our due diligence with the goal of having all three properties under contract so. Now, I'll turn the call over to Mike to take you through our financial results. Mike?

Michael Haines

Thank you, Stuart. For the three months ended, September 30, 2019, the company has $72.4 million in total revenues and $35 million in operating income. In terms of the first nine months, the company had $221.4 million in total revenues and $89.2 million in the operating income. On the same-center cash basis, net operating income for the third quarter increased by 3% to $48.7 million and increased by 3.6% for the first nine months of 2019.

Turning to net income, for the third quarter of 2019, GAAP net income attributable to common shareholders was $17.9 million equating to $0.16 per diluted share and for the first nine months GAAP net income was $38.7 million or $0.34 per diluted share. In terms of funds from operations for the third quarter of 2019 FFO totaled $33.4 million equating to $0.27 per diluted share, which brings our FFO for the first nine months to $0.82 per share. With respect to the company's balance sheet and capital raising activities during the third quarter we utilized proceeds from the property sale that Stuart mentioned to reduce that.

Additionally over the past couple of months we raised about $26 million of equity through our ATM program being careful to utilize the program in a series of modest trades as market conditions permitted and that pricing that was within roughly 1% of the stock is 52-week high.

As with the property sale we utilized the ATM proceeds to further reduce that. 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 just that's our net debt to EBITDA ratio was below 7 as we head into 2020. Taking into account the asset sale equity issuance and paid down of debt at September 30, the company had a total market cap of approximately $3.7 billion with roughly $1.4 billion of debt outstanding equating to a debt to total market cap ratio of 38%.

With respect to the $1.4 billion of debt 94% of that is effectively fixed rate. In fact the only floating rate that we currently have is our credit line, which had a balance of $92 million at September 30th representing just 6% of our total debt outstanding. Furthermore we have no debt maturing for the next two years when our credit line comes up for renewal and beyond that our maturities are well laddered. Additionally our interest coverage continues to be solid. Specifically it was 3.2 times for the third quarter.

Lastly in terms of FFO guidance, in light of the asset sales, equity issuance and debt pay down and the fact that we've remained on the sidelines thus far this year in terms of new acquisitions, we've adjusted our FFO guidance range accordingly now be a $1.10 to $1.12 per share for the full year 2019. The low end of that range it seems we do issue more equity between now and year end although high end of the range assumes we do not and also it seems that the pending disposition as Stuart mentioned doesn't close until the first quarter.

Now I'll turn the call over to Rich to discuss property operations. Rich?

Rich Schoebel

Thanks, Mike. As Stuart highlighted, we are on track to post another very strong year on the leasing front possibly one of the best years on record for the company. Year-to-date, we’ve already least 1 million square feet of space which speaks to the success of our hands on proactive approach of 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 essentially full for over five years now as we continue to maintain our portfolio lease rate at well over 97% as Stuart touched on. Including finishing the third quarter at a very strong 97.7% with our anchored space again at 100% lease and our shop space at 95% lease. While 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 through 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 for any space that may come available. As we continue to work creatively at 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 factors. All within the in-line space segment.

First we are seeing a growing number of traditional bricks and mortar retailer seeking to expand their market presence on the West Coast with new format right-sized stores tailored specifically to the surrounding communities demographic profile. Second more and more e-commerce retailers are starting to introduce new physical store concept to complement their online activity, as well as grow their overall business and strengthening their competitive position. They too are seeking locations in well-located grocery-anchored shopping centers. And third, we continue to see increasing demand from traditional mall retailers branching out and seeking in-line 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 in-line 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 in-line space. In total we leased 376,000 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 in-line 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 Stuart.

Stuart Tanz

Thanks Rich. As some of you may know we just celebrated our 10th anniversary as a shopping center REIT 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 a balance of long-term stable cash flow and good growth opportunities for years to come.

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 ROIC recognized as the largest grocery anchored shopping center REIT focused exclusively on the West 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 in irreplaceable locations with identifiable opportunities for our team to enhance value over time which is precisely what we have done as evidenced by our consistently strong portfolio results. For example, for 31 consecutive quarters now, turning back to 2012 when we began reporting property statistics, we've 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 maintained 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, focused strategy and unparallel West Coast market knowledge and experience. Needless to say, we are 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 ROIC.

Now we’ll open up the call for your questions. Operator?

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Please standby, while we compile the Q&A roster. Our first question comes from Collin Mings with Raymond James. Your line is now open.

Collin Mings

Thanks. Good Morning, everyone.

Stuart Tanz

Good morning, Collin.

Collin Mings

Hey, good morning, Stuart. Couple of questions for me. Just first, just Mike going back to the guidance, can you just elaborate on the changes, just given prior guidance that already incorporated some disposition and ATM activity?

Stuart Tanz

Well, it’s kind of a function of a couple of things; the change in guidance is really being driven partly by our asset sales are a little slower than we originally thought. We also issued equity little bit earlier than we thought we would. Those are the two primary drivers that caused the change.

Michael Haines

And that does include, Collin, another $30 million of equity, if the market is there for us in the fourth quarter.

Collin Mings

Got it. Okay, helpful there. And I guess maybe along those lines, Stuart, just can you maybe just discuss the decision to utilize the ATM here, again, modestly below kind of consensus NAV estimates versus just bringing more assets to the market to reduce leverage?

Stuart Tanz

We felt it was important to tap the equity markets, as Michael articulated, you know, was just off of our all – our high for the year, 52-week 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 FFO.

Collin Mings

Understood. And maybe just last one for me and I'll turn it over. Stuart, just in context of the $85 million of off-market opportunities that you're pursuing, that you highlighted in prepared remarks. Can you maybe just expand on that a little bit more how does some of those opportunities come together?

How quickly could some of these deals get across the finish line, especially just in context of again guidance for this year only suggesting $25 million at the upper end on the acquisition front?

Stuart Tanz

Sure. A number of two out of the three deals were from very long-term relationships in the markets that we've had for the last couple of decades. In discussions with sellers they're finally warming up to actually selling us these off market deals. And the third one is really coming through a relationship we've got up in Seattle, which is an OP transaction on a property that we've had our eye on for many years that the seller now is at a point where he's willing to look at transacting. So two in southern California one in the Pacific Northwest we do expect to probably subject to due diligence close these transactions towards the end of the year and the first part of next year.

Collin Mings

All right. I appreciate the color. I'll turn it over. Thanks Stuart.

Stuart Tanz

Thank you.

Operator

Thank you. And our next question comes from Christy McElroy with Citi. Your line is now open.

Christy McElroy

Hey…

Stuart Tanz

Good morning.

Christy McElroy

Good morning guys. Hey just to follow up on Collin's question on the acquisitions, so the $85 million you discussed sounds like it’ll be that’ll close sort of towards the end of the year and into next year, but how are you thinking about the funding of those aside from the OP units you discussed. So you mentioned additional equity issuance but it sounds like that earmarked more for debt reduction and I guess how are you thinking about the pricing of the OP units because historically you've been able to get a price that's a little bit higher than what where your stock trades, so kind of a two parter there?

Stuart Tanz

Sure all I'll have Mike address the first part of the question, but in terms of the OP units the discussion right now is around a price of $1,950 or a bit higher.

Michael Haines

Yes, as far as the funding resources, I mean it's going to be a combination of proceeds from asset sales and equity issuance assuming the market conditions permit that we're very sensitive about keeping our leverage in check and in fact 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 to be a combination of asset sales and equity issuance through the AGM likely.

Christy McElroy

Okay great. And then Rich just to follow-up on your comments about occupancy with the lease commencements you have teed up I would have expected build occupancy to 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 recapture during the quarter and it sounds like you're still positive on the demand front so where would you expect that build occupancy rate to end the year?

Michael Haines

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 $6.4 million will commence in the fourth quarter. I think it's all driven by the opportunistic releasing that we're doing in many cases well ahead of lease expirations where a tenant may be coming offline a touch earlier than we would have anticipated. Well we're waiting for the new rent to come in.

Christy McElroy

Okay. So if you're expecting more lease commencement of another $2 million should we expect that to be incremental or is that – is there other space coming offline and then sort of offsetting that right, because there's a disconnect right you have spaces commencing but there's also that offset in terms of space recaptured or fall out that you have that’s kind of that results in that occupancy moving lower rather than higher

Michael Haines

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. You know we're constantly working with tenants that are in place and you know needing to be repositioned and you know the timing of the replacement lease is that it's just very hard to predict. But there's always going to be some – you know some variability into it quarter to quarter.

Stuart Tanz

In other words, we're still playing offense on the West Coast, Christy, we're still aggressively out there which is you know 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 tenant base and that's why you're going to get some of this inconsistency going forward.

Christy McElroy

Okay. Thank you.

Operator

Thank you. Our next question comes from Michael Gorman with BTIG. Your line is now open.

Michael Gorman

Yes.

Stuart Tanz

Good morning, Michael.

Michael Gorman

Good morning, guys. Good morning, how are you?

Stuart Tanz

Good. How about yourself?

Michael Gorman

Good and thanks. 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 ATMs 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?

Stuart Tanz

Well, I think you hit it on the bottom, 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 then we would consider obviously as secondary versus using the ATM. Right now the ATM is certainly the most efficient way to raise equity for us.

Michael Haines

Right. I would agree with that. Yes, (inaudible) like a one off acquisition it's not, not difficult to raise you know enough to fund that in any given quarter if you have a larger portfolio transaction come down the road, that mean obviously a stronger candidate for a market to deal.

Michael Gorman

Okay.

Michael Haines

But again, we are, we are sensitive Mike as to where that equity has been issued, because we don’t know.

Michael Gorman

Sure. And Mike, can you just remind us how much you have left under the current APM?

Michael Haines

The original plan was a $250 million program I think we've got at least $200 million still not planning.

Michael Gorman

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 $200,000 came out of the 2020 expiration. Are these early options or were they negotiated renewals in kind of what are your conversations with tenants that are looking to renew their leases early, what kind of conversations are you having there in terms of term or renewal spreads?

Michael Haines

Sure. Yes, some you know continue to be early exercise of options. You know in those cases you know there's really not a lot of discussion, the tenants just exercising earlier than they're required to. And you know and then there's other circumstances where you know a tenant may come to us and you know be willing to give us the space back but we keep them in-place, so while we're out you know re-tenanting and then we pull the trigger once we have a replacement tenant in-place which you know brings that forward you know in terms of the timing.

Michael Gorman

Okay. Got it. Thanks, guys.

Michael Haines

Thank you.

Stuart Tanz

Okay. Good bye.

Operator

Thank you. Our next question comes from Barry Oxford with D.A. Davidson. Your line is now open.

Stuart Tanz

Good morning, Barry.

Barry Oxford

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 (inaudible) in any, anyway.

But when you're out there in the marketplace, what is the range of cap rates that you're looking at given this kind of stronger retail environment we have?

Stuart Tanz

So valuations for grocery dominant grocery drug anchored shopping centers on the West Coast have actually begun to go off and cap rates have begun to creep downwards for two reasons. Number one, widely marketed deals the supply of widely marketed deals in the market have contracted. There's 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 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 90 to 120 days.

And as we move into 2020 we don't, we believe that that valuations for what we own in the markets that we're in are going to continue to potentially head downwards. And that's why we're a bit more active right now in building the pipeline but more importantly for us it’s really finding off market transactions that would deliver very strong NOI growth over a short period of time after buying these assets.

Barry Oxford

Given that you know cap rates might be compressing a little bit why not push on your development more, more so?

Stuart Tanz

Well we are working on a bit of that…

Barry Oxford

The acquisition deal pipeline?

Stuart Tanz

Sure, we are working a bit 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, why we are not in the development business. The reality is through our experience in terms of 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 in the development business you typically need at least three or four years to really stabilize your NOI so combination of all three of those that really keeps us on the sideline in terms of development and what we also thought is that we can find a dominant grocery anchored center in our backyard.

Our management platform or operating platform has the ability to really drive those yields to 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.

Barry Oxford

Great. That's it for me guys thanks a mill.

Stuart Tanz

Thank you.

Operator

Thank you. Our next question comes from Jeremy Metz with BMO Capital Markets. Your line is now open.

Stuart Tanz

Good morning Jeremy.

Michael Haines

Hey Jeremy.

Jeremy Metz

Good morning guys. Hey, Stuart in terms of the acquisitions just going back to that seems like you've been right around the hoop here a number of times and nothing has really ultimately come to fruition quite yet. I know you've been sensitive to your cost of capital and monitoring leverage. It again sounds like you're pretty close here you mentioned the $85 million, I guess how confident are you at this point that all that all $85 million gets across the goal line and maybe what it's held up some stuff in the past, in the past 12 to 18 months is it just sellers re-trading you're getting less comfortable as you’ve dug in more as China gauge this next bucket here and getting them to the goal line? Thanks.

Stuart Tanz

Well, certainly we've been cognizant of the leverage side, really the net debt to EBITDA in terms of the balance sheet. We have obviously been very cognizant of our equity and the cost of that equity. But more importantly, it's really been and we had some opportunities to do our PE deals, but with our stock price the way it's been not performing recently, but certainly earlier in the year, we were reluctant to certainly move those – those transactions forward, just given the discussions around the stock price itself. You know 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 they don't come to fruition because of issues relative to the changes in either the retail sector or the overall income or tenant base of 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 pull that trigger 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, we're excited for 2020 at this point, looking at ROIC because the fundamentals are holding up so well where we're playing offense – continue to play our offense and more importantly we believe if we can hit the stride in terms of acquisitions, we will actually start growing our earnings versus having our earnings stay flat as they've done this year.

Jeremy Metz

Yes. And so you mentioned 2020 and in that context, just from the densification side obviously you talked about Crossroads getting close to starting here early next year, just – and then you detailed about the two others in San Francisco and the two in the Pacific Northwest, which or chance of little earlier say how realistic is it to get any of those started on the ground next year is it just too early to tell on that front?

Stuart Tanz

Well we do have a couple of pads that will come online and that will certainly help us in terms of NOI growth next year. But in terms of densification, the crossroads realistically will not come online in 2021 because you've got to go through working drawings you've got to build the project and you've got to stabilize it. And that process alone is going to take at least a year to two years. So, I wouldn't look at 2020 as it relates to densification but I would look at 2021, 2022 is when you’ll 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.

Jeremy Metz

Yes, and sorry, I guess I was more focused on just not, not delivering next year but starting getting one of those or both those San Francisco ones started out of the ground next year, that’s in?

Stuart Tanz

Yes, I mean the crossroads it looks like we'll come out of the ground hopefully next year and the other two should follow shortly thereafter, so it's not right at the end of the year it could be right at the beginning of 2021?

Jeremy Metz

Got it. And then Mike just one quick one back to some comments you made on the guidance. I guess just thinking through the slower asset sales, it should be a benefit I get that the acute equitations is a little early and you have a little more in the fourth quarter, but it would feel like those maybe offset each other here a little bit. So is there anything else that we need to think about here that could be impacting the move in the guide?

Stuart Tanz

No I was, excuse me, it’s primarily just the change in timing of the dispositions and the equity rates as yet through AGM, that's the primary drivers.

Jeremy Metz

All right, thanks guys.

Stuart Tanz

Thank you.

Michael Haines

Thank you.

Operator

Thank you. Our next question comes from Wes Golladay with RBC Capital Markets. Your line is now open.

Wes Golladay

Hey, good morning guys.

Stuart Tanz

Good morning, Wes.

Wes Golladay

Hey, good morning Stuart. Looking at your anchor expirations over the – I guess through 2020 you have 10 of them coming due. Is there any large mark-to-markets and do you expect to recapturing that space?

Stuart Tanz

Yes certainly some we expect – this is Rich. Some we expect to recapture and 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 where there could be – could be flat. So there's very little control we have over those. But there are some that are coming up that are out of options and are significantly below our market rent where we expect to have some really good lifts.

Wes Golladay

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?

Stuart Tanz

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 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 what it normally would normally be under doing just one project. So that's were 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 hassle how much construction they have ongoing. They believe with and they've done a lot of business and built a lot in Seattle that, that will deliver a cost savings to us and that's what they're communicating to us at the present time. I don't know if you want to add anything to that.

Michael Haines

No, I mean I think the other part of that is that we look at this very conservatively when we start down this path. So what we're 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 can to keep the cost as low as possible.

Wes Golladay

Got it thanks guys.

Michael Haines

Thank you.

Operator

Thank you and our next question comes from Todd Thomas with KeyBanc Capital Markets. Your line is now open.

Michael Haines

Good morning.

Stuart Tanz

Hey Todd.

Todd Thomas

Hi good morning. So just a couple of questions following up on the investments. Just curious what's your appetite like for incremental investments beyond the $85 million that's in the pipeline today and then once the two other Sacramento assets are sold are there additional assets being teed up for sale beyond those two and. And does your investment activity, your acquisition efforts does that cause you to think differently about dispositions going forward?

Stuart Tanz

Well in terms of dispositions I mean 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 and we determined at that point whether we will sell those properties. So and we're going through that right now Todd in terms of 2020. So so as it sits right now there's nothing yet teed up.

But again we may tee up a bit more on the disposition side. On the acquisition side, the focus there and the criteria is there is really to be buying only gross free drug, if there is a third anchor that's got to be primarily one of your value tenants out there like either a gym or a Rock TJ or outside of that we're really staying away for 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 disposition side.

Todd Thomas

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 you or your return hurdles at all as you're as you're looking at these assets today or is there a little more value add or, or sort of you know growth embedded in the assets that you're underwriting today?

Stuart Tanz

It’s growth. I mean that's the bottom line the fact is that we’re paying a 5 cap or 4.8 cap or a 5.3 cap or Todd said it's all about what the offering platform can do after we've bought the asset and how you know typically we like to see is about 100 basis point increase within an 18 month period of time of ownership. That's part of our underwriting criteria. Sometimes we meet that or and 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 NOI.

Todd Thomas

Okay and then just moving over to the same-store, Mike maybe Rich can comment also. So the same-store NOI growth in the quarter was consisted of base rental income growth of 3.3%. You're running at 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 4Q and also 2020?

Stuart Tanz

Well, I don't think we haven't really…

Todd Thomas

Sorry, primarily around the potential volatility in some of those other lines both below sort of the minimum rent line?

Stuart Tanz

All those line items factored into the NOI overall calculation for the pool. And same-center cash NOI, 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 actions who Rich talked about which is more often than not we really don't know how it's going to play out. During the second quarter it was better than we had thought, during the third quarter it was conversely slower than we thought it would be based on budgets. We're still tracking a solid 3% for this quarter and we're still very comfortable at 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.

Todd Thomas

Okay. Would you expect to see minimum rents accelerate into the fourth quarter? I think that was part of the forecast earlier in the year?

Stuart Tanz

I would 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.

Todd Thomas

Okay. Thank you.

Stuart Tanz

Thank you.

Operator

Thank you. And our next question comes from Vince Tibone with Green Street Advisors. Your line is now open.

Stuart Tanz

Good morning, Vince.

Vince Tibone

Hey, Good morning. I have a few more on the densification side. I'm just curious, how many of these projects would you be comfortable developing at one time? Do you have any risk or parameter in place which is a threshold that maybe a total dollar amount of the total active pipeline, just trying to get a sense of how many of these you could put to work at one time?

Stuart Tanz

Well, there are – I mean in terms of – in terms of how many of these could be happening at one time, I mean you could at some point as you look into the next you know 2021, late 2022, have two or three of these going at one time. However, we’re not in the business of building multi-family. 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 coming and oversee the project 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 perspective, but that's sort of the program right now as it relates to moving these three forward and potentially the other two now that are on the drawing board. From a capital perspective, Mike, if you want to comment on that?

Michael Haines

Well, I can say, any developments can be incremental to our business that is also incidental to our business because it's not our core competencies. So any development – developments that we undertake is not going to be a material number to our overall balance sheet. So that’s – it’s incremental but it's also incidental.

Vince Tibone

Okay. No, that makes sense. And I'm just curious would you consider selling in title land, at any of these sites, just to lock in the value today versus going to developing over a few years is that potentially on the table?

Michael Haines

Yes.

Vince Tibone

Okay, fair enough. That's all I have.

Michael Haines

Thank you.

Stuart Tanz

Thank you.

Operator

Thank you and our next question comes from Craig Schmidt with Bank of America. Your line is now open.

Stuart Tanz

Good morning Craig.

Michael Haines

Good morning Craig.

Craig Schmidt

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 the emerging factors?

Stuart Tanz

I think it's always – it's hard to predict but that is where the tenant demand is coming from. So I think that you'll see a probably a large percentage that are coming from those categories.

Craig Schmidt

Okay and then the one anchor new lease was that a grocery-anchor or a general merchandise anchor?

Stuart Tanz

It was a fitness.

Michael Haines

Very strong fitness operator Craig.

Craig Schmidt

Okay thank you appreciate it.

Operator

Thank you and I'm showing no further questions in the queue at this time. I’d like to turn the call back to Stuart Tanz.

Stuart Tanz

Thank you. In closing I would like to thank all of you for joining us today if you have any additional questions please contact Mike, Rich or me directly. Also you can find additional information on the company's quarterly supplemental package which is posted on our website. Lastly for those of you attending Nareit’s Annual Conference in Los Angeles in a few weeks we look forward to seeing you there. Thanks again and have a great day everyone.

Operator

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.

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