Good day, ladies and gentlemen, and welcome to the Q2 2019 Kite Realty Group Trust Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's call Mr. Bryan McCarthy, Senior Vice President, Marketing and Communications. Mr. McCarthy, you may proceed.

Thank you and good morning everyone. Welcome to the Kite Realty Group second quarter earnings call. Some of today's comments contain forward-looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties. Actual results may differ materially from these statements. For more information about the factors that can adversely affect the Company's results, please see our SEC filings, including our most recent 10-K. Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for a reconciliation of these non-GAAP performance measures to our GAAP financial results. On the call with me today from Kite Realty Group are Chairman and Chief Executive Officer, John Kite; President and Chief Operating Officer, Tom McGowan; Executive Vice President and Chief Financial Officer, Heath Fear; Executive Vice President, Portfolio Management, Wade Achenbach; Senior Vice President and Chief Accounting Officer, Dave Buell; and Senior Vice President, Capital Markets and Investor Relations, Jason Colton. I will now turn the call over to John.

Thanks, Bryan, good morning, everyone. During the past quarter, we continue to execute on our deleveraging and disposition program while maintaining a focus on operational excellence. I'd like to highlight our achievements before discussing operations. During the quarter, we sold eight assets for $244 million and subsequent to the quarter -- quarter end, we have sold an additional five assets for $157 million. The proceeds from these sales will be used primarily to pay down debt. Year-to-date, we sold 14 non-core assets for combined proceeds of $415 million. We now believe we'll meet the high end of our disposition guidance range of $500 million by the end of 2019. As anticipated, our net debt-to-EBITDA ratio continues to drop and was 6.4 times at quarter end. Pro-forma for the completed asset sales and debt pay-downs subsequent to quarter's end, KRG's net debt-to-EBITDA ratio is currently at 6 times. As a reminder, we have no preferred shares outstanding. Since we believe we'll hit the high end of our disposition range, we anticipate our NDE ratio will be in the mid to-high 5 times by year-end. In light of the recent macro volatility, it's important to note that our revolver is completely undrawn and our maturity ladder continues to improve. To put in perspective, our current borrowing capacity under our revolver is more than our aggregate debt maturing through 2025. Moving to operations. In the second quarter, we generated FFO of $36.7 million or $0.43 per share. For the six months ended June 30, FFO was $74.9 million or $0.87 per share. We grew same property NOI by 1.7% compared to last year, driven primarily by increases in base rent and expense savings. Combined with our first quarter results, we grew same property NOI by 1.8% through June 30th. We grew our ABR…

Thank you. [Operator Instructions] Our first question comes from Christy McElroy with Citi.

Can you provide the average cap rate on the $415 million of dispositions completed year-to-date, and given that you've been able to transact more and earlier than expected, is there a possibility that you would maybe look to do more and could exceed the high end of the range and is there anything under contract today?

Hey, Christy, so as regards to cap rate, I think as you know, we introduced the plan at the beginning of the year. We really pretty much laid out that we were going to avoid getting into the cap rates, particularly until we're finished with the program. I think as it relates to what we were trying to communicate was the impact on our FFO guidance and the impact, particularly giving what we felt like the annualized impact of 2020 would be and I think that's what we put out in this particular earnings release, you can triangulate to the 2020 impact. So that's important that we do that. As it relates to our expectations relative to the cap rate, there exactly what we budgeted. So back to what we think the earnings impact will be, that's how we're budgeting that. In terms of, you know, what do we do more? I think that we obviously increased the midpoint of our guidance a little bit due to the acceleration. We always told everyone that we had more -- we were going to have more than $0.5 million or -- $500 million on the market. We do have more than that on the market. So as it relates to what we do more that possibility exists, but the one thing we were trying to make clear is that really anything above the net $500 million of disposition number, we're going to view that as offensive capital, not defensive capital. So I think if we were to go there and it's still early, because I think haven't played out fully, then yes, we would go above that number, but if we did, we'd be reinvesting those dollars either in accretive acquisitions that would probably have some sort of potential redevelopment components to them or our own existing redevelopment pipeline that we have right now and then we also mentioned that depending on where the stock is we'd have to look at that too from a capital allocation.

Hey, John, it's Michael. It's Michael Bilerman speaking. I can totally appreciate why when you set out a $500 million asset sale target which obviously is a substantial amount of your portfolio, you didn't want to sort of lead the market with cap rates that would weaken your negotiating power. You've done well over 80% at this point, right, it's in the bank, it's done. I think it would be helpful, especially because FFO impact is in large part driven also what you do with the proceeds and what rates you're assuming back that you provide the trailing or forward cap rate on the $415 million done to date. I don't think it should be a secret?

I appreciate that Michael, of course, and I think -- what I think we're not far from finishing that initial. I think the one thing that you know is pretty clear is that these dispositions are well inside our implied cap rate, and I think there was one or two notes that speculated what those cap rates where and they were probably directionally correct, and they're going to -- they're pretty much right in line with where you're seeing these trade and I do -- we will get more concise with that when we get closer to the end, but as it relates to -- if they were materially different or I mean in other words, if they were much higher than we would had originally projected, then our guidance wouldn't be holding true to the impact of 2020, Michael. So, I mean, I get your point. I'm not trying to be coy, but I want to get through this and I really don't want it to impact what we're going to do.

Michael, this is Heath. I'd just add on, you know I've been through this process before. We communicated a range and sometimes we communicate that range you end up not making the best real estate decisions. We're really try to look at this as making the best real estate decision in terms of what we're buying. So sometimes you can kind of box ourselves. So, yes, to your point, we're pretty far through, but we made a promise to ourselves earlier on that we would bring discipline and not disclose cap rates until we're done and so that's what we're going to do.

Right, but your implied cap rate represents your entirety of portfolio, arguably you're selling likely weaker quality assets. So understanding where new transactions on 85% of the program would be helpful, but also just trying to understand the spread between what you're selling, what you're losing, and then what you're doing with the money, because that will have as big of an impact on your dilution, then just where you are selling the assets at, right? And then the time factor, in terms of, how you redeploy or how quickly you redeploy also factors that in. So at least having some of the averages, it doesn't have to be a range, but just some sort of guidance, in terms of, hey, we've done 85%, we've done about 8% cap rate. We've taken the money, we've repaid debt at 3.5% or 4% or we're leaving it in cash at 2.5%, just to give us some goalpost to think about.

Yes. Again, I appreciate it. I mean, I would say you're a little ending to that is directionally right on, Mike, I mean so -- I mean, that's part of what's going on right now is that we have to think about once we exceed, if we exceed that Michael, and for sure what we do with those proceeds can impact further dilution or not and we get that. And so that's why we want to be really cautious around what we say about what we will do beyond that, but I think directionally, your statement is pretty accurate

And also add that listen we gave you the math is sort of the card drill. So we told you, we're selling up to $500 million. We told you that the primary use of that is to pay down debt and the net impact of those activities we set forth in our guidance. So again, we think we've given folks enough tools to figure out what this means for us going into 2020.

Thank you. Our next question comes from Todd Thomas with KeyBanc Capital Markets.

Hi, thanks. Good morning. Just a couple of questions, I guess on the dispositions also. I was wondering, first, can you talk about what the same-store NOI growth in the quarter was from the asset sales that were completed in the second quarter?

Yes, so Todd, listen, some of them contribute, some of them detract. So when you sort of like net it all out, you're talking about 5 to 10 basis points different at this point, so not a material difference on the same store by virtue of selling those assets.

Okay. And the assets that were sold subsequent to the end of the quarter those were still in the same-store for the quarter and was there any similar impact, I suppose, if you exclude those five assets?

They were in the same-store pool. And yes, again, some of them are detractor, some of them are accretive, but those subsequent ones are generally accretive.

Okay. And then, just one more, I guess, on the disposition. So I think I heard in your prepared remarks, John, and in some of the comments just around 2020, you know the 2020 impact is sort of impact from the disposition. So a little earlier in the timing some price uncertainty perhaps, but I guess, regarding the FFO bridge that you've provided, is it your expectation that 2020 should be intact as a result of the net impact from all of this transaction activity overall?

Yes, I think our expectation is that, if you look at the way we laid out guidance in our press release that the annualized impact we move that a little bit, but yes, I think that would be intact the way we've laid it out, and that's just specific to only that dilution that would be occurring from those asset sales. And then you have to -- you've got to make other assumptions obviously for what would be happening in 2020. Heath, do you want to add to that?

Yes, the only change, Todd, is that we raised the bottom of the disposition guidance to -- from $350 million to $415 million which took it from $0.20 to $0.29 to $0.25 to $0.29 to annualized impact for 2020. So there's really no change there.

Okay, that's helpful. And then just moving over to the same-store. Heath, can you remind us how much you budgeted for the year in terms of bad debt or unexpected move-outs and how should we be thinking about throughout the balance of the year and are there any known move-outs occurring in the third or fourth quarter at this point?

Sure. So we started the year with a total of $3.2 million in our bad debt reserve, $2.5 million in same-store, and that translates to about 110 basis points of same-store NOI. For the balance of the year, we've got $1.6 million left in our bad reserve reserve, $1.2 billion is in same store, which is about 60 basis points of same-store NOI, and we do not have any budgeted distress in the back half of the year.

Okay.

No specific tenant that we're looking, that we're -- that we're modeling for the back half of the year.

Yes. So if you just said in another way, if you look what we've modeled for the full year, I mean, it looks like the model was pretty accurate. I mean, we've used about half of it. So I don't know why we wouldn't assume that the balance would get used, but we'll see. The next quarter is a big quarter and we'll see what happens.

Okay. All right. That's helpful. Thank you.

Thank you.

Thank you. Our next question comes from Craig Schmidt with Bank of America.

Yes, good morning. Given the high level of anchor occupancy, I wonder how much left do you have to do in terms of big box re-tenanting?

Sure, Craig. I mean, I think we've moved through the majority of the leasing from the original bankruptcies. We have a handful out there that we still need to get done probably somewhere between six and ten, I guess, that we're working through that, but those aren't all relative to bankruptcies are also just some other vacancy. So we're starting to get into the point where it's in a much normal -- much more normal cadence of big box leasing and really the last two, three years have been so hyper elevated that -- that's why you're seeing the result of us starting to get this leasing done, and then the nine plus million of NOI that will come online. So in general, there is -- we're getting more normalized, but I don't know, Tom, you want to add anything.

Hi Craig, I think that number will actually reduce to the end of the year and we are clearly working on various deals that take that number down further. So we continue to drive the Big Box Surge and expect it to continue through the end of the year.

Okay. And then just, are you able to do any pre-leasing on the dress barns that will close at the end of the year?

We have -- we made an immediate trip out to Philadelphia and other locations to make sure we jumped on any opportunities that were out there. I think we're seeing tenants being very opportunistic when they see vacant space. So we are in a position that we're negotiating three leases right now, two LOI. So it's fair to say we have very good movement on five of the eight and we have till the end of the year to get this sorted out. So the expectation is it get us as far as we can by year-end.

Thank you. Our next question comes from Collin Mings with Raymond James.

First question from me, I just want to go back to Christy's question and just the discussion around the use of proceeds going forward. Can you maybe just expand on how you're thinking about redevelopments right now? I mean, over the last few years, we've heard a lot about the 3R program, again, it doesn't look like there is anything active right now on the redevelopment front, but maybe just talk a little bit more about the future opportunities and how you think about potentially allocating some capital to that and kind of ramping back up the redevelopment efforts?

Sure, I think you remember, Collin, that we talked about, you know when we got laser focused in on filling these boxes, obviously, we view those as little mini redevelopments in themselves in the sense of capital expenditures and returns, which is why we mentioned that we have been generating around 15% returns on these deals, cash on cash, which is pretty strong. So that took a lot of our emphasis and focus and that's where a lot of the spend has gone in the last 18 months. So as that begins to play out and we be -- we are -- we have been extremely successful there, we will begin to pivot to look at where else we would want to spend our capital. So when looking at redevelopment deals, we have, if you look at our supplemental, you'll see that we have some redevelopment deals that we consider future redevelopments which are more mixed use in nature, two of those are in Carmel, Indiana and Indianapolis, one of the -- consistently one of the best suburbs in the country in growth and in income appreciation, and just gets ranked very highly that way so. And then we have a third one in Indianapolis at Glendale, which is also a mixed-use. So those are the three that are in the most current pipeline. We haven't put the numbers in there yet, because we're still -- it's still evolving. I think our thought process there is that we like the mixed-use attributes in these three particular deals. It doesn't mean that that's all we're going to look at, but that's our current -- what we're focused on and we want to get the right returns and get them done. Beyond that, it's too early to say. I mean, beyond that, we will always continue to look for these things and I think a lot is going to have to do with how much capital we have to deploy if we do exceed the goal in terms of asset sales.

Got it. So maybe given the success year-to-date on the dispositions as well as maybe the willingness to go beyond that $500 million mark, should we think about some of these redevelopments maybe getting a little bit more traction or getting some more clarity on -- to what extent you might pursue some of these as we roll into 2020 or I mean, just the thinking there is you're looking at capital going forward?

I think it's a combination of the timing of -- these things take time, particularly, mixed use development deals take quite a bit of timing and you've got to go back in through, generally through rezoning processes or variance processes. Two of the three of them -- actually all three of them will be looking for some sort of incentive packages as it relates to partnering with the municipalities involved. So that takes time. So that's part of that, but also being a prudent capital allocator, we want to be -- we want to know that we have the appropriate capital allocate without impacting our balance sheet. I mean, we've obviously worked extremely hard. We're going to succeed in getting our leverage into that mid-to-high 5 times, which will be -- and as a reminder, we don't have preferred shares. So that will put us in top five or six in our space as it relates to balance sheets and we're going to protect that. That said, we still want to grow. So we will find that balance and figure out how to do that.

And then on that last point, John, you made a point earlier -- highlighted, if you were to look at acquisitions with kind of future capital, again, keeping in mind your point around where you want to keep leverage that there were maybe be a redevelopment tilt in terms of some of the acquisitions you might pursue. Maybe just -- obviously, you've been very active in the transaction market this year. Just -- are you seeing very many potential acquisitions where the balance sheet is where you want it to be that you'd be potentially pursuing?

Yes, we are definitely monitoring the other side of the equation, which is acquisitions. And as we mentioned, we are going to have to do a couple of 1031s as part of our overall disposition plan. So we've been looking to execute on that. And as part of that process, we are seeing a lot of things, and we have, I think we've found both some opportunities that we feel like are under-managed or under-opportunistic in some way that we could change that dynamic. And then we also have been looking very hard at geography. And as you know, part of all of this isn't just about deleveraging, it's about improving the quality of our portfolio, we spend a lot of time analyzing that and we've mentioned that we would end up and 15 to 20 markets eventually and that's what's going to happen and those markets are going to be markets that we think excellent characteristics as it relates to growth, as it relates to inventory, and frankly where people want to live and that's critical to our business. So I think it's all of those things, and we will definitely think we can find those opportunities. You know, look, our skill set that we have, one of our many skill set is that you see things and assets that others have missed and we've proven it time and time again with the deals we've done and returns we generated. The only thing that held us back is our balance sheet, and we're hitting that square on and I understand people's desire to understand the past as it relates to cap rates, everything else, and we're going to help everybody with that down the road, but these deals are smart deals that we're doing right now and when we're selling these assets, you know well inside our overall company implied cap rate, the redeployment of this capital that we're eventually going to be able to do is going to be very, very good for us.

Okay. I appreciate all the detail there John. Just one quick one for Tom. Just as far as lease negotiations, I'm just curious how much is the trade tensions have entered into leasing discussions with tenants. Is that something that's coming up at the negotiating table right now?

You know when we make our visits to the retailers, it's one of the hot topics that we discuss. So as of right now, it is not entered into it. I do think you're seeing retailers really diversify their buying base and you're seeing movement of Vietnam and all across that region. So I do think long-term, all of them feel this will be healthy for the industry to provide a much greater hedge in the event of tariff situations like this, but to date, we have not talked about it specifically on lease rates, TI, etc.

Thank you. [Operator Instruction] Our next question comes from Barry Oxford with DA Davidson.

Great. Thanks guys. Just kind of building on the retailers a little bit. John, what are you seeing as far as new concepts coming in to your space? Are they more or less than they were maybe six months ago, give us a little bit of color there?

Sure, Barry. Well, high level, I mean, if you just look at the last quarter, I'd say about 60% of the deals we signed were restaurant, grocery, entertainment service, so that I would say it's fairly typical in terms of the type of users, and again one of the benefits of our world and the open -- open-air space is just extremely flexible space, right. So I think we are much more pliable, much more adaptable to use changes as it relates to specific maybe newer retailers. I think it's what you hear about. I mean, I think you're starting to see retailers really expand there. When I say retailers, the ones that are reinvesting in their business is -- reinvesting in their physical space are the ones that are most interested in new thoughts and once that have shied away from that over last several years, ones that are slowly kind of fading out and so this is a natural healthy process. I think in terms of guys that we're excited about, I mean, we've definitely seen some tenants that historically have, for example, only been mall-based tenants that think that they now can be successful in both venues and probably can do it in much closer radiuses than they thought they previously could just because of the different types of consumer, the fact that our cost of occupancy is significantly less. So that means, maybe they can give up a little bit of sales somewhere else and still be profitable with us and that allows them to get more creative too with their spaces. So without getting into a lot of specific names, because we want to be careful there, we're definitely seeing more interest today from retailers that we have not done business with than we did a year ago, two years ago, Barry. So I feel really good about that and we're probably only just beginning to scratch the surface, but I want to emphasize the primary reason for that is the flexibility and locations of our centers. They're just flexible, they are visible and the cost proposition is pretty reasonable.

And ultimately it just allows that shopper to generate additional trips, because the ease of ingress/egress and -- of a mall location we're able to secure one. I think the strategy keeping the A mall would be to try to do peripheral components with new increased trips and then it seems to be a logical strategy where the two types could work together to serve the customer.

Outside of that, I mean, entertainment and service also are both growing pretty substantially, I would say.

Are you finding the retailers to be very discriminate about where they're going, it's still very competitive, but because you guys have some of the newer lifestyle centers, you guys aren't feeling the pressure that may be an older center would be so to speak?

Yes, I think couple of things. One thing, if we've always had a younger portfolio than probably the majority of the peer group, if you just look at average age of our shopping centers, which is why we've had lower capex per year than most, just based on the age of our portfolio, Barry, but also I think, yes, I mean, I think that you're seeing this ability for us to be much more adaptable at a much more efficient price and you got to remember throughout all this, people forget. I mean, there has been no inventory buildup in our space for 10 years, that's way beyond what people initially thought and sure was there overcapacity, was there over build up in the previous 10, definitely. But now that's kind of moderating out and which is why I would like to say, hey, we don't need an incredibly robust retail environment for us to do well. We need a moderate environment which is why you see our spreads where they are and you see our NOI growth. And it's coming back and we went through a period of, you know kind of unprecedented change in the anchor space and now on the other end of it it's going to be better, because we're going to be hooked up with better partners that want to spend money on their businesses and those dying partners that just avoided that, that was a mistake. And I think it's pretty damn clear. You got to pay attention to your physical real estate, because it complements your entire distribution channel.

Thank you. Our next question comes from Chris Lucas with Capital One Securities.

Hey, good morning guys. Just a couple of quick follow-ups if I could. Heath on the -- with the proceeds from the quarter for third quarter, you're paying down additional debt. Do you have a sense as to what that debt extinguishment cost will be for third quarter at this point based on what you paid down already not just kind of what's occurred?

Yes, sort of, year-to-date, we paid $5 million in penalties. And as we said in the first quarter, we thought the total program will cost about $12 million to $13 million of prepayment penalties. Basically, what's happening with rates that's gotten more expensive, call it by $2 million to $3 million, but we're fairly confident that that's been hedged by the fact that. One, we think probably getting better pricing on our dispo program, because obviously rates are cheaper, which makes the debt cost cheaper for our buyers. And two, we really think that the due diligence process is fairly smooth and I think part of that is again, because people's debt costs have been steady actually improving during the diligence process. So well, overall, our -- the seasons costs are going to go up by $2 million to $3 million bucks, I think we're seeing it on the -- on the selling.

Okay. Great, thanks. And then on same-store NOI, it looks like relative to sort of the lease guidance we provided last quarter, second quarter was a beat. How do you guys think about the cadence in third quarter, fourth quarter as it relates to sort of ramp from here?

Yes, part of that beat for the second quarter was really the timing of expenses and those expenses will sort of bleeds into the third quarter. So we originally described moderating into the second and then accelerating into the third and the fourth. So now I think we're going to see, it's going to be flattish into the third and then will accelerate severely into the fourth. So the trajectory has changed a little bit again, a lot of has to do with the timing of expenses. The good news is that, over a third of our leases are fixed CAM. So when you don't pay expenses during the quarter, you're actually still collecting the same from the tenants. So again, it's mostly just the timing of expenses.

Okay. And then you mentioned the need to probably be at 1031 done or two. I guess, the question I would have is, how does the timing of that work. In other words, given the program is still under way and you still have potentially more to do, is that a lot of your more flexibility as it relates to when you need to execute on that, so something that could drift in to next year or is that something you need to get done before the end of the year something that will require special dividend?

So, yes, we've done one 1031 now, and you know the trick to this whole process you try to match losses and gains, so you don't want to pay that special dividend. There may be an opportunity where we have one asset which is a significant to make 1031 that asset. But even if we don't and net-net at the end of the day, when you look at what's the total gain in this portfolio you're selling, it's around $70 million. The current dividend that we're paying based on the return of capital portion covers it. So you may do another 1031, because you worried about the other side of that transaction, but for the most part, again, on a net basis, we're covered for the full year.

Okay, great. Thanks. And John, just one for you, you're at 92% on the shop space, which was sort of what I think you've described as the high end. Is there a chance that that can move higher at this point or do you feel pretty comfortable that that is pretty much the ceiling for that business?

No, I think it will definitely move higher and we want to -- we're going to make it move higher, that's our job. I mean, our job is the lease space, it's the number one thing we do. Our portfolio is only getting better, Chris. So by that, sometimes you have subtraction or addition by subtraction in those things. So I think, but no, definitely. I mean, when we had originally, if you remember, for a long time we've talked about this goal to get to 90%, we blew by that goal and we have a great team and I anticipate they'll blow by where we are right now and that's what we do. So I'm not a big believer in this idea that there is permanent vacancy. I think we can lease everything and we got to go do it. And I think the only thing I would balance that against is what kind of rent growth we can drive. One of the things you know that I think you even notice is that our -- when we look at our lease spreads, our GAAP lease spreads are pretty significantly above our cash lease spreads due to the fact that we push hard for annual growth in our small shop world, particularly. So that's the balance, you know you want to balance that. I want to continue to push growth, OK. So yes, that's some friction against occupancy, but we have great -- we have been a phenomenal leasing team to get that and those when they come in to get a deal approve that we're going to be paying close attention to that.

Thank you. Our next question comes from RJ Milligan with Baird.

Hey, good morning guys. Heath, I just want to follow-up on the capex discussion. How do you expect TI/LC capex to trend in the back half of '19 and into 2020?

Well, I think when you look at the progression of our -- of our capex and if you looking our sub, as you know we're very descriptive in what it is and I don't think that's very consistent across the universe, but we're pretty descriptive. So the last couple of quarters obviously have continued to move up, you know from -- in terms of the new lease capex. I think that's pretty clearly associated with the level of big box leasing that we've been doing. And remember, our universe of deals is pretty small per quarter. And so when you're looking per quarter at the universe, and even though you kind of trail it out over the last few quarters, one or two box deals can, for example, this quarter, I think we had 21 new deals. Half of the square footage was in three box deals, three or four box deals. So -- and one of them was particularly expensive, but a good return. So that can really skew. So I'd say, we're on the upper end of where that's been, and as we begin to get more stabilized and back to the historical occupancy in the boxes, I could -- I would see that likely coming down a little bit, but in the scope of what we've always done. We've always said that, when you're going to do anchor leasing and these are turnkey deals with landlord work involved, tenant work involved, commissions doing a deal around $75 a foot is not very unusual. So I think it's pretty stable and hasn't -- there has been some movement in construction costs, but overall, I'd say it's pretty stable. Tom, you want to?

Yes, I would say the one location where we saw increased costs was the turnkey deal. It was a situation. There was a state that had the higher tax so that adds up to about 8.5%, but ultimately on a turnkey, you have much higher costs and it's somewhere almost to the grocery store build out on the one we talked about. I think as a general run rate, we are being extremely steady. Sometimes, we'll have very low TI box deals. So it's going to move around, but we're comfortable with the pace and the areas that we're in right now.

Okay, that's helpful. I guess, I think in the press release, you guys give pretty good guidance in terms of what expected dilution would be for the dispositions for 2020 and I guess what I'm trying to get you as an AFFO number for 2020 that you end up selling more than the $500 million and based on your expectations for TI/LC capex, how comfortable are you with the resulting payout ratio and the current dividend level?

Yes, I mean, I think we've talked about that and I -- we're very focused on making sure that we understand where our cash flow will be. And I think we're right on top of our estimates of what it will be and we were pretty clear that this is elevated payouts relative to our historical payouts but our historical payouts were reasonably low for the last several years during the period of time we were raising the dividend then. So I think we're very comfortable with the dividend payout right now, and as we said, it's not in cross purposes with our plan to -- our deleveraging plan, which has been obviously very successful in a fast period of time. And I think you may have heard me say earlier, I mean, the first step of this was to get our balance sheet to be top notch, to be in the top tier. By the end of the year, that's happened. So at that point, the next phase of that is growing the business with that awesome balance sheet and we're going to be able to do that, we're going to figure that out, and paying the dividend is there. We think we can do those things. It's clearly tighter than it was in the past, but we've invested a lot of capital over the last couple of years that we won't have to invest in the next couple of years through this box program. So we actually feel pretty good about it. We'll continue to monitor it like we always do. But as we pivot into, I'd say 2021, 2022, 2023, we already have pretty good understanding of where we're going to be there and cash flow begins to grow pretty substantially in those years and we'll be looking to deploy that into positive returning investments .

Thank you. Our next question comes from Tammy Fique with Wells Fargo Securities.

Hi, good morning. It sounds like the impact on same-store growth year-to-date from the dispositions is fairly minimal. I guess, can you just give us an update on the longer-term growth top profile for the companies where post dispositions and then based upon the tailwinds from outside anchor leasing recently, how should 2020 kind of compare with that long-term range?

Can you repeat the second part please?

Sure. I was just saying that based upon the tailwind that you guys have from -- the outside anchor leasing recently. I'm just wondering how 2020 should compare with kind of the longer-term range that you guys are expecting for the Company on a same-store NOI growth basis?

Got it. Yes. So I think as Heath just said a second ago, the fourth quarter is when you really see the beginning of the impact of the leasing that we've been doing as it relates to the big box leasing particularly, and when you go out into 2020 I would assume that that will also be continuing throughout 2020 in terms of more strength in NOI growth than we've had in the last two years. And I think the tailwind that you mentioned, obviously when you get into 2021, you're competing against what I would think would be a stronger NOI growth in 2020, so you begin to have to -- have to continue to push that growth. But I mean, look, when you look where we've been historically, Tammy, I mean, thinking of our business being able to grow in that 3% plus range is how we think about it. I mean, we think about that we want to grow our NOI at 3% and better, and that's how we want to set up our capital investments, that's how we want to look at pushing our rent growth with our tenants. So that would be our goal in a longer-term basis is to get back to where we've historically been. And again, I mean, not everybody -- unfortunately not everybody is giving you the same math on that NOI growth, whereas ours is very, very clear what the way we're calculating it. But I think the business can remain pretty healthy in the next couple of years as long as the dynamics stay as they are today. Obviously, we have outset, we have exogenous risk from recessions and things like that, they can impact you, but on a static basis, yes, we'd look to improve that for the next couple of years. Heath, you want to add to it?

Yes, I think Tammy. The first part of your question is really looking at what's the impact of this disposition pool on our same-store. When we're thinking these assets to dispose of, we weren't really focusing on what their same-store impact would be into '19, but rather what their longer-term growth profile would look like. So at the end of the day, we sell the pool that we're looking at, it will be modestly accretive to same store for '19, but on a backward looking basis, the five-year CAGR on these assets is 1.3%. So again for us, it was about how can we -- addition by subtraction, how do we sort of get rid some of our slower growers so that we can grow, set ourselves up better for the future.

Got it. Thank you. And then, I guess, just maybe that 3% plus growth. I guess is that taking into consideration kind of future redevelopment opportunities in the portfolio or is that like pure organic growth excluding that?

No I think it takes into consideration, because if you look at where we are just in contractual rent bumps, Tammy, our contractual rent bumps are probably around 160 basis points or 140 basis points. As Heath said, our fixed CAM has been a good initiative for us, there is some growth in there as well. So -- but those two things don't get you to 3%. So I think you have to -- you've got to do a few other things in your -- you have to few other arrows in your quiver to get to 3%. And again, this is the -- this is as we define are very straightforward NOI growth that doesn't include lease term fees and things like that. So I think it's not a layup, I mean, we got to go out there and get it done. So I said 92% is not full. Nothing is a layup. We push hard, this is an organization that has an edge as it relates to going out there and making things happen and we're fortunate to have a team around us that get that and know that and are excited about it. So -- but not a layup but I think it's doable.

So how quickly, like, do you think in 2020 that you guys will -- we should see your redevelopment program ramp pretty considerably, sort of, toward the end of this year going in to 2020 to support that growth in 2020 or is this more a 2021 growth rate?

Yes, I think 2020 is more associated with what we've already done. We're going to get significant growth out of what we've already done in 2020. So we're talking past 2020. The redevelopment deals that we have currently in our pipeline that I mentioned earlier, the three mixed use deals, those really for the most part wouldn't be generating much in 2020. So we're talking past 2020 which is great. I mean, we're looking into 2021 and 2022 already as it relates to our business plans and our strategies and objectives that we're going to execute on and it's why this yes almost fortress like balance sheet that we're going to have soon is very important to that plan.

All right. Got it. And then, I guess, just -- can you give us your expectations for year-end economic occupancy?

We typically don't guide to year-end occupancy. But just to say, it will be higher.

Right.

We said about -- we said in our comments that there is $9 million of NOI that represents 270 basis point spread between leased and occupied. About half of that comes online by the end of '19. So you will see that spread starting to shrink, and the other half comes on in 2020. So again, it should -- you should start seeing a more normalized 125 basis points to 154 basis points spread between lease and occupied as we head to the back half of 2020.

Yes, I think I'd add Tammy that when you look at these spreads between occupied at least, it's an interesting thing, because some companies like to position as such a great thing that they continually run these really big spreads, but I think you have to dig a little deeper than that. What type of vacancy you're talking about, what -- I think our spreads very, very clearly specific to these box leases, not all, but the majority of it. And so, as he said -- as that normalizes, we don't really want that to be a 300 basis points. We want it to be 150 basis points, 160 basis points, 170 basis points, and that's what it's historically been. And so it's pretty easy to directionally see half of that is from what's happened in the big box world in the last couple of years and now we're pushing through that, you know but for any -- other unknown things out there, and that's where we wanted to be.

Thank you. Our next question comes from Alexander Goldfarb with Sandler O'Neill.

Hey, it is a nice morning. So two questions. First John, free cash flow, that's been your mantra for the past few years and just looking at quick math, you guys were generating sort of $40 million to $50 million and now on the pro forma basis, it would look to go down to zero if you maintain the dividend as it is. But if we look at the tax composition of the dividend, it looks like a fair amount is return of capital, and if you were to cut that amount that would bring you sort of back to $45 million of free cash flow. So as you think about the business in the redevelopment and the value that that inexpensive free cash flow provides, why wouldn't you consider to resize the dividend as part of this pruning portfolio exercise means that free cash flow for the redevelopment which you've done historically?

Sure, I appreciate the question. I think as it relates to the cash flow, the 2019 cash flow is the cash flow that I think you must -- you're probably referring to that is close to being break even. And then as I mentioned, we begin to grow it again in 2020, '21 and '22. So I don't project out over the next couple of years that we would be flat. I mean, I project out over the next couple of years the cash flow will begin to grow, albeit not where it was two years ago as you're referring to. So look, I think in the overall scheme of capital allocation, we have to look at everything, and that's why I said we are comfortable where we are today. We've got a lot of different constituencies as it relates to investors and reasons that those investors own the shares. Those -- if it was as simple as there was one constituency would make that a different question. So I think we have to just -- we pivoted significantly and now we're going to pivot in the other direction as the -- as the business begins to grow when we get through this program, which we're not through yet. So all I can say to that, Alex, is that we constantly look at this, we constantly analyze it, we're comfortable where we are today, but beyond today, I don't really project beyond that, that's a Board level conversation and that's something that we always talk about and the Board is well aware of our plan, well aware of what it looks like over the next couple of years and everyone is comfortable where we are today.

Okay. And then the second question is, going to your tenant store closings, bankruptcies, and all that fund stuff. Out of ICSC and then earlier this year, there were a number of tenants mentioned, the Stein Mart's, Bed Bath, Pier 1s and the list goes on. So far it doesn't really look like much is materializing. So is your view that these are just names that will like names before like the office names and other sears over the past decade. Are these things like you expect us to linger on for the next several years or you think that a number of these names that have been in the press and talked about at ICSC will actually materialize and go through restructurings or what have you within the -- within the next, call it, 6 to 12 months?

Well, it's tough to say Alex. A lot can happen in short periods of time. As we sit here today, and again under the static assumption of where the economy is, it's not a lot of these weaker tenants can hang on for quite some time, and one of the things that people forget about is as a landlord, we don't really -- we don't run those businesses. So we're subject to what they're doing in that regard, and as long as the tenant is not in default in their lease, they continue to be in the space. There are certain tenants that you mentioned that we're actively involved in discussions and trying to work in spaces we want to recapture, because we would like -- we would prefer to have tenants in those spaces and invest in their businesses. That said, it's certainly demure to some -- respect, it certainly slowed down, but again, we're -- you get toward the end of this year and get into the beginning of next year and I'm sure there will be some more restructurings. We're not hanging a banner up in the hallway that says mission accomplished. We got more work to do. There will be more things that happen and we're prepared for it. There are definitely tenants that we have, as I said, we've actively worked to significantly reduce exposure to and I think you know the names. I don't think we need to look to fire arrows in anybody, but it's -- it's in a better place today but it is not over.

Thank you. [Operator Instruction] Our next question comes from Linda Tsai with Barclays.

Hi. On a cash basis the releasing spreads of 6% recovered from the prior quarter where it was down 3%. I assume, some of the weakness last quarter was due to leasing up assets to ready for sale. If so, is it fair to assume that the releasing spreads will normalize in the upcoming quarters?

Yes, I think Linda, it is -- it feels more normalized, but as you know, we do have some more assets out there that we intend on selling. So there may be one or two more of those where we would say we did we leased some space just to get the NOI as part of a sale. But since we're 85% of the way through that, you can assume the majority of that is behind us. But again, the thing I caution everybody on is based on our size, you know then the law of these smaller numbers, something can really skew it. So generally we would point that out if there was something really skewing it, but it certainly feels a little more as though we're back on that track of the more normalcy as it relates to the renewal spreads. And -- but even in this quarter, interestingly we had -- I think we had seven anchor deals that we renewed this quarter that were non-option, that's kind of unusual, anchors that didn't have options and even there the spreads were I think like 8% so, and that's a good sign for the health of the market actually.

Thanks. And then in the -- in terms of the heavy anchor leasing you've done, can you just give us some examples of who the new tenants are that have taken over those spaces and whether you release the whole space or split the boxes?

We've actually done very well in terms of avoiding having the split boxes. There have been situations here recently that we've had to do that and some of the just ties back to the sheer size of the box, but just some tenants that we've worked with over '18 and '19, I mean, there are great names category-wise are HomeGoods, Sprouts, RAI, Burlington, Ross, Old Navy, Total Wine, just to name a few. So it's a very diverse group of tenants and it's a healthy group of tenants more importantly. Everyone I listed are groups that are aggressively growing and looking at new markets to fuel their growth. So we feel like we're in a good position in terms of demand drivers as well as the quality of tenancy coming up.

Thanks. And then last one. When you look at the dispositions you've done year-to-date, what was the average GLA of those assets? Were they larger than the average center size in your portfolio?

I don't have that right in front of me, Linda. I don't think -- I think they were pretty normal size. There were a couple of bigger ones, but I know, overall, our average is going down, the size of our average centers going down. So I think you can assume they were slightly above. I think our average is around 140,000 square feet. So I think they were more like a 170,000, that's off the top of my head based on what we sold. So that was another -- that's another element of the plan is to have these be of a size that we feel like as much more manageable, much more pliable. It's a word, I guess, I've used like three times today. And it's just -- it's important to us to know that we can, you know not one particular asset can be of -- can really hurt you in a significant way. Now that said, we still own a couple of really large asset that we love, but one of the misnomers on our company is that we get -- we get boxed into this, well, that's a good word actually. We get box into being supposedly a big box company, a power center company. But if the average size of our portfolio is going to be 130,000 square feet, 140,000 square feet, that's not a power center, that's much more in that community center range that we've always talked about that we want to be in. So that's right on plan where we want to be.

Speakers, I'm showing no further questions in the queue at this time. I'd like to turn the call back over to management for any closing remarks.

All right. Again, I wanted to thank everybody for joining us. Thank you for the interest in the Company and we look forward to updating you in the next call and seeing some of you before then. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may all disconnect and have a wonderful day.