SITE Centers Corp. (SITC) Q1 2019 Earnings Report, Transcript and Summary

Good morning and welcome to the SITE Centers' Reports First Quarter 2019 Operating Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Brandon Day. Please go ahead.

Good morning, and thank you for joining us. On today's call, you will hear from Chief Executive Officer, David Lukes; Chief Operating Officer, Michael Makinen; and Chief Financial Officer, Matthew Ostrower. Please be aware that certain number of our statements today may constitute forward-looking statements within the meaning of the Federal Securities Laws. These forward-looking statements are subject to risk and uncertainties and actual results may differ materially from our forward-looking statements. Additional information about these risks and uncertainties may be found in our earnings press release issued today and in the documents that we filed with the SEC, including our most recent reports on Form 10-K and 10-Q. In addition, we will be discussing non-GAAP financial measures on today's call including FFO, Operating FFO and same-store net operating income. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in yesterday's press release. This release and our quarterly financial supplement are available on our website at www.sitecenters.com. For all of you on the phone who would like to follow along viewing today's presentation, please visit the Events section of our Investor Relations page and sign into the Earnings Call Webcast. At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning. I'm thrilled with our first quarter results which were measurably above our expectations due largely to better-than-expected operations, resulting an increase in our guidance. Most importantly, same-store NOI growth which is the key driver of our five-year growth plan we articulated at our October investor day was 2% in 1Q versus our plan for relatively flat start to the year. Additionally, our leasing team continues to make progress leasing our 60 anchor opportunities, half of which have now been leased, which will be a key driver of future growth. I haven't felt better about operating prospects since I joined SITE Centers two years ago and I'm equally enthusiastic about delivering on our plan to invest opportunistically. Our five-year program calls for $75 million of annual investments funded via capital recycling. During our last conference call, I indicated that we have already achieved our 2019 spending goals through the acquisition of three assets from our joint ventures and $50 million of stock repurchases. The acquisitions are already bearing fruit -- executed and approved leasing deals will bring occupancy up from 75% to 88% and with increased ABR by over 22% at the three properties in just a few months. Our ongoing opportunistic focus also resulted in two new transactions in the first quarter. First, we signed a management agreement with Credit Suisse, providing them advisory and operational services for 83 assets leased to Shopko on which they have recently foreclosed. Importantly, the agreement came with rights of first refusal for 10 assets in the portfolio and allowed us to leverage our existing operating platform to generate nearly 100% margin on any fees we received. Credit Suisse's needs were ultimately short-lived, but we nonetheless earned the $100 million in the process which was a contributor to our strong quarterly results. This transaction is in large relative to our enterprise value, but it represents part of SITE Centers' future, leveraging relationships and our operating platform to source opportunities, create value and generate profits. We will continue to seek involvement in situations like these that are a bit contrarian, complex or involve distress where we can source mis-priced assets and make money for our stakeholders. The second advancement of our opportunistic investment program during the quarter came from the sale of our Vista Village asset near San Diego for an approximately 6% cap rate. This transaction is a case study in how we think about capital deployment. At a high level, Vista Village is attractive especially in the public markets, given its strong demographics, high ABR per square foot, coastal location and grocery anchor. But our prioritization on returns and IRR means that these properties' slow growth profile and attractive exit valuation made it a great recycling candidate. The sale also highlights the quality of our portfolio. After two years of robust asset sales, the cap rates on our remaining portfolio are not surprisingly lower, which increases our ability to grow earnings through capital recycling. We expect to redeploy the proceeds from Vista Village and are now encouraged by growing pipeline of acquisitions candidates that will be accretive to the company's cash flow growth and importantly at a positive investment thread [ph] and accretive to earnings. We are highly focused on sustainable earnings and given our high cost of capital, I feel confident we'll be able to find something exciting in 2019 to acquire. Lastly, we're also making progress on our redevelopment plans -- the third component of our five-year growth strategy. Work continues on three active projects following the completion of West Bay Plaza this quarter which came in 8% under budget and a quarter early. And we are advancing the entitlement process for our pipeline projects in Atlanta, DC and Boston. Importantly, while we continue to weight a range of options and site plans for these properties, dilution from all these projects is already in our numbers, so there's only upside from the ongoing ramp of our redevelopment activities. And with that, I'll hand the call over to Mike to discuss our operating results.

Thank you, David. I'm very pleased with our reported 2% same-store NOI growth from the quarter, which was ahead of plan due to several earlier than expected rent commencements, higher than expected average rent and lower bad debt. The first quarter, we saw more of the robust leasing activity that we've seen over the last 24 months, with high volumes despite our now more focused portfolio. We have now signed half of the 60-anchor leases identified at Investor Day with another 15 in advanced stages. This compares to 15 executed leases in October when we first announced this goal and 23 at the end of the fourth quarter. These 45 deals represent a blended 37% leasing spread with 33 different brands. Noteworthy deals this quarter involves Burlington and [indiscernible], which completes the back fill of the former [indiscernible] Plaza and San Antonio and 24-hour fitness at FlatAcres Marketplace in Parker Colorado. All of these leasing activity has generated an increase in our pro rata portfolio lease rate to 93%, with 360 basis point spread to our commence rate of 89.4% which is almost 150 basis points higher than our average spread in 2018. Leasing spreads for the quarter were solid, with new leases up 23% and blended spreads of 10.7%. Importantly, these metrics are as or above trailing 12-month trends, which we believe is the best way to look at our operating metrics, given our now smaller portfolio and consequently more volatile quarterly metrics. Net effective rents, an indicator of the overall economics of the leases we're signing were also in-line with our trailing 12-month numbers as we continue to lease space at compelling economics. We remain confident in our ability to continue driving shop leasing and to achieve the 94% shop goal we articulated as part of our five-year plan. To that end, our shop lease rate rose this quarter to 89.4% after a debt in Q4 that was largely attributable to transaction activity. The final liquidation of Payless and Gymboree in the second quarter along with additional tenant bankruptcies remain risks to shop occupancy, but our lease volumes remain elevated and encouraged by our team's momentum. Overall, tenants' demand remains high across our portfolio, given the superior quality of our assets in the top portal of the country's retail landscape, and we continue to expect anchor rent commencements in the back of the year to be a significant driver of growth in 2019 and 2020. With that, I'll hand the call over to Matt.

Thanks, Mike. I'll first comment our balance sheet, then I'll touch on some earnings matters including how the lease accounting standard has affected our financial statements and I'll close with some comments on guidance. First on the balance sheet, our position remains strong. With an incremental decline in pro rate debt to EBITDA in the quarter to 5.5x driven by our strong operation and a recent closing of the Vista Village asset sale. We are happy with current leverage and pleased to put the diluted asset sales profits behind us in order to focus on driving FFO and NAV per share growth. Beyond improved leverage, our maturities are also in great shape with a weighted average consolidated term of six years. As David mentioned, we expected to deploy capital during the year, but the impact of the spending will be mitigated over time by three factors: first the ongoing ramp in our EBITDA primarily from the growth in same-store NOI; second, the ongoing repayment of our $170 million Blackstone preferred as that JV continues to liquidate. We received $12 million of repayments of this prefer in the first quarter of 2019 and payment of $75 million throughout all of 2018. And finally, over a longer time period, we expect to receive $234 million of total capital due to liquidation of RVI and the related repayment of our receivable and preferred investment in that company. All these means we continue to see fixed time debt to EBITDA as a long term leverage maximum rather than a goal to work towards. I'd like to now comment on several accounting and earnings matters. First, our financial statements reflect the adoption of the new lease accounting standard, otherwise known as ASC842. While our bottom line will not change much, there are some impacts in the standard to our income statements presentation. First among these is a change in the presentation of bad debt, which is now included as a deduction to rental income rather than as an operating expense previously. In the current quarter, this means the reduction of revenues of $441,000. We are unable to restate prior periods, so year-over-year comparison of GAAP revenue and expense line items will be made more challenging. While we are constrained in how we present the GAAP income statement, we have provided footnotes in our supplement, highlighting and reconciling these changes. We also have additional details on page 9 of our earnings slide presentation. A second change to the income statement is how we account for real estate taxes, paid directly by our tenants to local taxing authorities. This expense has previously appeared as both an operating expense as well as recovery income at a 100% rate. The new standard mandate omission of this expense and recovery from our own financials which means the reduction of both revenue and expenses by the same amount and a subsequent reduction in our reported recovery rate by approximately 1% in the first quarter. The bad debt and property tax expense presentation changes have no impact on GAAP net income, EBITDA, FFO, OFFO, or net operating income. I'd like to now highlight several additional earnings considerations that will affect the progression of OFFO in 2019. First, we recognize approximately $10 million of fees from RVI during the quarter, roughly $7 million of this consisted recurring asset and property management fees which we include in both NAREIT FFO and Operating FFO. We also recognize $1.1 million of disposition fees and a $1.8 million fee from a recently completed refinancing of the $900 million RVI mortgage -- both that we've announced or roughly $2.9 million were included in NAREIT FFO, but excluded from OFFO. Second, you will notice we recognized $2.6 million in lease termination fees in the first quarter. We have budgeted these fees and will obviously lose the income from the tenants from 2Q onwards, but we are excited to release the spaces with more dynamic tenants at a positive mark to market. Third, as you update your earnings models, please keep in mind that our first quarter included roughly $250,000 of revenue from Gymboree and Payless stores that are soon is closed clothes and are no longer paying rent. Finally, I'd like to remind you that percentage rent is seasonal in our business with larger contribution in the first and fourth quarters. All of these items: the lease termination fees, bankruptcy liquidation and seasonality of percentage rent should contribute to a deceleration of OFFO from the first and to the second quarter of 2019. Turning to our guidance update, we have increased our OFFO expectations by a penny at the mid-point and increased our expected same-store NOI growth by 25 basis point at the bottom into the range. This is a product of our better-than-expected first quarter operating results, tempered by ongoing caution about potential tenant bankruptcies throughout the remainder of the year. As we have previously noted, the million-dollar decline in 2019 RVI fee income forecast resulting from year-to-date disposition has been offset by a $1 million decline in our 2019 G&A forecast as well. We expect any additional reduction in the RVI fees forecast to be offset by G&A reductions throughout the remainder of 2019. Please recall from our previous commentary that we expect G&A to decline by a lower amount than fees in 2020. Finally, we have increased our expectations for 2019 JV fees by $1 million to reflect better performance. The increase in reported fees from the fourth quarter was related to the Credit Suisse deal that David outlined, as well as the full quarter of the China [ph] dividend trust joint venture. We expect JV fees to decline over the course of the year as Blackstone joint venture settles down its remaining 19 properties. To summarize, we expect the decline in OFFO from the first to the second quarter. We also expect store closings to cause a deceleration in same-store net operating income in the second and third quarters. That said, we are encouraged by our leasing momentum to date and continue to expect an acceleration in fourth quarter same-store NOI growth fueled by anchor rent commencements. With that, I will hand the call back to David for some closing comments.

Thank you, Matt. In conclusion, the last six months provide increasing evidence of this organization's ability to pivot to growth. We are now demonstrably ahead of schedule and executing on the operational opportunistic investing and redevelopment goals that underlie our plan to produce average 5% OFFO and NAV growth over the next five years. Operator, we are now willing and ready to take questions.

[Operator Instructions] The first question comes from Alexander Goldfarb with Sandler O'Neill. Please go ahead.

Just the first question. Matt, I just want to make sure I heard correctly and just to get your take -- the Gymboree and Payless, the impact in the first quarter that will not reoccur. I think you guys said it was $250,000. Is there anything additional -- like as far as all the headline announcements we've seen for bankruptcies etcetera -- is there anything additional that's coming out of your numbers for this year in addition to that? I think you guys said $250,000.

In terms of the headline, there's nothing that we're aware of yet. The $250,000 is correct. That's what I mentioned in my prepared remarks for Gymboree and Payless. That number is correct. Keep in mind that we did have the lease term fees, so you know we're leaving some revenue associated with those tenants going forward and then of course we're budgeting at the high and low end of the range different numbers for potential future bankruptcies that we do think will actually occur throughout the remainder of the year, but nothing has yet been announced.

Okay. And what was the NOI associated with those lease terms?

About $300,000 annually.

Okay. And then the second question is going on your fourth quarter call, you guys mentioned one of the risks to this year was just getting the local approvals and all the things necessary to get those anchor leases open for later in the year. I just want to see how you guys are trending on this. You leased now 29, up from 23 before, but as far as your ability to get these stores open later in the year, is that still an open-end risk or you guys feel more comfortable that everything will be in place that you'll have -- I don't know what number you're anticipating, but having a certain amount? Maybe you can articulate that open for this year.

Good morning, Alex. It's David. I think it is an open-risk still, but we're also fairly confident that we're proceeding according to budget. So I think if you want to take the theme that we have internally here, it's that our budget feels accurate. Our assets are in pretty high income areas which usually means permitting and entitlements become more difficult, but our construction group has been working pretty diligently as we've been signing anchor leases and it's still an open item, but we're feeling fairly positive.

Okay, thank you.

Our next question comes from Rich Hill with Morgan Stanley. Please go ahead.

Hey. Good morning, guys. I appreciate the color that you made on some of the deceleration from 1Q to 2Q. Maybe you could give us just a little bit of color about how much lease termination income benefited same-store NOI in 1Q, just to give us maybe a sense as to what we could expect and 2Q, once those are seasonally off the table?

That doesn't really hit our same-store NOI, Rich, the way you're describing it.

Okay. Well, let me ask you maybe a different way then. Given that same-store NOI is expected to decelerate, you obviously put up 2% in the first quarter. You raised the low end of guidance which I appreciate. You guys seem pretty bullish. Why not raise guidance even more than you did?

Hi, Rich. It's David. I think it's because we're only at the end of the first quarter and there's a lot of runway left. There are still some headlines over tenants potentially closing stores, so we're bullish on all of the good news, but we're also fairly cognizant of the fact that there are some bad news out there. So we're remaining cautiously optimistic.

Got it. Look, I think in prior earnings call, there has been some focus on CapEx spend and it looks like CapEx spend actually came down somewhat meaningfully this quarter despite -- even as leasing spreads improved pretty significantly. How you're thinking about that? Are you seeing tenants demand less CapEx spend, I mean you're obviously pretty active; so any color around new leases relative to CapEx spend would be helpful.

That is an excellent question. I think that goes to the heart of how we're allocating capital right now. Our highest return on capital is leasing CapEx. We have great real estate, we've got great vacancy that we have to work where the inventory is strong but it's expensive. So if you're seeing a quarter-to-quarter bump around, I wouldn't read too much into that because the company is so much smaller now, it's hard to read quarter-to-quarter. I think you should expect that our leasing CapEx will remain elevated as long as we have high quality vacancies left. Matt, I don't know if you have anything to add.

Yes. I think you will see volatility if the bankruptcy picture gets a lot better and we see a lot fewer bankruptcies over the course of the 12 to 24 month period, that our CapEx will come down, as simple as that.

Our next question comes from Christy McElroy with Citi.

Just one [ph] with 2018 team having been a relatively good year in terms of leasing volume, new demand for safe has held up well, rent spreads have helped up well. Just as we progress into 2019, you know, the overall retail environment has shifted a bit, retail sales momentum is slow, there has been more pressure in retailer margins, David, you just commented that you continue to remain cautious given what's out there. Have you seen any impact at all in your leasing discussions from the shift in the environment? Any early changes in tone with regard to retailers committing to new sale?

I'll ask Mike to comment in a second but I don't think we've seen any noteworthy change in tenant conversations. We're dealing with a much smaller amount of inventory right now in pre-high income trade areas, and those are always desirable from tenants. We have ICSC coming up at a couple of weeks so we'll probably get a little bit more information just because there is a lot of dialogue over a couple of day period. But I think the only thing that you could really point to when the occupancy and the robust nature of leasing goes on for a long period of time which it has, I think a landlord needs to be very careful about mark-to-markets and to the point circling back to our [indiscernible] disposition this quarter. You know, sometimes you end up with a property that have a very high occupancy but it's also got a mark-to-market that we don't feel confident about, and so to me that's a more important issue than changes in the demand from a tenant. Mike?

Right. The only thing I would add to what David just said is the fact that in general, the tenants that are expanding aggressively right now -- the tone and the overall conversation we're having with them hasn't really changed over the last several years. They are very eager to get stores open because that's what's driving their business and the overall conversations we're having -- we haven't changed that much over the last several years.

And just to circle back a little bit, just to remind you in the prepared remarks, Christy -- we talked about [indiscernible] with 45 spaces, right. So, the demand remains at least on the margin, our incremental activity continues to show diversity of demands in high level.

And then, just following up on the Credit Suisse Shopko deal, David, you mentioned in your opening remarks potentially seeking out other distressed opportunities like this. How are you sourcing these types of deals and is this more sort of one-off opportunistic or could this become a more sizeable platform for you?

I don't envision this type of transaction being programmatic. I think it really is opportunistic. We've done an awful lot of financing with Credit Suisse, Connor [ph] had a great relationship with the folks there and I think we were able to move very quickly to help them out of a situation where they needed some immediate systems and it gave us the opportunity to look under the hood in a bunch of assets and get road for us on 10 properties that we thought might be acquisition opportunities; they turned out not to be but I think from a conceptual standpoint we're very eager to jump into the stress situations where we can get an early read before the book is published, you know, look under the hood, we can really start to look at some assets and our leasing folks can decide whether there is an opportunity to buy some properties. So, it didn't work out with us buying properties but we basically got paid along the way pretty well to do the homework.

Our next question comes from Jeff Donnelley with Wells Fargo.

Matt, thanks for providing the bridge from your Q1 FFO to your annual guidance. I think of the items that you delineated account for about $0.03 a share of deceleration in your quarterly numbers, and I'm just curious, what would -- which in itself put you towards the top-end of your annual guidance. I guess what would need to come to pass to push you towards the low-end?

Well, you're just simply taking some things out of the first quarter which I understand the math of what you're doing but keep in mind, we are talking about a further deceleration right in -- I think in the fee side of the equation, right, it's less than we used to liquidate. So -- and again, we have a range, right; so we're just building in a variety of scenarios, some were positive at the top-end and some were negative at the bottom, along what else we'd have to do with what happens with bankruptcy.

And maybe while the question is, how is your outlook for bad debt or credit loss in your updated guidance compared to what you're assumption was in your initial guidance, has that changed at all?

No, not really.

And maybe one last one for you guys is; how was the tenant appetite for CapEx expenditures evolved? Are you seeing a stronger preference from retailers to use, leverage funds for their stores or is it seemed pretty confident overtime?

It's funny to say it's constant overtime. That there are two notable changes maybe over the last 5 years. One is that construction costs in certain markets have accelerated, labor in particular and some raw materials and so that has had some impact but remember when a tenant opens a prototype, they have a work letter and the work letter has a description of exactly what finishes in materials and spit out what they have. So it's difficult for a tenant to start requesting a significant [indiscernible] capital when we have the work letter and we know exactly where the store is going to be built. So, it really has to do with labor materials but that's not -- I wouldn't say that's a number that's going to surprise anybody. The real CapEx cost is when you have to reconfigure the size of the space, and so when we do box sports or we do any other reconfiguration, that's usually when the costs come in higher was offsetting that as the rents were higher. So I think it's the elevated CapEx or box that's pretty opposing [ph] a much larger leasing spread, so I think the return profile is very similar.

Our next question comes from Collin Mings with Raymond James.

Just as it relates to your comments on redeployment proceeds from Vista Village; can you maybe just expand upon the comments about the growing pipeline of acquisition opportunities you're seeing? And then, just along those lines discuss the type of opportunities you're most focused on right now just given your emphasis on growth?

Sure. While it's certainly part of the business we're most excited about. I mean we're in a great position balance sheet wise, we have plenty of time to be out there trying to source deals, and I guess if I could put it through safely, I would say that our acquisition strategy -- we've defined it opportunistic but I think that's simply because we think there are assets in the retail world that are mispriced and we very much are looking for mispriced opportunities because we can generate higher risk-adjusted returns. It doesn't mean that we're not focused, our focus and our discipline is starting with two different attributes; one is that we believe that strong communities are an important feature and they have to be the first filter on acquisition strategy. The second is, that the property within that strong community has to be convenient -- convenient to the big part of our leasing culture, understanding which tenants drive their sales from convenience. And if we use those two components as the departure point then from that honest, really a matter of measuring our risk-adjusted returns, is excited as we are; we're not in a great hurry to increase AUM for the sake of growth but we are very aggressive right now in seeking growth assets where we can use this operating platform to grow FFO.

And then maybe just along those lines with the rights you have as part of the Credit Suisse agreement which again, seemingly that would lead to potential opportunistic deals or was there may be a recurring theme on one off or wide none of those. Deals made sense to you?

Yes, the primary components was that the entire portfolio was sold.

Okay. Fair enough.

Look, I think that we were agnostic to the format, it could be big box, there could be multiple box, could be unanchored, could be community anger, could be grocery anger; I think we're really looking for assets where we can buy growth and use our operating platform and that gives us a lot of flexibility because I don't think we're backed into a corner other than strong communities, convenience to customers and great risk-adjusted return.

Our next question comes from Samir Khanal with Evercore ISI.

David, you guys did the venture with the Chinese? Let's do some partner, I guess what's the appetite of this time to do more? These type of JVs with the same or potential partners now, that sort of time has passed and since you did the JV and perhaps there's been some stability, it sounds like in pricing for these larger open-air centers or power centers if you call them.

Well, I think I'm assuming when you say what's the appetite you mean from our side or from a Capital Partners side?

I guess both sides.

I mean, from our side, we really look at the joint venture business as having to have a purpose. One purpose is to allow us to buy things that we maybe couldn't buy without a partner. And the second is to be able to recycle stable, slow growing assets, recycle that capital and use our platform to go buy growth assets. So, our appetite to continue to do recycling joint ventures as long as we believe in the properties and it's a good capital partner, I think our desire is fairly strong. From the capital side, we have been back to Asia and I've met with a number of relationships and have talked about the deal that we got done in December and we would hope to be able to continue to source great future partners that have long-term sources of capital and are looking for consistent dividend returns.

Okay. And I guess my second question is around your leasing spreads. I mean despite all the closures that we've had, it's been pretty impressive when you look at the numbers where the renewals have kind of fairly stayed constant over the last several quarters at this kind of high single digit range. Do you think that will continue to be the case because you kind of get more headwinds as you've talked about potentially from other closures here?

Hey, Samir. This is Mike. To answer that, I think we do expect it to continue. As I mentioned in my prepared comments, we're seeing an anticipated 37% cumulative leasing spreads for the overall group of anchor tenants that we're backfilling based on both the ones we've executed as well as the ones that are in progress. And one of the things that we're seeing here as was also mentioned among that group of 45 deals, there's 33 different tenants. And in many cases, we're seeing tenants vying for the same space and when they're vying for the same space it basically becomes a bidding war on the tenant's side. And we've had many conversations debating which tenant to go with and we ended up basically wearing them out and they ended up getting in a little bit of a trade war to go after space and it results in great rent. And so, we've seen a lot of that. And so, therefore, we do anticipate it to continue.

The only thing I would add on the other side, Samir is that just remember the portfolio quite a bit smaller now. So, you are going to [indiscernible] numbers are going to get more volatile. We're going to keep focusing people on the trailing 12-month number because I know one of the next two or three quarters, we're going to a low leasing spread and the question is, do you extrapolate from that number? And at this point, we're always worried about new supply on the market, whether it's shadow or otherwise. But at this point, we don't see any reason to extrapolate from a little bit of the volatility in the numbers.

Our next question comes from Derek Johnston with Deutsche Bank. Please go ahead.

Hi. Good morning. The commenced rate declined by more than suggested from the toys and packed. And could you talk about what else may have impacted that?

I don't know. I don't know the answer.

Outside of seasonality I don't think there's anything material.

It did surprise us. I guess I'll put it that way.

Okay. And then what annual escalators are you guys able to work into new and renewed leases?

It really depends on the lease. I mean I would say that the majority of anchor leases are still consistent with history, which are flat for five years and then there's a bump. And the escalators in shop leases really depend on the sub market. It can be anywhere from 2%, 3% 4%. But it's somewhere in that range and it really depends on the lease.

And I guess lastly, and just quickly, how competitive has the bidding process been for the recent acquisitions, especially for the highest quality assets that you guys are probably looking at?

That's a really good question. I think the assets we've been looking at generally, don't have a significant amount of competition since we've been looking at opportunistic purchases that are a little bit more value add oriented. But again, we haven't closed any deals in the last quarter so it's hard to make a comment on that. I still think that there is a pretty strong demand for tier-1 cities and coastal assets and the debt markets right now are wide open. And so, I think you are still seeing a fair amount of demand from most asset types.

Yes. I just want to [indiscernible] we're not going trophy assets companies, right? This is not the traditional, let's just improve the portfolio quality through the recycling process and the kind of the top down way, whether it's demographics or ADRs that people tend to look at. David's point about opportunism is about balancing risk and reward, but more importantly, driving for growth and returns, right? We have a high cost of capital. Buying a coastal grocery anchored center at a four cap is really not what we see as the right use of our capital at this point. So, we think quality can be much more broadly defined than maybe the traditional definition, but we are not -- this is not just the trophy ammunitions program.

Our next question comes from Vince Tibone with Green Street Advisors. Please go ahead.

Hey, good morning. You identified the [indiscernible] leasing opportunities in October. I know you made a lot of against that goal. What I'm trying to give a sense of is how many additional bankruptcies taking place, let's say over the last six months, since that October? Like what is the normal amount of 10 ensuring that we should expect outside of major bankruptcy activity?

You're asking how much did we add the [indiscernible] since we announced that? Is that basically your question?

Exactly, yes.

Very little is the answer. There may maybe one or two. Certainly, from a bankruptcy perspective, if you kind of think about what's happened since the investor day, there's been very little anchor bankruptcy activity. We obviously have a couple of names that are on radar. I'm sure you have them on your radar too so that could change going forward. Again, when you think about our five years seems to run a wide growth forecast of 2.5%, 2.75% rather. We built 150-basis point credit loss reserve into that number precisely because we believe we will be adding to the 60 our forecast incorporate that possibility, our numbers this year, our forecast this year assume there will be some of that. But as of right now, nothing has actually happened.

Got it. That's helpful. My next question is on leasing activity. Just over the last few quarters, only roughly 30% of new leases were comparable. I was just trying to get a little more color there to understand kind of what's the most common reason these leases are comparable. And if there's any way we can think about the economics behind these leases, whether it's CapEx or spreads or just how we can better think about this pretty big pool of leases.

So, the comparable pools, everything, 12 months or less from the tenant move out. So, as David and Mike had mentioned a couple of times, we've had a renewed focus on some spaces that have been vacant for longer than 12 months. It also excludes the redevelopment assets. If we were to include those, the spread would be significantly higher.

Got it. Okay. So, overall those actually might have better spreads all in all than even the [indiscernible] terrible leases?

Yes. So, as Mike mentioned, the 37% comp on 45 deals that includes some of the redevelopment assets which would not be included in that comparable pool.

Our goal has been to just be consistent in our presentation here. Obviously, the numbers could look higher if we broaden that pool.

Our next question comes from Michael Mueller with JP Morgan. Please go ahead.

Hi. Just in terms of thinking about fee income coming in, can you talk a little bit about Puerto Rico and just kind of how the for-sale market has evolved over the course of the past year or so there?

I thought it would make it through the call without a Puerto Rico question. I think the only thing I have to add, as you know, we have a kind of predetermined policy to not comment on RVI transactions only because we're always out in the market and we're usually in negotiating with multiple parties at the same time. So, we handle the communication from the RVI sales, including Puerto Rico through press releases once a transaction takes place. From an operations perspective, we've spent a good amount of time in Puerto Rico and I feel like we're making progress, but I don't really have much to add on the transaction side.

Got it. Okay. And then maybe sticking with transactions, the 6% cap rate on the asset that you sold this quarter, I mean, how would you think of that in terms of being comparable to the remaining, I guess, portfolio quality of SITE. I mean, would you say that's an atypical cap rate on the low side, that's why you flagged it or was it being flagged because you think it's a little bit more, I guess, relevant for what you own today?

I think I've been pretty clear that we went through the trouble and drama of creating a much smaller company through spinning off RVI. So, you could assume that we're happy with the durability and the growth profile of the assets we have left. From a cap rate perspective, I just don't feel confident describing cap rates across an entire portfolio since we just have such a wide collection of assets. This one happened to be a property that we thought was at the peak of its NOI story and there was a buyer that very much wanted to own the asset, a local buyer. And so, when that happens, usually, you're able to strike a pretty good deal. So, we're happy with recycling that cashflow into some other asset in the future.

Our next question comes from Chris Lucas with Capital One. Please go ahead.

Hey, good morning, guys. I appreciate all the color this morning. I guess just a little bit on the anchor side, David, could you maybe provide some additional color on where negotiations might be for some of the boxes that remain in terms of what sort of activity you're seeing and what expectations might be for finalizing leases before the end of the year on the sort of the remaining buckets?

Sure. Mike can follow up on that.

Yes. In general, as mentioned, we were at 15 additional leases and advanced stages and the great economics and we're feeling very confident about that and we've got quite a bit of initial conversations on the balance.

If I could add a little bit of color that the reality is that the reason you're sensing enthusiasm from this management team is that the demand side of the equation is very healthy. A lot of brands are looking for space in the markets where we have vacancy, we have opportunities and the supply and demand is tilted in the favor of the landlord. There's no question. The [indiscernible] around budgets for the next couple of years really has to do with bankruptcies. So, the front door is active, it's the back door that I think we're all concerned about and that's why you're probably feeling that some conservativism is really based on the bankruptcy profile, not on the demand side.

Okay, great. Thank you. And then I guess on the expectations for boxes that should seek commencement later this year, are there any, what I would call unique circumstances, whether it's a box split or change of use or something like that that might delay or is it mostly straight forward kind of a simple backfilling?

I would say it's generally very straight forward. There are some box splits, but we're on task and I think we're in good shape.

Okay, great. And then I guess just the last question from me, just on the Vista Village disposition, was there any changes to sort of the interested buyer pool for that? You mentioned that it was a local buyer that wanted it, but was it fully marketed? How did that transaction go down? Are you seeing sort of different capital pools available today than say maybe a year or two ago?

It was a fully marketed deal. We decided to sell that property when we really achieved an occupancy level that we were happy with and felt like the rent profile didn't have the growth of the remainder of our portfolio. So, it was marketed and I don't think the buyer pool was any different than you would have seen over the last couple of years. I mean, the deal size was kind of mid-range. So, we had a lot of people looking at the property and I think we had a pretty healthy, better pool.

Our next question comes from Wes Golladay with RBC. Please go ahead.

Good morning, guys. Now, what accelerated anchor we've seen? how should we think about CapEx maybe moderating in the out years looking at 2000, 2021? And then maybe can you comment on the CapEx intensity of the anticipated bankruptcies?

Well, I still think that leasing CapEx is very much tied to occupancy gains. So, as long as we're leasing anchors, you're going to see our CapEx remain elevated. And so, I think if you're looking at your models and your thinking, however long it takes us to lease these 60 boxes, that's probably the duration of the elevated CapEx unless there's more bankruptcies that grows that pot of existing anchor vacancies.

Okay. So, maybe, I mean you're halfway there now, assuming a similar pace or I guess the timing from signing the lease tab sheet, deploying the capital, but with maybe 2021 look like potentially a peak, assuming a normal anchor environment?

Yes. I mean, to be honest with you, we don't really run the numbers the way you're talking about them. We don't really run a scenario and we say, "Okay, bankruptcies are done." We are assuming that we just added the 60 over the course of this year. That's why we have a bottom and a top end of the range. So, definitely if bankruptcy stopped today, you would see CapEx continue through 202o to a very large extent. And then I think you're right. Conceptually, it should drop off in 2021. We should be so lucky that that's exactly what happens, but that's certainly not our base case.

You're fantastic. And then maybe can you comment on how you guys look at the dispositions versus acquisitions? Is it mainly an IRR or is it NPV? I mean what's the main framework there and how different is it, what you're looking at buying versus what you sold in the quarter?

Well, there's no question. We're focused on the present value of the future cash flows, which is really also an IRR analysis. But because we have an infinite hold period, I would say we're more concerned with the cashflow from the property over time. And if we think a property has a low cash flow due to slow growth and high CapEx, then it's a better candidate for recycling into something that we think has higher growth. We're very, very much returns-driven right now in our allocation of capital and in our dispositions program.

And [indiscernible] it's really easy for us to kind of run an IRR and we're assuming outgoing -- what are cap rates today for these assets that can run an IRR on all of these assets. And then with 68, we have a pretty granular sense of what the risk of all those assets is. So, the constant conversation internally, is what is the reward of this asset and what are the granular risks? And we kind of picked the least attractive tradeoff there and recycle that money.

This concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.

Thank you all very much for your time and we'll speak with you next quarter.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.