Weingarten Realty Investors
Q1 2017 Earnings Call Transcript

Published: 25 Apr 2017

[Operator:]

Good morning and welcome to the Weingarten Realty First Quarter 2017 Earnings Call. My name is Brandon and I'll be your operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note this conference is being recorded. And I will now turn it over to Michelle Wiggs. Michelle, you may begin.

[Michelle Wiggs:]

Good morning and welcome to our first quarter 2017 conference call. Joining me today is Drew Alexander, President and CEO; Stanford Alexander, Chairman; Johnny Hendrix, Executive Vice President and COO; Steve Richter, Executive Vice President and CFO; and Joe Shafer, Senior Vice President and CAO. As a reminder, certain statements made during the course of this call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results could differ materially from those projected in such forward-looking statements due to a variety of factors. More information about these factors is contained in the Company's SEC filings. Also during this call, management may make certain references to certain non-GAAP financial measures such as funds from operations or FFO, both core and NAREIT, which we believe help analysts and investors to better understand Weingarten's operating results. Reconciliation to these non-GAAP financial measures is available in our supplemental information package located under the Investor Relations tab of our web site. I will now turn the call over to Drew Alexander.

[Drew Alexander:]

Thank you, Michelle, and thanks to all of you for joining us. I am pleased to announce yet another great quarter. We are in interesting times with a lot of questions and uncertainty. While there are certainly pressures on the retail sector, our transformed fortress portfolio is well positioned to handle these changes. Our operations remained very strong, with solid same property results and good rental rate increases. Most of the bankruptcies did not impact us at all, but we know, there is likely more to come. We have often spoken about the success of our portfolio transformation that began in 2011, but never has the benefit of this initiative been so evident. We have many fewer locations that have marginal retailers. So we have some challenges ahead, but we are well positioned to work through them. Moving on, our new development and redevelopment programs continue to progress. As planned, we closed on the purchase of the retail portion of the Whittaker, our six-story mixed use project co-developed with Lennar in West Seattle. You may have seen Whole Foods announce that they are not going to open here. They have assured us, they want to work together to find a replacement tenant, and we are confident that we will meet the financial obligations set out in our lease. Additionally, we don't have any significant co-tenancy exposure in the project. Prospect interest has been quite good, including several supermarket operators, and we are confident that we will complete this project by the end of 2018. We continue to make progress at the Gateway Alexandria, our premier mixed-use development in Alexandria, Virginia, that will include 282 multifamily units, 100,000 square feet of retail anchored by a 62,000 square foot Harris Teeter grocery store. The Company’s net investment upon completion is estimated about $181 million before planned sales. The land was purchased in late 2016, development is underway, and we expect to be complete in 2020. Columbia Pike, a premier, mixed-use project in Arlington, Virginia, will include 365 multi-family units and a 72,000 square foot retail project, anchored by a 50,000 square foot Harris Teeter grocery store. The Company’s pro rata net investment upon completion is estimated at $135 million, before the sale of the residential component. The company expects to purchase the land and commence development this quarter and completion is expected in 2020. During the quarter, we added seven properties to the redevelopment schedule, including our high profile redevelopment project, the Driscoll at River Oaks Shopping Center. This 30-storied luxury high-rise apartment project will be constructed at our River Oaks Shopping Center, located adjacent to the premier residential community in Houston. Project cost will approximate $150 million. Predevelopment activities are underway, with construction expected to begin in 2018, with an opening in 2021. Our current redevelopment program has 16 properties for an investment of $225 million, and our longer term pipeline has $500 million of projects that we are working on. Great progress on new development and redevelopment, a terrific quarter. Steve, the financials?

[Steve Richter:]

Thanks Drew. Good morning everyone. I am pleased to once again report strong earnings results. Core FFO for the quarter ended March 31, 2017 was $79.5 million or $0.61 per share, an increase of 7% on a per share basis. The increase in core FFO over the first quarter of 2016, was primarily due to increases in net operating income from our existing portfolio, our new developments and redevelopments, and our highly successful 2016 acquisition program. These increases were partially offset by the impact of our disposition program, and dilution from additional common shares issued last year under our ATM program. As Johnny pointed out last quarter, we expected occupancy to drop in the first quarter of this year, as we recaptured a few big boxes, some of which we initiated to upgrade the tenancy. We ended the quarter with occupancy a little higher than projected, as some of the tenants are falling out a little later than planned. Also, you may have noticed that operating expenses for the first quarter were high, which is from a $3 million lease termination payment, made to recapture a supermarket, as part of one of our redevelopments. Additionally, we incurred impairment of about $15 million in the first quarter from several properties we sold or are planning to sell. The lease termination expense and the impairments, net of the related tax benefit, were added back in arriving at Core FFO. You can see a reconciliation of the impairment on page 44 of the supplemental, and a reconciliation of net income to NAREIT FFO and Core FFO is included in our press release. The balance sheet remains very strong, with net debt-to-EBITDA of 5.9 times and debt-to-total-market-cap of 34.9%. Debt maturities for the remainder of 2017, are only about $70 million. Guidance for 2017 remains unchanged, except for NAREIT FFO, which is adjusted for the two items I mentioned earlier. All of the details of our guidance are included on page 9 of our supplemental. Johnny?

[Johnny Hendrix:]

Thanks Steve. We are pleased with the operating results we produced this quarter. Actually, we are very pleased, given the disruption in the retail space over the last several months. Our transformed portfolio has performed nicely. Clearly, the retail environment has experienced turbulence, but we have only been impacted by a few bankruptcies. We do not have any stores with Gander Mountain, HHGregg, Gordmans, Eastern Outfitters, The Limited or Wet Seal. We do have seven Family Christian stores, and we expect all of those to close within the next month or so. We have five Radio Shack stores, and we expect each of those to close by the end of May. Finally, we have 20 Payless stores and seven Route 21 locations. Payless has currently rejected three joint venture locations, so the impact of those will be very small. We do expect further terminations from Payless and Route 21 over the next several months, and we think we will end up with about half as many of their stores as we have today. As we look forward, we expect the combined terminations from all these will cost the company about a penny a share in FFO in 2017. This is very manageable, and does not affect guidance. We obviously are concerned that further bankruptcies and terminations could impact us, depending on the timing and the size. We still see many retail categories expanding. We recently leased to pet stores, home improvement stores, fitness facilities, discount clothing stores, arts and craft stores, supermarkets, furniture stores, cellular stores, medical services, full service restaurants, quick serve restaurants, and more. We executed 89 new leases and 214 renewals during the first quarter. This is about the same as we have completed over each of the previous three quarters. Since quarter end, we have actually experienced a bit of an uptick in leasing. In April, we signed a lease with Marshalls in a former Sports Authority box. We had seven Sports Authority boxes terminated. As of today, four of those are leased and we are actively negotiating committee approved leases in the remaining three. We are also negotiating several other box leases we expect to complete in the next 30 to 60 days, so we continue to be optimistic, the portfolio will produce excellent long term results. Rent growth continues to be good. Overall it was about 9.5% during the quarter. Again, this is about what we had projected in our business plan. As we communicated during the last call, occupancy dropped a little during the first quarter. We ended the period at 93.7%. Actually, this is slightly ahead of the business plan. It's worth noting that we purchased a few properties that have contributed around 50 basis points to the overall vacancy. The largest is a currently vacant 90,000 square foot building, adjacent to our Fiesta Trails shopping center in San Antonio. It's going to be a profitable redevelopment opportunity, but does temporarily increase vacancy. With the leasing we have in the pipeline, we expect to increase occupancy throughout the remainder of 2017. We continue to aggressively pursue long term improvements to tenant quality and rents. As an example, during the quarter, we terminated a supermarket lease in San Jose, where we are negotiating two replacement leases, that will result in significant increases in rent and net asset value. This sort of long term positioning, creates some short term pain, lower occupancy and NOI growth. But in the long term, it's highly accretive. During the first quarter, same property NOI with redevelopment grew by 3.7%. Base minimum rent, the most critical component grew 3.3%. Another indication it was a solid quarter. All of the bankrupt tenants we reviewed earlier, paid rent through March. After accounting for those retailers terminations, we still believe our guidance for same property NOI growth of 2.5% to 3.5% is appropriate. We expect the second quarter same property NOI will be lower, then it should increase throughout the rest of 2017, as known commencements come online. On a transactional front, we have not seen many opportunities to buy the kind of product we want. Good quality properties with good growth are rare and expensive. On the other hand, there still seems to be an active market for slightly lower quality assets, which could incent us to increase our dispositions. Cap rates for top quality supermarket anchored centers have remained very stable. Generally, we have seen 4.25% to 5.25% in coastal markets and about 50 basis points higher in other major metropolitan markets. Cap rates for B rated supermarket centers and power centers have gone up 25 to 50 basis points. So it was a busy quarter. We are pleased with our results and confident we can deal with the challenges ahead. Drew?

[Drew Alexander:]

Thanks Johnny. Another great quarter, especially, in light of the market conditions. As I stated in my opening, I am very pleased with how we have started the year, but I am cautious about the future. But with a significantly transformed quality portfolio of properties, I feel Weingarten Realty will weather this. Recall, 75% of our rents come from centers with a grocery anchor, and those grocers average a strong $630 per square foot in sales, bringing thousands of people to our centers each month. Great people, great properties and a great platform equals great results. I thank all of you for joining the call today and for your continued interest in Weingarten. Operator, we'd now be happy to take questions.

[Operator:]

Thank you. And we will now begin the question-and-answer session. [Operator Instructions]. And from Citi, we have Christy McElroy. Please go ahead.

[Christy McElroy:]

Hi, good morning everyone. Drew and Johnny, you both mentioned the bankruptcies and Weingarten impacted by only about a penny based on what you know, but that they are likely more to come. Maybe, you can provide a little bit more color on that, sort of your outlook for further bankruptcies and store closure announcements, and maybe give us a clearer sense for how much risk there is to that 2.5% to 3.5% same store NOI growth range, to the extent that we do see more retailer fallout above and beyond what we already know?

[Drew Alexander:]

Good morning Christie, I will take a shot at it and Johnny can amplify. So as mentioned, we know what we know and we have tried to assess things, as best we can and be clear, with the market that the exposure -- where the exposure is. One of the big risks out there is that, we see a lot more liquidation of retailers than we had over long term history, so that remains a bit of a risk that we don't know. There has been a lot written about how -- there has been a rise in bankruptcy in people speculating about run rate. Bankruptcy is a pretty seasonal business, waiting towards the beginning of the year. So we are not aware of anything large, super specific that's out there. In fairness, there is a lot of retailers owned by private equity companies and we don't always get current financials. So as you and I have talked about before, we think we have enough cushion in there. We know we have great centers. We know there is still demand. We are generally comfortable with the guidance. But obviously, a lot of the headline news has been negative. As we tried to say, we think our results are quite good, and we think things are much better on the ground than the headlines would have us believe. But there clearly are some changes in retail. Johnny, any other thoughts or observations?

[Johnny Hendrix:]

Yeah Christie, I think the real risk to same store NOI is that Payless or Route 21 would terminate more leases quickly. I think that's -- the risk associated with that is relatively low, and that would be less than a penny for the rest of the year, if they got everything closed right away. And I don't see that, in terms of the discussions we have had with, certainly with Payless over the last couple of weeks. So I think again, we have a good amount of known commencements coming, and I feel good that our same store NOI is in really good shape relative to our guidance.

[Christy McElroy:]

Okay. But it sounds like the -- you mentioned it for Payless and Route 21, you expect to end up with about half of the stores. So it sounds like at least that is in your guidance right now. And I am wondering you know, and just to confirm that, but for Payless, for the balance of their stores, are they looking to negotiate rent re-lease as well?

[Johnny Hendrix:]

Yeah Christie, you are correct. We have in our current outlook baked in that, Payless, we closed half of their stores that they have with us. In Route 21, we'd terminate half of the stores they have with us by June 1. And yes, they are currently attempting to negotiate rent re-lease or some renegotiation of leases on the remainder of the stores we have with them, all 21 of them today, Payless; and we have not had any specific discussions with Route 21 at this time.

[Christy McElroy:]

Okay. That's helpful. Thank you.

[Operator:]

From UBS, we have Nick Yulico. Please go ahead.

[Nick Yulico:]

Thanks. Hi everyone. I was hoping you could just talk a little bit more about the new lease spreads that came in lower than previous quarters and prior years and wondering what was driving that?

[Johnny Hendrix:]

Yeah Nick. Hey this is Johnny, good morning. My glass, frankly, is half full on rent growth. When you look at new leases for one quarter, it's a pretty small sample set in the first quarter, it's 165,000 square feet. I don't see that as a real indicator of much. There really was not anything driving the number one way or the other. If you look at renewals, which is a much larger sample set, we are really right in line with where we have been for the last couple of years. And with combined rent growth about 9.5%, it feels pretty reasonable. My expectation is the combined rent growth over the next couple of quarters will be in the lower double digits, maybe the lower teens, but pretty much where it has been over the last couple of years. I don't see there is any way to sustain new lease increases in the mid-20% range, it's just not realistic. Those have been spectacular numbers that we have produced. But things are not going to remain in that range. We have been saying for a couple of years. The leasing demand is okay, it's not great. We still have the advantage of the lower historic new supply. So the balance of the lease negotiation, depending on one location over another is pretty even. So I don't really see that there is any sort of titanic change that's occurred here.

[Nick Yulico:]

Okay. And then, on the redevelopment, just a question here. What you're citing for a bunch of these projects, the other redevelopments, where you're saying it's a 12% to 14% incremental return on investment; what is -- we have the dollar amount of the investments here as the denominator there; what would be the numerator there? Is it just any replacement of NOI? And then I guess I am wondering for a project like Sunset Point 19, which has been underway for almost a year, and I think, since you lost, you had a Sports Authority leave. How does that change the redevelopment [indiscernible] project, if anything?

[Drew Alexander:]

Good morning Nick, it's Drew. I am not 100% sure I understand all the elements of your question, so let me take a stab at it. I think, what might be helpful and Michelle, help me exactly on the definition, but generally speaking, we define a redevelopment as when the square footage has been changed. So we don't count simple painting and redeveloping of -- and remodeling of shopping centers. But a redevelopment gets into the square footage change. So Sunset 19 is an example, it's on our web site, you can look at it. We are adding some floater buildings, we are moving a lot of walls around. We had the Sports Authority, as you mentioned, we had some other boxes there. So that's how we define redevelopment and we try to label all those in the supplemental. The River Oaks deal, as we talked about last time and a little bit in this call, is somewhat unique, so we broke that out in the supplemental. So I don't -- is that getting to your question, or is there something else we can help you with?

[Nick Yulico:]

Yeah, I guess I was just wondering if for that scenario, at Sunset Point, where Sports Authority left? I don't know if that's one of the ones you have re-leased, and I don't think if it is. But what is -- when the Sports Authority lease you are not getting -- I guess put some money into repositioning -- yes?

[Johnny Hendrix:]

Yeah, what we are doing is, we are looking at a point in time when the redevelopment was initiated. And we are saying that, the NOI was X and then the incremental NOI will be added and there is an incremental investment. So when we look at that, that's really what we are trying to -- to show people is that, from where it started to where it ended up, the incremental investment versus the investment. And that's the whole property, it's not just that individual space.

[Drew Alexander:]

There are a lot of other things that --

[Nick Yulico:]

Right. So I guess my question then is -- I mean, if the center is 80% occupied, you have launched redevelopment on -- you redevelopment return includes some of the benefit of leasing up to vacancy? The existing vacancy in the center?

[Drew Alexander:]

Yes. But that's where as Johnny said, it's a point in time, and sometimes that's working for you and sometimes that's not. We tried to be --

[Nick Yulico:]

Okay.

[Drew Alexander:]

[Indiscernible] as we can across it.

[Nick Yulico:]

All right. Thanks.

[Drew Alexander:]

Thank you.

[Operator:]

From Bank of America, we have Craig Schmidt. Please go ahead.

[Craig Schmidt:]

Good morning. I was looking at -- I noticed the small shop vacancy didn't take a hit, but obviously the anchors did. Is that something you expect to continue for the rest of the year? And where do you actually expect year end occupancy -- total year end occupancy to end up?

[Johnny Hendrix:]

Hey Craig, this is Johnny, good morning. Yeah, let me answer the last question first. Generally, 94.5-ish is kind of where we are thinking. We think that things will improve through the rest of the year. Shop leasing has been pretty consistent and frankly, leasing in general has been fairly consistent. Most of the occupancy loss that we are seeing over the last year is two different things. Number one, we have -- specifically, we have the 50 basis points or so of occupancy that we bought. So we bought a vacant Target store that is 90,000 square feet, and we bought a couple of other properties that have larger vacancies. So we are buying some vacancy, and the other part of that is, we have two supermarket boxes that we took back towards the end of the quarter. One that we paid to take back, and the other one, the lease expired. On both of those, we have leases that I would expect should be signed over the next 30 to 60 days, and I think we will see great improvement in the NOI, and the NAV for those assets. So I think they will be very-very positive events for us. The other thing that I wanted to mention is, is right now, the Payless vacancy is not in the shop space number. And again, I don't think it's going to move in a lot, it might move in a little bit. But really, the key is, is that the shop space demand has remained very-very consistent and pretty nicely strong.

[Craig Schmidt:]

Okay. And then maybe just an update on the Sports Authority stores?

[Johnny Hendrix:]

Sure Craig. So we had seven, and we have re-leased four of those spaces now. We have three more of them that we are currently negotiating -- actively negotiating leases that are committee approved. So my expectation is that, by the time we get to June or July, we will have re-leased all of them. We probably get two of them, maybe three of them pay rent towards the end of 2017, but then the balance, hopefully by the first, maybe, the second quarter of 2018.

[Craig Schmidt:]

Great. Thank you.

[Johnny Hendrix:]

Thanks Craig.

[Operator:]

From SunTrust, we have Ki Bin Kim. Please go ahead.

[Ki Bin Kim:]

Thanks. Good morning everyone. Just going back to the last question, those two supermarkets that you just mentioned, are those the Safeway locations that I noticed went dark in your portfolio during this quarter?

[Johnny Hendrix:]

Yeah, good morning Ki Bin. Yes, those are both Safeway locations, one at Oak Park in Oregon, and the other one was in San Jose. Again, great locations. We are honestly very pleased to have them back and we will do very well with them.

[Ki Bin Kim:]

And if I -- I think if I look at the supplemental correctly, it's not just the anchor that went dark, I mean, those centers are pretty empty, right, with the small shop space as well? Is that correct?

[Johnny Hendrix:]

No. You might want to take a look at that again. San Jose is highly leased, might be 100% leased and Oak Park is highly leased. So no, I don't think that's accurate. Maybe we can get together on that later.

[Ki Bin Kim:]

Okay. And can you just give us a little insight into how your conversations with retailers have evolved over the past few months? I know they always ask for concessions, but are you just finding that the retail real estate landscape is maybe more willing to -- maybe you are not, but maybe other landlords are more willing to negotiate rents? Are we kind of incrementally heading towards that direction?

[Johnny Hendrix:]

I haven't seen any evidence of that at this point. Keep in mind that, real estate is very local. It's not only corner by corner, but it's space by space. But we believe, we have a very good strong portfolio, and we -- you haven't seen a whole lot of that. Obviously, Payless is asking for some concessions, and we will have to decide what we do on an individual space-by-space basis there. But we haven't seen much in the way of and asked for concessions. I review the accounts receivable on a monthly basis and you know, it has been pretty consistent over the last couple of years. We haven't seen, other than the few bankruptcies that have impacted us, any increase in what's happening there.

[Ki Bin Kim:]

Okay. And by the way, the center, I was talking about was Oak Grove and Portland, that's 41% occupied. So that's what I was --

[Johnny Hendrix:]

Well that's -- it's mostly Safeway.

[Ki Bin Kim:]

Okay, got it. All right. Thank you.

[Operator:]

From Jefferies, we have George Hoglund. Please go ahead.

[George Hoglund:]

Yeah, hi. Good morning. Just a question on the retailer demand. I mean, you mentioned that for small shop space, demand remained solid. But just, looking back over the past three to six months, I mean, have you seen much of a change in retailers attitude, in terms of the overall store expansions or contractions?

[Johnny Hendrix:]

Hey good morning George. Not really. I think there has been a lot of information in the press and [indiscernible] discussion about it. You know, when you look at our small shops, its mostly services, a lot of medical stuff, and we got great supermarket, $630 a square foot. So they are bringing in over 1 million customers a year into the shopping centers. We just haven't seen a lot of -- any decrease in demand or any issues, as we are talking to retailers. What we have experienced historically, when vacancy goes up, a lot of retailers are actually going to -- want to migrate to the better shopping centers. And I think you will see some of that over the next year or so. But generally, demand has been about the same as it has been for the last couple of years.

[George Hoglund:]

Okay. Then on a similar note, how are you seeing the landlord competitors behaving? Are you seeing sort of more aggressive leasing or sort of health [ph] behavior of competitors?

[Johnny Hendrix:]

Yeah, I wouldn't characterize it as any different. Again most of the markets, submarkets that are in are good submarkets and generally have, are pretty well leased. I haven't seen a whole lot of that. As we look forward to recon, we definitely are seeing great interest from the national and regional retailers wanting to meet with us and look for new locations. So I think that things are pretty much where they have been over the last couple of years.

[George Hoglund:]

Okay. Thank you.

[Johnny Hendrix:]

Thanks.

[Drew Alexander:]

Another thing I'd just add for everybody is to recall that, retail is all about the sales the tenant expects to do. Rent is a very small portion of sales for really any retailer. So while yeah, there might be some landlords who are desperate, those are generally poor locations and [indiscernible] kind of things that Johnny and the team -- that we are dealing with. So again, as Johnny said, it's very localized, and it all has to do with the sales projection for that location. The manager is going to get paid the same, the inventory is going to cost the same. The utility is going to be the same. So retailers want to be in good locations, resulting in good sales.

[Operator:]

From JPMorgan, we have Michael Mueller. Please go ahead.

[Michael Mueller:]

Yeah, hi. I guess following up on some of the similar questions; I was just curious in terms of the normal discussions you are having with retailers, not the ones where they are actively closing stores. But are they starting to push back more and just talk about the doomsday scenario to do whatever they can to produce rents? Or is it still kind of normal course? And then --

[Johnny Hendrix:]

Hey, good morning Mike. Go ahead.

[Michael Mueller:]

I was just going to say, and as a follow-up too, I mean, the tone of the questions that I think a lot of us get, it's very negative, very 2008 like in terms of tone, and the positioning. And just curious, can you talk a little bit about, when you look back then, what are the similarities and the differences you see today versus back then in the environment?

[Johnny Hendrix:]

Sure Michael, good morning. I would tell you that, in the normal course of discussions, there is always pushback, and there is always a negotiation, and it really depends on the specific location, who really has the leverage at that particular shopping center and that particular space. Sometimes we think we do good, and sometimes we think they do good, and generally, we end up with a great tenant in a good location. As it relates to 2008, this is not 2008. And you really haven't seen anywhere near that sort of discussions with retailers, and it may be just specific to us, because a lot of these bankruptcies have not impacted Weingarten directly, and so we are not seeing it as closely. Most of the locations, kind of the shadow supply that is occurring is in locations that are not around us. And if Macy's closes a store, they are probably not closing the store, a memorial city here in Houston. They are probably closing a store further out in the suburbs, or somewhere where they are not doing very much volume, low income area, low density, and that's not where our locations are. So we have not felt that impact, and we really haven't observed it at this point.

[Michael Mueller:]

Got it. Okay. Thank you.

[Johnny Hendrix:]

Thank you.

[Operator:]

From Hilliard Lyons, we have Carol Kemple. Please go ahead.

[Carol Kemple:]

Good morning. Another retail trend we are seeing is the curb side pickup with grocers. Have you gotten any feedback from them? Are they doing more sales to justify the cost in the offset of impulse purchases or what do you think about this trend and how it could impact your portfolio?

[Drew Alexander:]

Good morning Carol, it's Drew. I will start and see if Johnny has anything to add. So right now, they are very enthused about it. It's unique and it is increasing business. I think you make a great point in your question that we will see how it goes, if it's worth it, it does cost the money, so they may need to charge it. And as you say, they lose out on the impulse purchase. But for the time being, they like it, it's unique. I personally think they will end up charging for it, and it will be less unique. But right now, we are working with almost all of our supermarkets, I think.

[Johnny Hendrix:]

Hey Carol. Kind of reminds me of Fuel several years ago, where everybody wanted to have Fuel, really was a differentiator, if you did have it. Today, not so much. And my guess is, this would be kind of similar. I think you would end up having to have it, just to remain competitive than relevant. But I don't see on a long term basis, this is a huge mover. But it is something that everybody is working on.

[Carol Kemple:]

All right. And then your G&A expense is up over last year. Was there anything one time in there, or is that a good run rate going forward?

[Steve Richter:]

Good morning Carol, this is Steve. Q1 was a little strong, we had some adjustments coming in from year end and compensation and so forth. But I think if you look forward, the $7 million number, it seems to be feeling about right. And so I think on an annual basis, a $27 million, $28 million run rate would be appropriate.

[Carol Kemple:]

Okay. Great. Thank you very much.

[Operator:]

From Green Street Advisors, we have DJ Busch. Please go ahead.

[DJ Busch:]

Thank you. Appreciate some of the comments around the cap rates in the prepared remarks. I want to follow-up and make sure I heard you correct, Johnny, when you said that some of the lower quality properties, you see maybe some more demand there, which gives you an opportunity to sell some more of those assets. Is that what you said?

[Johnny Hendrix:]

Yeah DJ, good morning. Yeah, I think we have seen more activity around that. Some of the secondary locations that, it has been kind of interesting to us. We generally have more in the market than we think we are going to sell. So we have a pretty good indicator. And there has been some interest in, what I would call the secondary type product. And so, we are just kind of watching that, and thinking that it's possible. We end up selling a little more than we had anticipated.

[DJ Busch:]

So have you seen -- it seems like that's where we have seen the most cap rate movement. Have you seen that somewhat stabilize? And I guess a follow-up on that would be, does it necessarily have to have a grocery component, is that where most of the demand is, something that -- these centers that have a grocer, whether it's a big box center or not?

[Johnny Hendrix:]

Yeah -- go ahead.

[Drew Alexander:]

Hey DJ, it's Drew. I think a grocer is certainly better, but boxes are good too. And as Johnny said and what we said is, we still see some demand. Cap rates are up a little bit. As Johnny said, we work on a lot of different things, in order to get some number of things done. So it is something that, as Johnny said, we are seeing some opportunities there. We have done between the quarter, a couple of deals, right after the quarter closed, almost $100 million so far this year. So we will continue to look at things and do what we think is the right long term thing. But right now, we are probably seeing little more opportunities on the dispo side, than the acquisition side.

[DJ Busch:]

Okay. That's helpful. Thanks guys.

[Drew Alexander:]

Thanks DJ.

[Operator:]

From Boenning, we have Floris Van Dijkum. Please go ahead.

[Floris Van Dijkum:]

Thanks. Good morning guys. Sort of a follow-up question for DJ, I guess, in terms of capital allocation. You are -- it appears like you are more comfortable selling assets right now and certainly less comfortable buying assets. Even though cap rates are rising, are you expecting cap rates outside of the major markets to continue to rise later on this year, and that's why you want to take advantage of this window of opportunity?

[Drew Alexander:]

Hey Floris, it's Drew. Good morning. I think we more look at things as they are at the time and try not to get into forecasting. Who knows, there has been a lot of conversation about what interest rates and cap rates are going to do. So it's more about the opportunistic, what's available today and not trying to make too much projections. So along those lines, when it comes to capital allocation, we really look at it a little more differently in terms of what are the choices that we have and try to keep a long term view. So the only thing we are trying to say is, we potentially see a little more opportunity on the disposition side than the acquisition side. That said, we had a fabulous year, last year, with some major wonderful acquisitions that came on very fast and furious, and we got those done, and we would definitely be interested in the quality of property that we bought last year, and the growth potential risk-reward that those kind of things have. So we will keep looking on both, and you know, be opportunistic and be responsive to what presents itself and do the right long term thing for shareholders.

[Floris Van Dijkum:]

And on a related -- I guess, you had about 514 [ph] against of acquisitions this year. If I look at your development and redevelopment pipeline, and I total them up, it's around $600 million. Again, some of that will get spent over a number of years in particular. I guess, the River Oaks one is a longer term project. But how will you fund that? And I guess Steve is that partly what's causing you guys to look at potentially taking advantage of market conditions to sell some of your lower quality assets?

[Steve Richter:]

Good morning Floris. No, I would say that, that's not what is driving the capital needs. I think we are in good shape where we sit today. We have about $175 million under the revolver. Most of the new development capital that you refer to doesn't really kick in until next year. You know again, back to Drew's comments, is we just see it looking at the world today, more opportunistic to sell some assets. We would be open to buying some, if we find those opportunities. So it's not capital constrained in any particular direction.

[Floris Van Dijkum:]

Great. And I wasn't in plan [ph] that your capital constraints are -- because your balance sheet looks in pretty good shape to be fair. But thanks guys.

[Operator:]

[Operator Instructions]. And from Capital One, we have Chris Lucas. Please go ahead.

[Chris Lucas:]

Good morning everyone. I guess Johnny, just maybe to put this in perspective, if I look back, your TSA exposure a year ago was about 1% of ABR. When you total up your exposure for all of the tenants that you talked about before, Family Christian Radio Shack, Payless, Route 21, what's the total ABR exposure there?

[Johnny Hendrix:]

For Route 21 and Payless, it's about $2 million -- I am sorry, $1.5 million -- 1.5%.

[Michelle Wiggs:]

1.5%.

[Johnny Hendrix:]

Okay.

[Chris Lucas:]

It's 1.5% or $1.5 million? Those are different.

[Johnny Hendrix:]

It's 1.5%.

[Chris Lucas:]

1.5%? Okay. And then just from a -- going to the new lease deals that you guys signed in the quarter, it looks like tenant improvements on a per year basis were down relatively significantly. Is there anything specifically going on there, or is that just a function of the pool in a [indiscernible]?

[Johnny Hendrix:]

Chris, it's just a function of what we lease this time. I don't think there is any indication there. There was only one box included in the number, so that does impact it generally. The boxes do have a higher allowance.

[Chris Lucas:]

And then, on the renewals for the quarter, the volume was the highest in at least five years. Is anything specifically going on there, as it relates to just the level of activity or how you are going at it, or is it just the timing issue in terms of just give [indiscernible] the first quarter?

[Johnny Hendrix:]

It's just a timing issue. You know, we do incent our people to lease space and they do lease it as quickly as possible. But we were working on those last year too. It's not like we just started working on them this quarter. So we are leasing them as fast as we can and as fast as the retailers want to lease space.

[Chris Lucas:]

Great. Thank you. Appreciate it.

[Johnny Hendrix:]

Thanks Chris.

[Operator:]

And from SunTrust, we have a follow-up from Ki Bin Kim. Please go ahead.

[Ki Bin Kim:]

Thanks. Just along the same lines, what various distribution line activity spreads were weaker than past trends?

[Johnny Hendrix:]

I am sorry Ki Bin, you broke up a little bit, can you say that again please?

[Ki Bin Kim:]

Yeah. So is there any specific reason as why the new lease spreads were a little bit weaker than the past trends?

[Johnny Hendrix:]

Not particularly. You know, we went back and I have looked at all of the leases. There really wasn't a specific lease driving plus or minus. The vast majority of them are positive leases. Expectation is, is that on the total rent growth, we would be in the low single digits, maybe low double digits going over the next several quarters. So I don't think we will get back to these huge numbers, high 20s, 30% increases that we had in new leases, a couple of year or so ago, but I think, these numbers are very-very positive.

[Ki Bin Kim:]

Okay. And this is going to be a very small number, but the percentage rent that you get on your same store pool. It's a very small number, but it changed minus 20% in the quarter. Just curious if this tied you a specific set of retailers --

[Johnny Hendrix:]

Ki Bin, it's just timing. When we -- when they report and when we account for it. The total percentage rent, I think is less than $4 million -- about $3 million. So it's obviously not a big number.

[Unidentified Company Representative:]

And some [indiscernible] a small amount from the same quarter of last year. It's down from the previous quarter, because of the way you have to account from it. You have to stop your accrual until you hit your breakpoint. So quarter-over-quarter it has --

[Ki Bin Kim:]

Yeah, really this is a small number. I was just looking at it to see if there is anything we can -- any type of trending was [indiscernible] that. Okay. Thank you.

[Johnny Hendrix:]

Thank you.

[Operator:]

[Operator Instructions]. And it looks like we have no further questions at this time. Drew, we will turn it back to you for closing remarks.

[Drew Alexander:]

Thank you, Brandon, and thanks to everybody on the call. We will be around later if there is more questions. Look forward to seeing many of you at ICSC RECon or NAREIT. Thanks again for your interest. Have a great day.

[Operator:]

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