Regency Centers Corp (REG) 2015 Q4 法說會逐字稿

Greetings, and welcome to the Regency Centers Corporation fourth-quarter 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

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

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

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

(Caller Instructions)

I will now turn the call over to Hap.

Thanks, Mike. Good morning, everyone. Thank you for joining us on the call.

The hard work and talent of Regency's team is clearly visible as we continue to achieve our strategic objectives. Highlighted by delivering growth in core FFO per share of nearly 8% and total shareholder return well in excess of peer average on a one-, three-, and five-year basis. I'm very proud of these achievements.

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

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

Third, we continue to cost effectively finance new investments through our match funding strategy. This year, we have improved our net debt-to-EBITDA ratio to 5.2 times, while lessening near-term maturities and reducing our overall cost of debt.

And the last key ingredient is our dedicated team and special culture. You only have to look to our recent promotions to understand the strength and depth of Regency's bench. This past November, following the announcement of Brian Smith's retirement, we were fortunate to move quickly with the appointments of Lisa Palmer as President and Chief Financial Officer, Jim Thompson as Executive Vice President of Operations, and Mac Chandler as EVP of Development. All three have held influential positions with Regency, averaging over 20 years in tenure.

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

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

Lisa?

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

First, core FFO for the year increased nearly 8% over 2014. As Hap said, same-property NOI growth of 4.4% marked the fourth consecutive year of at least 4% growth. Base rent continues to be the largest contributing factor, resulting from gains in leased shop space, strengthening embedded rent steps, and strong re-leasing spreads. Small shop percent leased increased nearly 92%, as moveouts remain at historically low levels.

In terms of the same-property portfolio, we ended the year at 95.8% leased, and this includes an impact of 30 basis points from two Haggen supermarket locations that we successfully recaptured late last year. We are already well on our way to upgrading these shopping centers with new, vibrant anchors, allowing us to create value in the near term.

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

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

Looking to 2016, our guidance remains unchanged from what we released a few weeks ago. Core FFO per share at the mid-point is expected to grow by more than 6%, with same-property NOI growth in the range of 2.75% to 3.5%. This includes the positive impact from redevelopments of less than 50 basis points. In terms of occupancy, we expect our same-property portfolio to end the year in excess of 96% leased, with the possibility of a modest dip in the first quarter, as we have traditionally experienced that.

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

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

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

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session.

(Operator instructions)

Our first question comes from the line of Craig Schmidt from Bank of America.

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

No. Our developments are extremely well conceived, focused on shopping centers that are going to make sense for the long-term. We did a significant amount of pre-leasing. It's going to be sponsored by great anchor tenants and where we have a strong indication of interest from [side-shop] retailers. What we may do, though, is we may decide if results of what may be happening out there is -- in the environment is -- and we've done this in the past -- is decide to phase some of the side-shop space.

At the same point in time, we have a very focused development program, our exposure to development is substantially less than it was going into the last downcycle. So we feel like we're very well positioned to continue to grow the development program on a disciplined basis.

Okay. I think you have three Sports Authority's, do you have a sense of where their rents are relative to market?

I'll turn that question over to Jim Thompson.

We do have a three Sports Authority's, and at the end of the day, we're not seeing a lot of upside in those deals but we feel very confident that if we get them back that there's a good relet opportunity.

And it's about 50 basis points of total rent so our exposure is de minimis.

Okay. Thank you.

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

Good morning. Lisa, I know you guys just settled the forward, but as you think about the sources and uses of capital this year, is that something you would consider again given the flexibility it gave you or will you just stick with dispositions and the ATM as a means to fund development and any potential acquisitions?

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

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

Really, I guess three separate question so I'll take each one separately. First, in terms of what we're trying to buy, we have not seen any changes. It is still highly competitive in nature. There's not a lot of products even coming to market for the types of centers that meet our investment criteria, and when they do, especially for marketed deals, there's heightened competition.

We haven't had the need to change how we're underwriting. We do a look-back on everything we buy and develop and our underwriting -- our actual performance from everything that we have bought and developed over the last four to five years has exceeded our underwriting expectations. For what we're selling, we're starting to hear that there's some softening but we haven't -- for the secondary, lower quality properties -- but we haven't seen it yet. And I'd like to think that even though we are selling our lower quality, lower growth properties -- our lower quality, lower growth properties on a relative basis are still of moderate quality, if that makes sense.

So we haven't seen a whole lot of movement in those cap rates yet.

All right. Thanks.

Thanks, Jeremy.

Thank you. Our next question comes from the line of Christy McElroy, Citi.

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

50 basis points plus or minus in 2016.

Okay. I'm sorry. What was that? How many?

About 50 basis points. Five zero.

Okay. Great. Got you. Thank you. And then just compared to your releasing spreads of 9% in 2015, what you're expecting in 2016 and given that your spreads on execution average more like 10% to 11% in the back half of the year, how much of that reflects space that is actually commencing occupancy in 2016?

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

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

Great. Thank you.

Thank you. Our next question comes from the line of RJ Milligan from Robert W. Baird.

Good morning. I was wondering if any of the macro volatility has given pause to some of the retailers whether it be new store openings or signing on renewals?

Jim you want to take it?

And then Mac can talk about it from the grocer standpoint.

It's the macro economy that's causing retailers to slow down. New store openings.

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

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

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

Okay. Thanks. That's helpful. And the development and redevelopment guidance for the year is $125 million to $225 million. Can you talk about the different factors that would drive you hitting either the low-end or the high-end of that guidance range?

Well, it's really no different than most years. We have a very full pipeline of projects, but whether a project starts or not sometimes it's dependant on external forces such as entitlement, such as an anchor lease getting signed on time. So, projects can move forward, certainly by external events, and that's why the guidance is somewhat wide. Really if you look at the pipeline for 2016/2017, we've got $600 million worth of projects that we're deep into, and that are not all going to make, but where the pipeline visibility is looks really good and the best-in-class grocers, we like what we see.

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

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

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

Okay. Thanks, guys.

Thank you.

Thank you. Our next question comes from the line of Vincent Chao from Deutsche Bank.

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

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

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

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

Okay. But that's not based on anything specifically that you're following it sounds like?

No. It is not.

Right. Okay. And last one for me. As you think about the Fresh Look program, do we have enough data at this point to compare and contrast some of those centers versus the others? From a performance perspective?

Well, I guess I'd answer that a couple ways. Our Fresh Look initiative really permeates the entire portfolio. So if some centers are identified as Fresh Look and others are not, really it's a philosophy of upgrading tenants throughout the portfolio and in select redevelopments that help our competitive position. But if you look at some of our recent redevelopments, and those we've had the opportunity to really dig deeper into the design aspects of those projects and the remerchandising, those have performed really well. And you can look at the incremental returns.

They're very strong and the spreads on those are very compelling. So we think it's a successful program, but it never ends. We start over every year. So, we think it's a real competitive advantage for us.

And what we're also seeing is an uplift in merchandising related to that, related to the merchandising part of Fresh Look and the place making part of Fresh Look, but we're also getting better rent growth and better NOI growth even above what we originally anticipated.

Okay. Thank you.

Thank you. Our next question comes from the line of [Anthony Hao] from SunTrust.

Good morning, guys. Thanks for taking my question. Are there any markets or sub markets that you have concerns about today? And on the flip-side, are there any markets that you're particularly optimistic about four 2016?

Jim, you want to address --

I think, in general, if you look at the broad spectrum of our portfolio and look back at 2015, I think really every market held its own and there was, there's really no laggards or challenges. As we look forward to 2016 I think the same is true. One market that's kind of outperformed is Florida, but that was probably, quite frankly, one of the last to pop back so it's throwing up some good numbers in the last three years, but in general across-the-board all of the portfolio is performing quite well.

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

Right. In Houston we're blessed with a very strong and top-performing portfolio. The assets are well located with average household incomes of $140,000. We're 98% leased. Almost 5% same property NOI growth for 2015, which was over a pretty good hurdle in 2014. So, we feel like we're somewhat insulated from economic headwinds there, but we obviously are keeping our finger on the pulse and making sure we're keeping an eye on that but we feel good about -- very good about that portfolio.

Okay. Just one last question. What's the component of growth for same-store NOI in 2016 in terms of occupancy, rent [bonds] and lease spreads?

First let me answer that by saying what 2015 was because I think that when you think about relative to 2016 I think it's an important comparison. In 2015, we actually had about, sorry -- in 2015 we had approximately 150 basis points of our growth came from occupancy lift, if you will, so percent leased commenced. And then we had 140 basis points from rent steps and 110 from rent growth. And I know you all get sick of us pointing to our slide in our investor presentation about how we're going to achieve our 3% same-property NOI growth, but it's really important to think about that.

So when you think about 2016, we should get about 140 basis points from our contractual rent steps. And with rent growth near double digits over the past 12 months, and with the same expectation going forward, we should get another 110 to 120 basis points from that. So that gets us very near the bottom end of our range. So, then we have the 50 basis points plus or minus that we're expecting from redevelopment. That takes up to about, call that 3.25%. So the range moving down to the 2.75% or to the upper part of our range will really depend on how some of these bankruptcies and or moveouts may impact us or the ability to just continue to push our percent leased and our percent commenced north of what it is today.

Okay. Thank you.

Thank you.

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

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

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

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

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

Can you tell us maybe how far you are from that target that you're looking for?

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

Okay. Thanks.

Thank you. Our next question comes from the line of Jim Sullivan, Cowen Group.

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

We have a tin ear towards the latter. Obviously, we're very close to it and with all the noise that's out there, very focused on a couple of overall comments. Our portfolio given what we sold and what we've invested in through acquisitions and development is, in our view, is in much better shape than it was in 2007. We also believe that there are re-merchandising efforts and that those -- also those tenants that have survived through the downturn and they are still operating and still expanding that the health of our tenants are much better from that standpoint. So that's kind of a macro view. Jim, you want to comment on at the property level, the portfolio level what we're seeing?

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

And then a second question regarding what's happening among the grocers. We've clearly seen a series of announcements recently about major banners looking to expand whether it's a North Carolina, Virginia and looking to be a very competitive market share battle there. And I guess that gives rise to a two-part question. On the one hand, that would seem to present some ground-up development opportunities for you or even some redevelopment opportunities, and I just wonder in that respect if you're able to, given the competitive situation among the grocers, get better returns on whatever incremental capital you would invest. And conversely, the other side of that, to what extent do you get concerned that there might be too much new supply planned for those markets?

Well, once again, I will let Mac speak to a little bit of the specifics, but from an opportunity standpoint, I think that allows us to be more selective from a development standpoint, which is a good thing. And not every development opportunity we see is going to meet our criteria. And we're going to make sure that our development program is right-sized.

From an overall competitive standpoint, that's one of the reasons that we focus on grocers that are highly productive and $600 a square foot and $30 million in sales are two metrics that we focus a lot on and when we're selecting an operator for development, a grocer for development, we're going to look at who we think is going to generate the sales and also attract the better side shop retailers and not get outflanked either by existing or new competition. Lastly I'd say is while we haven't been perfect, I think we've got a very good track record as far as being able to navigate the ongoing consolidation, ongoing competition in the grocery business. Mac, is there anything --

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

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

Okay. Great. Thanks, Hap.

Thank you, Jim.

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

Thanks. I know you touched on before what you saw happening to non-core acquisitions and sales and stuff, but if you're thinking about the core stuff that you tend to buy, what's happening to that buyer pool? Are you seeing fewer buyers? Are you seeing folks back off the accelerator in terms of being aggressive? The same amount of competition, less? Can you just size that up for us?

I'll start and then I'll let Hap add any color if he wants, but, Mike, no. In fact we're not seeing any change whatsoever. There's not a lot of supply of that type of center that meet our investment criteria. And when they do come to market -- and it's very difficult to find an off market transaction as you know.

There has to be some type of established relationship connection for that to happen. So for those that are marketed, we're seeing our REIT brethren still competing for those centers and a lot of institutional capital as well. There's evidence of a center that traded recently in San Francisco with an unlevered IRR in the mid-5%s. There's still a lot of capital pursuing the high-quality grocery anchored shopping centers.

Okay. Okay. Thank you.

Thanks, Mike.

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

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

Once again, we're a little bit of a lagging indicator from that standpoint in that as opposed to the malls there is a limited amount -- we don't get as much sales information from our tenants and what we get from the grocers, it's a year in the rears. So what we're dependent upon is the conversations we have with the retailers both at a macro level that Jim and Mac and the team has, and Lisa and I have, and then what the property managers are hearing.

And we're not hearing anything either from a reduction in the amount of new space --. Now, there is a certain amount of, as I said, rational caution on the part of the retailers, but we're not seeing anything more today than we saw six months ago. And, all of our indicators, all of our health indicators are fine right now. But, our eyes and ears are open. Is there anything you want to add, Jim or Mac?

Okay. Thank you. The other thing I was going to ask you, is there any change in mix at the centers in term of tenants? There was a while there were some of the medical uses in like urgent care centers, those kinds of things, were getting popular. Are you seeing any shift in different types of tenants wanting space?

Yes. As Jim, and or Mac said, it is restaurants, it's fitness and its pet stores. Those are the three so to speak hotter --

Service uses --

Service uses out there.

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

Okay. Good. Thank you guys.

Thank you. Our next question comes from the line of Tayo Okusanya from Jefferies.

Hi. This is George on for Tayo. Just a couple questions on the overall retailer environment. How are you feeling relative to three months ago in terms of the store closure and bankruptcy environment and what you're seeing? And then also, in terms of some of these concepts like the fitness locations, are you starting to get worried about over saturation of too many concepts?

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

Okay. Thanks.

Thanks, George.

Thank you. Our next question comes from the line of Chris Lucas from Capital One Securities.

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

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

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

Demand -- I just want to be clear -- demand remains broad and deep, but at the same time, I think anybody in this environment that isn't cognizant of the macro events that are going around us and that the possibility -- look, using a baseball analogy, this expansion has lasted a while. Let's just say we're in the seventh inning. There's a chance that we -- that this expansion could get rain postponed due to a recession. And we don't know whether the recession is going to be very shallow like 2000 our deep like in 2008. Most of the recessions in the past, since World War II, have been pretty shallow.

And that 2000 recession had very little impact, if at all, on our rent growth, our occupancy and our NOI growth. Or I think there's still a better chance that we're going to continue -- the economy's going to continue to muddle on at least through the ninth inning and maybe even into extra innings, but it's going to end at some point in time. The key thing is the things that we can control, the quality of our portfolio, the quality of our tenants within that portfolio and the team is intensely focused on that. The quality of our developments and making sure that our development program is right-sized, and as important as it all is the quality of the balance sheet. And our balance sheet has never been in better shape.

And those are the ingredients that, as I said, not only allow us to thrive if things continue, the economy continues to grow or muddle through, but also to withstand and weather the next downturn and maybe even profit from that. We just wanted to let you know on the call that we are aware of the macro environment that's out there, and another key thing is we haven't seen any indications yet, whether it's capital markets from a demand for our shopping centers, whether it's tenant demand, both on the side shop basis or the anchor or the secondary anchor basis.

Great. Thank you.

Thanks, Chris.

Thank you.

(Operator Instructions)

Our next question comes from the line of Jay Carlington from Green Street Advisors.

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

I don't know that we've ever set a feeling of 92% -- let me go back a little bit of history. We reached our peak in small shop percent lease of 92.1% I believe in 2006, 2007, maybe even early 2008. But as Hap just said, our portfolio is of much higher quality today due to a lot of the actions that we've taken, so I do believe that we could exceed the 92%. However, were not necessarily counting on it. So I'd go back to the earlier question about the components of growth in our 2016 guidance, and for us to reach the upper end of our range, we're going to have to increase the percent lease of small shops.

Okay.

And I would say the lower end would be more stable.

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

I thought it was 100% owned properties. One that we did have. I'll have to get back to you on that.

Okay.

I'm not aware of one in the JV.

Okay. Yes, it was just on the JV portion so we'll follow up off-line. Thanks. That's all I had.

Okay.

Will be back in touch.

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

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

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