Regency Centers Corp (REG) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Regency Centers Corporation Second Quarter 2017 Earnings Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Ms. Laura Clark. Thank you. You may begin.

Good morning, and welcome to Regency's Second Quarter 2017 Earnings Conference Call. Speaking today on the call are Hap Stein, our Chairman and CEO; Lisa Palmer, our President and CFO; Mac Chandler, EVP of Investments; and Jim Thompson, EVP of Operations.

I would like to start by saying that we may discuss forward-looking statements on this call. Such statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to our filings with the SEC, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

On today's call, we will also reference certain non-GAAP financial measures. We've provided a reconciliation of these measures to their comparable GAAP measures in our earnings release and financial supplements, which can be found on our Investor Relations website at regencycenters.com.

I will now turn the call over to Hap.

Thanks, Laura. Good morning, everyone, and thank you for joining us.

Yesterday afternoon, we reported another quarter of solid operating results. Our high-quality portfolio of shopping centers located in affluent and dense infill trade areas continues to perform well. Leasing levels are nearly 96%, with Small Shop leasing surpassing 92%.

These healthy fundamentals produced year-to-date same property NOI growth of 3.5% and fortify future sustainable growth. When combined with our development and redevelopment expertise, fortress balance sheet and exceptional team, all of which were only made stronger with the integration of Equity One, we are well positioned to achieve our strategic objectives and create value for our shareholders.

At the same time, we remain very mindful that the retail landscape continues to change, including the ongoing evolution of the grocery industry. Amazon's announced purchase of Whole Foods reinforces our conviction that a well-located bricks and mortar presence that is convenient to the customer is a critical component of the success of any omni-channel platform.

The best grocers, which anchor the vast majority of our centers, are more focused than ever on advancing their own technology, pricing and shopping experiences to service their customers and grow revenues and profits.

They benefit from extensive and irreplaceable platforms in our target markets, with average sales of over $650 per square foot and healthy occupancy costs below 2%.

We will certainly not be immune to the changes occurring in the retail business and are keenly focused on the disruptors facing us today and those that we might face in the future.

We have a proven track record of successfully navigating and even profiting from industry challenges and will continue to adapt and make decisions that will enable our retail centers to not only survive but prosper over the long term.

We are prepared to own, operate and invest in a world where the bifurcation between the winning and losing grocers and retailers will accelerate as will the growing separation between the better shopping centers and everything else.

That said, Regency's unequaled national portfolio, where the best-in-class retailers will want to locate their physical stores, disciplined capital allocation strategy and experienced and deep team position us extremely well for the future.

I'll now turn the call over to Jim.

Thank you, Hap, and good morning. The quality of our portfolio and our team is truly evident in our second quarter results.

Portfolio occupancy remains at historically high levels. Though we experienced a slight dip in overall occupancy, driven by 1 anticipated anchor move-out, our same property portfolio remains at nearly 96% leased.

What I'm especially pleased about is our shop occupancy, which jumped back above 92% and represents an impressive 30 basis point increase sequentially.

We continue to experience steady demand for space from a wide variety of tenants across many categories, which include value retailers, fast-casual restaurants, fitness operators, pet stores and service users, among others. While retailers are being more deliberate and selective with their expansion plans, they continue to seek out the better locations, many of which are at our well-merchandised centers.

Leasing spreads on new deals in the quarter were 14%, highlighted by strong anchor spreads of 26% and shop rent spreads over 12%.

Regarding bankruptcies, our exposure to store closures remains minimal. Announced 2017 store closures represent only 20 stores in our portfolio of over 9,000 tenants. We have successfully re-leased or in lease negotiation for 95% of the anchor spaces we have received back over the past 18 months.

Our second quarter results, very limited exposure to bankruptcy since store rationalizations as well as our success in re-leasing locations that do close, collectively demonstrate the differentiation of the Regency platform and leaves us confident in our ability to produce sector-leading NOI growth and operating fundamentals.

I will now turn the call over to Mac.

Thanks, Jim. Our development and redevelopment activity remains robust, as we saw compelling opportunities within our target markets and portfolio. Our in-process projects now exceed $600 million of developments and redevelopments, with expected returns of nearly 7.5%, creating significant value that will drive future growth.

During the second quarter, we started Mellody Farm, a $100 million ground-up development located within a highly affluent suburb of Chicago. The 250,000 square-foot center is anchored by strong lineup, featuring Whole Foods, REI, Nordstrom Rack and HomeGoods. Preleasing the best-in-class restaurants and service providers is off to an impressive start.

Our development team is making significant progress in several exciting redevelopment projects within the portfolio. At Costa Verde in La Jolla, California, we are progressing with our approvals to densify the shopping center to take advantage of the vibrant growth in the University Town Center. At Market Common Clarendon, located in Metro Washington, D.C, we are working well with the community towards repositioning the existing office building to attract new retail and creative office tenants that will enhance the overall center.

We also continue to make progress within our now integrated Equity One portfolio, including Westwood Shopping Center, located in Bethesda; The Collection at Harvard Square in Cambridge; and Potrero Center in San Francisco, just to name a few. I look forward to sharing further details on these as well as other exciting opportunities on future calls.

Turning to disposition activity. Demand for the properties we're selling remains steady across all markets. As a reminder, we will use disposition proceeds to fund our new investment activities. As our development and redevelopment spending ramps up through the remainder of 2017, our dispositions should as well. We are maintaining our previous guidance of $100 million to $200 million of dispositions.

In regards to acquisitions, we remain under contract for the Northeast opportunity we had mentioned in the past. This is an acquisition of exceptional ground-up development that we will close upon construction completion and anchor rent commencement.

This opportunity may close late this year but appears more likely to close early next year.

Lastly, we are currently evaluating several compelling acquisition opportunities located in priority target markets. And any of these opportunities would further enhance our portfolio quality and NOI growth profile.

I would now like to turn the call over to Lisa.

Thank you, Mac, and good morning all.

In addition to solid operating results from our high-quality portfolio and an impressive roster of in-process developments, we made enhancements to our already sector-leading balance sheet by extending our maturity duration and lowering our overall effective interest rate.

During the quarter, we completed a successful reopening of our 10 and 30-year unsecured notes that we originally issued in January. We opportunistically raised $300 million across the 2 tranches to retire high-coupon mortgage debt, preferred stock and pay down our line of credit balance.

While this offering was completed in the week following the news of the Amazon-Whole Foods merger, which as most of you know led to significant volatility in the equity markets, it is important to note that we experienced minimal impact to demand or pricing.

We were extremely gratified by the support shown from the fixed-income investment community for Regency's platform and our high-quality and well-located portfolio.

A quick note on the merger integration. The team has made exceptional progress, highlighted by our operating results, including a meaningful increase in shop space percent leased during the quarter. We are well on our way to achieving the $27 million in merger-related synergies that we originally projected.

Turning to guidance. As a result of retiring the secured mortgages, we incurred onetime costs of approximately $12 million in the second quarter. We will also expense the noncash preferred issuance charges of approximately $2.5 million in the third quarter. This is related to the redemption of those preferred securities.

These onetime items will reduce net income and NAREIT FFO per share by approximately $0.09 for the full year, as reflected in our revised guidance. And additionally, we've revised our net interest expense guidance to reflect these transactions.

As Mac discussed, our disposition timing is tied to our investment spending needs, and the majority of our dispositions are now expected to occur in the second half of the year. Due to this later than originally projected timing and therefore greater-than-expected contribution to NOI from these targeted dispositions, we have increased the bottom end of our core FFO guidance range.

And also related to investment spending, we've extended the maturity of our outstanding forward equity issuance to the end of the year, as this better aligns the timing of the forward equity with our future funding needs.

And finally, given the solid results in the quarter and year-to-date, we are reaffirming our 2017 same-property NOI guidance, as we expect this positive momentum to continue through the remainder of the year.

That concludes our prepared remarks, and we now welcome your questions.

(Operator Instructions) Our first question comes from Christine McElroy of Citigroup.

This is Katy McConnell on for Christy. Could you perhaps provide some more color on the new development project out of this quarter as far as the pre-leasing demand and yield expectations relative to the rest of the pipeline? And then just given Whole Foods is its anchor, can you talk about any changes you expect in terms of their store build-out following the merger?

Sure, Christy (sic) [Katy]. This is Mac. I'd be happy to take that. We're very pleased with the progress of that project. We've been working this project for a number of years. The return looks great, solid at a 6.9% return. And that's in part because of the team we've got on place. We were able to attain a $20 million TIF and attract 4 very good quality, solid tenants. Whole Foods is our anchor, as you mentioned. REI, HomeGoods and Nordstrom Rack are supporting it. Whole Foods is doing everything we've asked them to do. They will be prepared to commence with their store once we deliver it. We're still upgrading at this point. But the shop leasing is going well. We've had a lot of demand. We're negotiated over 25,000 square feet in leases right now. So we like the progress. it's still very early, but all signs point to a successful project. And I think that's commensurate with the quality and the type of tenancy that we're looking for in other developments.

And regarding the impact on Whole Foods from the purchase by Amazon, we feel that it should be very positive for Whole Foods. We expect it would remove any uncertainty about new store openings. It appears like it's going to allow Whole Foods to reduce their costs and be more price competitive. And obviously, Amazon's direct and indirect industry presence will continue to grow. But we -- they're paying over $40 million a stores, so we don't expect them to do anything that would impair this wonderful brand that the Whole Foods has. So we don't expect it to be -- convert them to 40,000 square foot warehouse. But I'm sure, they're going to use some of the store to -- for pickup, delivery, et cetera, from an Amazon standpoint. And lastly, I think it reinforces our conviction about the importance of retailers being able to conveniently service their customers through bricks and mortar. It is and it remains the most efficient way to deliver the last mile.

Great. And are you seeing that other grocers are thinking about new development projects differently today as a result of the Amazon deal?

No. I mean, it's still early in the process, but we are working with several best-in-class grocers who are expanding, and they're sticking to their expansion plans sometimes in markets where they exist, sometimes new markets. But we haven't seen a shift in strategy or execution at this point.

Our next question comes from Nick Yulico of UBS.

Just want to see at this point of the year what could push you to the top or low end of your same-store NOI guidance.

To your point, we are nearly halfway through the year. And as you know, the 3.5% year-to-date same property NOI guidance puts us -- I mean, year-to-date same property NOI growth puts us just below the midpoint of our guidance. So for the latter half of the year, if you even get to the midpoint would suggest that we're expecting some acceleration, which is the case as redevelopments come online and also more rent-paying occupancy from the bankruptcy -- the bankrupt boxes from last year that we leased. So that plus if we have less than expected tenant fallout would put us towards the high end of the range. And the low end of the range would be if we have more than expected tenant fallout. But we have -- we believe we have a fair amount of tenant fallout assumed in our guidance.

Okay, that's helpful. And then on the -- in the disposition market, I'm wondering if you've noticed any changes there that may encourage you to sell even more assets.

No. I wouldn't say that. I would say certainly, nothing would change our plan. For the better properties, the higher-quality ones, we don't think cap rates have changed really in the last couple of quarters. They've held very solid. There's still a lot of competition for the best assets. As you drop down the quality scale, cap rates have expanded on the real small markets and the weaker properties. But all in all, it's pretty steady out there. There's a lot of demand. Buyers are able to get equity and so is [debt] and pretty solid all the way around for the product we have.

And I'd like to reinforce how we think about dispositions as part of our business model. Dispositions are a source of capital for us. First, we have free cash flow, which is projected to be north of the $150 million for this year, to fund our development spend. After that, we will use dispositions. And as we spoke about in our prepared remarks, we've been able to use our free cash flow for our development spend to this point, and we'll be selling properties to fund the remainder throughout the year. And to the extent we do have an acquisitions team in place, we don't incorporate new acquisitions into our guidance. But to the extent that we are able to find a compelling opportunity, we would increase our disposition guidance to fund that, especially in light of the equity markets today.

Our next question comes from George Hoglund of Jefferies.

Can you just provide a little bit of color on the change in development yields on Countryside shops and Point Royale?

Sure, I'd be happy to. On Countryside shops, the difference in yield is -- [so I'll backtrack], but really the increase is in costs. And so last quarter, we had written it as the first phase of the project. Now we've underwritten it to increase it by approximately $5 million to include a second phase of the project, which is something we're going to go ahead with. So that's the difference. It's not a cost, but it's a scope increase, and it's not an optional phase. Point Royale is a little bit different. Point Royale, the difference in yield has to do with -- in the prior quarter, we posted a return on a nonincremental basis. So on this quarter, we post it as an incremental basis. So it's the incremental NOI divided by the project costs, which didn't materially change. That's consistent with how we underwrite all projects. And unfortunately, last quarter, we had used a different -- Equity One's underwriting criteria for that one.

Yes. I'll just -- a little more color. I think, as you heard -- you've heard speak to on prior calls and Mac specifically talked about it, we took a really hard look at every in-process Equity One redevelopment that we bought on March 1 and re-underwrote it, if you will, with -- applying Regency's underwriting. And we just had different methods. And as Mac said, unfortunately, in the supplemental last quarter, we applied their original underwriting rather than our own, even though we'd already done the work. So it's just an oversight.

You might have also noticed that the projected cost in Serramonte came down by $5 million now that we have a chance to really fully get our arms around that.

I appreciate the color. And then can you just also talk about either a watch list or what other sort of categories you may be looking at more closely from the back half of year? Just if anything kind of on your radar has changed in the past couple of months?

George, this is Jim. I'll answer that one. No real surprises on the watch list. Obviously, Sears, Toys "R" Us, the Office Depot, Staples categories. But we continue to closely monitor other deteriorating categories: yesterday's apparel, casual dining and, obviously, the general department stores. But at the end of the day, we continue to strategically evaluate those spaces. We have proactive re-leasing [bots] in place, and we feel like we're prepared should we get that space back to react appropriately.

Yes. And more often than not a couple of things happen. Sometimes when there's store closures, we have the kind of locations that are the must-keep locations. Second, we have longer-term leases. And thirdly, more often than not, bad news ends up being good news. So not that we're immune, not that we're not -- we can't be negatively impacted, but more often than not, long term is a positive thing for the merchandise in the portfolio.

Our next question comes with Ki Bin Kim of SunTrust.

Could you talk a little bit more about some of the longer-term projects that Equity One had, Westwood Complex, Potrero Center? And I know I'm jumping the gun here, but any early thoughts on scope or yields on those projects? And maybe you can tie that into kind changing landscape in retail and how that impacts your views on those projects.

Sure. We'd be happy to take that. Let's take things one at a time. Westwood is a project that we're very excited about, and we're digging into that one very carefully.

(inaudible) in Bethesda.

In Bethesda, with existing Giant who would love to be a part of a redeveloped property. So we are -- we have changed sort of the mix of the project to reflect market conditions. And right now we're evaluating that, considering selling some air rights to builders who want to do townhomes, apartments or seniors or some combination of the 3, so a slightly different mix. We're probably suggesting less retail than Equity One had proposed. But we really -- we think at the end of the day this is a dynamic location with a Giant that does very well that will be part of whatever future project that we ultimately decide on. And we also think because of the underlying entitlements, we should be in a position to start that project late next year. So coming together, but we don't have at this time anymore to announce on that. I'd say let's jump to Potrero. That one is more of a longer-range project. In any event, it's going to take 3 to 5 years to entitle it, even with the great underlying entitlements that we have. We've changed architects on that project, and we're in the midst of setting all the different potentials. There's tremendous amount of density available to us, and we're not quite ready to make any announcements on that one. That's going to take longer for us to ultimately program and ultimately approve. So I would plan on something like that for 3 to 5 years from starting. Harvard Collection at Cambridge, that's more of a near-term project. It takes 3 steps to get the entitlements. We're through the first step. And now we're working on the second step, which is the planning commission. That should be in a position to start late next year as well. And that's a little more straightforward, where we know it's going to be a combination of retail and office. And we'll redevelop some of the buildings and then raze and rebuild others to create a cohesive project in a terrific location. So in [large] of the overall changes from the landscape environment, we're still very disciplined about the amount of shops that we propose, about the anchors that we suggest and we're only working with the best-in-class tenants. We recognize that when you bring in other uses such as multifamily it takes some time to find the right partner, and we're patient about doing that, and we want to make sure our risk-adjusted returns are appropriate. But at this point, we don't have really good guidance on those returns because we're still evaluating a lot of different possibilities.

And I would just say, Ki Bin, that in our view -- and obviously, I think you've got to see through the headlines. But at the same time, the retail landscape has changed. It's -- the change is accelerating. But we still feel that highly productive grocers, restaurants, service users, fitness, pet and where there's room that big-box users with best-in-class retailers like T.J. Maxx, HomeGoods, Nordstrom's, Ross and Ulta, it remains a compelling combination that makes sense today and is going to make sense for the foreseeable future. But the retail landscape and our tenant mix is going to continue to change and evolve.

Okay. And what do you think is the endgame in maybe 5 years of how the grocer landscape looks like? And I almost don't care what the grocers are saying to you. But more so like what do you think -- do you think there's less grocers in the market? Just kind of curious on how that looks like in your view.

Well, number one, I think it does start with Kroger, Publix, H.E.B., Wegmans are really, really good operators. They have extensive, irreplaceable platforms that are conveniently located to their customers. And they're focusing on not only technology and click and collect. For instance, Kroger in 2015 had 0 click and collect locations. They call it ClickList, and they have, I think it's 700 today. So they are -- these chains are rolling these out. But they're also focused on enhancing pricing to be competitive. And they realized that they've got to provide an exciting store experience. But what's going to happen is the weaker chains are not going to be able to compete, not going to be able to invest the capital. And at the same time, some of these stronger operators are going to be unwilling to invest capital in the weaker locations. So we feel -- they're going to face challenges. But these chains, when you think about it and you look at the challenges that Walmart -- I mean, Walmart 15 years ago had de minimis market share. And they have, what is it?

25%.

25% today. And these chains are still surviving. They've adapted. They've gotten better. So they'll be -- the 40,000 grocery store locations that are out there not -- our plan is take 15%, 20%, 25% are going to be closed in the next 3 to 5 years. But the locations that we have are ones were $32 million in sales, $650 per square foot or where bad news is going to be good news.

And occupancy costs less than 2%.

And occupancy costs less than 2%.

Our next question comes from Vincent Chao of Deutsche Bank.

Just sticking with the grocery topic here for a second. I was just curious -- I mean, Amazon buying Whole Foods clearly is going to cause some changes in the overall space. It sounds like you're not really seeing any changes in execution of strategy as of yet. But just from your opinion, I mean, do you think that -- and you mentioned the click and collect here for the one retailer. But do you think on net that the grocers have invested enough in the sort of omnichannel world and -- or they're going to have to play catch up for a while? And do you think they have the margins to sort of pay for all that?

Well, Kroger has -- I mean, the comment that we made is that in general there are still supermarket -- grocery chains that are expanding. Whether -- that's -- in the case of Publix, in the case of Wegmans, they're continuing their pace. In the case of Kroger, they've announced that they're going to take the capital that has been invested in store expansion investing that in technology. We think that's a good thing for us. It may make the development opportunity set get less, but we feel like we're going to get more than our fair share. But I think they recognized and are making significant investments. Sometimes it may impact their store expansion, but they're going to invest in technology so they can not only compete with Amazon/Whole Foods but they can also compete with Walmart or they can also compete with ALDI and they can also compete with Lidl.

I think it's important to note but -- my opinion, I think shared by those who around the table. The purchase of Whole Foods by Amazon didn't change the endgame. Amazon was intent on figuring out the grocery business. And the operators that operate it in the grocery industry, they knew that as well. So they were -- had already -- they were already talking about it, already strategically thinking about how they can compete, how they cannot just maintain their share but also grow their share in this new ultra-competitive environment. The only thing that changed is potentially the pace of that change, and I think that they're aware of that. And when the announcement was made, there's no doubt in my mind that every grocery operator called an immediate management meeting and sat down at the table and said "what do we need to do differently? What do we need to do faster?" But to think that they weren't already focused on competing in the world of e-commerce, as Hap said, these are really sophisticated operators with irreplaceable platforms.

And Kroger's ClickList, and Albertsons has a similar program. Publix has a similar program. But these, like I indicated, Kroger started rolling it out in 2015. This is something that they adapted from their acquisition of Harris Teeter. And that was obviously several years before Amazon's announcement that they were going to buy Whole Foods. Once again, we're not -- the markets -- the landscape is going to change. The landscape is going to be more challenging. We're not going to be immune to some of the fallout. But we think we are very well positioned to not only survive but to -- for our shopping centers but to perform real well, and there's going to be some opportunities going to come out of this.

Sure, sure. I wasn't trying to suggest that guys have not been preparing for this, but to the extent that it does accelerate things, that was more of the question, but...

And it is, I'm sure, I agree with what Lisa said. Based upon our conversations, those meetings did take place.

Right. You would expect that to be the case. Maybe a different topic. Not that every time one of your peers buys a portfolio that you have to have looked at it. Maybe you did, maybe you didn't. But I was just curious, in general, the Primestor acquisition that Federal had announced. Just that strategy of maybe going more specifically after a particular demographic or ethnic group, is that something that you guys are thinking about more seriously? Or -- and are there certain markets that, that would make sense for you guys?

Let me say this. We looked at that in the past, and it is a -- and let me say this. Federal is a very sophisticated -- and Don Wood are very sophisticated capital allocators, and we've got a tremendous amount of respect for them. And I'm sure they will make good on this investment. But we've looked at this in the past. And we feel that the best -- rather than having a separate strategy, the best way for us to continue to have shopping centers that are going to grow NOI and they're going to grow and perform is to stick with our strategy. And we think part of that -- we have shopping centers that are in highly large percentage of Hispanic American communities with large -- and some centers with large Asian -- percentage of Asian populations. And we found there's a lot of similarities there. And I think we're going to continue to execute on that basis. Mac, do you want to?

Well, I would say just living in Los Angeles we're very familiar with the properties there and the opportunity set. And I understand what they're doing. They're trying to get a little better growth, and they may accomplish that. But I don't -- I like the strategy we have on a one-off basis. We're -- we like dense neighborhoods with a lot of purchasing power with best-in-class tenants. So we can continue to execute what we're during, and we think we have the best approach.

Or the approach that we feel very comfortable with.

For us.

It's best for us.

Our next question comes from Samir Khanal of Evercore ISI.

On the disposition that you have, the $100 million to $200 million, which remains unchanged and looks like it's towards the back half of the year. I mean, are there sort of -- my guess would be these are more sort of Equity One assets or -- are they only one-off assets? Or are there certain markets you're looking to exit?

Well, I would say they're one-off assets. It's not a portfolio. We have several properties under contract and some where we're negotiating with buyers. The way in which we select the properties to sell hasn't changed over time. They're properties where they may have limited growth, they may be in a thinner market, they may have some tenants at risk or just ones where we just don't have the best beliefs that they'll outperform the rest of the center. So we've seen good reactions from the buying community as we've put properties under contract. And the plan hasn't changed. It's to sell 1% to 2% of our assets. So it doesn't look like we've sold much to date, and that's a fact, but we have several properties where we're coming together on terms with buyers. And we expect to execute and hit our guidance by the end of the year.

I was going to say the same thing. But it's a mix of legacy Regency and Equity One properties.

Okay. And then I guess my -- the next question I have is on the Equity One portfolio, sort of putting that portfolio side by side with yours. Just from an internal growth standpoint, is there -- where is the opportunity there? Is the -- do you have opportunity to maybe sort of increase the sort of the annual contractual rent bumps? Is there an ability to sort of push occupancy maybe on the Small Shop side? Or even may -- or maybe increase rent spreads at this point? So I guess, where is the biggest opportunity just when you think about it sort of x redevelopment from an internal growth standpoint here?

If you'll recall when we initially talked about the strategic benefits of the combined portfolio when -- and then when we closed on March 1. When we initially talked about it, one of the strategic benefits was an enhanced same-property NOI growth rate. It's hard to exclude redevelopments because that is a piece of it. And then on March 1, when we closed, we significantly increased our same-property NOI growth guidance for the year. And that enhanced same-property NOI growth for '17 and also for the next couple of years is coming from a variety of things. One, Equity One had just done a very good job of acquiring properties that were -- that had lease rent rolls, essentially, with leases below market. And so there was just inherent upside as leases are rolling. And we're beginning to achieve some of that. They had done a fantastic job in the very recent past of actually leasing up their shop space, but there were still room and -- as evidenced by our results this quarter. So some of it's coming from there. And then, they were great operators, but I'm a little biased, and I think we've got the best team in the business. And I think that we can apply our expertise in the field to enhancing those contractual rent steps and, again, increasing occupancy. You asked me to exclude redevelopment, but that's also a piece of it because I also believe that best team in the business applies to our ability to create value at these shopping centers. And again, the Equity One team has built a really nice portfolio of properties that essentially increased our venue of opportunities to create value. So all of that will continue to enhance our same-property NOI growth for at least the next couple of years. And then we'll get to a much more stable -- stabilized run rate.

Our next question comes from Craig Schmidt of Bank of America.

I want to put a focus on the accelerating leasing volume. You guys went from $1 million in the first quarter to $1.7 million in the second quarter. Incredible pickup. I just wonder was it anchored Small Shops? Part of new projects? Or was it mainly re-leasing an existing property?

Craig, I mean, unfortunately, we didn't restate all of our statistics for kind of the comparable larger portfolio. So a lot of that is just from the fact that we're just larger. The only thing that was adjusted was the same-property NOI table.

Okay, great. And then on the Whole Foods that you own, I mean, there has been a lot of talk and speculation that they're going to use these stores as distribution and pickup and delivery that may require some changes in the property. I assume that's an opportunity for you to be able to charge higher rent for any kind of change they want to make on properties they lease from you.

I think we've been very accommodating to the grocery stores in the past as far as pickup and deliveries, as long as there's not a significant amount of capital involved there. And my sense is, this is just -- I'll reiterate this because this will evolve over time, but the vast majority of the Whole Foods space is going to continue to be as Whole Foods is today. I would also be -- I would be very surprised if they didn't -- that wasn't the case. But I'd also be surprised if they didn't take a small portion of that space and devote it to distribution, pickup and delivery.

(Operator Instructions) Our next question comes from Wes Golladay of RBC Capital Markets.

Looking at the development across commercial real estate, we're seeing delays on construction due to subcontractors issues and also in some cases finding the right inspector to show up on time. It looks like you actually pull forward the anchor open in one of your projects, and yields are stable if not increasing. So wondering if you're not seeing this and how are you mitigating the risk of delays?

Mac and the team are really good.

I think we built it all on contingency because, unfortunately, that is a fact of life these days. Cities have fewer inspectors than they used to, and subcontractors have a wide array of job to bid on. So I think we've budgeted well to account for it, but we haven't been surprised by any of this. So our schedules and our budgets presume this is going to happen. And I don't see that really changing in the future, so.

And it has been and still is and maybe even more so, it's -- scheduling, timing and cost controls are obviously major challenges all the time and historically have been from a construction standpoint. And that's still very, very much the case today. So we obviously have a lot of focus, and the team really has done a very nice job of addressing that issue -- or those issues.

Our next question is a follow-up from Ki Bin Kim of SunTrust.

Just a quick one. Is selling the Barneys lease a 2018 or a '19 event? And maybe you can comment on the sales productivity in that store.

We consider all assets as far as what goes on our distribution list and where those are prioritized and don't specifically talk about any assets. And I would answer it that way no matter what assets you ask me about there. I mean, we focus -- and I'll also say, given -- we don't want to be driven by the headlines. But given by what's happening in the business today, you can be assured and you can imagine we have -- we've once again thoroughly vetted the full portfolio, and we prioritize those assets that have the lowest growth prospects and it makes sense to sell.

There are no further questions at this time. I'd like to turn the call back over to management for closing comments.

We appreciate your time and interest in the company and hope that you have a -- enjoy a wonderful weekend. Thank you so much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. And have a wonderful day.