Retail Opportunity Investments Corp (ROIC) 2017 Q2 法說會逐字稿

Welcome to the Retail Opportunity Investments 2017 Second Quarter Conference Call. (Operator Instructions) Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of the federal securities law. Although the company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations. Information regarding such risks and factors is described in the company's filings with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K. Participants are encouraged to refer to the company's filings with the SEC regarding such risks and factors as well as more information regarding the company's financial and operational results. The company's filings can be found on its website.

Now I would like to introduce Stuart Tanz, the company's Chief Executive Officer.

Thank you, and good morning, everyone. Here with me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer. We are pleased to report that the company posted another solid productive quarter. Before going through the details of the quarter, I would like to first make a few remarks regarding the Amazon Whole Foods transaction. Since the deal was announced 6 weeks ago, there has been a tremendous amount of commentary published coming from a wide range of industry experts. Experts who resoundingly believe that the transaction confirms the importance of bricks-and-mortar stores to future omnichannel retailing, and the importance of Loehmann's shopping centers in densely populated markets, which is exactly the type of markets where our portfolio is located.

In fact, our portfolio is not only located in densely populated markets, our portfolio is located in among the best, most sought after, demographically strong, supply-constrained markets in the country. The very markets that a growing number of savvy retailers are seeking to enter or grow their presence in. Importantly, the vast majority of our grocery tenants are full-service operators like Safeway and Kroger as well as highly-specialized players like Trader Joe's, for example. These types of operators do not compete directly with Whole Foods. One of the big questions is whether or not Amazon will seek to modify the Whole Foods concept with the goal of competing directly with these grocers. Mind you, in an industry that is well known for its razor-thin margins, no doubt it will take time to play out. That said, from all our discussions that we've had with our grocery tenants, we can assure you that they are not sitting on their hands waiting to see what happens. They all have been testing various omnichannel strategies for the past several years, and it's safe to say that they are now accelerating their efforts.

Lastly, one of the most challenging aspects of executing a profitable grocery e-commerce strategy, is figuring out how to solve the so-called last mile delivery conundrum. To that end, as an example, Walmart, which currently has the largest market share in the grocery industry, is one -- and is one of our tenants, recently rolled out a new initiative, whereby its employees are delivering online orders on their way home each day. In other words, Walmart is leveraging their existing infrastructure, meaning their store locations and employee base, to attack the last mile challenge. Industry experts believe that one of the keys to success in solving this challenge is having stores in the right markets and in the right strategic locations within those markets. We believe our portfolio is well situated in that regard.

Now turning to our second quarter performance. We again advanced our business, capitalizing on the ongoing strong demand for space across our portfolio. As you will hear from Rich in a minute, we ended the quarter at a very strong at 97.3% leased, our 12th consecutive quarter at or above 97%. Additionally, we again posted stellar releasing spreads including a 27.3% increase in base rent on new leases, which is also our 12th consecutive quarter achieving double-digit rent growth.

With respect to acquisitions, during the second quarter, we acquired another 2 terrific shopping centers totaling $80 million, bringing our midyear acquisition total to $172 million. The 2 properties that we acquired in the second quarter are both located in the Pacific Northwest, with one in our Portland market and one in our Seattle market. Consistent with our existing portfolio, these new shopping centers are well situated in very strong densely populated submarkets. We sourced both acquisitions to establish relationships. In fact, we acquired the Portland shopping center from a private seller that we had previously acquired another property from, also in Portland. And in the short time since acquiring this new Portland shopping center, we've already lined up a great national tenant to take all of the available space at the property. Additionally, we are now in the process of expanding one of the prominent pad buildings. The pad expansion is an opportunity that came to light post closing, so it will serve as a nice boost to our original underwriting of the transaction, along with enhancing the underlying value of the property.

In terms of our Seattle acquisition, we had an ongoing dialogue with the private seller for years. Our persistence and patience paid off. Such that we are able to acquire this shopping center on favorable terms. Like we did at the Portland property, we are now quickly lining up tenants to lease the available space at this new Seattle acquisition. Beyond the $172 million of shopping centers that we've acquired thus far in 2017, we have 3 more fully -- truly exceptional shopping centers currently lined up totaling $127 million. One of them that we recently put under contract is located in the heart of the Silicon Valley. In fact, it's just down a street from Google and has a trade area population base of over 300,000 people. The other 2 shopping centers we are acquiring from a private seller. I mentioned a moment ago about being persistent and patient. We've been pursuing this seller for over 6 years for good reason as both of the shopping centers are situated in highly sought-after and truly irreplaceable locations. One is in the heart of Orange County, and the other is an A+ asset in the heart of one of Portland's strongest submarkets. A critical component of getting this transaction was the seller's interest in taking all of their equity, not in cash, but in ROIC common equity. $59 million in fact, based on the value of $21.25 per share. Going forward, there's a considerable upside potential through a number of recapturing and repositioning opportunities.

Lastly, with respect to dispositions, we currently have 2 properties lined up to sell totaling roughly $44 million. Both properties are being sold as new development opportunities, whereby the buyers will be pursuing multifamily projects.

Now I'll turn the call over to Michael Haines to discuss our financial results. Mike?

Thanks, Stuart. For the 3 months ended June 30, 2017, the company had $66.6 million in total revenues and $21.7 million in operating income. GAAP net income attributable to common shareholders for the second quarter of 2017 was $8.3 million equating to $0.08 per diluted share. In terms of funds from operations for the second quarter of 2017, FFO totaled $32.8 million equating to $0.27 per diluted share. With respect to property level net operating income on a same-center comparative basis for the second quarter, same-center cash NOI increased 3.6%.

Turning to the company's balance sheet. At June 30, the company had a total market capital of approximately $3.7 billion, with about $1.3 billion of debt outstanding, equating to a debt-to-total market cap ratio of 37%. With respect to the $1.3 billion of debt, the vast majority of that was unsecured. In fact, only $62 million was mortgage debt. Accordingly, over 95% of our portfolio was unencumbered as of June 30.

In terms of financing initiatives, we are currently in the of recasting both our credit line and unsecured term loan. The credit line, we are looking to increase the capacity from $500 million to $600 million, which with the accordion feature could be increased to $1.2 billion. We are extending out the maturity date on the credit line to approximately 4 years from now to 2021. With respect to our $300 million unsecured term loan, we are extending out the maturity date to approximately 5 years from now to 2022. Furthermore, we are currently looking at entering into additional swaps to fix more of our floating rate debt. At June 30, about 2/3 of our overall debt was effectively fixed rate. We are looking to increase that between now and year-end. Additionally, we are also in the midst of negotiating a direct to private placement of senior notes. The proceeds we plan to use to replenish our credit line, which had $281 million outstanding at June 30. Depending on how these financing initiatives progress, we should be in a position to provide more details by our next call.

With respect to equity capital, between the common equity that we are issuing in connection with the pending acquisitions, along with the pending dispositions, together will effectively provide us with just over $100 million. Lastly, in terms of FFO guidance, having achieved $0.55 in the first 6 months of 2017, we continue to be on track with our previously stated guidance of achieving FFO between the $1.10 and the $1.14 per diluted share for the full year 2017. Needless to say, the timing of closing the pending $127 million of acquisitions as well as our financing initiatives and ongoing leasing activity will no doubt be instrumental in driving our FFO in the second half of the year. We will look to narrow the range in our next call.

Now I'll turn the call over to Rich Schoebel, our COO, to discuss property operations. Rich?

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Thanks, Mike. Leasing activity on the West Coast and across our portfolio continues to be strong. Among the ongoing major trends, we continue to see a growing number of retailers expanding to the West Coast, particularly in the restaurant, specialty fitness and service sectors, all seeking to lease right-sized spaces, typically in the 5,000 to 10,000 square-foot range, and in the right neighborhood centers where they can be in close proximity to their target consumer. These types of tenants work extremely well in our grocery-anchored shopping centers, as these types of retailers serve as a natural complement to the daily necessity focus of our portfolio on business. Among the more traditional retailers as well as discount retailers, more and more of these are reshaping their consumer in-store experiences and leveraging omnichannel opportunities to by and large rebrand their businesses to stay relevant and competitive in today's retailing environment. Important to our business, more and more of these retailers are gravitating to neighborhood centers that are well situated in affluent communities.

During the second quarter, we leased over 316,000 square feet of space, which included bringing 43 new tenants into our portfolio, totaling 100,000 square feet, achieving a 27.3% cash increase in base rent on a comparative-space basis. And in terms of renewal activity, during the second quarter, we renewed 69 tenants, totaling over 216,000 square feet, achieving a 12% cash increase in base rent. As Stuart noted, we ended the second quarter at a very strong portfolio lease rate of 97.3%. Breaking that down between anchor and shop space, at June 30, our anchor space was 100% leased and our shop space stood at 94% leased.

In terms of the economic spread between build and leased space, back at the beginning of the second quarter, this spread stood at 4.3%, representing approximately $8.2 million in additional annual rent on a cash basis. During the second quarter, tenants representing about $1.8 million of that incremental $8.2 million started paying rent, of which, $330,000 of the $1.8 million was received in the second quarter. Taking the $1.8 million into account, together with our leasing activity during the second quarter, as of June 30, the spread was 4.5%, representing approximate $8.5 million. We expect the bulk of that will come online towards the end of the year and in early 2018. Lastly, just to give you a better sense of the ongoing demand for space, during the second quarter, we had 4 of our anchor tenants come to us to exercise the renewal options ahead of schedule without any type of discussion or negotiation, which demonstrates the strength of our properties.

Additionally, in terms of new anchor leases, at one of our San Francisco Bay Area properties, a new national anchor retailer was seeking to enter our specific submarket. We didn't have any anchor space readily available at our center, but the tenant was headstrong in wanting to be at our location. So we went to work in creating an anchor space to accommodate this new tenant. We started by relocating several of our shop tenants into available space across the center, thereby increasing our occupancy. We then consolidated and reconfigured their spaces, along with incorporating storage square footage, adding an additional 3,000 square feet to our overall GLA. The fact that the new tenant was happy to wait while we created the space, again, speaks to the strength of our portfolio and desirable locations.

Also, in terms of in-line tenant demand, more and more of these retailers are actively seeking almost any space that they can get their hands on, such that we are increasingly able to lease that last bit of remaining square footage like the small-elbow-type spaces, for example, which are traditionally hard to fully lease. In summary, given the ongoing demand that we continue to see from a broad range of retailers, we expect to continue posting strong results on the leasing front as we progress through the second half of the year.

Now I'll turn the call back over to Stuart.

Thanks, Rich. Before taking your questions, I would like to add a few additional comments regarding the current acquisition environment. Notwithstanding the Amazon Whole Foods announcement, we have not seen any change thus far in the acquisition market for grocery-anchored shopping centers on the West Coast. Specifically, in terms of widely-marketed A-shopping centers in strong locations, deal flow hasn't slowed or accelerated, nor has pricing changed. Transactions continue to get done. That goes for all of our core markets up and down the West Coast. With respect to off-market acquisitions, we are still seeing plenty of interesting, attractive opportunities. In fact, our pipeline of potential deals remains as active as ever. So there's been no change to date on that front either.

Lastly, as many of you know, we started working in the neighborhood shopping center sector on the West Coast way back in the 1980s. Over the decades, we have successfully operated and grown our market presence through numerous game-changing surprises within the retail industry. Our longstanding, ongoing success lies in owning daily necessity centers in the best, most protected markets, and being nimble and very hands-on at working our properties and tenant base. Given our portfolio today, coupled with our market knowledge and industry expertise, we are confident in our ability to continuing delivering reliable, consistent results as we move forward.

Now we'll open up the call for your questions. Operator?

(Operator Instructions) And our first question comes from Christy McElroy with Citi.

Just Stuart, I appreciate your comments on Amazon and we definitely agree that it speaks highly to well-located real estate. Just regarding the comment about your recent conversations with grocers that they're now accelerating their omnichannel efforts. What do you think could be the impact of that acceleration of those efforts? So are there any implications from a real-estate perspective in terms of a shift in CapEx spend among these guys?

No, I don't think so. I mean, obviously, there's a component of the store that will be either reconfigured or will be changed as it relates to delivery and pickup or distribution, as we say. But I don't see any meaningful change in terms of the overall prototype.

Okay. So no real details in terms of change in structure and whether or not the shopping centers are kind of set up for that?

I mean, the only thing we've really seen most recently as they are coming to us, they're installing some exterior electrical connections to plug in delivery vehicles overnight and that sort of thing, keep the food cold. But -- and they may be reconfiguring some of the back of house in terms of staging these deliveries. But as Stuart mentioned, these are being done fairly easily within the existing box.

Okay. And then on OP units, it looks like the OP unit amount on the Riverstone, Fullerton deal went up just by like a little bit. Just wondering the reason for that change? And how receptive are sellers today to talking about OP unit deals? I realize that your stock's outperformed, but retail REIT stocks overall have been hit.

Well, we continue to get a lot of inquiries in terms of the structure of doing Ops, from sellers who we've known for years as well as sellers that have approached us even more recently that we don't have relationships with. I believe we will continue to see those type of transactions going forward. But in terms of the transaction that we just announced, the difference between what we finally issued in terms of this transaction and where we started, which I think, Mike, was about $51 million last quarter?

It was going from $52 million to $53 million.

Right, is that the seller of these properties is actually in a 1031 on a center that they own outside of the West Coast, and they've decided to take all of the equity from that 1031 transaction and deploy it into ROIC stock on top of the equity that they're getting for the 2 properties that we're acquiring.

And our next question comes from Collin Mings with Raymond James.

Just a -- can you guys expand on the dispositions you have lined up. Just how much of the value is reflected in the shopping center versus the land parcel? And maybe put some color on how much NOI is coming from the shopping centers that you're looking to sell?

Sure. Well one is a excess land in a center we bought probably 6 years ago in Nevada, which is in Northern California in the Marin County area. The good news there is there's no impact because we're still holding the retail component of the project. So it's really easy. The profit we are making in this is dropping straight to our bottom line as you would say, and it's really additional NAV for the company. So that's just purely a land play and it's tough to put a cap rate on that because it's land. But a very, very strong gain for the shareholders there. On Mission Foothill, Mike, do you want to -- I mean -- go ahead.

Okay. This was straightforward sale. I think the asset was determined to be higher and better use, so ultimately selling it to someone who's going to redevelop it into a multifamily project. I don't have the NOI from that asset right in front of me though.

It would be a very low cap rate because we began sort of vacating that, so we're not renewing leases some time ago knowing that there was a much more profit to be made in terms of a higher and better use.

Okay. Maybe along those lines, so maybe just can you speak to any additional opportunities in your portfolio? Or what you just think the underlying land value might present similar type of opportunity versus continuing to operate as a traditional shopping center?

Well, I think that may be one of the things people were missing in terms of valuation in portfolios like ours that there is a number of opportunities to either take some excess land or densify. Nothing that I can speak specifically right this second, but those opportunities are in our portfolio. And then in terms of Sacramento, we are continuing to look at Sacramento and stay active in terms of selling those assets. So there's more of that to come as we move through the year.

Okay, great. Just one last one for me. Just can you just provide an update on how you are thinking about your Rite Aid exposure just in context of the revamped Walgreens Rite Aid transaction?

Sure. Our Rite Aids are all performing quite well within the Rite Aid chain, either at the top third of the chains. So in other cases where we may get a Rite Aid back, primarily these are all below-market, very old leases. So there should be good upside as well. So in general, we see it as a positive for us.

Plus, we've been rightsizing. The Rite Aid has been rightsizing a number of our locations over the last 7 years. So the typical prototype today in our portfolio was really more like 18,000 square feet rather than the typical Rite Aid or older Rite Aid that may be double that size.

And our next question comes from R.J. Milligan with Baird.

Mike, I got a question for you on the balance sheet. Leverage continues to tick up a little bit. We're at 7.2x at the end of the quarter. I'm just curious how comfortable you are with that level? And would you be comfortable issuing equity at this point?

On the equity side, we're not looking to issue any equity at this point. And on the leverage, yes, we are aware that it ticked up a little bit. We're -- obviously, used the line quite a bit during the first half of the year for the acquisitions. But generally speaking, we operate with the objective of keeping our debt ratio under 40% and our interest covered at 3.5x. So let's kind of see how the rest of the year kind of progresses with the OP, in addition with some of the asset sales as well to balance that out.

And that number will come down as our NOI continues -- the spread continues to come in terms of the additional NOI. So as well as selling some of the assets.

And then on the leasing spreads. Just curious, they continue to be among the highest in the sector. Is there anything specific going on in the first half of this year that would get those new leases significantly higher? Or do you think there's still a runway in the back half of the year for those large leasing spreads?

Yes, I think as we've articulated in the past, it's a little bit hard to predict which deals are going to happen in which quarter. But no, we still see some really good opportunities within the roll that's coming and then the releasing of space as well. So we expect to continue posting pretty strong results on the leasing front.

And our next question comes from George Hoglund with Jefferies.

Just one thing, going back to Amazon and the Whole Foods deal. Do you think this will change anything from the landlord perspective in terms of how people will approach acquisitions or development?

Well, the answer is no. When I say that, when it comes to development and certainly on the West Coast, those markets are so highly constrained, there hasn't been much supply. I don't see much supply going forward with this announcement. And then in terms of the acquisition environment, I don't see any change right now as it relates to that environment as well. So again, this -- there's still some time here in terms of how this pans out. But I don't really see any meaningful changes right now.

Okay. And then just on the expense side, I mean, expenses were relatively elevated this quarter similar to last quarter. Should we expect sort of similar year-over-year growth levels for the back half of the year?

On the operating expense side, the increase was related mostly to properties we acquired in 2015 and early 2016 that had been previously under-managed. So we've got additional increase in expenses, but bear in mind that a lot of that increase we'll start to recapture through recoveries and there is always a time lag involved with that.

And our next question comes from Michael Mueller with JPMorgan.

Question for Mike. Can you give us a little more color on the transactions you were talking about in terms of the swapping? Like what are ballpark rates? How much are you looking to swap? And then, can you give us any color on the size of the note offering that you're looking to do?

Sure. On the swapping side of it, we'd have to recast the term loan first. Right now, we've -- of the $300 million that we currently have on that facility, $100 million is swapped through 2019. And we're looking to potentially swap the whole remaining balance of it. So it will almost look like a 5-year bond, if you will. And given swap rates, I think the latest quote I looked at was maybe around 3% all in for that. And then on the unsecured notes, we're looking to do close to $250 million on that size deal.

Got it. Okay. And then one occupancy and leasing question. I apologize if I've missed this, but can you give us a rough idea of where you see year-end the lease rate being as well as the year-end occupied rate?

Yes, I mean, we would expect that our leased occupancy will still be in that 97% range. Or as Stuart like to say, 105%. But that's always our goal. And in terms of occupied, I think it would be -- it should tick up a little bit as these tenants that we are currently fitting out take occupancy.

And our next question comes from Todd Thomas with KeyBanc Capital Markets.

Rich or Mike, you maintained guidance in the 4% same-store NOI growth forecast for the year, which suggests a fairly strong second half growth rate that should carry into the first half of '18. But are there any known move-outs or impacts that you anticipate that could offset that growth over the next several quarters?

There's nothing on the horizon that should impact that, no.

Okay. And then just going back to the dispositions. Stuart, you mentioned that you're still looking at Sacramento and contemplating some sales there. What do you think the pricing delta is between Sacramento and the balance of the portfolio largely? Is it 50 basis points, 100, 200 basis points, in terms of cap rate? I'm just curious what you think the right spread would be today.

75 to 125 basis points.

Okay. And then just lastly, circling back to your comments on the health of grocers in the portfolio and some of the commentary there. Just curious how you monitor the health of the grocers in your portfolio, whether it's sales or store profitability? Are there any color or details really that you can provide there as it pertains to the grocers that are in your portfolio?

Sure. We monitor it very closely. I mean their sales, obviously, we focus on, on a monthly basis. Certainly for those who report monthly or quarterly or yearly. On the ground, we tend to spend time at the stores to watch from an operating perspective, that the store managers and the companies are doing the best job they can do and how we can might be able to help their profitability. Rich, we probably -- I mean those are the 2 main things...

Yes. And dialoguing with their regional real estate folks along with, as Stuart said, the actual manager on the ground, who typically gives you the best information.

Are you able to talk about where sales are in the -- for the grocers in the portfolio or anything along those lines?

They continue to be strong. Certainly, when we looked at the first quarter, which gave you a look back of the numbers across the portfolio were very – well, when I say very strong, they were about 4%, 5% on average, with some stores in our portfolio actually getting up as high as 30%, 40% increase in sales. So I mean, right now, we don't -- as we continue to watch this every month, we don't see any deterioration from a sales perspective across our portfolio. And we're in percentage rent on a number of locations that we continue to see those sales increase on. Rich, I don't know if you want to add to that?

No, nothing to add.

And our next question comes from Wes Golladay with RBC Capital Markets.

Now looking at the Pacific Northwest, we're seeing in the other space that multifamily, it's a red-hot market. Are you seeing the same sort of lift on your market rent growth for your properties up in the Seattle area? And are you also seeing more interest for excess land or your shopping centers for multifamily in the Seattle region in particular?

Yes.

Yes. No, I mean, I think in terms of the releasing spreads, we're seeing very strong spreads up in the Pacific Northwest and Seattle in particular. It's also one of our most highly occupied regions, so we're not doing as many new leases up there perhaps as we are in other regions. And then in terms of the multifamily, as you're probably aware, we're working on a couple of initiatives, Crossroads. One is to bringing in senior housing and the other is adding multifamily to the property. So yes, the demand for those types of opportunities are very strong up there.

I said Seattle again is continued to be, probably today, the hottest market in the country as well as our other markets on the West Coast. But it's just amazing to see how that market just continues to show nothing but strength. I think there was a piece the other day, where housing prices are up like 19% year-over-year in the Seattle region.

Yes, that's pretty impressive. And then you had mentioned taking down occupancy at one of your properties knowing that it would be multifamily. Is there going to be -- or how many properties are you currently doing that with? Were you taking down occupancy going back the NOI?

Wes, this is the only one. And we've been approached by some of the largest operators in the country because it's such a desirable piece of property.

And our next question comes from Craig Schmidt with Bank of America.

I noticed the base rents in 2Q '17 were down slightly on a sequential basis. Was there anything that caused that?

Actually, I think, in the first quarter we had recaptured a lease that had a large below market lease intangibles in accordance with GAAP, we had to amortize it into revenue. So that was really the only cause of the difference in the revenue side between Q1 and Q2. So if you (inaudible) revenues would have actually been higher. And yes, it would've been higher, right.

Great. That make sense given the operating metrics. And then with a 6% remaining vacancy in the small shop, are there any type of tendencies you'd rather bring into your center over others?

No, we're still seeing a lot of demand, Craig, from the restaurant segment. If we get a restaurant space back, it goes almost immediately. And then fitness and medical and those are other categories that we're really focused on that bring the customers to the shopping center.

And our next question comes from Tammi Fique with Wells Fargo Securities.

I was just curious on -- you mentioned recapturing or repositioning opportunities of the assets that were recently acquired. I was just wondering if you could elaborate on those opportunities and talk about what the yield upside is there?

Sure. Well, let's start out with the big deal we're doing with the OP units. There is an anchor space in Orange County that has incredible upside that we think we'll be able to get our hands on after closing that will -- the current rent, I think, is about $5 a year. In a market, it's probably $28, $29. So there's some big upside by recapturing that space along with the mark-to-market in that asset is probably 15% to 20% upside. Moving up, Rich, you want to talk about some of the other acquisitions? Let's talk about the Silicon Valley deal, because this is very rarely in that we find these diamond in the rough. That particular transaction is located in one of the most sought-after markets in the country, Mountain View, right outside the doorstep of Google, Box and a number of big tech companies. Average rents are $20, $22 in a market that is $70 or $80. So as rents -- leases roll over there, the mark-to-market is tremendous on that transaction. These are not easy deals to find as it relates to the potential upside.

Yes. And I think the good news in all of the things that Stuart's describing is these are all occupied spaces that have opportunities that we'll be able to work on while we are collecting the rent from the existing tenants. And so there shouldn't be any real downtime as we work to recapture and re-tenant these spaces.

Okay, great. And then just on the private placement that you are looking to do. I'm curious what kind of appetite you're seeing for that today and where you think pricing will shake out for that?

We only have one deal offer on the private side. So I think there would be some pretty strong interest in our paper. But right now, we are in the middle of discussions. So I'm not really able to comment on pricing.

And our next question comes from Chris Lucas with Capital One.

Just a couple of quick questions for you. On the -- Michael, on the expense growth, I recognize that impact that recently acquired assets might have on that. But just curious if you looked at sort of what you've seen in terms of expense growth on assets that you've had, say, over an 18 -- that are -- sort of been in the portfolio more than a year, where you've kind of gone through that hyperactivity and are more stabilized. It -- where does that expense growth run at relative to -- I don't know just -- where exactly it's running at?

For the assets we've owned for more than a year, I think that the expense side should be relatively flat, with exception, perhaps, of property taxes.

It is property taxes.

And if we've done any kind of GLA expansion or say, property's been finally reassessed by the tax authority because sometimes it takes them awhile to get around to doing that. But on the operating expense side for the (inaudible)], it should be pretty stable, pretty flat.

Okay. And then, I appreciate the additional color on just sort of the rents you mentioned during the quarter. I'm just curious as to whether or not that commencement was sort of on plan or whether there were some delays as it relates to any leases that might have commenced during the quarter?

Yes, no delays in that commencement. It's pretty much what we anticipated.

Okay. And then last question for me. It's just on the lease intangible you mentioned that you took in the first quarter. What was the impact during the quarter for – of that? I know it's old, but I just wanted to clean up my own model here.

I want to say, it was pretty sizable one. It was those unexpected recapture. It was about a $2.3 million or $2.4 million below market that we had to amortize in income in accordance with GAAP.

And I'm showing no further questions at this time. I would now like to turn the call back to Mr. Stuart Tanz for any further remarks.

In closing, I'd like to thank all of you for joining us today. If you have additional questions, please contact Mike, Rich or me directly. Also, you can find additional information in the company's quarterly supplemental package, which is posted on our website. Thanks again, and have a great day, everyone.

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