SUSTAINABLE INVESTOR RETURNS THROUGH THE ACTIVE OPERATION AND REDEVELOPMENT OF HIGH QUALITY SHOPPING CENTERS IN SUPPLY CONSTRAINED MARKETS.

Size: px

Start display at page:

Download "SUSTAINABLE INVESTOR RETURNS THROUGH THE ACTIVE OPERATION AND REDEVELOPMENT OF HIGH QUALITY SHOPPING CENTERS IN SUPPLY CONSTRAINED MARKETS."

Stewart Farmer
6 years ago
Views:

2 OUR COMPANY 1

3 OUR PURPOSE EQUITY ONE SEEKS TO PRODUCE SUSTAINABLE INVESTOR RETURNS THROUGH THE ACTIVE OPERATION AND REDEVELOPMENT OF HIGH QUALITY SHOPPING CENTERS IN SUPPLY CONSTRAINED MARKETS. THE RESILIENCE OF OUR BUSINESS IS A PRODUCT OF OUR CREATIVE APPROACH, OUR STRONG PORTFOLIO, OUR $1 BILLION REDEVELOPMENT PIPELINE, AND OUR STRONG RELATIONSHIPS WITH KEY CONSTITUENTS RANGING FROM EMPLOYEES, RETAILERS, MUNICIPALITIES, AND THE ENVIRONMENT ITSELF. 2

4 OUR COMPANY Total GLA = 15M Total Prop. = 112 $21.00 $19.00 $17.00 $15.00 $13.00 $11.00 $9.00 $7.00 $5.00 ABR/SF - All Spaces $20.02 $ Q16 S.C. REITS Occupancy Fixed Charge Coverage 97.0% 96.0% 95.0% 94.0% 93.0% 92.0% 91.0% 90.0% 89.0% 88.0% 87.0% 96.2% 95.1% Q16 S.C. REITS Q16 S.C. REITS 3

OUR STORY We have a business plan that is positioned to produce both short and enduring long term returns: SHORT TERM: LONG TERM: EQY s portfolio remains under-occupied,

5 OUR STORY We have a business plan that is positioned to produce both short and enduring long term returns: SHORT TERM: LONG TERM: EQY s portfolio remains under-occupied, providing + As core NOI growth moderates because of ongoing operational upside higher occupancy, over the next several years redevelopment should ramp = 8-10% EQUITY RETURN 4

6 STRONG SHORT TERM RESULTS

7 STRONG NOI GROWTH SHOULD CONTINUE 6% SS NOI Growth % (1) Excluding redevelopments 5.6% 98% Consolidated Occupancy (2) $22 Average Base Rent (2) 5% Including redevelopments 5.2% 97% 96.2% $20 $ % 96% 4% 3.8% 95% $18 3% 94% $16 2% 93% $14 92% 1% 91% $12 0% 90% $10 Strong Operating Cash Flow Growth. While dramatically improving portfolio quality 6

8 STRONG NOI GROWTH SHOULD CONTINUE 7.0% Change in Small Shop Occupancy 1Q14-1Q % 92.0% Small Shop Occupancy 1Q16 5.0% 90.0% 3.0% 88.0% 86.0% 1.0% 84.0% -1.0% 82.0% 80.0% -3.0% EQY KIM BRX REG DDR WRI FRT 78.0% BRX KIM EQY DDR FRT WRI REG Strong portfolio, streamlined operations, and healthy fundamentals generated the largest increase in occupancy in our peer group But shop occupancy is below the peer group, suggesting room for ongoing NOI growth. 7

9 WHY STRONG NOI GROWTH SHOULD CONTINUE Historical Occupancy 99.7% 96.2% 89.4% 100.0% 97.5% 95.0% 92.5% 90.0% 87.5% 56% 54% 52% 50% % Portfolio Represented by Anchors 68% 67% 66% 65% 64% 85.0% 48% 63% 82.5% 80.0% 77.5% 75.0% 72.5% 46% 44% 42% 62% 61% 60% 59% 70.0% 40% 58% 2Q03 1Q04 4Q04 3Q05 2Q06 1Q07 4Q07 3Q08 2Q09 1Q10 4Q10 3Q11 2Q12 1Q13 4Q13 3Q14 2Q15 1Q16 3Q03 2Q04 1Q05 4Q05 3Q06 2Q07 1Q08 4Q08 3Q09 2Q10 1Q11 4Q11 3Q12 2Q13 1Q14 4Q14 3Q15 Small Shop Anchor Overall % of GLA % of ABR Shop occupancy last peaked at approximately 95%, with a lower quality portfolio And with excess shop vs. anchor space 8

10 QUANTIFYING SHOP OCCUPANCY OPPORTUNITIES 9

11 RE/DEVELOPMENT PIPELINE RELOADED ($ In Millions) $175 Active Projects Balance to Complete Trend Line (3) $150 $150 $125 $100 $75 $50 $25 $0 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 10

12 RE/DEVELOPMENT PIPELINE RELOADED Projects at March 31, 2016 (4) Project State Gross Budget Balance to Complete Serramonte Expansion Project CA $109.1 $98.5 Pablo Plaza FL $18.0 $16.5 Countryside Shops FL $16.4 $15.6 Point Royale FL $9.8 $9.6 Lake Mary Centre FL $17.3 $5.1 Broadway Plaza NY $73.8 $3.9 Cashmere Corners FL $1.6 $0.7 Medford MA TBD TBD North Bay Village FL TBD TBD Total Active Projects $246 $149.9 Projects pending stabilization $57 $1.8 Total Dev / Redev $303 $151.7 Target Cash on cost yields 7-8% 11

7-8% New entertainment wing, retail buildings/ restaurants, interior

13 SERRAMONTE CENTER REDEVELOPMENT 2Q15, announced Daly City approval of $109M, 247k gross (209k net) sf expansion of center; Expected yield of 7-8% New entertainment wing, retail buildings/ restaurants, interior renovations, and ~1,000 stall parking deck; draw shoppers from much larger trade area 12

14 BARNEYS/101 7 th AVE REDEVELOPMENT Purchased asset in 2012 with an underperforming Loehmann s store expiring in 2019 at $25/sf rent. Upon Loehmann s bankruptcy, signed new 20 year Barneys lease at $80/sf and $14m incremental investment. 13

15 PABLO PLAZA REDEVELOPMENT Transformation of Jacksonville Beach shopping center through lease with Whole Foods, which will replace Office Depot in

16 PABLO PLAZA REDEVELOPMENT Replace 43,000 sq/ft of poorly formatted inline space with new anchors/shops: $18MM expenditure, 7-8% yield on costs Before After 15

17 ACHIEVED WITH LOW LEVERAGE Debt Service Coverage (5) Total Coverage (5) Net Debt to EBITDA (6) 5.0x 1.6x 7.0x 4.5x 4.4x 1.4x 1.4x 6.0x 4.0x 3.5x 1.2x 5.0x 5.3x 3.0x 1.0x 4.0x 2.5x 0.8x 2.0x 0.6x 3.0x 1.5x 1.0x 0.5x 0.4x 0.2x 2.0x 1.0x 0.0x Q16 0.0x Q16 0.0x Q16 Significant improvement in portfolio quality and redevelopment spending have been achieved while lowering leverage 16

18 SUSTAINABLE LONG TERM GROWTH 17

19 SUSTAINABLE GROWTH PLAN Our 10-year business plan is based on: Sustainable same + Redevelopment + Stable 3+% store NOI growth spending of $100- dividend yield of 3+% 150MM annually = 8-10% TARGET SHAREHOLDER RETURNS 18

20 SAME STORE NOI GROWTH IS THE FOUNDATION TARGET 3.0% - 3.5% LT GROWTH 3.5% 3.0% ~ 20 bps 2.5% bps 2.0% 1.5% 1.0% 0.5% 0.0% bps bps bps ~ 40 bps Anchor contractual rent bumps Anchor option spreads Anchor releasing spreads Shop contractual rent bumps Shop spreads (option and releasing) Occupancy gains (primarily shop) Improvement of large assets and the high quality of the portfolio should allow for enduring 3+% same store NOI growth. 19

21 EXPLAINING LIMITED NEW SUPPLY Single Family Home Completions (000) 1,800 1,600 1,400 1,200 1, % -73% -36% Less new homes = Less new retail Growth in Personal Consumption 4% 3% 2% 1% 0% Avg Avg Total consumption has recovered strongly, but consumption related to shopping centers has grown slowly Food/Beverages Apparel Total Personal Consumption 4% Square Footage Growth 3% 2% 1% 0% Actual Retail Sq Ft Growth e Retail + Implied Internet Sq Ft Growth Retailers have expanded distribution on line rather than with new physical space 20

EXPOSURE TO INTERNET RETAIL Base Rent Exposure by Retailer Type 1Q16 Base Rent Exposure by Retailer Type 1Q16 vs 4Q07 Vulnerable Merchandise (Books, Electronics, Office, Sports), 5% Services, 38%

22 EXPOSURE TO INTERNET RETAIL Base Rent Exposure by Retailer Type 1Q16 Base Rent Exposure by Retailer Type 1Q16 vs 4Q07 Vulnerable Merchandise (Books, Electronics, Office, Sports), 5% Services, 38% Omnichannel Merchandise (Trad. Apparel, Gen. Merch., Home), 21% Resistant Merchandise (Disc. Apparel, Dollar, Grocery, Pharmacy, Telecom, Misc.), 36% Service retailers and those selling internet resistant products, such as groceries and dollar stores, comprise 75% of base rents 75% of base rents now arise from national tenants, a significant improvement in credit compared to

23 50 TH BIRTHDAY OF GROCERY SHOPPING CENTERS 4,000,000 3,500,000 3,000,000 2,500,000 Golden Age 49% Anchors Last Expiration Property NOI 2,000,000 Shop Rent / CPI 1,500,000 Anchor Rent 1,000, ,000 $28M NOI Uplift Mark-to-Mkt Anchor leases signed decades ago have had flat rents for many years Expiration presents opportunity to mark to market; significant NOI upside ~50% of EQY s anchors expire in the next 15 years 22

24 $1 BILLION REDEVELOPMENT OPPORTUNITY 23

25 $1 BILLION REDEVELOPMENT OPPORTUNITY Anchor leases prevented redevelopment for decades, so many of our centers are the last remaining low density sites in high density areas 24

26 $1 BILLION REDEVELOPMENT OPPORTUNITY 12 opportunities to spend $1 billion over the next decade Non-retail components represent value and potential funding 25

27 NOI CONCENTRATED IN HIGH QUALITY ASSETS Our 12 Largest Assets 12 Redevelopment Opportunities % of Future NOI ~40% Of the Total Portfolio NOI ~20% NOI Today Redevelopment and enhanced 3+% same store growth should generates growth in EQY s overall NOI 26

28 REDEVELOPMENT : WHAT S NEXT? Our Westwood Project in Bethesda, MD received initial zoning approval in May

29 HOW WE GET THERE OTHER EXISTING DEV/REDEV REDEVELOPMENT $19 $88 $235 M $400 M NOI $36 $235 NOI SHOPS $22 ANCHORS Core operations and investment in redevelopment should yield a 70% expansion in total NOI 28

30 REDEVELOPMENT IMPROVES PORTFOLIO 29

31 8-10% RETURNS WITH LOW LEVERAGE 275% 250% 225% Expected NAV Growth With 3+% Dividend ~10% CAGR ~7% CAGR 200% 175% 150% 125% 100% 75% 50% NAV today Redevelopment Activity (Net of funding, and at current cap rates) Same Store NOI Growth (levered) Cap Rate Compression from Redevelopment Asset Improvement Combining sustainable same store NOI growth of 3%, redevelopment spending of $ MM annually and a stable 3+% dividend results in 8-10 shareholder returns Expect to achieve these goals maintaining today s conservative balance sheet 30

32 RELATIONSHIP + OPPORTUNITY = SUCCESS Sustainable growth is about more than just operations and redevelopment, it depends on healthy relationships with many constituents 31

33 FOOTNOTES (1) NOI growth is presented on a same property cash basis for each respective period end. Beginning 1Q15, SS NOI was reported including and excluding redevelopments. (2) Occupancy is for the consolidated shopping center portfolio as of each respective period end, and excludes development and redevelopment properties, and non-retail assets. Average Base Rent is for the consolidated shopping center portfolio, and beginning 1Q15 includes development and redevelopment properties. (3) Represents the total budgeted cost of development and redevelopment projects less costs incurred through each respective period end. (4) Amounts as of 03/31/2016 and in millions (5) Debt Service Coverage is Adjusted EBITDA to Fixed Charges as reported in the Supplemental Information Package. Total Coverage ratio includes dividends paid. (6) Annual EBITDA for year-ended periods and annualized EBITDA for period ending 3/31/2016. Calculated as reported in the Supplemental Information Package. 32

34 APPENDIX Leverage Statistics Reconciliation Q16 Net Income (loss) 33,621 7,225 88,657 61,091 75,467 21,066 Rental Property Depreciation and Amortization 96,327 88,311 91, ,345 92,997 26,157 Interest Expense 85,424 73,168 68,951 64,031 55,322 12,848 Amortization of Deffered Financing Fees 2,232 2,485 2,421 2, Loss (gain) on Extinguishment of Debt 2,396 30, ,750 7,298 5,031 Acquisition/Disposition Costs 12,930 4,801 3,350 2,041 2, Reorganization and Severance Adjustments , Impairment Loss 57,336 29,441 10,617 21,850 16,753 - Loss (gain) on Sale of Depreciable Real Estate (3,595) (16,588) (39,587) (17,251) (683) (2,732) Gain on Sale of Joint Venture Property (7,392) (6,199) - Gain from Fair Value Adjustment of Equity Interest In Joint Venture (2,807) (5,498) - Income tax provision (benefit) of Taxable REIT Subsidiaries (34,639) (2,503) (856) 440 Gain on Bargin Purchase (30,561) Insurance Settlement (168) Adjusted Consolidated EBITDA 221, , , , ,971 63,393 Interest Expense 85,424 73,168 68,951 64,031 55,322 12,848 Principal Ammortization 15,033 8,333 7,532 7,942 6,798 1,694 Total Fixed Charges 100,457 81,501 76,483 71,973 62,120 14,542 Dividends Paid to Stockholders 98, , , , ,957 31,189 Distributions to noncontrolling interests 11,405 9,995 9,995 11,962 10,010 - Total Coverage 210, , , , ,087 45,731 Total Debt 1,328,174 1,595,110 1,502,291 1,329,914 1,371,430 1,362,348 Cash and Cash Equivalents (103,524) (27,858) (36,495) (27,719) (21,603) (28,943) Net Debt 1,224,650 1,567,252 1,465,796 1,302,195 1,349,827 1,333,405 Fixed Charge Coverage ratio Total Coverage ratio Net Debt/EBITDA

35 APPENDIX Reconciliation of Same Property NOI to Income From Continuing Operations Before Income Taxes and Discontinued Operations (Dollars in Thousands) Calculation of Same-Property NOI Growth for the Year Ended December 31, 2011 Calculation of Same-Property NOI Growth for the Year Ended December 31, 2012 Year ended December 31, Year ended December 31, Same-property NOI $ 129,467 $ 127,868 $ 163,795 $ 158,619 Redevelopment property NOI NA NA NA NA Same-property NOI including redevelopments $ 129,467 $ 127,868 $ 163,795 $ 158,619 Other non same-property NOI 58,419 23,002 46,121 21,279 Adjustments (2) (514) (229) (1,183) 92 Total NOI 187, , , ,990 Add: Straight-line rent adjustment 2,357 1,933 3,837 2,377 Accretion of below market lease intangibles, net 8,924 4,751 12,681 8,931 Management and leasing services income 2,287 1,557 2,489 2,287 Elimination of intercompany expenses 7,836 6,745 10,226 7,497 Equity in income (loss) of unconsolidated joint ventures 4,829 (116) 542 4,829 Gain (loss) on sale of operating properties 5, ,541 Investment income 4, ,248 4,342 Other income 30, ,967 Less: Depreciation and amortization expense 83,361 50,395 86,006 81,446 General and administrative expense 51,707 41,986 42,474 50,976 Interest expense 70,152 64,247 72,175 68,964 Amortization of deferred financing costs 2,224 1,909 2,479 2,207 Loss (gain) on extinguishment of debt 2,391 (33) 29,153 2,175 Impairment loss 21, ,772 19,158 Income (loss) from continuing operations before income taxes and discontinued operations $ 23,207 $ 8,282 $ (9,258) $ 21,835 Growth in same-property NOI 1.3% 3.3% Number of properties (3) See footnotes to schedule. 34

36 APPENDIX Reconciliation of Same Property NOI to Income From Continuing Operations Before Income Taxes and Discontinued Operations (Dollars in Thousands) Calculation of Same-Property NOI Growth for the Year Ended December 31, 2013 Calculation of Same-Property NOI Growth for the Year Ended December 31, 2014 Year ended December 31, Year ended December 31, Same-property NOI $ 166,587 $ 161,541 $ 184,374 $ 179,037 Redevelopment property NOI NA NA NA NA Same-property NOI including redevelopments $ 166,587 $ 161,541 $ 184,374 $ 179,037 Other non same-property NOI 48,663 31,645 41,670 35,782 Adjustments (2) ,020 (366) Less: Properties included in the same-property pool but shown as discontinued operations in the consolidated statement of income Total NOI (1,007) (859) , , , ,453 Add: Straight-line rent adjustment 2,022 3,239 3,788 2,022 Accretion of below market lease intangibles, net 13,350 13,248 18,646 13,350 Management and leasing services income 2,598 2,489 2,181 2,598 Elimination of intercompany expenses 10,441 9,584 11,013 10,441 Equity in income (loss) of unconsolidated joint ventures 1, ,990 1,648 Gain (loss) on sale of operating properties ,029 - Investment income 6,631 7, ,631 Other income , Less: Depreciation and amortization expense 87,266 79, ,345 87,266 General and administrative expense 39,514 42,473 41,174 39,514 Interest expense 68,145 70,665 64,031 68,145 Amortization of deferred financing costs 2,421 2,474 2,396 2,421 Loss (gain) on extinguishment of debt (107) 29,146 2,750 (107) Impairment loss 5,641 8,909 21,850 5,641 Income (loss) from continuing operations before income taxes and discontinued operations $ 48,479 $ (4,192) $ 58,984 $ 48,479 Growth in same-property NOI 3.1% 3.0% Number of properties (3) See footnotes to schedule. 35

37 APPENDIX Reconciliation of Same Property NOI to Income From Continuing Operations Before Income Taxes and Discontinued Operations (Dollars in Thousands) Calculation of Same-Property NOI Growth for the Year Ended December 31, 2015 Calculation of Same-Property NOI Growth for the Three Months Ended March 31, 2016 Year ended December 31, Three months ended March 31, Same-property NOI $ 184,863 $ 178,048 $ 49,189 $ 46,566 Redevelopment property NOI 38,190 36,033 10,205 9,908 Same-property NOI including redevelopments $ 223,053 $ 214,081 $ 59,394 $ 56,474 Other non same-property NOI 12,847 13,795 3,087 1,870 Adjustments (2) (197) Total NOI 236, ,665 62,637 58,147 Add: Straight-line rent adjustment 4,612 3,788 1,458 1,131 Accretion of below market lease intangibles, net 12,759 18,646 2,935 2,827 Management and leasing services income 1,877 2, Elimination of intercompany expenses 11,244 11,013 2,924 2,788 Equity in income (loss) of unconsolidated joint ventures 6,493 10, Gain (loss) on sale of operating properties 3,952 14,029 2,732 (17) Investment income Other income 5,990 3, Less: Amortization of below-market ground lease intangibles Depreciation and amortization expense 92, ,345 26,157 21,016 General and administrative expense 36,277 41,174 8,711 8,740 Interest expense 55,322 66,427 12,848 14,809 Loss (gain) on extinguishment of debt 7,298 2,750 5,031 (138) Impairment loss 16,753 21,850-11,307 Income (loss) from continuing operations before income taxes and discontinued operations $ 74,611 $ 58,984 $ 21,506 $ 10,472 Growth in same-property NOI 3.8% 5.6% Number of properties (3) Growth in same-property NOI including redevelopments 4.2% 5.2% Number of properties (4) See footnotes to schedule. 36

38 APPENDIX Reconciliation of Same Property NOI to Income From Continuing Operations Before Income Taxes and Discontinued Operations Note: Data for prior periods are presented as previously reported on the date of the respective calculation. (1) Includes in same-property NOI for the three months ended March 31, 2016 is $258,000 in rents related to November and December 2015 that were recognized in connection with the execution of a retroactive anchor lease renewal at Westwood Complex during the quarter. (2) Includes adjustments for items that affect the comparability of the same-property results. Such adjustments include: common area maintenance costs and real estate taxes related to a prior period, revenue and expenses associated with outparcels sold, settlement of tenant disputes, lease termination costs, or other similar matters that affect comparability. (3) The same-property pool includes only those properties that the company consolidated, owned and operated for the entirety of both periods being compared and excludes non-retail properties and properties for which significant development or redevelopment occurred during either of the periods being compared. (4) The same-property pool including redevelopments includes those properties that the company consolidated, owned and operated for the entirety of both periods being compared, including properties for which significant redevelopment occurred during either of the periods being compared, but excluding non-retail properties and properties and development properties. 37

39 FORWARD-LOOKING STATEMENTS Certain matters discussed by Equity One in this presentation constitute forwardlooking statements within the meaning of the federal securities laws. Forwardlooking statements can be identified by the use of forward-looking terminology such as may, will, might, would, expect, anticipate, estimate, could, should, believe, intend, project, forecast, target, plan, or continue or the negative of these words or other variations or comparable terminology. Although Equity One believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that these expectations will be achieved and actual results could differ materially from current expectations. Factors that could cause actual results to differ from expectations are described in Equity One s filings with the Securities and Exchange Commission. This presentation also contains non-gaap financial measures, including Funds from Operations, or FFO. Reconciliations of these non-gaap financial measures to the most directly comparable GAAP measures can be found in the Appendix to the presentation, in Equity One s quarterly supplemental information package and in filings made with the SEC which are available on its website at 38

MATTHEW OSTROWER Chief Financial Officer 212.796.1747 mostrower@equityone.

40 MATTHEW OSTROWER Chief Financial Officer Equity One Inc. 410 Park Avenue, Suite 1220 New York, NY EQUITYONE.COM

2016 CITI GLOBAL PROPERTY CEO CONFERENCE MARCH 14-16, 2016

2016 CITI GLOBAL PROPERTY CEO CONFERENCE MARCH 14-16, 2016 OUR COMPANY 1 OUR PURPOSE EQUITY ONE SEEKS TO PRODUCE SUSTAINABLE INVESTOR RETURNS THROUGH THE ACTIVE OPERATION AND REDEVELOPMENT OF HIGH QUALITY