Apr 27, 2016
Executives
Adam Wyll - SVP, General Counsel & Secretary Ernest Rady - Chairman, President & CEO Bob Barton - EVP & CFO Jerry Gammieri - VP, Construction & Development Chris Sullivan - VP, Retail Properties Jim Durfey - VP, Office Properties
Analysts
Jason White - Green Street Advisors Paul Morgan - Canaccord Genuity Jeff Donnelly - Wells Fargo Securities Todd Thomas - KeyBanc Capital Markets Haendell St. Juste - Mizuho Securities Mitch Germain - JMP Securities Rich Moore - RBC Capital Markets
Operator
Good day, ladies and gentlemen and welcome to the American Assets Trust Earnings Conference Call First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode.
Later, we will conduct a question-and-answer session and instructions will follow at that time [Operator Instructions]. As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Adam Wyll, Senior Vice President and General Counsel. You may begin.
Adam Wyll
Good morning. I would like to thank everyone for joining us today for American Assets Trust 2016 first quarter earnings conference call.
Joining me on the call are Ernest Rady and Bob Barton. These and other members of our Management team are available to take your questions at the conclusion of our prepared remarks.
Our 2016 first quarter supplemental disclosure package provides a significant amount of valuable information with respect to the Company’s operating and financial performance. The document is currently available on our Web site.
Certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results.
Although, we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our future operations and our actual performance may differ materially from the information contained in our forward-looking statements and we can give no assurance that these expectations will be attained. Risks inherent in these assumptions include, but are not limited to future economic conditions, including interest rates, real estate conditions and the risks in cost of construction.
The earnings release and supplemental reporting package that we issued yesterday and our Annual Report filed on Form 10-K and our other financial disclosure documents, provide a more in-depth discussion of risk factors that may affect our financial conditions and results of operations. Additionally, this call will contain non-GAAP financial information, including funds from operations or FFO, earnings before interest, taxes, depreciation and amortization or EBITDA, and net operating income or NOI.
American Assets is providing this information as a supplement to information prepared in accordance with generally accepted accounting principles. Explanations of such non-GAAP items and reconciliations to net income are contained in the Company's supplemental, operating and financial data for the first quarter of 2016, furnished to the Securities and Exchange Commission, and this information is available on the Company's Web site at www.americanassetstrust.com.
I will now turn the call over to our Chairman, President and CEO, Ernest Rady to begin our discussion of first quarter results. Ernest?
Ernest Rady
Thanks Adam and good morning everyone. Adam, that was very eloquent.
Thank you for joining American Assets Trust first quarter 2016 earnings call. Our focus in 2016 continues to be on the growth of net asset value for our stockholders, which we believe will ultimately result in increasing cash flows and dividends paid to our stockholders.
Hassalo on Eighth update, Hassalo on Eighth in the Lloyd District of Portland, Oregon where we recently developed 657 multifamily units and approximately 40,000 square feet of store front retail, we have seen continued progress in the lease up of this project. As of the beginning of this week, our partners are approximately 71% leased and 65% occupied.
Our leasing velocity appears to be on pace for the apartments to reach the 94% leased by the beginning of the fourth quarter this year. This is consistent with the guidance that Bob Barton has previously provided.
The store front retail at Hassalo on Eighth is approximately 62% leased with the specialty grocer Green Zebra opening last Thursday. Studying operations at Oregon Square is the next topic.
The Lloyd District portfolio that we acquired in 2011 consists of approximately 600,000 rentable square feet and more than 16 acres located in the Lloyd District of Portland, Oregon. A portion of this property has been a designated for additional developments to include a high density transitory unit mixed in use urban village.
We are now focusing on the development, design of phase 2 which we have built on Oregon Square within the Lloyd District. These four city blocks that makeup Oregon Square provide us with the opportunity for substantial and generous apartment development and/or repositioning of additional office and/or development of new high rise office tower in conjunction with an anchor tenant.
Developments yields continue to present returns that we believe are more attractive than acquisitions and we have opportunity for additional development phases following Oregon Square. We believe there is much more opportunity in the Lloyd District that we will prudently harvest as we continue to evaluate apartment performance of Hassalo on Eighth and finalize design of our developments for Oregon Square that have risk adjusted returns that will be accretive to our stockholders.
We also minimized development risk by limiting overall development any one point in time to not exceed 15% of our total assets, locking in cost through the use of guaranteed maximum price contracts early on when possible and prefunding a significant portion if not all of the development capital requirements prior to getting started. Torrey Reserve update at our Torrey Reserve Campus on San Diego we are focused on leasing the remaining three buildings we completed in 2015 and consists of approximately 42,000 square feet which we have active lease on or leasing deal on.
When leased we hope the three buildings will add approximately an additional $0.03 of FFO on an annual basis. Torrey Point update, our Torrey Point development in San Diego overlooking the Pacific Ocean, a magnificent piece of land is on track for completion in the first quarter of 2017.
We believe this is the best office location in San Diego this deal is up and we had a topping out ceremony two weeks ago, once leased we hope this development will generate over $0.06 of additional FFO. San Diego multifamily update, our San Diego multifamily continues to perform superbly as you can see from the same store cash and NOI growth in San Diego multifamily of 10.4% for this quarter and the average same store cash NOI growth over the last nine quarters Q1 ’14 through Q1 ’16 has been approximately 6.8%.
Additionally, we are continually looking to enhance our internal growth at our San Diego multifamily assets by selectively deploying capital to improve our units in common areas, and which we believe will drive rents and allowing us to remain competitive if not superior to nearby apartments. Hawaii update, our Hawaii properties continue to be our jewel in the Pacific for us and for all our stockholders.
Lastly, we continue to look at all opportunities but pricing continues to be an obstacle. In the meantime we continue to focus on creating net asset value for all of our stockholders.
Again, on behalf of all of us at American Assets Trust we thank you for your confidence in allowing us to manage our company and we look forward to your continued support. I’ll now turn it over to Bob Barton, our Executive Vice President and CFO.
Bob Barton
Good morning and thank you Ernest. Last night we reported first quarter 2016 FFO of $0.45 per share.
Net income attributable to common stockholders was $0.17 per share for the first quarter. The Company’s Board of Directors has declared a dividend on its common stock of $0.25 per share for the quarterly period ending June 30, 2016.
The dividend will be paid on June 24, 2016 to stockholders of record on June 10, 2016. Our retail portfolio ended the quarter at 98.6% leased combined with the highest annualized base rents amongst our peers.
On a year-over-year basis, our retail occupancy slightly increased, up 10 basis points from the first quarter of 2015, leaving approximately 43,000 square feet vacant in our 3 million square foot retail portfolio. During the trailing four quarters, 82 retail leases were signed, representing approximately 333,000 square feet or 11% of our total retail portfolio.
Of these leases signed, 65 leases consisting of approximately 286,000 square feet were for spaces previously leased. On a comparable basis, the annual cash basis rent increased 10.7% over the prior lease.
Our office portfolio ended the quarter at approximately 91.3% leased down 140 basis points on a year-over-year basis. The decrease in net absorption for the office portfolio was primarily due to the planned winding down of leases at Oregon Square located in Phase 2 of our Lloyd District portfolio to accommodate our ongoing design review efforts.
During the trailing four quarters 89 new office leases were signed, representing approximately 414,000 square feet or 16% of our total office portfolio. Of these leases signed during the year, 65 leases consisting of approximately 329,000 square feet were for spaces previously leased.
On a comparable basis, the annual cash basis rent increased 21.2% over the prior lease. Let’s talk about same store NOI for a moment.
Same store retail cash NOI increased in the first quarter to 3.3%, the increase for the quarter was mostly attributable to higher base rents at Carmel Mountain Plaza, Lomas Santa Fe Plaza and Waikele Center. We are reforming our same store guidance of positive 2% for 2016.
Same store office NOI was up 11.8% in the first quarter, primarily due to higher annualized base rents at Landmark due to commencement of lease extensions with significant rent bumps at the beginning of the year. And First & Main due to higher base rent as well as an increase in cost reimbursements and One Beach due to higher base rents as well as real estate tax refund received during the first quarter of '16.
We have maintained our 2016 same-store growth forecast of positive 7.5% for the office portfolio. Same-store multifamily NOI was up 10.4% on the cash basis for the quarter.
Higher year-over-year rents is the main driver of the same-store growth for the multifamily portfolio. We continue to be pleased with the execution and direction of our multifamily portfolio.
We have maintained our 2016 same-store growth forecast of positive 3% for the multifamily portfolio. Waikiki Beach Walk, our mixed-use property consisting of the Embassy Suites Hotel and Waikiki Beach Walk Retail reported combined same-store cash NOI of 7.7% in the first quarter.
This is actually comprised of a 6.8% same-store cash NOI increase in the Embassy Suites and an 8.6% same-store cash NOI increase in Waikiki Beach Walk Retail resulting from increased annualized base rents, percentage rents and cost reimbursements. Tenant sales the WBW retail were at approximately $1,068 per square foot as our tenants continue to outperform.
We are maintaining our previously issued 2016 same-store guidance of positive 2% for mixed-use asset. Turning to our first quarter results, FFO remained unchanged at $0.45 per FFO share compared to the fourth quarter.
Despite a relatively flat quarter-over-quarter change, I would like to highlight the following items. Number one, Hassalo on Eighth occupancy increased 14% during the first quarter, resulting in positive NOI of approximately 289,000, which was a net increase of approximately 777,000 from the fourth quarter results.
This added approximately $0.01 to the first quarter FFO. Secondly, the office portfolio added approximately $0.01 primarily due to new tenants at Torrey Reserve and a reduction in real estate tax expenses at One Beach.
Third, the retail portfolio reduced FFO by approximately $0.01 as a result of decreases in percentage rents at Alamo Quarry market in Dell Monte Center. And fourth, G&A expenses increased slightly and reduced FFO by approximately $0.01 in the first quarter.
G&A guidance for the full year has not changed it remains at approximately 19 million. Now, as you look at our balance sheet and liquidity at the end of the first quarter, we had approximately 274 million in liquidity comprised of 44 million of cash and cash equivalents and 230 million of availability on our line of credit.
Our leverage at the end of the first quarter remains low at 29.7%, total debt to total capitalization and a net debt to EBITDA of 6.2 times, again which we would like to see reduce to a five handle overtime. Our interest coverage and fixed charge coverage ratio ended the quarter at 3.4 four times.
Lastly, we are reaffirming our 2016 guidance range of a $1.82 to $1.88 per FFO share on a diluted basis with a mid-point of $1.85 FFO per diluted share. We expect to see a significant growth in the cash NOI of Hassalo in the second half of the year as we continue to lease up the newly developed property.
We are well prepared with a strong balance sheet to capitalize and execute on the opportunities that we believe will present themselves over the coming quarters. Operator, I will now turn the call over to you for questions.
Operator
Thank you. [Operator Instruction] The first question is from Jason White of Green Street Advisors.
Your line is open.
Jason White
Just a quick question on your Torrey leasing at the newly developed office spaces down there. Is that pretty much on schedule, or are you guys -- is it may be taking a little longer than you would have liked?
Or can you kind of get a little color behind that and what kind of tenants you are looking at?
Ernest Rady
Jason, it always takes longer than we would like. And there has been some bumps along the road but we are still very optimistic that it's going to result in an excellent outcome.
Jim, do you want to add to that?
Jim Durfey
Good morning Jason. We have got good activity over there.
At this point in time we have got a couple of very significant possibilities obviously, they're just possibilities for the time being. And the number of people looking at the two new buildings we have got over there.
The third building, the 5,000 square foot building, we have a serious prospect in negotiation. So yes, that is good activity and we hope next quarter we’d be able to positively report on those buildings.
Ernest Rady
But we had one significant interest in the substantial interest in the property and then at last minute they changed their mind, so we’re a little behind schedule but we’re still optimistic the results are going to be very favorable.
Jason White
Okay. And does that -- given the demand you have felt over at corporate headquarters across the street there at Torrey Point, does that change your outlook for how long it takes to get that leased up?
Or is that just a different profile user?
Ernest Rady
No, very different profile user for a couple of reasons, we have some constraints on the two new buildings there and they are 9,500 with more place, you need to activate the whole thing or half you can’t cut it in smaller pieces because of fire exit requirement. So that limits what we can do with those two new buildings.
We won’t’ have those restrictions at the Torrey Point where the floors are 20,000-30,000 foot floors and you can chop them up how ir requires ones.
Jim Durfey
You could come down here Jason and take a look at that, it's just magnificent the location of those buildings.
Jason White
And then one last question for Bob on the same-store NOI front looks like 1Q was better across the board versus guidance. Are you expecting deceleration in the back half of the year, or is this just maintaining conservative guidance not knowing what's going to happen?
Bob Barton
No, I think our guidance when we issue our guidance, it's based on the existing leases in place and there are some elements to the speculative leases. With our guidance that we have reaffirmed we feel very comfortable with that.
And I think what we want to see is we want to see the leasing across the street of building 13 and 14 that you had raised the question on. Keep in mind the building 13 and 14 have views of the Pacific Ocean and it is just great brick space.
We’ve retained a restaurant consultant we’re trying to find either, office and restaurant users that we can provide a high quality complementary restaurant to Ruth’s Chris which is adjacent to it. But from a guidance standpoint, I think we’re comfortable of where we are because we still have some speculative leasing that we need to materialize.
Jason White
Okay. And just last one for me is Sports Authority.
Given the concerns, it looks like it may not be a going concern. Can you comment on maybe what your leases are versus market and what you kind of -- back-of-the-envelope for those boxes if they come back to you?
Ernest Rady
Chris is going to take that. He was anticipating this question, so thanks for asking Jason otherwise he’d be disappointed that the question was not asked.
Chris Sullivan
Hi Jason it is Chris Sullivan. So the sports authority at the Carmel Mountain Plaza is 40,000 feet right in the middle of the center, so I have had a lot of interest on that from with respect to the tenants that can fill that space.
That rent -- I don't know if I can share -- significantly below market where other boxes have come-in in the last couple of years when we put rack and jacks up there. Waikele is 50,000 square feet as you know right on the freeway I have got a couple of users that expressed some strong interest in that space, that space is probably more at market where it sits now.
So at this point they’re interested and we just need to see what’s going to happen with sports authority I’ve heard that same rumor that potentially they could just call it quits but then I personally think it would be a shame well albeit the mercy of big sporting goods would be the only one out there and with the exception of maybe a few big fives.
Ernest Rady
Jason one other comment regarding sports authority too is that when you look at our occupancy cost ratios for those tenants, they’re I would say very reasonable or favorable. So based on a numbers perspective, we don’t think it's likely that they blow out they could but we just don’t think it's likely and if they do they’re either at or below market.
Operator
Thank you. The next question is from Paul Morgan of Canaccord.
Your line is now open.
Paul Morgan
A couple of questions, just on the mixed-use in Waikiki -- so, the same-store number came in and -- pretty strongly, kind of stronger than what we were thinking, given your full-year guidance of kind of plus-2%, I guess, for the mixed-use. Was it above your expectation?
Is there any reason you would see -- you are building in a sharp reversal down to a flattish number for the rest of the year?
Ernest Rady
Well, first of all that project is one host at the mercy of travel up in tourist business, and when that happens, it happens but it's just over the long run it is just a jewel for us in the Pacific. So, we can’t tell you what’s going to happen in the next quarter, but it is very positive.
Do you want to add any color?
Chris Sullivan
Yes hi Paul, I had the same question is should we change our guidance on the mixed use or not, because our guidance for the full year is 2% and we outperformed in Q1 at the 7.7% combined. We’re still reaffirming our guidance for 2.2% approximately for the full year and we don’t think we’re being overly conservative.
Keep in mind that the budgets we were closely without rigor that comes up with the initial budget on the mixed use that they’re responsible for, they manage, they’ve been a good partner with us and highly regarded. And we have to rely on them and we also look at the numbers ourselves.
But keep in mind Q2 consists of April and May which are shoulder months and that’s usually a softer month. So I think part of the outperformance also in the first quarter is that I think we had the Pro Bowl Hawaii was one of it.
We had more conventions in Q1. What's interesting is that that asset really is the jewel of the specific in Waikiki.
And we have access to the STAR reports and we look at those monthly. And when you compare our hotel, when we see the numbers of our Embassy Suites hotel which again the number one performing Embassy Suites in North America and compare it to all the other hotels that around the beach in Waikiki, we continue to outperform significantly.
I mean some of the data points according to Smith Travel Research report for the three month ended March 31, 2016 in comparison to the competitive set this property achieved a occupancy index of 96.3% and ADR index of 134% and a RevPAR of 129% and in actually numbers for the month of March that index translates into an actual occupancy of 87%, ADR is 322 and RevPAR of 280. So again third strategy has changed about 18 months to two years ago that we are not just trying to fill the property up or fill the hotel up each month.
What we trying to do is, we try to get that ADR at 300 plus and when we do that we are really managing towards a RevPAR bottom line number.
Ernest Rady
It's the number two Embassy Suites in the world.
Paul Morgan
I obviously understand the lack of visibility on the Embassy Suites. But a chunk of it -- sizable chunk is also on the retail portion, and you were up almost 8.6% in the quarter.
Is there any risk to that number? Are there leases expiring?
Or I guess some of them are even going to anniversary to bring that number down?
Ernest Rady
I mean we will have turnover from time-to-time. But we still expect that to come down.
Chris Sullivan
But the sales is, what is there I read in the Wall Street Journal, the sales per square foot in the department store industry. It's something like $165 per square foot.
Here our sales are $1,060 square foot, so it's an exceptional property and there is going to be cyclical fluctuation and there is going to be fluctuation depending on the season, but generally it is solid gold.
Ernest Rady
I think my expectation for rest of the year is that it's going to be on the same-store flatter and it's going to bring us in line with our yearend guidance.
Paul Morgan
Okay. On -- up in Portland, just in terms of the leasing, if I look at the average rents for something like, for example, Aster Tower, they are down.
And if you do the delta, it would look they were down even more meaningfully from the fourth quarter. Is that just sort of a difference in the mix of the units that were being leased?
Maybe the penthouse or the top floors, or was it just seasonal softness? Or could you provide any more color about that?
Ernest Rady
The project isn’t lease up. We want to have the maximum cash flow we can during this period of time.
As it leases up we see some rents that we have offered are too low and some are too high, so that’s get adjusted. But as we reach the 94% then we are going to start to adjust our rent to maximize the returns.
So it's too early in my opinion to come to any conclusion about the long range outcome other than in my view the long range outcome is just excellent. I think that’s going to prove to be that whole Lloyd District is going to prove to be a diamond for the company, perhaps $1 billion diamond.
Chris Sullivan
Let me just add to that, is that the change in the units between 4Q and 1Q that release was an increase in 53 units and 85% of those 53 units were studios which have an average rent of approximately 1,200 per unit, which is why your monthly annualized rent trended down in the first quarter.
Paul Morgan
So, mix did contribute to it. Okay, then.
Just the last question you mentioned renovation, it sounded like, at -- I guess it was Loma Palisades just generally for -- to San Diego. But do you have any color there in terms of the scope of that, the timing?
It's a big asset of yours. And whether it is something you could see is a real rent driver there?
Ernest Rady
Yes, but it's going to take time Paul. There is another project that got built here as other locations we have.
And the rents are substantially higher. We have a fantastic location but our property is on in years.
I don’t say that a negative way because I am, too. But we have an opportunity now to upgrade that project and we are going to take 21 units that have the best view enhance them and see what would the returns that we can develop on it, Russell do you want to add something to that?
Russell Rodriguez
Hi Paul, Ernest did it right on the note. We are continually looking to improve our asset and with new products coming online neighboring us under Greystar’s management, the opportunity is there.
So we’re going to try it.
Paul Morgan
And that is something that's going to start this year?
Ernest Rady
It's in this all the processing takes place, we have to pull through permits, finalize plans, first quarter next year Jerry and then it will take a while. But it could reveal to us a significant opportunity to upgrade what is an A+ location into a better property than it currently is.
Operator
Thank you. The next question is from Jeff Donnelly of Wells Fargo.
Your line is open.
Jeff Donnelly
I say I am a long-time listener, first-time caller, I guess. I had a question back on Sports Authority, I might have missed your remark.
The in-place rents that I think you guys have there around $23 to $24 a share -- $23 to $24 per square foot, how do you think that compares to market terms for those respective spots?
Ernest Rady
Actually Chris do you want to cover that again for Jeff?
Chris Sullivan
Hi Jeff it's Chris Sullivan. So Carmel Mountain is lower than our current market rents.
It's in the mid-teen the Carmel Mountain it is a 40,000 foot box. So, for that center and for that area we could significantly improve that and even that’s based on our rent roles and we have had replacement centers.
There is very-very limited space in Carmel Mountain it is basically next to nothing for the boxes and there are a few box tenants that are not in the area and that are strong. So that one we are not too concerned about but as I said Waikele is 50,000 square feet it is in market right on the freeway, so that one if sports authority should close that store which we’re still doubtful that it will, but should they do it, we’ve got prospects for that but it will probably be about the same rent.
Jeff Donnelly
And I guess maybe that was the root of my question is that that would -- or what you thought the depth of the demand would be in the Hawaii market for box?
Chris Sullivan
You got to remember in Hawaii Sports Authority if you own the sporting goods store out there outside of what Walmart or Target may have, so they don’t have a competitor out there and that’s clearly a function of why they do so well. Sports authority nationwide other markets, especially Texas were not very favorable to them and those were some of the stores that obviously got closed.
But the better stores are the ones that do not hit the recheck list. So we’re relatively confident that they will probably go forward with their goods stores.
But if they don’t backup plans are in the works.
Ernest Rady
Thanks Chris that was good.
Jeff Donnelly
And Ernest, I think I might have misunderstood your remarks you're making on Hawaii. If I heard you correctly, were you exploring selling the Embassy Suites?
Or maybe I just misunderstood what you were saying.
Ernest Rady
No way.
Jeff Donnelly
That's why -- I didn't think so, but…
Ernest Rady
Well, we love that property I mean it's a lifetime hold I said that when we bought it we thought our rents would be across should be half of what they are within a short number of years for our ownership, they’ve gone up almost 100% and 10 years and now they will be double again. It's just the most amazing property in the right place.
So we just love that property.
Jeff Donnelly
From an operating profit standpoint, obviously you necessarily can't control the top line there because it is heavily influenced by travel patterns. But when you guys think about the EBITDA margins of that property, is there room for you folks to increase profitability there through better energy management systems or other avenues?
Ernest Rady
If I said there was room to increase it, we would have already done it, we constantly look at our cost and our revenue and we maximize what we can, but you have to -- it has to be a good experience for the traveler too and we get good feedback from the travelers that we’re providing a worthwhile experience. We think we’re doing this as well as we can do and I believe that the controlling factor is that tourism is good and we operate the hotel it's going to be a winner for us over the next decade.
I think there is the opportunity that there could be declines should another recession begins and travel decline. But so far we’ve seen that the source of revenue of tourism for Hawaii is diversifies that one area will have a decline and another area will have an upside.
So we think that it's just a great long-term hold.
Jeff Donnelly
And sticking with Hawaii and curious, are you guys hearing from any of your tenants any complaints about softness in retail sales, just because we haven't seen some weakness in inbound flights from Asia? But also there's just a lot of development going on Milana and Tobbins projects.
I wasn't sure if that pie is getting sliced any little more thinly than you guys might be seeing it -- or I should say your tenants might be seeing it.
Ernest Rady
Chris has better color on that, and I can add to that if you want.
Chris Sullivan
Jeff the international marketplace that is being redone right now won’t open I think it doesn’t open until September-October, so we haven’t experienced that. There will definitely be a little bit of a shake up on the street when that reopens.
Currently, with any shopping center you have tenants up and down and it's consistent with the nature of these. So the majority of the tenant is still up a few ticks and there is going to be a few that is down.
And that’s about the only confusion on the street right on Kalakaua and the other building Hawaii. Ala Moana shopping center is always being redone, but that’s the different product if you know when you are out there most of you are shopping on the Kalakaua it certainly takes place on the dinner bell when people go window shopping and again Ala Moana is just a different product.
Ernest Rady
From a micro point of view, the numbers of hotel rooms on Waikiki have been consolidated because there are a number of smaller hotel rooms which is a combined -- they combines into a larger hotel rooms. So I am let to believe that the number of hotel rooms on Waikiki has declined by 10% that includes our product for Embassy Suites.
And as far as the competition goes that will cement the area, and as a matter fact, right across the street, they are building literally 100s of condos or time shares so. The area just keeps getting better and better.
Operator
Thank you. The next question is from Todd Thomas of KeyBanc Capital.
Your line is open.
Todd Thomas
Just back to Portland, in terms of the lease-up there, almost 100 units it looks like in April so far have been rented. So it seems like the pace is running ahead of plan and that you could actually get to 94% in two, maybe three months.
But you mentioned that you are still expecting to achieve stabilization in October. What causes the pace of lease-up there to slow over the next couple of months?
Ernest Rady
Well largely what happens is that when it's raining in Portland the shoppers don’t go out to rent apartments. So we are coming into the better weather season off of that.
We have opened, and I know this doesn’t sound like much of a name that's appealing Green Zebra, which is a food store with a substantial take out service, so, and the whole area is just taking on another more and more vibrant aspect to it. So if the weather stays good, the economic stays good.
We think that we are going to achieve what Bob has outlined.
Todd Thomas
And then, Bob, you said -- you had previously mentioned or talked about roughly $200,000 of NOI in the first quarter. You mentioned you did a little bit better than that, almost $300,000.
What are you thinking in terms of the NOI ramp for the second quarter? If you could maybe provide what is baked into the model?
Bob Barton
Yes it's going to be more than the first quarter. But we are still on track for the guidance for the full year.
So we talk with our team up in Portland, Stephanie Schafer does a great job.
Ernest Rady
We speak every week by the way and she is optimistic, we are optimistic.
Bob Barton
Yes.
Ernest Rady
But there are factors that we don’t have control over, but in the short run we are hopeful in the long run we are extremely optimistic.
Bob Barton
We have taken a look at the various models that are out there and we still think that the street has been a little bit more aggressive on the lease up of Hassalo than we are. We are confident on our guidance but I think the street is seeing that lease up quicker than we are.
And we think that it's going to be more in the second half of the fourth quarter, but Q2 will be more than Q1.
Todd Thomas
Okay. And then any update on the ICW lease expiration move-out at Torrey Reserve late this year?
What kind of down time do you anticipate in 2017, and where do you think…
Bob Barton
ICW, is on the book for I think two years, so there is going to be no lease up the two years?
Ernest Rady
Just the end of this year.
Bob Barton
Just the end of this year?
Ernest Rady
Yes. I think we should do a lease amendment.
Bob Barton
Jim has a number of prospects. And why don’t you cover it Jim?
Jim Durfey
We had probably shown in the last quarter, I am going to say conservatively 100,000 feet of prospects through this space. And there is a number of ways to chop the space up.
We have got some ultimate flexibility there, so we are still optimistic that we are going to backfill the majority of that space in the first half of next year, but we will as time goes by. I mean we have the ability to start drafting those leases back if we get the right people in place because ICW is moving out and we have got the flexibility to start in construction a little earlier than their lease expression if necessary.
So that’s a plus, and we will see how that shapes up.
Bob Barton
Two other factors the head office of ICW is remaining in the building as just part of the operations are moving to a more convenient location for its employees. So it's not a knock on the fact that this is not a great location for them.
Second of all, in order to reposition the property, so that we can command the best rents, we are doing upgrades to elevators, lobbies etcetera to make it attractive to any perspective tenant as Jim shows.
Todd Thomas
Okay. And just last question for Bob, just back to Sports Authority.
You mentioned the two at Waikele and Carmel Mountain Plaza. Do you have a reserve embedded in guidance or have you taken any reserve against receivables for Sports Authority?
Bob Barton
No we haven't. Our policy really is until it files bankruptcy where we feel that it's not likely that they are going to stay in the center.
And at this point in time, our best guess is that they are going to continue on in their leases. And they are paying rent.
Operator
Thank you. The next question is from Haendell St.
Juste of Mizuho. Your line is open.
Haendell St. Juste
A couple of questions for you guys here. We launched coverage of AAT a few weeks back and had quite a few conversations with some folks, greet investors over the stock and conversation over why the stock traded at a slight -- well, at discount despite higher-quality assets -- West Coast assets.
Obviously there is a few things regarding your size, your liquidity. But a couple of things on our list here we are hearing -- just curious as to your view on a couple.
I'm wondering if you had any updated thoughts or plans regarding your Bellevue office asset. If I'm not mistaken, you bought it around $30, $32 a square foot rents.
Well, just given the outlook for supply in Bellevue. Forget about the purchase price.
Just curious as to your thoughts on potentially selling that asset, given the outlook for a big rent and supply in the submarket as well as a slowing tech job growth in Seattle and San Francisco?
Ernest Rady
That’s an iconic asset for us. It’s just in the right location, it's a magnificent building, we have spent substantial amounts of money improving the tenant amenities including hallways, elevators, we’re prepared to compete, we bought that project at a very attractive price relative to the market as a whole.
And Jim, can you cover the existing rents versus the market rents and how we’re going to compete please?
Jim Durfey
Absolutely. We have a number of larger tenants as you know expiring in 2017 and 2018 which is always part of the question what are you going to do.
We’ve in conversation with all of them already and it is a little premature for most of them to identify what their needs are first but some of them are actually going through that process. I think they’re going to be bigger, smaller or the same, but we’re in constant contact with them and/or their brokers.
Our goals are first and foremost is to renew those large tenants as early as possible convenience would be to blend and extend or what is it they want to do. All of them even though they’re very large tenants and you hear all the stories about rents dropping, now all of them are going to be rent increased so these people are not in market by any stretch, so although they may not get as high as we had hoped before three new buildings came online and Expedia announced that they were moving out 300,000 feet of space.
Nonetheless those will all be rent increases and we will do everything in our power to maintaining and keep those leases in place.
Ernest Rady
As far as selling the property our view has always been to enhance our 15 iconic properties and it is certainly in that category and we’re doing everything we can to maintain the quality of that building and attract the highest quality tenants over the long run, it's going to be a very significant contributor to our NAV.
Haendell St. Juste
And Jim, if I may, I think the number that I was looking for -- I say when you acquired the asset, the rents were around $32 a square foot. Today, I'm hearing they are north of $45, $50.
Can you comment on market rents?
Jim Durfey
On some of the smaller tenants like them in the last six months have peaked at about $47 level of backdrop to actually rents closer to $45 for the smaller tenants as we speak, so it's come down a little bit from the peak based on what’s going on in the marketplace. But again nonetheless compared to the 30, 32 so there is still substantial increase.
Ernest Rady
And because of our cost, we are in a position to compete very effectively with whatever happens in that marketplace.
Haendell St. Juste
Any need to give additional incentives at this point, or is that not part of the dialogue?
Ernest Rady
We’ll do what we have to do to make sure that we maximize the cash flow.
Haendell St. Juste
Second line of questions for you Ernest, if I may, you kind of talked about incrementally tapping your line over the course of the year to fund your REIT capital needs. Given where your stocks -- stock is trading below NAV and think below where you previously tapped it.
I know you don't like to sell assets. But given your core goal of growing NAV, I was wondering what your current view on potential JVs was as an additional source of liquidity.
I think they could allow you not only to capitalize on strong asset pricing and demand to help fund your REIT a bit more accretively.
Ernest Rady
So there is a couple of issues on that. First of all, all that is taken on behalf of the company actions that secure the interest rate on the loss of the debt which matures over the next 12 months.
We think this is very positive and it's quite certain to add to the FFO per share. As far as our cash flow requirements, with we haven’t had and what our plans are we have ample ways to finance them.
And Bob do you want to cover that with a little more color or…?
Bob Barton
From a liquidity standpoint, we’re in really good shape. I mean we haven’t tapped the line hardly at all we can use the line for short term pay out of some of our near term maturities.
We have 27 million small numbers maturing in June. We got another 23 million maturing in October.
And our CapEx for Torrey Point is going to be probably less than 30 million this year. So we don’t have a whole lot of needs to do that.
And between cash flow if you take a look at our AFFO and you take a look at our requirements it's very little needs from the line of credit. So I think we’re in good shape.
Haendell St. Juste
Okay. Last one for me here, Ernest.
You assumed the role of President following John's departure last September. Now that you've been in the seat for the last seven months occupying Chairman, CEO and President title have you had a rethink about potentially relinquishing the role of perhaps President and addressing some of the questions over succession with the Company?
Ernest Rady
Frankly I am enjoying it. The Board I have asked the Board to keep an eye on me to make sure I am doing everything I should be doing.
So far they seem satisfied. I am enjoying, it's exciting I have the best people to work with that I could ask for in this industry.
They are doing an excellent job and they have made my life a pleasure and hopefully a pleasure for our stockholders. So at the moment, I am doing what I wanted to do, I am enjoying it and I am enjoying working with the top-notch team we have at American Assets Trust.
Operator
Thank you. The next question is from Mitch Germain of JMP Securities.
Your line is open.
Mitch Germain
Just two quick ones for me, number one, does -- do you hit your debt-to-EBITDA target when all the developments are stabilized? Is that the way to think about?
Ernest Rady
Yes, we -- based on our corporate operating model and the lease up and stabilization of Hassalo in the fourth -- in the beginning of the fourth quarter. Our net debt EBITDA, our expectation is it would be at about 5.6 times.
So that’s what our target is now. If we are off on the lease up by a quarter here or there, then that will be the after quarter.
But our target is to keep our net debt to EBITDA with a five handle.
Mitch Germain
And then I think you referenced, Bob, a tax refund? Is that correct?
Bob Barton
Correct, up at One Beach yes.
Mitch Germain
Yes, yes so if I was thinking about that in the right way, what is your same-store growth if we eliminate that? Or is it not that significant?
Bob Barton
It's not that significant.
Mitch Germain
Okay, great.
Bob Barton
Mitch on just a follow up on that is that on all our properties we appeal every year and we try to get as much back as we can. What we are really doing is fighting for our shareholders and our tenants out there.
So if we can keep our taxes down that allows the NOI -- that allows us to pass less through to the tenants and increase our NOI.
Operator
Thank you. The next question is from Rich Moore of ARB Capital Markets.
Your line is open.
Rich Moore
I haven’t got any plans to joining RBC actually. But I have a couple of questions for you.
One, first, Bob, on Page 27, you guys showed the retail portion of Hawaii. And, the annualized base rents skyrocketed.
But actually, the percentage lease went down. And so I'm kind of curious how exactly that occurred.
Ernest Rady
Yes, I don’t have the exact detail on the tenants. But we continue to push the rents out there.
Chris do you got anything to comment on that?
Chris Sullivan
As Rich you know from a strategic point of view. If you can lock in the rent and it's not percentage rents, you better off than having a lower rent and percentage rent which fluctuates more.
And Chris you want to add some to that?
Chris Sullivan
Yes. Hi Rich, o I am looking at it, Waikele is full, so we are at 100 out there and shops are 100…
Ernest Rady
He is talking WBW.
Chris Sullivan
And Beach Walk…
Ernest Rady
Rich, let me look into that and get back, I don’t have that data in front of me.
Rich Moore
You guys see that big jump from 10.9 million in base rents to 12.2?
Ernest Rady
Yes.
Rich Moore
And then -- it's usually flat and jumped to naturally, you went down from 100% occupancy to 97.8%. So it's a nice move.
It's great in certain time. Okay, great.
And then when you guys think about Hassalo, on a rent per square foot basis, are you renting those apartments below-market, do you think?
Ernest Rady
We hope so, we are going to find out. Don’t forget the area was a work area.
We are turning into an work live area. So far it's being well received, we don’t know what's the rents will be as the area matures.
But I am really hopeful I think that could really be one of the best things that American Assets Trust has ever done. But it's too early to say -- to share with you anything definite other than my aspirations and dreams.
But it's looking very good.
Rich Moore
Okay. So even though there is other apartments in the area right here, it's hard to tell?
Ernest Rady
The other areas -- there are other apartments in the area they are smaller units. They don’t have the amenities, they don’t have the ambience that we have in our area.
Some of that is we have installed the Green Zebra we are talking, it doesn’t sound very much of a name for a grocery store but we think it provides a really worthwhile service.
Ernest Rady
Okay and Sully has just brought something to my attention which he would like to add.
Chris Sullivan
I am going to say, Rich, the apartments up there, remember, we are on the transportation trolley line some of these competitive ones are not on these trolley lines. It's about two trolley lines run right through the project, that’s transit oriented it is what they call it.
Ernest Rady
And Rich, let me add to that too is that our weighted average rents are approximately 236 so we’re trying to push that up towards the end of the year if not sooner. But if you look at the eight properties that we track three in the Pearl District across the Willamette River and five on the inner reed side, surrounding the Lloyd District, the weighted average rents of the peer set is about 270.
And so we feel pretty good about pushing those rents to 250 at least by the beginning of next year.
Rich Moore
And then you guys -- when do you put that in same-store? I guess not for a while, right?
Bob Barton
Correct. So it goes into same store I believe in November of -- probably the fourth quarter of this year, so you’re not going to see results on it until the following year.
Rich Moore
And then last thing again Bob for you is, you know the various notes you guys have that are unsecured, the five different notes. Can you take those out early?
I can't remember. Can you pay those off without a penalty?
Bob Barton
Yes, they have a yield maintenance provision on that, because the other thing is that we on those unsecured term loans we are generally tied in with a swap. So we’ve locked the underlying rate and for us to unwind that it doesn’t make a lot of sense.
And the rates that we have are very attractive, so we’re happy with them.
Ernest Rady
And there is no [Multiple Speakers]…
Rich Moore
And if you wanted to do an unsecured bond…
Bob Barton
And we have locked in the lease going forward which will be very effective too which bodes well for our FFO per share.
Rich Moore
And if you wanted to do an unsecured bond then going forward, you would do it out of other debt that is coming due and not mess with these. Is that right?
Bob Barton
Correct.
Operator
Thank you. There are no further questions at this time.
I’ll turn the call back over to Ernest Rady for closing remarks.
Ernest Rady
Well thank you all for joining us again. I want to reiterate what a pleasure and a privilege it is to manage our Company.
Just from a historicals perspectives in the five years since we went public, we’ve taken the net asset value from $22 a share to approximately $45 a share. I don’t know what the next five years will bring.
But let me tell you that this management team is dedicated to producing the best results it can for all of our stockholders. So thank you for your confidence, thank you for your patience and thank you for giving us an opportunity to talk about our Company.
Operator
Thank you. Ladies and gentlemen, this concludes today’s conference.
You may now disconnect. Good day.