Nov 2, 2016
Executives
Adam Wyll - Senior Vice President and General Counsel Ernest Rady - Chairman, President and Chief Executive Officer Robert Barton - Executive Vice President and Chief Financial Officer
Analysts
Paul Morgan - Canaccord Genuity Drew Smith - KeyBanc Capital Markets Justin Devery - Bank of America Merrill Lynch Ronald Camden - Morgan Stanley
Operator
Good day, ladies and gentlemen and welcome to the American Assets Trust Third Quarter 2016 Earnings 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 like to introduce your host for today’s conference Adam Wyll, Senior Vice President and General Counsel. Sir, you may begin.
Adam Wyll
Good morning. I’d like to thank everyone for joining us today for American Assets Trust 2016 third 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 third 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 website.
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 third quarter of 2016, furnished to the Securities and Exchange Commission, and this information is available on the Company’s website at www.americanassetstrust.com.
I’ll now turn the call over to our Chairman, President and CEO, Ernest Rady to begin our discussion of third quarter results. Ernest?
Ernest Rady
Thanks Adam, and good morning, everyone. Thank you for joining American Assets Trust third quarter 2016 earnings call.
Our focus in 2016 continues to be in the growth of net asset value for our shareholders, which we believe will ultimately result in increasing cash flow and dividends paid to our stockholders. We are very pleased with the FFO that increased 7% in the third quarter on a year-over-year basis.
Our same-store cash NOI also continues to be strong with an 8% increase in the third quarter on a year-over-year basis. As we look forward to the remainder of 2016 and into 2017.
We do this to be a transition year where we continue to invest in our portfolio. We have two projects that we look to enhance and repositioned.
One being our Torrey Plaza building at Torrey Reserve where 180,000 square foot tenants at the cadence as expected. And we look to renovate Torrey Plaza over the next eight months to a new light, right and energetic workplace that will be well-positioned for the current marketplace in terms of finishes, style and amenities that will therefore support higher rental rates.
The second project is Oregon Square which consist the four city blocks. In one city block we are actively - these negotiations full building tenant for one of our existing buildings.
Another city block we are one of the finalists to develop a building to suite an office building and the remaining two blocks we continue to work to create the highest and best use for those remaining two city blocks at Oregon Square having recently obtained our entitlement in such regard at the most recent design review hearing. We believe the overall quality of the portfolio, but continue to outperform regardless of where we are in the real estate cycle.
Yes and maybe I should say when interest rates begin to increase. We are hopeful to find some dislocation in the marketplace and capitalize on both opportunities that present themselves.
Lastly, we continue to look at all opportunities, but pricing continues to be an obstacle. In the meantime we’re continuing to focus on creating net asset value for our shareholders.
Again on behalf of all of us at American Trust, we thank you for your confidence of allow us to manage your 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 please.
Robert Barton
Good morning and thank you Ernest. Last night we reported third quarter 2016 FFO of $0.47 per share.
Net income attributable to common stockholders was $0.19 per share for the third quarter. The Company’s Board of Directors has declared a dividend on its common stock of $0.26 per share for the quarterly period ending December 31, 2016.
The dividend will be paid on December 22 to stockholders of record on December 16 or December 8, 2016. Our retail portfolio ended the quarter at 97% leased combined with the highest annualized base rents amongst our peers.
On a year-over-year basis, our retail occupancy was down approximately 130 basis points from the third quarter of 2015, leaving approximately 92,000 square feet vacant in our 3 million plus square foot retail portfolio. The increase in retail vacancy is primarily attributable to the Sports Authority leased at our Waikele property which consisted of approximately 50,000 square feet.
During the trailing four quarters, 81 retail leases were signed, representing approximately 349,000 square feet or 11% of our total retail portfolio. Of these leases signed, 65 leases consisting of approximately 310,000 square feet were for spaces previously leased.
On a comparable basis, the annual cash basis rent increased 6.3% over the prior lease. Our office portfolio ended quarter at approximately 89.9% leased down approximately 330 basis points on a year-over-year basis, primarily due to the following two factors.
First, the completion of our redevelopment project at Torrey Reserve during the second quarter of 2016, which resulted in the addition of approximately 38,000 square feet to our Torrey Reserve property. And secondly, the planned winding down of leases at Oregon Square located in Phase 2 of our Lloyd District Portfolio to accommodate our ongoing entitlement efforts resulting in approximately 121,000 square feet of vacancy at Oregon Square.
During the trailing four quarters 71 new office leases were signed, representing approximately 259,000 square feet or 10% of our total office portfolio. Of these leases signed during the year, 54 leases consisting of approximately 205,000 square feet were for spaces previously leased.
On a comparable basis, the annual cash basis rent increased 7.3% over the prior lease. Let’s talk about same-store NOI for a moment.
Same-store retail cash NOI increased in the third quarter to 2.9%, the increase was primarily due to new tenants in our Carmel Mountain Plaza property. Last quarter, we mentioned that we were in discussions with possible replacement tenants for the Sports Authority stores at our Carmel Mountain Plaza and Waikele properties.
I am happy to report that Dick’s Sporting Goods has signed a lease at our Carmel Mountain Plaza property that extends the term over the previous Sports Authority lease by 10 years with an increase in annual cash basis rent. We are also engaged with ongoing discussions with prospective tenants at our Waikele property in Hawaii and we are hopeful that a new tenant or tenants will be signed in the near future.
For those of you that were unable to attend the recent investor tour that we held in Hawaii, our Waikele shopping center on the island of Oahu is approximately 50 minutes north of Waikiki Honolulu and consists of approximately 42 acres [BES Simple] and a half a mile of frontage along the primary H1 highway and as adjacent to Chelsea premium outlet. It’s a great asset in a great location.
Same-store office cash NOI was up 13.1% in the third quarter, primarily due to increases in rent at our Landmark building in San Francisco and the tenant expansion as well as rent increases at our First & Main in Portland. Same-store multifamily NOI was up 10.6% on the cash basis for the third 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.
Waikiki Beach Walk, our mixed-use property consisting of the Embassy Suites Hotel and Waikiki Beach Walk Retail reported a combined increase in same-store cash NOI of 8.9% for the third quarter. For Embassy Suites Hotel, the same-store cash NOI increased to 11% as ADR and RevPAR and occupancy percentages have all increased over the prior year.
For Waikiki Beach Walk retail same-store cash NOI increased 6.1% primarily due to higher rental revenues. Tenant sales at WBW retail were at approximately $1,061 per square foot for the rolling 12 months as our tenants continue to benefit from the excellent location and a good economy.
Turning to our third quarter results, FFO increased approximately $1.5 million or $0.23 to $0.47 per FFO per share compared to the second quarter. The third quarter results include the following activity.
Number one, Embassy Suites and Waikiki Beach Walk increased approximately $1.5 million in Q3 over Q2 adding approximately $0.23 of FFO due to the seasonality over the summer months. Number two, Hassalo on Eighth leased occupancy continued to increase during the third quarter adding approximately $0.01 to the third quarter FFO.
Number three, Kmart’s bad debt reserve of approximately $0.01 per FFO share against the remaining straight-line rent reserve, so that by year end we will be 100% reserved on the straight-line rent. In the third quarter, Kmart listed Waikele as being one of the shopping centers that they would close the store by year end.
And accordingly, we made the decision to increase the bad debt reserve against the straight-line rent receivable. Absent this reserve, we would have exceeded the Street consensus of $0.48 for FFO share.
Now, as we look at our balance sheet and liquidity at the end of the third quarter, we had approximately $312 million in liquidity comprised of $62 million of cash and cash equivalents and $250 million of availability on our line of credit. Our leverage at the end of the third quarter remains low at 28%, total debt to total capitalization and a net debt to EBITDA of 5.8 times.
Our interest coverage and fixed charge coverage ratio ended the quarter at 3.6 times. Let’s talk about 2016 and 2017 guidance.
We have tightened our 2016 guidance range and are introducing our initial 2017 guidance. Let’s take about 2016 guidance first.
We are tightening our guidance range for our full-year 2016 FFO per share to a range of $1.84 to $1.86 per FFO share without changing our original midpoint of $1.85 per FFO share from original guidance of $1.82 to $1.88 per FFO share. As I mentioned, in the third quarter, we notified that the Kmart store at our Waikele shopping center was on the list of closures.
And as a result, we took a bad debt reserve against our straight-line rent receivable of approximately $0.01 per FFO share. Also as you might recall, in the second quarter, we took another charge of approximately $0.01 per FFO share resulting from the Sports Authorities bankruptcy.
Even with all these unexpected events, I am pleased that we were able to maintain our guidance range and midpoint throughout the year. Now, let’s talk about our 2017 guidance.
We are introducing our 2017 FFO guidance range of a $1.98 to $2.06 per share with a midpoint of $2.02 per FFO share which is approximately a 9.2% increase in FFO over the 2016 midpoint. Our 2017 guidance is based on the following eight assumptions.
Number one, we are anticipating that our 2017 same-store retail cash NOI will be flat compared to the prior year, primarily because of the loss of Sports Authority at our Waikele regional shopping center in Hawaii. Occupancy is expected to be approximately 96.4% at the year end 2017.
As previously discussed, Kmart intends to both its store located at our Waikele property by the end of this year. Our current lease with Kmart expires on June 30, 2018.
Our guidance assumes they we will continue receive lease payment from Kmart under the terms of the early. Number two we are anticipating a 1.6% increase in the same-store office cash NOI.
The increased in same-store cash - office cash NOI was increased FFO per share by approximately $0.001. Same-store office occupancy expect to be approximately 97.5% at year-end 2017.
The increase in office occupancy is in part due to adding the Lloyd office building, including Lloyd Center Tower in L700 building in Portland, Oregon into the same-store office pool beginning in 2017. As always we’re talking about the office market.
Let’s talk about our City Center Bellevue Office Tower in Bellevue Washington. 20 minutes east of Seattle in the heart of the Central Business District.
As noted in our supplemental we have approximately 12 floors with leases that expire in 2017 representing approximately 230,000 square feet. Of these and based on our current and ongoing discussions with tenant our 2017 guidance assumes that approximately 140,000 square feet or 62% of the explorations will renew with the same tenant at an increased rent.
Additionally, we have assumed that approximately 80,000 square feet or 34% of the explorations will be back filled by the tenants in place that are subleasing existing space again it an increased rent. The remaining explorations amount to about approximately 8,000 square feet or 3% of the total explorations which we consider to be speculative lease ups.
We believe our weighted average in place rents are still below the market and as a result we expect approximately a 10% increased in rental rates during the first year. On a cash basis our same-store cash NOI is expected to be tempered.
As a result of some expected free rent in connection with these renewals. Now as it relates to the overall Bellevue office market we entered into 2016 expecting two new high-rise office buildings being delivered into the marketplace.
At the end of this year adding approximately 1 million square feet of office space. Of that amount 70% is already been leased according to Broderick commercial real estate group in Seattle.
Another 100,000 square building is being delivered in 2017 and that is already 100% leased are pending. The majority of the construction is close to achieving lease.
According to Broderick commercial real estate group the Bellevue Central Business District has quickly swung from a market that some predicted to be overbuild to one that appears as if it will be extremely tight in the coming three years. In the past, Microsoft has been the major driver of absorption.
But this market is the stead being driven by other new and expanding technology firms. Attempting to create top quality office to compete for the best and brightest talent.
The Broderick group projects 10% increases this in rental rates across the eastside office market where Bellevue is over the next 12 months. Getting back to 2017 guidance now.
Number three we are anticipating a 2.9% increase in same-store multifamily cash NOI. Occupancy is expected to approximately 96.2% at year-end 2014.
The increase in same-store multifamily cash NOI will increase FFO per share by approximately a $0.001. Number four we are anticipating that our same-store mixed-use cash NOI will be flat compared to the prior year.
Mixed-use retail occupancy is expected to be approximately 99.4% at year-end 2017. Number five Hassalo on Eighth multifamily and retail in Portland, Oregon is expected to contribute approximately $9.5 million of FFO.
An increase of approximately $4.7 million from the prior year and an increasing in FFO per share of approximately $0.07. Number six G&A expense is expected to increase by approximately 5.6% to $19 million, which is expected to decrease FFO per share by approximately $0.001.
Number seven interest expenses expected to decrease by approximately $1.6 million as a result of a fully amortizing loan to market adjustment made at the time of property acquisitions. The reduction of interest expense is expected to increase FFO per share by approximately by $0.02.
Number eight, 2017 GAAP income adjustments for straight line rents and above and below market adjustments are budgeted to be approximately $6.5 million and are expected to increase FFO by approximately $0.07 per FFO share. These adjustments should approximately reconcile our 2016 midpoint guidance with our 2017 midpoint guide.
When I compare at 2017 midpoint guidance to the 2017 consensus that I see in my Bloomberg screen up $2.06 per share. We are different by approximately $0.04 or approximately $2.7 million of FFO at the midpoint.
I believe the difference is due to the timing of lease up for a newly developed office property at Torrey Reserve and Torrey Point as well as releasing of the office space recently vacated by ICW Torrey Reserve. In our guidance we anticipate having the newly developed properties and vacated stays, leased up or re-leased by the fourth quarter of 2017.
This coincides with consensus for the fourth quarter of 2017. Before then and I believe it is a timing difference that is creating the discrepancy with the annual consensus.
Lastly our operational capital expenditures for 2017 are budgeted to be approximately $37 million. We will continue our best to be as transparent as possible and share with you our analysis interpretations of our quarterly numbers.
We are well prepared with an even stronger balance than in prior years to capitalize and execute on the opportunities that we believe will present themselves over the coming quarters. Operator, I’ll now turn it over to you for questions.
Operator
Thank you. [Operator Instructions] Our first question comes from the line of Paul Morgan with Canaccord.
Your line is now open.
Paul Morgan
Hi, good morning.
Ernest Rady
Good morning, Paul.
Robert Barton
Good morning.
Paul Morgan
Just could you give us a little bit update on the San Diego, North San Diego office market I mean you’ve got that’s all kind of a lot of your delta if you look at next year, as you mentioned in terms of the guidance and you’ve got space between the developments and the ICW. I mean kind of what are you seeing in terms of absorption and how you know ICW how quickly is that space going to be renovated and ready and then kind of what are the prospects in terms of just the traffic that you are seeing?
Ernest Rady
Well, I think that, this is Ernest, Paul. Bob outlined that eight months from now will have repositioned the ICW building and there’s no question that they lease up of the rest of the space has been a bit behind schedule.
On the other hand there is leasing is really busy at the moment. Maybe you want to expound on that a bit Jim.
Jim Durfey
Sure. Hi, Paul.
This is Jim.
Paul Morgan
Hi, Jim.
Jim Durfey
[Answer Inaudible]
Ernest Rady
So to sum it up, we’re a bit behind schedule but we’re very optimistic about what’s going to transpire over the next 12 months. Jim is complaining to me about how busy he is and that’s a very good sign.
Paul Morgan
Okay. That’s a good thing.
Going over to Waikele, can you tell us how should we think about Kmart in 2017. I mean you said you’re including the revenue and they’re going to leave the space.
Do you think what’s actually going to happen is going to be - they’ll be like the first quarter termination fee or something like that, just from a modeling perspective? How should we think about it?
Jim Durfey
I don’t think we know but anybody want to make a guess, so we just leave…
Robert Barton
Yes, Paul. Bob here.
This is early in the period regarding Kmart. We were notified that the store will be closing by the end of the year and that’s really all we know at this point in time.
So our guidance is assuming that we’re going to get all of that rent during 2017. We have nothing or no other reason to – nothing that would lead us to indicate that we wouldn’t get that at this point in time.
Robert Barton
In the meantime, we’re actively working [indiscernible] that building to what I think of better occupancy [indiscernible].
Paul Morgan
And so you think in terms of the space there that because of where the location is that might be something you look to re-device into smaller dinner anchors?
Ernest Rady
We are going to look at every option I think Chris is going to answer that, I know he’s going to answer because he is leaning forward.
Paul Morgan
Okay.
Chris Sullivan
[Answer Inaudible]
Ernest Rady
It’s a great piece of property, 42 acres [indiscernible]. We are glad to have that property going into the next couple of years.
Paul Morgan
Great. Thanks.
And then just last for me. How should we think about the rents flow as we roll into the fourth quarter and any kind of impact in terms of those larger corporate units that you kind of put on in anything as of June?
Ernest Rady
The corporate units are gone Paul. We think that the rental base we have now is quite certain over the winter months which renting usually slows down.
This is our first season like this. So we’re learning the marketplace.
Our objective now is to keep the occupancy up and get the rents up and we’re working on that. The timing of that we’ll know better after we’ve been through one rental or one more year actually activity in that marketplace.
But the project continues to receive recognition is one of the best projects of its type in the northwest. So we’re pleased with the project.
We are proud with the project. And what we do with Oregon Square next door can only by the answer, so I think it’s going to get better.
How fast? I don’t know.
How much? I don’t know.
But believe me, we have a history of doing the best we can and trying not to be.
Paul Morgan
As you’ve been trying to release those corporate units are you getting close to where they are, I know you talked about it being above market as it typically are for the short-term leases? How close are you getting in terms of roughly…
Ernest Rady
There is small number of units relative and it’s the two bedrooms and the two bedrooms are not renting as well as the smaller units. So the rental rate on the two bedrooms as they released has not been as much as the rental rate on the short-term level and we’re just going to have.
Robert Barton
Let you know, I’ve seen that over the years sometimes two bedrooms are hot, sometimes [indiscernible] are hot, sometimes one bedrooms are hot, right now two bedrooms are cold. We will have to see how this evolves.
But we’re very happy with them next when we think over the long run it’s going to be right next to the project.
Paul Morgan
Great. Thanks.
Ernest Rady
Thank you, Paul.
Operator
Our next question comes from the line of Todd Thomas with KeyBanc. Your line is now open.
Ernest Rady
Hi, Todd.
Drew Smith
Hi. Good morning, guys.
This is Drew Smith, I’m on for Todd today.
Robert Barton
Okay. Good morning, Drew.
Drew Smith
Good morning. Just to follow-up on Hassalo a little bit, just curious on what you’re expecting for 2017 in terms of the NOI yield and what the trajectory is going to look like and if that’s in line with your original expectations.
And then also on Hassalo, if you could just talk about the retail mix a little bit, we saw new tenants in the supplement this quarter just wanted to see what you’re thinking about the tenant mix from a retail perspective?
Ernest Rady
Bob, what have you got in for Hassalo for the coming here?
Robert Barton
Yes. For guidance purposes, we are over the year at 6% yield on it.
That’s our strategy, that’s our goal and we will continue to push the market hopefully beyond that. It depends on the market up there.
Sometimes like Ernest has saying that a few minutes ago, sometimes one product is fast, one product is moving little bit slower, but we are going to push it for every dollar we can and our goal is to get that 6% yield.
Ernest Rady
The biggest cost of real estate is vacancy. So our strategy is to reduce the rent on the apartment, the two bedrooms that are not rented [indiscernible] we like and try up for that and then some with the other units.
So it’s a question of balancing and rebalancing and we’ll find how that plays out through the year. As far as the retail goes, Chris do you want to answer that I know we’re 70% rented.
Chris Sullivan
Yes. We’re approximately 70% rented the space that’s remaining [indiscernible].
Drew Smith
No I have not.
Chris Sullivan
So imagine this is the hard corner on your best intersection. So this is the corner that we’re trying to secure a better restaurant more, it’s approximately 3,000 square feet of that that piece is really a key piece.
So we’re trying to secure the right tenant [indiscernible] restaurant. But have in mind everything we do on Oregon Square is going to enhance both the retail and the residential.
So I think of that as a I don’t know - towards long-term but certainly a mid-term substantial efficient to NAV and FFO per share. That will happen next month, it happen to next decade, that’s going to be giant winner.
Drew Smith
Great. Thank you.
And one last quick one for you Ernest you mentioned last quarter the Torrey Point was getting some pretty intense interest from brokers. Are you guys still seeing that level of interest and what do you think of that moving forward?
Ernest Rady
Jim, do you want to take that.
Jim Durfey
Yes, we’re in discussions with a large tenant [indiscernible] space and we have other activity upon the Torrey Point. So we still see good activity.
Drew Smith
Great. Thank guys.
Jim Durfey
Thank you.
Ernest Rady
Thank you for your interest.
Operator
Our next question comes from the line of Craig Schmidt with Bank of America. Your line is now open.
Ernest Rady
Good morning, Craig.
Justin Devery
Hi, this is actually Justin Devery, I’m standing in for Craig Schmidt this morning. We just hoping you could comment on same-store retail cash NOI.
We saw you took down the guidance last quarter. Just curious if there’s an update on that for 4Q or ultimately for year-end that’s a pertains to the retail segment.
Ernest Rady
No, we’re consistent as I mentioned in our comments really the reason for where our same-store cash is sports authority at the Waikele property. So we’re losing about 150,000 a month on that store being taken.
So right now we’re working with several interested parties that will step into that in 2017 that we believe. And we’re going to do our best to fill that up.
That is also the reason why our 2017 guidance - is because we’ve factored in 2017 having that vacant as we make the transition building out that next tenant coming in there and getting them up to speed, so that - for the entire year that’s about $1.7 million, when we take a 150,000 - 12-month.
Justin Devery
Great. And then is there any other – could you comment on the type of tenants you are looking to fill those spaces?
Ernest Rady
Chris, do you want to mention.
Chris Sullivan
Justin, it’s going to be the usual suspects that you would typically see in that big box center.
Justin Devery
Okay, great.
Chris Sullivan
I just don’t want to lead my point here. I got several folks that we are working with and it will resolve itself.
There’s a lot of interest in that space. So we’re not concerned about it getting leased.
If the question of the timing now - Kmart circumstance. The press is doing a great job and handling the interest in that site.
Justin Devery
That seems fair. Thank you.
Ernest Rady
Thank you.
Operator
Our next question comes from the line of Richard Hill with Morgan Stanley. Your line is now open.
Ernest Rady
Good morning, Richard.
Ronald Camden
Hey, this is Ronald Camden, for Richard Hill.
Ernest Rady
Hey, Ronald.
Ronald Camden
Just a couple of quick one for me. The first one is kind of going back to the Oregon Square.
May be can you just provide more color on kind of how far along - on the development design. And you also I think you mentioned a little bit about permitting.
What’s the timeframe for that? Are there any roadblocks that you anticipate?
Maybe just a little more color.
Ernest Rady
Well as far as the timing goes a lot of it depends on the success we experience over the next short while with the existing apartment project. As far as the leasing of that building that we’ve talked about that’s presently located on Oregon Square.
And how would you describe the circumstance that we found? Most are been found out for signature I would describe that.
Jim Durfey
[Indiscernible]
Robert Barton
That’s all we can tell you. It’s a great property.
I mean if you want to worry about [indiscernible]. I then think that’s the best thing for RMD that have a long run as I said earlier about decades from now that is going to be a much improved area and to Company.
Ernest Rady
Anybody want to add anything to that?
Robert Barton
No I think that’s how we all feel. Thanks Ronald.
Ronald Camden
And then the other one I had was, obviously I saw you guys [indiscernible] during the quarter when the share price 45, 50. Just curious what the stock now in the low 40, how are you thinking about that in terms of acquisition, in terms of [indiscernible] and so forth?
Robert Barton
It’s a tough circumstance of the month. We feel that our stock is significantly undervalued, so the use of that of our shares to make acquisitions mean the acquisition has to be such a compelling price that the price we acquired and that makes up for the dilution to our existing stock.
This one thing I can assure you that is we already supported the management team as there is to creating NAV. So doing something that would be destructive to NAV is not anything that we dream of…
Ronald Camden
Great. And then the last one for me is just on – just curious on your commentary you guys gave us a good feedback on development yield and so forth.
How are you guys seeing that trending and what your outlook is things like constructing costs and so forth? Thanks.
Robert Barton
I was recently in Honolulu. I was told that construction cost escalating about 14% a year.
Honolulu, we estimate that – Portland they are escalating 6% a year. No question that at the tight construction market, but this change as interest rates go up, construction slows down, it’s a fluctuating market.
But if that substantiate is what we have increased the replacement cost dramatically. I mean if you look at what we’ve built in Portland so far and then extrapolate the 6.5% increase over the number of years since we bought it out.
It look it is another $30 million to $50 million replacement cost and that’s kind of our view. What we have gets better and better.
The amounts decline creates additional product gets a little more difficult, inflation itself not probably over the long run. So it’s a constant balancing process to make sure we’re doing the right thing to achieve our long-term objective which is enhanced NAV for our stockholders.
Ronald Camden
Useful. Thanks so much.
Robert Barton
Thank you. End of Q&A
Operator
At this time, I’m showing no further questions. I would like to turn the call back over to Ernest Rady for any closing remarks.
Ernest Rady
Okay. Thanks again for your confidence in joining us on our call.
We will look forward to chatting with you at the next conference call. I can assure you that between now and then we’ll be working hard to enhance all our shareholders interest.
Thank you and good morning.
Operator
Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program.
You may all disconnect. Everyone have a wonderful day.