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Taubman Centers Inc (TCO)
Q2Â 2019 Earnings Call
Jul 26, 2019, 11:00 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Thank you for holding and welcome to the Taubman Centers' Second Quarter 2019 Earnings Conference Call. The call will begin with the prepared remarks and then we will open the lines to question.
On the call today will be Robert Taubman, Taubman Centers' Chairman President and Chief Executive Officer; Simon Leopold, Chief Financial Officer; and Ryan Hurren, Vice President, Investor Relations, Interim Chief Accounting Officer.
Now, I will turn the call over to Ryan for opening remarks.
Ryan Hurren -- Vice President of Investor Relations
Thank you, operator, and welcome, everyone, to our second quarter conference call. As you know during this conference call, we'll make forward-looking statements within the meaning of federal securities laws. These statements reflect our current views with respect to future events and financial performance although actual results may differ materially.
Please see yesterday's earnings release and our SEC filings including our latest 10-K and subsequent reports for a discussion of various risks and uncertainties underlying our forward-looking statements. In addition a replay of this call will be provided through a link on the Investor Relations section of our website.
During this call, we'll also discuss non-GAAP financial measures as defined by SEC Regulation G. Reconciliations to these non-GAAP financial measures to the comparable GAAP financial measures are included when possible in our earnings release, our supplemental information, and our historical SEC filings.
Non-GAAP measures referenced on this call may include estimates of future EBITDA, NOI, after-tax NOI, and/or FFO performance of our investment properties. Such forward-looking non-GAAP measures may differ significantly from the corresponding GAAP measured net income due to depreciation and amortization, tax expense, and/or interest expense, some or all of which management has not quantified for the future periods.
Following today's prepared remarks we will open the call up for questions. We ask that we limit your questions to two. If you have more please queue up again.
Now, let me turn the call over to Bobby.
Robert Taubman -- Chairman, President and Chief Executive Officer
Thanks, Ryan, and good morning, everyone. Yesterday, we released our second quarter results. We produced solid earnings growth with adjusted FFO of $0.94 up 8% over last year. The primary drivers of this growth were better rents, recoveries, lease cancellation income, and higher-than-anticipated insurance proceeds and stand-alone. Comp center NOI growth excluding lease cancellation income was up 30 basis points, in line with our expectations.
Excluding the impact of currency, NOI growth was 1.4%. Our pro rata share of total portfolio NOI continues to grow at a significantly faster pace up 4.6% in the quarter and 5.1% year-to-date. This is on top of 4.7% growth in 2018.
At a time when the ability of mallers to grow NOIs in question, we are producing solid numbers. Last year the stabilization of our Asia Developments and International Market Place in Hawaii drove our pro rata growth rate. This year growth in our best assets that are 100% owned as well as our non-comparable centers Saint Laurent and Beverly Center along with the addition of The Gardens Mall in Palm Beach are the primary factors.
Average rent per square foot was up 2.1% this quarter. On an NOI weighted basis, it was up 4.6%. In our U.S. comp centers, average rent per square foot was $62.94, up 1.4%. On an NOI weighted basis our U.S. comp was $81.35 up 3.4%. At June 30th, comp center occupancy was 92.2%, slightly lower than last year primarily due to frictional vacancy at our two China assets.
In the first half of the year, we proactively recaptured between 4% and 5% of the GLA including two large Forever 21 stores at CityOn.Xi'an and CityOn.Zhengzhou both of which are 100% leased.
Great international brands like Sephora, Nike, 750, Opel, Bose, APM Monaco, and Victoria's Secret will be opening at these centers in the Forever 21 spaces in the second half of this year.
These tenants will be accretive to merchandising and we expect we'll add meaningfully to the sales per square foot in NOI of both centers. Lease space in comp centers was above 95%, which is in line with last year and recent history for this time of the year.
Turning to sales, in the U.S. comparable centers' trailing 12-month sales were $940 per square foot, up 12.2%. Including Asia, trailing 12-month sales were $848 up 10.8%.
On an NOI weighted basis, sales were $988, up about 10%. For the quarter, sales per square foot increased 8.8% for all comparable centers. Tenant sales in our portfolio have now increased 12 quarters in a row.
Once again a few factors impacted sales growth. First, Tesla's vehicle deliveries were added, but to a lesser extent than last quarter. Also late Easter benefited April's results. These were partially offset by unfavorable foreign exchange rates, which reduced sales growth at our Asia centers by about 7%. Taking these considerations into account, our tenants still produced good growth against the strong comp from a year ago. In the U.S. excluding Tesla, we were up 4.5%.
Key categories like shoes and electronics, and importantly apparel, which was up for the seventh consecutive quarter continued to perform well. The best individual performers included H&M, Fabletics, Jimmy Choo, Louis Vuitton, Abercrombie & Fitch, Coach, Express, Apple, Microsoft, Ferragamo, Aerie, Lululemon, Zara, Van and American Eagle.
Nevertheless, disruption in the retail industry continues with store closings and tenant bankruptcies persisting. Last quarter, we identified 50 locations that could be impacted by bankruptcies this year. Of those, we expected about 20 stores to close, representing 70 basis points of occupancy. There has been very little additional bankruptcy since and we now expect 55 locations could be impacted.
In addition, Charming Charlie's, Dressbarn and 602 have announced chainwide closures. We have six locations with these three tenants. In total, we now expect about 30 stores to close, representing approximately 100 basis points of occupancy, of which we believe roughly 60 basis points will be backfilled by year-end. This is all consistent with our expectations and occupancy guidance for the year.
As we lease up space, the merchandising of our centers continues to evolve and improve with the new and more productive concepts. Digitally native brands, luxury, coworking and food remain growing sources of demand for space.
Recent names include Gucci and Bottega Veneta at El Paseo, Louis Vuitton at City Creek, Gucci at Green Hills and Golden Goose at Short Hills and Green Hills as well as Casper, Aerie, Fabletics, and Palatine had a number of centers. In fact, we now have over two dozen digitally native brands in our centers.
In May, upscale coworking operator industries signed a lease to join Country Club Plaza in Kansas City after committing the Short Hills last quarter. At Great Lakes Crossing, here in suburb of Detroit, we just announced Nordstrom Rack will open a 34,000 square-foot store next spring.
At Beverly Center, Angler a new seafood-driven concept from Chef Josh's team the founder of the three-Michelin-starred Saison in San Francisco opened with great reviews last month. This will be a tremendous addition to our collection of unique restaurants on Beverly's first floor. We encourage you to visit the center when you're in LA for NAREIT this fall.
So with that, I'll turn the call over to Simon.
Simon Leopold -- Chief Financial Officer
Thank you, Bobby, and good morning, everybody. I'll begin by reviewing the year-over-year FFO variances for the second quarter, that are listed on page 9 of the supplemental. FFO per share for the quarter was $0.78, this result includes $0.135 of costs related to shareholder activism and $0.025 of deal costs associated with the pending Blackstone transactions. Adjusting for these two items, AFFO per share was $0.94, up $0.07 compared to last year. Our year-over-year AFFO variances include the following: minimum rents up $0.025 due to higher average rents per square foot; net recoveries were up $0.02. Lease canceled income was up $0.05. We had minimal termination income in the second quarter of last year whereas this quarter, we received large termination payments from the single restaurant location at a national footwear concept.
Other operating expenses were unfavorable by $0.015, largely due to the change in lease accounting. Interest expense was unfavorable $0.055, due to higher rates and borrowings as well as reduced capitalized interest on developments and redevelopments. Next, our non-comparable centers, which include Beverly, the Gardens Mall in Palm Beach and The Mall of San Juan, were an aggregate of $0.065. Though all three centers were positive contributors, the largest component of this variance was business interruption proceeds at The Mall of San Juan as we highlighted in the earnings release.
Lastly, non-operating income was $0.015 unfavorable, largely due to the fact that we're no longer receiving dividend income from the Simon Property Group shares following our liquidation in the first quarter.
Next, I'd like to quickly touch on the impact of foreign currency exchange rates on our results. Every quarter the results of our Asia centers are translated at the average exchange rate for that period in accordance with GAAP. Quarterly results are not restated, so year-over-year fluctuations in exchange rates have an impact.
In 2018, favorable FX rates added 30 basis points to our comp center NOI growth. That trend has reversed this year, and has negatively impacted our comp center NOI growth by 110 basis points this quarter and 90 basis points year-to-date.
While currency has had a big effect on the NOI growth rate this year, the impact on FFO has been negligible as the unfavorable NOI impact is offset by the favorable effect on corporate expenses, taxes and interest expense related to our Asia business. Further, on average we own about 45% of these centers while our comp center NOI is stated at 100%. As a reminder, we disclosed the impact of foreign exchange rates quarterly in our NOI reconciliations on Page 24 and 25 of our supplemental.
Now an update on guidance which can be found on page 6 of the supplemental. This guidance continues to exclude the impact of the Blackstone transactions and the remaining associated refinancings.
We now expect adjusted FFO per share to be in the range of $3.64 to $3.74, an increase of $0.02 to the bottom of the range. We continue to expect our comp center NOI growth to be about 2%. Year-to-date our comp center NOI growth excluding the impact of FX has been 2.2%.
Our original guidance contemplated an unfavorable impact of 10 basis points from FX but as we said the year-to-date impact has been 90 basis points bringing our year-to-date growth rate to 1.3%. If this trend continues our NOI growth guidance could be at risk.
We have similar reserves in place for adverse tenant outcomes as we had at this time last year and we believe that these will be sufficient for the remainder of the year given what we know today. Finally we're also assuming current tenant sales trends will continue.
Before turning the call back over to Bobby, I want to briefly comment on the price of our stock today. For a number of years now there has been a recognition in the investment community that our NAV is significantly greater than our share price.
On our earnings call on November 2, 2017 with our share price at about $47 we said and this is a quote "our share of fewer than 10 assets, applying cap rates that analysts have used for our portfolio as a whole represents at least as much value as our total market cap today including debt and preferred stock. That means at today's share price investors are getting the rest of the assets for free as well as a dividend yield in excess of 5%." That's the end of that quote.
So in preparing for today's call, we updated and built upon this analysis. Today the NAV have just two of our assets using estimates of market cap rates and allocating an appropriate level of debt is roughly equivalent to today's $40 share price which means that you get the rest of the company for free which include interest in 22 assets, many of which are among the very best assets anywhere with growing sales and NOI. You're also getting a dividend above 6.5%, a dividend that has never been reduced and has increased 22 times in the last 24 years.
Finally lease on average are trading at a premium to NAV today and have an AFFO multiple about 21 times which is nearly double our current multiple which is at about 11 times. With that I'll turn it back to Bobby.
Robert Taubman -- Chairman, President and Chief Executive Officer
Thanks Simon. We had another very productive quarter. Our high-quality assets are allowing us to grow in a volatile environment and continue to meet our earnings expectations. We've completed the acquisition of another great asset in the Gardens Mall in Palm Beach Florida. We opened our expansion in Green Hills in Nashville elevating the quality of the best mall in one of the fastest-growing markets in the U.S..
In Asia we're progressing well with our new development enhanced in South Korea which is on schedule to open late next year. And also in Asia we remain on track to close all components of the joint venture with Blackstone, during the second half of this year. We continue to make the decisions necessary to improve our portfolio, strengthen our balance sheet and grow our company.
Now we're happy to take your questions. [Operator Instructions] Jerome are you there?
Questions and Answers:
Operator
[Operator Instructions] Your first question comes from Greg McGinniss from Scotiabank. You are now live.
Greg McGinnis -- Scotiabank -- Analyst
Hey, good morning. Simon I'm just trying to zero-in on exactly what's going on with the adjusted FFO guidance all the moving pieces there. You've got the higher than expected business interruption insurance and some details on that would be appreciated as well versus the comments last quarter. Then you've also got that reversal of uncollectible rent.
So I'm just trying to figure out how much of that what was the impact from that? How much that changed the full year impact FFO from that line item -- from those two line items?
Simon Leopold -- Chief Financial Officer
Well maybe before we jump into the sort of the bigger picture let's talk about the business interruption insurance proceeds. We put $5 million of expected proceeds into our guidance. We got $4 million of that in the first quarter of this year which would have left $1 million for the remainder of the year.
We actually received about $3.5 million in the second quarter. So $7.5 million in total versus at $5 million. We don't expect any more, but the way I would think about is you had about $2.5 million of outperformance versus our guidance and that goes right into the AFFO.
I'd say in general, we had good half of the year in terms of our expectations. We had $1.89 in total in the first half that's better than we expected. The stand-alone proceeds were clearly a part of that. Then in general would that allowed us to take up the bottom end of the range and raise our midpoint to $3.69 per share, which means that we're looking at $1.80 per share in the second half. And that's lower than last year, when we reported $1.92 in the second half. The predominant difference there is from lease accounting, the change there which hurts the AFFO by about $3 million and higher interest expense in 2019 versus 2018.
In the back half of the year, we see some positives that could push us to the higher end of the range, but there are also some potential negatives that we felt like we needed to be incorporated as well. The potential negatives really all pertain to the volatile retail environment. Tenant sales in our portfolio are pretty good right now. We're assuming that it's going to stay that way. We believe we have appropriate reserves in place to address negative outcomes in tenant health, but we'll have to see about that.
We're also assuming $12 million in lease cancel income at our share for the year but we're not there right now I think we're at about $6.5 million right now. So it's not clear we're going to get all of that. It's not the worst problem in the world to have but it could be a drag on our AFFO. In terms of the bad debt reversal, it's not a huge piece of the pie as it relates to where we are right now where we expect to be.
Ryan T. Hurren -- Taubman Centers, Inc.-Director of IR
Yeah. Greg, this is Ryan. Real quick on-a little bit more on that. Both under the old bad debt methodology and the new collectability assessment methodology there is a potential for the sign to flip in any given period that happens each quarter. It was not unexpected. The flip was primarily due to the resolution of the insurance claim at San Juan. We had several accounts with past due balances that upon the finalization of the receded business interruption insurance that were cleaned up. So no-it's not a surprise to us.
Greg McGinnis -- Scotiabank -- Analyst
Okay. Appreciate that. And then just a follow-up question here, you mentioned in the release and a little bit on the call talking about a small number of short-term deals, I think it was 3% of the trailing 12-month total just driving rent split down 500 basis points. So I'm just kind of curious, do you expect more of these deals over the next year? Could be heading into negative territory? Or what exactly were these deals related to?
Simon Leopold -- Chief Financial Officer
We said it before, but it's important to reiterate. We manage our centers for NOI for occupancy and for the quality of merchandising all which are improving and we're going to continue to make those choices. Spreads for us really are an output especially in a relatively small portfolio in any given quarter they can have volatility. We continue to point people about average rent and average rent growth is a more important stat. That said you have to think about this. There is a small number of deals really less than 3% or about 3% hurt the stat which means that 97% of the leases that we signed-that we opened rather are producing 8% spreads. If you then NOI weight that you add about 11%. So it's healthy.
We're still doing some short-term deals and we're doing them generally in the centers that are not the strongest in the portfolio. It's helping us with NOI it's helping us with merchandising. So we're going to continue to do that. Exactly one spreads start to go up it's hard to say small portfolio with all those factors. But if you look at it, it is a relatively small number of these short-term deals that really are weighing down that stat.
Greg McGinnis -- Scotiabank -- Analyst
All right. Thank you. Appreciate it.
Simon Leopold -- Chief Financial Officer
Thanks, Greg.
Operator
Your next question comes from the line of Christy McElroy with Citi. You are now live.
Michael Bilerman -- Citi. -- Analyst
Hey, good morning, everyone. Simon just wanted to follow-up on Greg's question but more specifically related to the same-store NOI growth. You had previously talked about obviously the 10 or 20 basis point FX impact, but now you're saying sort of effect greater that 2% could be a risk but you are reiterating the 2%. So I just wanted to kind of reconcile that. Are you saying that ex-FX that could be higher that the sort of core growth rate could be higher? Or the 2% is no longer attainable because it seems like the FX impact for the full year is going to be greater than the 10 bps?
Simon Leopold -- Chief Financial Officer
Well, we're really not saying either one of those things Christy. Let me sort of take in pieces though. We are right where we expect it to be on NOI comp for the year excluding FX. Our guidance for the year was about 2% -- is about 2%. Excluding FX we're actually at 2.2% for the first half. We do see some big positives in the second half including the opening of new tenants in the Green Hills expansion, and a number of tenants rolling in a much higher rents in Xi'an and Zhengzhou in the back half of the year.
Those potential positives could be offset by a number of factors the FX is definitely one of them. And if we don't see-start to see a stronger dollar-I'm sorry, we don't see a weaker dollar you'll end-up potentially having a drag on the 2%. We did incorporate about 10 basis points of drag into our guidance, but we're at 90 basis points for the half year. If we continue at these levels it would be about a 50 basis point drag on the number. So there is a risk there. We have other factors that you got to consider as well including the sales environment which is always important because we get a lot-most of our over's run in the fourth quarter. We're assuming sales environment continues to be generally positive.
We also have at least one large tenant that could create some drag in the second half depending on what happens. We do have reserves in place that are similar to the reserves that we had at this time last year and we believe it will be sufficient to address that drag but we're going to have to see. It's also important to remind everybody, it's still a relatively small portfolio and our comp center pool is even smaller than a portfolio as a whole. It's $7.5 million on the year is 1% of comp center NOI growth. So it doesn't take a lot to change the volatility.
Robert Taubman -- Chairman, President and Chief Executive Officer
But, the bottom line, Christy, is that we think we can make 2% even in the context of currency. If currency continues to be this difficult and even goes worse, then it will be very hard for us to actually make 2%. But even with a big dose of currency hit, more than the 10 basis points we originally planned, we still think we can get to the 2%. But there's a lot of stuff out there. There's a lot of noise about tenants, there's sales issues, there's all kinds of stuff. But we still think we have a very good shot at about 2% that we talked about.
Michael Bilerman -- Citi. -- Analyst
And just related to that, I mean, with regard to Forever 21, specifically, it's a pretty big exposure for you. You talked about the China assets, but given that they've hired advisors, can you maybe give us a sense for what's going on behind the scenes? Are they actively looking for rent adjustments? Are they talking about closing more stores? And should we expect any impact from that in 2019 or 2020 resulting from what they're doing? Is this a variable that we should be thinking about sort of near term?
Robert Taubman -- Chairman, President and Chief Executive Officer
Well, let me say, Christy, that we generally don't comment on specific tenants in our portfolio. We do recognize that Forever 21 is our largest tenant. So maybe I can make a few points. The majority of their stores in our portfolio are performing well. There certainly are lots of published reports speculate that their challenges are related to things they did in Europe and Asia and they are very large format stores. We did mention that the two China stores that we really proactively worked on and we have -- it has allowed us frankly to backfill with much better merchandising and we expect much, much higher rent.
Now of our 17 U.S. locations, including a brand-new store that opened -- a 10,000 square-foot store that opened The Mall at Green Hills in the last couple of weeks, we don't have any former Mervyn boxes as an example. We do have seven stores out of the 17 that are between 30,000 and 50,000 square feet. So, yes, there's a lot of uncertainty. We do believe that our NOI and our FFO guidance ranges incorporate, what I'll say, is a reasonable range of outcomes for this tenant, for all our tenants. But we'll have to see and it is a very fluid situation.
Michael Bilerman -- Citi. -- Analyst
Thanks for the color. Appreciate it.
Robert Taubman -- Chairman, President and Chief Executive Officer
Thanks, Christy.
Operator
Your next question comes from the line of Rich Hill with Morgan Stanley. You are now live.
Rich Hill -- Morgan Stanley -- Analyst
Hey, good morning, guys. Wanted to just follow up on the discussion about rents. One of the things that we're noticing was, it looked like based rent growth from the consolidated assets was down year-over-year for the quarter about 1.17 -- about 1.7%. So I'm wondering, what's driving that? Maybe it's short-term leases. But also, if you could maybe give us any insights into the NOI growth between the U.S. assets and the international assets?
Ryan T. Hurren -- Taubman Centers, Inc.-Director of IR
Hey, Rich, it's Ryan. One of the things -- one of our consolidated centers is San Juan. And as a result of, kind of, the situation we explain in the press release where we did have some tenant credits issued in the quarter, really, we are paid for that through business interruption proceeds, but the offset for the tenant credits ran through the rental revenues line item. So they have the effect of lowering the consolidated rent per square foot. And so, that's really the biggest thing you're seeing in that line item in the year-over-year decline for consolidated, specifically.
Rich Hill -- Morgan Stanley -- Analyst
Got it. And so, we shouldn't be thinking that that negative 1.7% is reflective of the entire U.S. portfolio. It sounds like it's just driven by the large Mall of San Juan. Is that fair, Ryan?
Ryan Hurren -- Vice President of Investor Relations
I think so.
Simon Leopold -- Chief Financial Officer
Yes. I think it's fair. The way to look at it Rich is, it really is an anomaly related to what's happening in the center right now.
Rich Hill -- Morgan Stanley -- Analyst
Got it. And then, guys, maybe a little bit technical of a question, but I think we saw $2.1 million costs related to the Blackstone transaction, including about $1.6 million related to the income tax expense. Is that right? And what's driving that? Because I didn't think the Blackstone transaction had closed yet.
Simon Leopold -- Chief Financial Officer
Yes. So, Rich, it's Simon. The $2.1 million charge in the second quarter, it essentially consists of two separate items, both are related to the Blackstone transaction. We view both of them really as deal costs and we're required to recognize them under GAAP now, even though the transactions have not closed.
The first is, about $0.5 million charge for professional fees. I think that's the relatively simple part. The second charge is more complicated, but the simplified version is that, it's $1.6 million accrual for a deferred tax expense related to the sale of the China assets specifically. We expect that a relatively small amount of withholding tax would need to be paid upon the closing of those deals.
If the deal closed at a single point in time, they would have been part of really a vast number of accounting and tax items for a deal of this nature. Because the deal is closing serially over a number of quarters, we're required to record this item in second quarter ahead of the closings. It's really sort of the timing issue at the end of the day and it really is a deal cost.
Rich Hill -- Morgan Stanley -- Analyst
Okay. Got it. I think that's my two questions. So I'll get back in the queue.
Simon Leopold -- Chief Financial Officer
Thank you, Rich.
Operator
Your next question comes from Craig Schmidt with Bank of America. You are now live.
Craig Schmidt -- Bank of America. -- Analyst
Great. Thank you. I was wondering if you are seeing any impact on the level of international travel shoppers?
Robert Taubman -- Chairman, President and Chief Executive Officer
If you're talking about really the Chinese shopper in the U.S. given all the tariff issues and all the regulations as it were about -- the China are putting in place on travel, we are seeing some of that mainly in Los Angeles, but a little bit in Hawaii even though tourism generally in Hawaii is up. We're not seeing that issue in Florida and I would say that tourism generally in San Juan has not yet returned. So there are all kinds of well-publicized issues on San Juan, but we're hoping that as we get to this holiday season and go into this tourist season for Puerto Rico in the first half of next year then we will begin to see the return of the tourists there.
Craig Schmidt -- Bank of America. -- Analyst
Great. And then, I hear you caution on the state of retail, but do you think store closings will be less in the next year relative to this year or similar?
Robert Taubman -- Chairman, President and Chief Executive Officer
Well, it's a complete guess and my guess would be less. There has been an awful lot of sorting out really in the last three to four years now and this is four years of big headwinds. And I think the narrative is really shifted. Great brick and mortar is where all the new tenants want to be and all the legacy guys that are focusing on their footprints, again they want to be very selectively in the best stuff. Omni-channel retailing has come forward it should be really understood and the need and desire of have brick and mortar is so clear. And all these digital guys that said, they never had a store, all of them are raising capital in order to build stores, but their footprints aren't going to be 1,000 locations. In very rare instances will it be like that. So my guide is that we've seen the worst, but it's been three or four years.
Craig Schmidt -- Bank of America. -- Analyst
Okay, great. Thank you.
Operator
Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill. You are now live.
Alexander Goldfarb -- Sandler O'Neill. -- Analyst
Good morning out there. So two questions. First, with land and buildings. You guys-obviously, you put out an announcement there was a settlement, you paid some -- you telegraphed that there'll be some continued expenses for the balance of the year, but then it seem like you guys had settled like a cease-fire, but then they relaunched what seems to be a campaign for next year. So maybe if you could just highlight sort of: one, are they -- they got to bounce with their new approach?
And then two, just level of expense, because clearly getting involved with an activist, it's great for the lawyers, but obviously it's a cost to the shareholders. So just sort of curious what you're budgeting? And what your thoughts are for the balance of the year? And is this something that we should expect for next year to impact numbers?
Simon Leopold -- Chief Financial Officer
Alex, let's take the expense piece first. So we had a $12 million charge this quarter and that included a $5 million settlement payment for cost reimbursement to land and building. As I know, you know, we knew about that payment when we had our first quarter call. We highlighted it to the investment community and we included it in our proxy. It's our -- it's GAAP requires us to take these expenses in the quarter in which they are incurred, which is why we didn't take it in the last quarter.
So in addition to the $5 million payment, we incurred $7 million of expenses for professional fees and the like. That's on top of a $4 million charge in the first quarter. So you add those two together taking out the $5 million settlement, we've incurred $11 million of expense to date. That compares to an annual average of $13.5 million in 2017 and in 2018, when we were in the midst of a proxy contest. We do expect a little bit of additional cost in the back of the year as some retention awards amortized and we finalized some payments to the advisors.
But on the year, we don't expect the overall expense to be higher than in previous years. In fact, we think it'll be a bit lower. We don't guide on these expenses, because they tend to be fluid, but remember we didn't proactively choose to have these expenses either. I can tell you that the total to date, since this really started in 2016 is $46 million, we think we'll likely end up at $47 million to $48 million.
Robert Taubman -- Chairman, President and Chief Executive Officer
So Alex, let me add. It is a huge amount of money huge. And I can't make any comments about what land and buildings plans will be. So -- but we agree with you. It's a gigantic amount of money.
Alexander Goldfarb -- Sandler O'Neill. -- Analyst
Okay. And then, second question. Simon, you talked about the NAV, you talk about where the stock is. Bobby obviously you know a lot of people in the industry Forbes and others with where the stock is. And Kimco in their call yesterday mentioned that there is money coming back in for portfolios.
What are the thoughts of just going private or seeking to find people you sold to half of Asia, but looking at the company because clearly you could pay something probably inside of NAV and people get a bunch of malls for free and given where the market is the market doesn't seem to be hearing any of the stuff that you guys are talking about as far as the upside.
The market only seems to hear the negative. But from your tone and your guidance for the year it sounds like you guys are very comfortable with the retail landscape potential closings and your ability to deliver on numbers. So, what are your thoughts on maybe doing something privately?
Simon Leopold -- Chief Financial Officer
Maybe I'll jump in first Alex. Look we've had a really good run as a public company over the last 27 years, call it about 11% CAGR. It's clearly an excellent run. The last few years though they clearly have been a challenge for retail landlord. There's no doubt about that.
There are advantages just to be in public. I mean if you think about the Palm Beach Gardens deal, we were able to buy an interest in an excellent asset what we think is a good price really because we have liquid partnership units and that was a key to getting that done.
So, that said, clearly, there is an NAV gap. We talked about it in the prepared remarks. We're very focused on our share price here we're very focused on strengthening the balance sheet improving portfolio of quality and growing NOI in earnings.
And we made a bunch of decisions recently that I think proved that including the Blackstone deal on Asia and the acquisition of Palm Beach which we just talked about. We're also growing our NOI nicely at about 5% a year and about the same thus far this year.
Over time we believe good decisions -- these good decisions will have a positive effect on the share price and help close that NAV gap. The example that I used in the prepared remarks is really meant to highlight the deep discount in our trading price today as compared to the value of our assets.
We think it's important that everybody knows about it. We think it's important to highlight that at this price with a yield of more than 6.5% investors are being compensated away for a broader recognition of that value in the investment community.
I think it's reality but right now it seems to us that the widespread uncertainty about retail in general is winning over the specific reality of how we're doing with our performance and the quality of our portfolio. It's true today, but we don't think it's going to be true forever.
And so that's sort of the context in which we think about going private. We do think there's some real advantage that we've been able to highlight. We're really fighting the good fight to grow the company and make the portfolio better and help fix the balance sheet.
Alexander Goldfarb -- Sandler O'Neill. -- Analyst
Okay. Thank you.
Operator
Your next question comes from the line of Shivani Sood with Deutsche Bank. You're now live.
Shivani Sood -- Deutsche Bank -- Analyst
Hi. Thanks. We recognize that you guys have the highest quality portfolio in the U.S. Just given occupancy and where it is can you give us a sense of if the vacancies may be impacting leasing conversations in terms of what tenants are willing to pay or even in terms of how these negotiations are progressing?
Robert Taubman -- Chairman, President and Chief Executive Officer
Well, the occupancies are actually pretty good and we're in a range of 95% of our expectation for year end and that's pretty good occupancy. And as I said there is really strong demand that is in our portfolio especially at our best assets.
And we're seeing that demand that I talked about from the digitally native guys the co-working industry now wants to be in our shopping centers. The luxury guys are doing very, very well I mean excellent across-the-board for luxury. Food is very strong and food continues -- the best food guys want to continue to expand their footprint.
So, -- we're at this point of the year where 96% finished on our budgeted leasing. It's complete. So, we're very happy with where we are. When you look at bankruptcies, they were low in this quarter. When you think year-to-date roughly 1.8% of our tenants went into bankruptcy.
If you extrapolate that out it would be about 3% for the year now -- 3% as a lot of tenants. In answering the Craig's question earlier I do think that we've seen the worst of it. The 3% is not the worst we've ever seen. We've been keeping the statistic for 30 years and it's been anywhere from 50 basis points up to 4.5%.
So, we said in the comments we expect about 30-store closures out of the bankruptcies which is about 100 basis points of occupancy, but we think we're going to backfill about 60% of that. So, I feel like we're -- there's good demand and we're seeing it.
And we are seeing average rent growth in the portfolio which really is the key thing that we look at. It's really cash flow is going to grow. And if your average rent growth typically you're going to see good cash flow growth over time. So, Shivani, I think we feel better than what you suggested.
Shivani Sood -- Deutsche Bank -- Analyst
Okay.
Robert Taubman -- Chairman, President and Chief Executive Officer
Shivani another question?
Shivani Sood -- Deutsche Bank -- Analyst
Sorry. Yes. And then just with switching talks a bit in terms of the Brookfield GGP Center expected to open at the end of this year can you just comment on how that might impact your long-term thinking with regards to the hold of that center? Or just how you envision that going forward?
Robert Taubman -- Chairman, President and Chief Executive Officer
Well, as we expected we are facing challenges as SoNo does near its opening. We clearly expect that and performance is lagging the rest of the portfolio. If we took -- the center is less than 1% of the NOI. Our share of the income is less than 1%. But if we exclude it from comp center NOI growth our overall NOI growth would have been 60 basis points better just taking that one center out. So it is a situation that we're very focused on.
Shivani Sood -- Deutsche Bank -- Analyst
Thanks.
Operator
Your next question comes from the line of Caitlin Burrows with Goldman Sachs. You are now live.
Caitlin Burrows -- Goldman Sachs. -- Analyst
Hi. Good morning. Simon, earlier in your prepared remarks you mentioned the dividend and the dividend yield. So I was just wondering on this topic how does management think about the dividend payout ratio in 2019? And what it should be going forward? And does that leave room for continued dividend increases?
Simon Leopold -- Chief Financial Officer
Well, you never want to get in front of your Board when you talk about dividends, but I would say in general we're comfortable with the current level given our liquidity and given what we think are our upcoming capital needs. We're at our midpoint right now for the year I think we're at about 73%. You'll remember that we were lower than that before we sold seven centers to Starwood few years back and we always expect it will kind of grow into the payout ratio.
So the ratio is a little bit higher this year because we did raise our dividend earlier and with slightly lower FFO a big piece of that was the new lease accounting standard so really just accounting at the end of the day. We remind everybody again we've increased our dividend 22 times. We've never cut it. And like I said you don't want to get in front of your Board. So we are comfortable at the level where we're at today.
Caitlin Burrows -- Goldman Sachs. -- Analyst
I guess still when you think about it in 2019 on a post -- do you think about it on a post- capex basis? And if so I guess how much do you think that increases from the 73% point?
Simon Leopold -- Chief Financial Officer
Yes. I mean you're really getting the free cash flow in that point. We've said a couple of times that we expect free cash flow to be pretty sparse in 2019 and potentially in 2020. As we finish the Anseong development we finish Green Hills this year and our tenant allowances are definitely up from what they've been in the past. But we do feel like we have ample liquidity to pay the dividend that we're paying today and to deal with capital going forward. We do expect that free cash flow will start to increase in 2020 and beyond and that that payout ratio will come down as our AFFO grows really as a result at the end of the day of our ability to grow ransom and we spend a lot of capital which is starting to pay no pen intended dividends as well in terms of pay and grow our cash flows.
Robert Taubman -- Chairman, President and Chief Executive Officer
And remember the Blackstone transaction is meant to reduce debt and we've talked a long time that we would like to be under 8 times and be in the 7s. And our stated policy is somewhere between six and 8 times debt to EBITDA. So we're very focused on that. At the same time the Board felt very confident to increase the dividend as it just did in the last quarter.
Caitlin Burrows -- Goldman Sachs. -- Analyst
Okay. And then maybe just on the occupancy side you gave some good detail in Asia how you had some I think pretty backfills coming in the second half of that Forever 21 space and similar for I think the U.S. space. You were talking about some backfills coming later this year. So I was just wondering if you could give some examples of who's refilling that U.S. in line space. And how you expect their rents to compare to those previous users?
Robert Taubman -- Chairman, President and Chief Executive Officer
Well, I mean, it's really across-the-board. I mean it's a lot of -- I don't have ready examples, but I mentioned Fabletics I mentioned some of the digital guys. I mean they're going in these spaces. These are the guys that want to take space right now. And so we mentioned a whole slew of tenants that are doing well right now. H&M is one example who is doing fantastic right now. So we're -- I mean we can give you some more specifics offline, but we're very comfortable that we're going to backfill a bunch of the space that we've gotten back through the bankruptcies this year.
Operator
Your next question comes from the line of Michael Mueller with JPMorgan. You are now live.
Michael Mueller -- J.P. Morgan -- Analyst
Yeah, hi. So you have Anseong under way you finished Green Hills. Curious how many new development starts or sizable expansions do you think you could announce over the next call it five years or so?
Simon Leopold -- Chief Financial Officer
Mike, it's Simon here. It's very difficult to say what we can and can't start. I will say it's important to emphasize we are focused on the balance sheet. And we're clearly looking for ways to strengthen and opportunistically the Blackstone transaction clearly does a lot. It helps by about half a turn on debt to EBITDA gets us down in the low, low eights and we want to get that down below eight, much closer to seven if we can.
After Anseong and Green Hills is done, we are bringing Nordstrom's into Country Club Plaza. That's not a huge check, but we are doing that. We are still looking for developments that meet our very high hurdle rates in Asia as to how many we can identify and how many we can execute it's really hard to say right now.
In terms of other places we'll allocate capital. We really are looking at our centers. We're looking at places where we might get a department store or two back where we can figure out ways to put accretive tenants in place.
I think it's important to note on department store boxes that there are a lot of different ways to address those, some of which is -- in some cases we will use our capital to do that. In some cases it will be capital that will end up being put in place by partners who are experts in some of the adaptive reuse side things like hotels, office, gyms or whatever ends up going in there.
So there's a lot of options that we have for those going forward, but in terms of very specific new development starts, Asia really would be the focus and it's very hard right now to say what if any we identify that can be a hurdle.
Michael Mueller -- J.P. Morgan -- Analyst
Got it. And then in your intro comments on the buy two assets get 22 for free. Were you using the -- in that analysis the actual debt on the assets as well as so it's more of an NAV of those two assets versus the overall enterprise value?
Robert Taubman -- Chairman, President and Chief Executive Officer
Yes. There would -- in one case, there is mortgage. In other case we're allocating a portion of the unsecured debt on a pro rata basis to it. So yes there would be -- that would be the NAV after the debt that's appropriate for those two assets.
Michael Mueller -- J.P. Morgan -- Analyst
Got it. And then any shot you could provide the combined 2018 NOI for those two assets since they are unidentified?
Robert Taubman -- Chairman, President and Chief Executive Officer
No shot at providing that, but what I will say is that it's meaningfully less than half of our portfolio NOI in our share, meaningfully less.
Michael Mueller -- J.P. Morgan -- Analyst
Got it. Okay, thank you.
Robert Taubman -- Chairman, President and Chief Executive Officer
We get a lot more NOI left over if you cut those two out.
Michael Mueller -- J.P. Morgan -- Analyst
Got it. Okay, thanks.
Operator
[Operator Instructions] We do have a follow-up question from Christine McElroy with Citi. You're now live.
Michael Bilerman -- Citi. -- Analyst
Great thank you. It's Michael Bilerman here with Christy. Simon, I was wondering if you can just spend a little more time just sort of unpacking this NAV differential relative to November 2017. And I think you said it went from 10 assets to two assets. Now the shift is only $600 million worth effectively equity in that math, which I guess surprises me just from the standpoint of either of those top two assets have improved dramatically or much lower cap rates over those 18 months or something else happened with the other eight because effectively 10 assets would have been at $47, 87 million shares, $4.1 billion of equity of NAV and at $40 it's $3.5 billion. So can you just help reconcile those two things?
Simon Leopold -- Chief Financial Officer
Well, there are slightly different concepts. When we talked about it going back to November, we basically said you would put a cap rate on 10 assets take out all of the liabilities. So all the debt, all the preferred and then all you would have is pure NOI from the remaining assets as the value you're getting for free.
Today's example was saying take out the NOI of two assets, take out the debt related to those two assets and you cap them the NAV that remains is equivalent to today's share price. So you would then have the interest in 22 assets left with the liabilities that remain with those as well. And depending on what cap rate you put on those assets they then have a remaining NAV that is very substantial to extremely substantial.
Michael Bilerman -- Citi. -- Analyst
Right. And I guess consensus NAV is $80 or NAV is lower than that but if we just look at consensus for a moment right $80 stock is at $40, so half of effectively what you're implying is two assets here are worth at a minimum half the company and if people think NAV is lower than the consensus NAV those two assets are worth greater than 50% of the company.
Simon Leopold -- Chief Financial Officer
I think what you just said is right. I agree with you. I will say that we've got at least a recent indication of what others think of as NAV when we did the -- when we acquired Palm Beach Gardens when the seller there accepted $83 as the NAV. I think today's consensus, however, you look at it is about $81 -- or $80 or $81 something like that.
But, yeah, I think everybody got to determine what they think the right cap rates are for these assets in order to get there. But yes we are saying at least those two assets, the NAV on those are worth approximately the trading price today.
Michael Bilerman -- Citi. -- Analyst
And I appreciate the color that you gave to Alex in terms of going private and I respect the idea of being public and the benefits that provides you as you talked about the Palm Beach Gardens.
So other than just telling potential investors or current investors, hey we're cheap and let me give you all the metrics and how you went through them. I guess, what else are you as a management team and this new board thinking about from trying to narrow that gap? I know you did the Asia transaction, which was positive. You brought in Palm Beach Gardens, but what else are you going to try to do?
And is the discussion of saying, OK, 2, 22 for free, an indication that you're at least thinking about maybe some sort of split of the company, sale of interest in certain assets to further delever and maybe buy back your stock at that point? I'm just -- I want to know, I guess, where is this current Board? And you've done a remarkable job at replenishing the Board of Directors. I recognize it was, in part, driven by some activism, but you've put a lot new people on. What are you -- what should investors expect as the go forward?
Simon Leopold -- Chief Financial Officer
Michael, I'll take it first and then Bobby may want to jump in as well. We have been engaged with previous Board, but obviously with the newer version of the Board as well, very engaged with them. I'm thinking of ways that we can create value in the portfolio, ways that we can delever and ways that we can continue to grow cash flow. That's what we're focused on.
We think we made a lot of good choices, as we already highlighted, that should over time close that NAV gap and we're still looking. It's a conversation that we have on a regular basis with the Board about places where we continue to think that we can do things, make the right decisions to try to get our share price closer to the intrinsic value of what we own.
And we're going to be opportunistic about it and programmatic about it as well. We're going to look at places where, if we have the opportunity to sell an asset, that makes sense for us to sell, we will. If we think that there's a way that we can raise capital in a way that doesn't hurt us strategically and make sense for us, we will.
Specifics around that, we won't -- I don't want to get in front of any decision that the Board ultimately will be making. So we can't -- I don't think we can really talk specifically about it, but it is a huge focal point for us and we're going to keep doing what we're doing, trying to grow those cash flows, make the balance sheet better and make the portfolio better like we did with Palm Beach Gardens.
Robert Taubman -- Chairman, President and Chief Executive Officer
So let me add, Michael, that the analysis was meant to inform investors. How we view the value of the company. There is an $80 range NAV consensus on us today. Obviously, people can look at that. We're in essence reaffirming what is being said about that NAV consensus that, with very reasonable assumptions, very much in today's market, we believe that there is a lot of value in this company.
It is about making good decisions. Blackstone was a good decision. Palm Beach Garden was a good decision. It may be a good decision to find a joint venture partner some place else. We certainly think that we will make that kind of a decision in Anseong once the center is built, by bringing Blackstone in, it gave us the flexibility to allow to own the 49% of Anseong through the development period in a project that we believe very strongly in. And at that point recognize value with retail, not in wholesale. So we're going to keep trying to make those decisions. We're very engaged with our Board. We're thrilled with the Board that we have with us today. And so, again, it's an analysis, it's meant to inform and show how we are thinking about the NAV and its importance.
Michael Bilerman -- Citi. -- Analyst
Right. And I think if you were to go back, some of these what-if scenarios, if you hadn't sold those assets to Starwood, right, the pricing you ended up getting relative to where those assets probably would have been priced today, would have been a lot different, right? So in hindsight, even though at the time the market hadn't appreciated the true two cap rate of those assets, are you being higher for where your stock was trading, you end up being a very positive transaction, especially, looking back on it today.
So I asked that, the question, in relation to -- as you think about the 22 asset portfolio, is there ways, is there a financial engineering of splitting the company in two that makes sense? Or is that just a very low probability? Or it sounds like, maybe, doing the joint venture or selling assets is more the route that you would go, versus trying to hive off different parts of the 22 asset portfolio today?
Robert Taubman -- Chairman, President and Chief Executive Officer
First of all, I'd like to say that we were criticized at the time that we made the Starwood transaction, that we didn't do well enough with it. And so, I appreciate you bringing up that the market's view at that time was skeptical of what we were doing. We do look at everything, right and the idea of sort of splitting the company, it would be very complicated. But having said that, we look at everything, and as I said, with the analysis was meant to inform and we are focused on trying to find ways to bridge this gap.
Michael Bilerman -- Citi. -- Analyst
Right and I appreciate all those comments. Just last question. When you did the agreement with land and buildings to pay off the cost, was there not a non-disparagement agreement that was part of that to sort of have a little bit of trues for a period of time?
Simon Leopold -- Chief Financial Officer
We really have said what we're comfortable saying in the proxy and publicly at this point, Michael. So I don't think we're really going to comment further than that.
Michael Bilerman -- Citi. -- Analyst
So you did not have that as part of your agreement? It's typically you would -- typically in those settlements as usually at least six months, nine months, one year sort of don't go just -- bare just in the public market sort of let us do -- we just put this together in this Board. We're doing all these things give it a break type of thing.
Simon Leopold -- Chief Financial Officer
I think, we said what we're going to say, Michael.
Michael Bilerman -- Citi. -- Analyst
Is that part of the extra legal costs in the quarter, this $12 million versus the $5 million?
Simon Leopold -- Chief Financial Officer
It was a $5 million payment to land and buildings as part of reimbursing them for their costs. That was part of the $12 million total for the quarter.
Michael Bilerman -- Citi. -- Analyst
And the $7 million relates to what then?
Simon Leopold -- Chief Financial Officer
Professional fees advisors, a lot of different things, but typical in an active situation particularly with the proxy contest with the threat of one.
Robert Taubman -- Chairman, President and Chief Executive Officer
And Michael as we said earlier, it's pretty consistent with the last three years in terms of what the spend is, taking the $5 million out. And frankly this year, will probably be slightly less than it was last year or the year before.
Michael Bilerman -- Citi. -- Analyst
That's $0.50, $0.60 of NAV unfortunately?
Robert Taubman -- Chairman, President and Chief Executive Officer
It's a huge amount of money and it is not with impunity that these battles occur that sometimes get encouraged by others.
Michael Bilerman -- Citi. -- Analyst
Well, I appreciate all of the thoughts and time. Have a great rest of the summer.
Robert Taubman -- Chairman, President and Chief Executive Officer
Thank you, Michael.
Simon Leopold -- Chief Financial Officer
Thank you.
Robert Taubman -- Chairman, President and Chief Executive Officer
Jerome, are there other questions?
Operator
At this time, I'm not showing any further questions. You may continue for any closing remarks.
Robert Taubman -- Chairman, President and Chief Executive Officer
Thank you very much all. We look forward to seeing you and go look at Beverly Center when you get out to LA in the fall. Thank you everyone. Bye-bye.
Operator
[Operator Closing Remarks]
Duration: 62 minutes
Call participants:
Ryan Hurren -- Vice President of Investor Relations
Robert Taubman -- Chairman, President and Chief Executive Officer
Simon Leopold -- Chief Financial Officer
Ryan T. Hurren -- Taubman Centers, Inc.-Director of IR
Greg McGinnis -- Scotiabank -- Analyst
Michael Bilerman -- Citi. -- Analyst
Rich Hill -- Morgan Stanley -- Analyst
Craig Schmidt -- Bank of America. -- Analyst
Alexander Goldfarb -- Sandler O'Neill. -- Analyst
Shivani Sood -- Deutsche Bank -- Analyst
Caitlin Burrows -- Goldman Sachs. -- Analyst
Michael Mueller -- J.P. Morgan -- Analyst
