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Retail Properties of America Inc (NYSE:RPAI)
Q3 2019 Earnings Call
Oct 30, 2019, 12:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the Retail Properties of America Third Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded.

I will now turn the conference over to your host Michael Gaiden, Vice President, Investor Relations, you may begin.

Michael Gaiden -- Vice President-Investor Relations

Thank you operator and welcome to the Retail Properties of America third quarter 2019 earnings conference call. In addition to the press release distributed last evening we have posted a quarterly supplemental package with additional details on our results, in the INVEST section on our website at www.rpai.com.

On today's call, management's prepared remarks and answers to your questions may include statements that constitute forward-looking statements under federal securities laws. These statements are usually identified by the use of words such as anticipates, believes, expects, and variations of such words or similar expressions.

Actual results may differ materially from those described in any forward-looking statements including in our guidance for 2019 and will be affected by a variety of risks and factors that are beyond our control, including without limitation those set forth in our earnings release issued last night, and the risk factors set forth in our most recent Form 10-K, 10-Q and other SEC filings.

As a reminder forward-looking statements represent management's estimates as of today October 30, 2019 and we assume no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise. Additionally, on this conference call we may refer to certain non-GAAP financial measures, you can find a reconciliation of these non-GAAP financial measures for the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures in our quarterly supplemental package and our earnings release which are available in the Investors section of our website at www.rpai.com.

On today's call, our speakers will be Steve Grimes, Chief Executive Officer; Julie Swinehart, Executive Vice President, Chief Financial Officer and Treasurer; and Shane Garrison, President and Chief Operating Officer. After their prepared remarks, we will open up the call to your questions.

With that, I will now turn the call over to Steve Grimes.

Steven P. Grimes -- Chief Executive Officer, Director

Thank you, Mike, and good day everyone. I'm proud to report that our team continues to extend our streak of above-plan performance as seen in the first half of the year. Our key path to growth for our shareholders have never proven stronger as we will outline for you on this call. I could not be more pleased with the position of RPAI and our prospects for meaningful growth through our core portfolio performance and within our site to be supplemented by our expansion efforts at our big three redevelopment projects. In Q3 we achieved several all time records, as a publicly traded company including record highs in leasing volumes as a percentage of GLA, record retail portfolio percentage leased at 95.5%, as well as record low and top 20 tenant concentration as our continued diversification efforts shine through.

In summary, our Q3 performance again demonstrated the tangible value, our combined high quality platform and real estate can achieve. Our accelerated leasing volumes which have driven a record portfolio lease rate of 95.5% for us, also bode well for our outlook. So too does our trajectory in lease spreads, which jumps to a blended 10.8% in Q3 up from 8.2% in Q2. We also continue to advance and derisk our expansion and redevelopment projects at Circle East, One Loudoun Downtown and Carillon as Shane will detail, and we continue to expect rent commencements to begin in late 2020, at Circle East complementing the base rent driven growth in our core portfolio.

Our increased operating FFO guidance of $1.5 to $1.7 per diluted share highlights that our team is firing on all cylinders, and we remain focused on executing in the fourth quarter to deliver on our raise 2019 same-store NOI growth assumption of 2.25% to 2.75% up from 1.75% to 2.75% earlier. They sounds consumer economic backdrop centered on the health and jobs and housing markets continues to aid retail results overall. Our better-than-expected third quarter financial results and lower than expected CapEx helped us to maintain net debt to adjusted EBITDAre at 5.5 times in the third quarter.

With our balance sheet and fortress like condition and our abundant liquidity of more than $840 million at September 30. We hold no foreseeable need for external capital as Julie will outline. Combined with our ongoing operational momentum and expansion opportunities we remain in the driver's seat on the road to continued growth. Earlier this week, we issued a press release that announced the launch of our all-new ESG Microsite, the new site features the summary of successfully implemented programs related to energy, sustainability, human capital, diversity, corporate governance and other topics that support our focus to commitment to ESG. I encourage all of you to visit our new Microsite at rpaiesg.com.

Our year-to-date results are firmly validated our thesis on the potential for RPAI 2.0, and we hold much enthusiasm for capitalizing on our positive momentum over the remainder of this year and beyond. Our parallel paths to growth moving to emerge in the coming years, we'll be here before we know it. It is truly exciting to see the vision of RPAI 2.0 come together before our eyes as our team delivered day-in and day-out with an unwavering commitment. The team's enthusiasm in infectious at being in our results, we are sharing with you today.

With that I will turn the call over to Julie to detail our third quarter financial results.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Thank you, Steve. Today I will discuss our third quarter results, our capital positioning and our outlook for the remainder of 2019. From an earnings perspective, in the third quarter, we generated operating FFO of $0.27 per diluted share up $0.01 sequentially as a result of NOI growth and up $0.01 as compared to Q3, 2018 primarily due to a reduced share count year-to-date we delivered operating FFO of $0.80 per diluted share, $0.03, or 3.9% above the comparable three quarters in 2018.

A reduced share count benefited this per share metric by $0.02 with earnings growth contributing $0.01 driven by same-store NOI expansion and increased net termination fee income. Same-store NOI for the third quarter rose 2.3% over Q3 2018 as we previously communicated on our last earnings call, we expected a deceleration in the third quarter from the 2.9% same-store growth pace of the first half of 2019 due to a more difficult Q3, 2018 comparable period. While this deceleration occurred, it was lesser in magnitude than we anticipated in part due to small beats across most categories as compared to our internal expectations. Similar to our first half results this rent expansion continues to power our same-store growth, adding to the broader visibility on our business and contributing more than 280 basis points of same-store growth in Q3.

Contractual rent increases and occupancy gains however the vast majority of this base rent growth with releasing spreads also significantly contributing, increased other lease related income also helped our Q3 same store NOI expansion, while expenses net of recoveries and percentage in specialty rent served as the primary offsets as expected. Our year-to-date same-store NOI growth of 2.7%, also has been generated primarily by base rent growth which added approximately 250 basis points with higher other lease related income and lower bad debt also contributing. Regarding bad debt, on last quarter's call I noted that only 20% of our full-year bad debt assumption of 50 basis points of same-store revenue had been used in the first half of 2019.

In the third quarter, we used another 40% of this full-year bad debt and tenant fallout allocation, a portion of which is visible in the same-store bad debt amount of $690,000 recorded in Q3, that leaves 40% of our full year bad debt assumption available for the fourth quarter if needed. The digestibility of tenant fallout year-to-date reflects both incremental health among merchants broadly as well as our ongoing leasing efforts toward tenant credit quality and diversification in our rent roll.

Turning to our capital structure, the balance sheet remains in great shape with net debt to adjusted EBITDA, ROE at 5.5 times which sits unchanged quarter-over-quarter and positions us in the lower half of our peer group. Liquidity also remains robust with only $24 million drawn on our $850 million revolver and over $17 million of cash on hand. Due to planned spending on our expansion and redevelopment projects we do expect leverage to tick slightly higher by year-end.

We remain committed to balance sheet health and our stated objective of leverage at or below six time as disclosed during second quarter earnings, we raised $270 million in the aggregate on July 17 from a $120 million five year term loan and a $150 million seven year term loan. We swapped these variable rate LIBOR-based loans to fix, locking in all-in costs of 2.88% for the five year term loan and 3.27% for the seven year term loan, based on our current pricing at the lowest points on the leverage grids tied with these borrowings, these swaps took effect on August 15. With this $270 million placement, our debt capital raises for the year tallied $370 million, placing us well above our initial $200 million, $300 million goal.

As a result, we used a portion of these higher than expected proceeds at lower than expected interest rates to prepay for mortgages in the third quarter with an aggregate principal balance of approximately $108 million and a weighted average interest rate of 4.91%. These prepayments lowered both our secured indebtedness level and our overall weighted average interest rate and following these prepayments we now hold just five mortgages, are only secured debt with an aggregate principal balance of approximately $96 million representing less than 6% of our total debt compared to June 30, our weighted average interest rate improved by 16 basis points to an attractive 3.88% and our weighted average years to maturity increased by approximately one-third of the year to five years.

Turning to our raised 2019 operating FFO guidance, as detailed in last night's press release, we now expect full-year operating FFO per diluted share of $1.05 to $1.07 up another half penny at the midpoint from our prior $1.04 [Phonetic] to $1.07 range. This guidance rates primarily results from our updated 2019 same-store NOI growth assumption of 2.25% to 2.75% which represents the upper half of our prior 1.75% to 2.75% range. We remain encouraged by our year-to-date execution through the third quarter as well as our efforts to turn on rents thus far in the fourth quarter and while confident in our outlook for the balance of the year and noting that 40% of our full-year bad debt allocation remains available for Q4, 2019 if warranted. We acknowledge that there is still work to be done through year-end. We remain keenly focused as an organization on delivering on our healthy operational agenda over the balance of the year.

And now I will turn the call over to Shane.

Shane C. Garrison -- President and Chief Operating Officer

Thank you, Julie in the quarter, we signed 1.1 million square feet in new and renewal leases achieving a new record and leasing volumes as a percent of our total GLA at more than 5%, besting our prior record set in Q4, 2018. This metric combined with our 46% spread-on-comparable new leases which hold the weighted average term of approximately 10.5 years, underscores the pricing power depth and relevancy of our portfolio in today's retail environment.

Additionally, blended spreads on both new and renewal comparable leases accelerated for the second quarter in a row rising to nearly 11% up from 8% in the second quarter and the broader existing baseline of 5% to 6% in the preceding quarters. In addition to the accretion of these double-digit spreads our aggregate new lease signings in the quarter also contain annual contractual rent increases of approximately 200 basis points on average pushing this key statistics for our total portfolio northward and providing incremental visibility on further expanding our overall contractual rent growth profile.

Our leasing efforts have pushed our retail portfolio percentage leased to a new record high for our companies as a publicly traded REIT at 95.5%, up 80 basis points sequentially and 150 basis points year-over-year. Our 98.2% anchor lease rate, a multi-year high drive this overall portfolio statistics. For further perspective of the 445 anchor spaces across our 20 million square foot portfolio we held , just 11 anchor boxes open for leased-up at the end of Q3. This not only provides for compelling growth in 2020 but also provides us continued opportunity to focus on longer term growth through selective merchandising and termination fee income.

At the same time we continued our first half momentum and starting rents on time during the third quarter. This operating performance helped power our above plan base rent growth in the third quarter and narrow our leased occupied spread sequentially by 50 basis points to 180 basis points or $7.7 million as of September 30th. The $21.44 ABR per square foot of this pool is accretive to our current portfolio ABR of $19.38 and should provide further growth as we deliver these spaces in the coming months. We continue to push for rent roll diversity and stability and I'm pleased to announce that Ulta Beauty entered our top 20 tenant list at number 19 this quarter.

This top 20 add typifies the slate of high quality relevant retailers moving up our tenant roster, they continue to diversify and solidify our rent roll. In the aggregate, we have further reduced our top 20 tenant concentration by 200 basis points year-over-year and 20 basis points sequentially to 26.7% a new record low for us as a publicly traded company. Our proactive stance to watch list tenants and merchandising continues to pay dividends. For example, we opened our 6th Trader Joe's, The Shoppes of Union Hill in Denville, New Jersey last week, backfilling a Pier one location at a very compelling spread. We also recently signed our fourth lululemon location at Main Street Promenade in Downtown Naperville, replacing a J.Crew there at a positive double-digit spread. These upgrades exemplify our team's ongoing effort drive simultaneous improvements in mix, ABR and credit quality.

Turning to our expansion and redevelopment activity, AvalonBay continues to progress toward the first quarter 2020 initial move-ins at the multifamily portion of Circle East. Dovetailing with our expectations for delivery of the retail shell and Q1 next year and the expectation of early rent commencements from our retail portion of this mixed-use project in late 2020. Most importantly, our recent signing of Shake Shack for a prominent corner location on Joppa Road provides excellent leasing momentum and further validation of the project. We also continue conversations with merchants and other categories like home furnishings digitally native and soft goods and we'll look to announce these deals in the near term.

In Loudon, we continue to advance construction of Pads G&H which will feature 378 multifamily residential units over street retail, this expansion project will enhance our existing mixed use footprint at One Loudoun Downtown which is currently 96% leased and retail and 100% leased in office. This multifamily development scheduled to open in late spring 2021, also will offer the opportunity to extend the existing successful entertainment focus component of our current offerings at One Loudoun.

Turning to our last active project Carillon, we completed the demolition of approximately 290,000 square feet of already vacant GLA beside, during the third quarter. This demolition in Carillon drove the bulk of the sequential uptick in depreciation and amortization in the third quarter on our income statement and we expect this line item to normalize at lower levels in the fourth quarter.

This mixed-use project for which the retail portion is 37% pre-leased, this adjacent to the University of Maryland Capital Region Medical Center now under construction which is scheduled for opening in spring 2021. Together with our medical office, joint venture partner Trammell Crow we already have several active discussions with potential tenants interested in 100,000 square foot medical office building, which will compose 44% of the total mixed use GLA of Carillon Phase 1.

And we still expect to start vertical construction on the project in early spring of 2020. We also provided updated information and timing in our supplemental for expansion projects that Main Street Promenade and Downtown Crown. With this update we have further clarified our flexible posture toward our pipeline outside of our commence projects at Circle East, One Loudoun Downtown and Carillon.

In summary, we will continue to evaluate the optimal start time for expansion projects that Main Street Promenade, Downtown count and several other locations based on size and to stabilization overall risk and cyclical and balance sheet considerations. Currently, we have no set date to commence any projects outside of the current three in process. Going forward, we will look to green light these projects when conditions best dictate. In the interim we enjoy the increased optionality and our development and capital planning right by this highly flexible approach and we continue to explore smaller, more immediately accretive pad expansion opportunities to enhance our portfolio and earnings growth. Thanks to our well-positioned assets, we hold numerous opportunities to continue to entitle expansionary development and we will look to announce these opportunities in the coming quarters.

Turning to transactions we remain similarly opportunistic on the acquisition and divestiture front, closing on the sale of land and rights to develop the remaining 12 2-over-2s [Phonetic] at One Loudoun Downtown or roughly $3 million in the third quarter and acquiring a single user parcel occupied by Shake Shack at South Lake for $3 million as well. Bringing our total dispositions for the year to approximately $50 million and total acquisitions to just under $30 million.

In summary, Q3 was one of the best quarters we have ever delivered as a publicly traded company and both our leasing and development teams continue to build the opportunity set for self-sourced growth embedded within our current operating portfolio and project pipeline. When combined with our execution strength we are well positioned to build on the impressive results delivered year-to-date setting the stage for a very productive 2020.

I will now turn the call back over to Steve.

Steven P. Grimes -- Chief Executive Officer, Director

Thank you, Shane and Julie. As you can hear our continued crisp execution brings us many reasons for confidence in our outlook over the balance of the year. Our straightforward investment proposition anchored on our curated portfolio of 104 growth oriented operating assets roughly $350 million in remaining spend over the next two to three years for a three active projects combined with our strong balance sheet, abundant liquidity and our opportunistic approach to acquisitions and dispositions provides us many reasons to look forward to what lies ahead in 2020 and beyond.

With that I will now open the call for questions.

Questions and Answers:

Operator

[Operator Instructions] The first question is from Christy McElroy of Citi. Please go ahead.

Christy McElroy -- Citigroup -- Analyst

Hey, thanks guys. Just wanted to follow up on Shane your comments and get a little bit more of the rationale in the background behind the decision to hold off on the Main Street Promenade and Downtown Crown projects, and adjusting the optimal start time. What is that, how much of that was your decision in terms of -- how much of that was your willingness to put capital to work sort of in the context of your macro view on the retail environment and economic backdrop versus it being a matter of sort of what your cost of capital looks like today? If that makes sense.

Shane C. Garrison -- President and Chief Operating Officer

It does. Hi, Christy. Good morning. So I think the optionality is key for our platform right, we've always said we want optionality as to starts and we want to entitle everything we can and maintain an ability to kind of plug-and-play based on how we look at the macro and how we look at the specific drivers at the MSA level. So we pulled these two back specifically based on the macro -- it's just a bit opaque there seems to be some clouds building on the horizon. Just at the macro economic level, non-retail specific.

So that's purely what this is -- we look at $350 million or so of spending over the next three years on these projects. Love the projects, everything is on time as we discussed in our prepared remarks, but I think it's prudent given lack of visibility here certainly an election year -- election year, next year as well, to pull back and kind of pick our shots from here, looking at balance sheet integrity as well as demand drivers.

Christy McElroy -- Citigroup -- Analyst

Okay and then just with those clouds building on the horizon, you said it was non-retail specific and appreciate the comments you guys made about or do you think exposure to your top 20 tenants list, but sort of as you look ahead to 2020 between, Dressbarn and others where you may have been working out rent reductions and space recapture, outside of the bankruptcy process. Could you maybe give us a sense for what the fallout headwind from a tenant perspective could look like next year?

Shane C. Garrison -- President and Chief Operating Officer

I think that remains to be seen. The watch list hasn't really changed but look, we're at a couple of things for 2020 without guiding, but I think as a frame of reference is important. So we have done over the -- since '15, call it 75 anchor backfills at 15% plus releasing spreads with 51 different tenants and most importantly, those 51 different tenants there is not one of those tenants that are on the watch list today. And my point is that going forward we feel, because of that work since '15 we have certainly greater cash flow durability and diversity and hopefully growth through those efforts.

And secondly, I would point out that the current demand dynamic has outrun our expectations and I think most in the space, we're at 95.5% leased today. I talked about, our anchors we're North of 98%, 445 locations only 11 available, and we actually have half of those in LOI or leased today. I could honestly see a path to 99% leased in the anchors right now. And we also have $8 million of annualized rent to turn on the next couple of quarters into '20. And then I would say lastly, as it relates to our role in '20. We have -- we're running at 6% of GLA rolling in '20, which is half of our average run rate, so we're opening the year at a much lower role run rate and just to put a bit of a finer point on it, in our top 20 tenants, we have 6.5 million feet there. We've only had we only have 65,000 feet rolling in that population.

So I think that, those points and also the ability of pre-lease because of the demand drivers we know we have five boxes they come back next year. That's what we have a handle on. And four of those are watch list tenants that we were proactive with and those are pre-leased. And the fifth box we intend -- we think we have leased this quarter and my point is, one, to put an exclamation point on what we see on the demand side, but also what is a relatively new dynamic is the ability to pre-leased two quarters, three quarters in advance of boxes. We know we get back which is cutting down for a -- call it traditional 12 months to 18 months downtime to six months to nine months. So, even if we take some of those boxes back or when we take some of those boxes back next year we still -- in such we have rent coming back online and comp through it. So overall more rent roll diversity, higher quality portfolio and platform and I think certainly significant volume and leasing efforts set us up for a great 2020, and it remains to be seen what the watch list effect will be.

Christy McElroy -- Citigroup -- Analyst

Okay that's helpful. Thank you.

Operator

The next question is from Vince Tibone of Green Street Advisors. Please go ahead.

Vince Tibone -- Green Street Advisors -- Analyst

Hey, good morning. Could you provide an update on just the total expected development spend for 2020 and any funding plans currently in place for that amount?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Sure, Vince. So for 2020, we are looking at probably I'd say $150 million. So certainly a ramp, the ramp that we've been communicating over the last year or so and that's associated with -- as we're calling them, the Big three projects. In terms of funding, we've done a lot of work this year to free up room on our revolver so we have this $850 million revolver, it was only $24 million drawn at quarter end. So I would expect to tap into that temporarily next year to fund some of this, but just as a reminder, our revolver is our only variable rate instrument.

So it's our way to continue to take advantage of the very attractive interest rate environment. Right now, it's incurring interest at 2.85% and that's been coming down in recent quarters and if it would continue to go down that's even better story for us. So very affordable in that regard and that would be again a temporary use for next year.

Vince Tibone -- Green Street Advisors -- Analyst

Well, could asset sales potentially be on the table for funding or the line of credit to the most or another maybe debt placement, and if interest rates are low, the most likely option.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

I think another debt placement would -- I don't want to sit on idle cash, which is not going to earn a whole lot sitting in the bank or an interest bearing funds and we don't have any debt coming due in 2020 and even if I look ahead to 2021 there is $350 million coming due and just, even I think to prepay that early one instruments at 3.2% and others just over 4%. So that's not feeling like -- it makes sense from my standpoint.

Vince Tibone -- Green Street Advisors -- Analyst

Do those have prepayment penalties, those maturities in '21?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Yeah, there'd be an element, once the term loan and its fixed with interest rate swaps through maturity, so we'd have to consider hedge accounting implications as well, but again the rates are not so high, that I would look into prepaying them early especially with any penalties.

Vince Tibone -- Green Street Advisors -- Analyst

Okay. Got it. And then just drilling down a little further, like why are asset sales not part of the plan. It seems like, the bids there or the markets pretty liquid still for all parties of strip centers. So why not sell some of the lower quality assets, there may be some single or some stable outparcels even -- you can get lower cap rates on like one -- supplement the debt with asset sales.

Steven P. Grimes -- Chief Executive Officer, Director

So Vince, this is Steve. There is multiple aspects of our strategy I have alluded to it on the call earlier, we have the operating portfolio that essentially should carry the day through this development ramp from an earnings perspective. We want to keep that as pure and complete as possible and embedded in that is some assets that are non-core to us for geography reasons only but are still very well performing assets. We think it prudent, especially given what we have in our horizon for development spend in our funding availability for the development spend, to preserve those disposition proceeds for acquisitions -- for further growth in our target markets. And if you were to look at the math and what we would do in terms of what we're able to sell out even in the future and what we're able to buy at assuming cap rates move directionally in the same direction for what we're buying, and what we're selling. We're in a very good position to preserve that capital grow in those markets.

From the development perspective, again, if we were not in a situation or we weren't essentially self-funded either through a small expansion in the line use or potentially further monetization through JV proceeds or air right sales, it would be a different story, but for right now to sell income producing assets to fund or pre-fund development and sit on idle cash is not prudent from an earnings perspective and it makes all the sense in the world for us to view these two pads separately and when they converge or when they merge in 2021, it's going to be off the charts. So that's the plan, and it seems to be working, and it will continue to work, which again bodes well for 2020 and our ramp through 2021 when these two things ultimately merge.

Vince Tibone -- Green Street Advisors -- Analyst

Great, thank you. That's all I have.

Operator

The next question is from Derek Johnston of Deutsche Bank. Please go ahead.

Derek Johnston -- Deutsche Bank -- Analyst

Hi, everyone. On the new lease spread, which were very healthy what drove the 46% versus, I think it's a mid '20s on average range. TIs were basically kept in check. So what drove it? And how should we think about new lease spreads going forward?

Shane C. Garrison -- President and Chief Operating Officer

Hi Derek . Good morning. It's Shane. Look it was a big anchor quarter you can feel in the TIs which are bit elevated, but specifically we talked about in the beginning of the year where we recaptured a couple of boxes. We thought we're compelling and we wanted to get to this year and they showed up in this quarter. So we had a 68,000 foot box in the Mid-Atlantic that was mid single-digits and we count North of a two times on that deal. And then we also had a deal, we recaptured in Seattle, which continues to be one of those strongest, if not the strongest rent growth market we have, which was also call it 30%, 40% rent comp. So those two deals specifically were large and square footage and drove the TI spend as well as the comp.

Derek Johnston -- Deutsche Bank -- Analyst

Okay. And then just shifting to leasing trends. So I guess how is retailer interest stacking up in the redeveloped projects in general and versus underwriting?

Steven P. Grimes -- Chief Executive Officer, Director

So Towson would be our first indicator. We talked about Shake Shack which was a great lead restaurant to sign I think, is a great prominent corner we have four or five other deals teed up. We are still call it mid 40s to 50 net at Towson so we're very comfortable from a pro forma rent standpoint. We did move costs up a bit as we come to the end of raw construction completion as well as a few approved deals through lease committee, but the rents are holding and in some cases are running proforma, which is why we are still very much in the range.

But what we've seen from a demand standpoint continues to be robust on the small shop space, which is basically what Towson is and we continue to expand with those concepts and genres that we think will carry the day from a long-term demand standpoint, both for space and through merchandising. Digitally native specifically we have picked up the cadence there on leasing quite a bit in the last couple of quarters. We now have 15 digitally native deals within the portfolio. We think that sector alone provides for 850 new stores over the next five years. In Towson we expect to have one or two. And with our expansive and expanding mixed-use footprint, we certainly will continue to build our brand with that category. So overall, rents are spot on right now, early demand drivers are considerable and we're very happy with the progress.

Derek Johnston -- Deutsche Bank -- Analyst

Thank you. Helpful.

Operator

The next question is from Hong Zhang of JPMorgan. Please go ahead.

Hong Zhang -- JPMorgan -- Analyst

Yeah, hi guys. I was just wondering how much further do you expect to push commenced occupancy by year-end especially given the large growth that occurred in 3Q?

Shane C. Garrison -- President and Chief Operating Officer

Hi, good morning. I would expect based on the -- we don't have a -- a significant amount of deliveries left. I would expect, assuming we don't move the top line, another maybe 25 basis points of compression on the spread by year-end, but I think we assume that we can move the top line as well. So maybe 25 bps compression on top end, we hold the gap at 180.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

And just add some color or context around the leased occupied spread, it's about $7.7 million in ABR and it looks like close to half of that would be starting in Q4 in terms of being rent paying, so a little different than the occupancy question but the rent paying portion.

Hong Zhang -- JPMorgan -- Analyst

Got it. Thank you.

Operator

The next question is from Floris Van Dijkum of Compass Point. Please go ahead.

Floris Van Dijkum -- Compass Point -- Analyst

Thank you. A quick follow-up question on something that has been, I guess, talked about a little bit before, but as you look at your -- your cost of capital and your spend, particularly if you look at your $330 million roughly of additional spend you'll have on your three big projects. Clearly, your leverage will tick up a little bit. How do you think about buying back stock relative to other investments going forward?

Steven P. Grimes -- Chief Executive Officer, Director

Hi Floris, it's Steve. Well, we've, I think then -- and have proven that we willing to buy back stock at prices that are pretty compelling. We bought back in the high 11s, and I think we probably on a relative basis have bought back more shares than many, if not most in this space, but as it stands right now in terms of how we look at the leasing momentum that we have and the CapEx required with that as well as the development being very, very additive in terms of what could be earnings growth starting in 2021. The math is really just penciling out for us to earmark any additional dollar of equity or proceeds if you will, toward either the redevelopment or the leasing efforts that we have on the plate right now, but that's not to be said that if, the stock were to hopefully not retract, hopefully we're on a good progression going forward that we wouldn't consider it again, but at this time it's pretty much off the table, given where we're trading.

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

And just as Steve mentioned in his prepared remarks that $330 million to $350 million or so over the -- is over the next two to three years. So it's not coming all at once, and over that same period of time, I would expect to EBITDA to continue to grow. So both the numerator and denominator would be moving. And again we have stayed committed to -- we review leverage projections, all the time and stay committed to staying at six times or below and 5.5 times today feels very, very healthy relative to peers and relative to where we think we ought to be.

Floris Van Dijkum -- Compass Point -- Analyst

And just a follow-up on the leverage because clearly you -- leverage will tick up over the next, call it, 12 months likely until your investments start to produce income. You'll be monitoring that closely but it should not go above six times in your view?

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

That's correct.

Floris Van Dijkum -- Compass Point -- Analyst

All right, that's it from me.

Steven P. Grimes -- Chief Executive Officer, Director

Thanks, Floris.

Operator

We have reached the end of the question-and-answer session. I will now turn the call back over to Steve Grimes, Chief Executive Officer for closing remarks.

Steven P. Grimes -- Chief Executive Officer, Director

Thank you, operator and thank you all for joining us today. I think it's a very, very busy time for all of you. I know there were a couple of calls yesterday, three today and another three tomorrow and that's only if you're covering the strips. So, appreciate the time you spent with us today and look forward to seeing many of you in L.A. at NAREIT, and just a short couple of weeks. So take care and have a great day. Thanks again.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Michael Gaiden -- Vice President-Investor Relations

Steven P. Grimes -- Chief Executive Officer, Director

Julie M. Swinehart -- Executive Vice President, Chief Financial Officer and Treasurer

Shane C. Garrison -- President and Chief Operating Officer

Christy McElroy -- Citigroup -- Analyst

Vince Tibone -- Green Street Advisors -- Analyst

Derek Johnston -- Deutsche Bank -- Analyst

Hong Zhang -- JPMorgan -- Analyst

Floris Van Dijkum -- Compass Point -- Analyst

More RPAI analysis

All earnings call transcripts

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