Q3 2020 Retail Opportunity Investments Corp Earnings Call
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Ladies and gentlemen, please standby your conference call scheduled to begin momentarily. Thank you for your pay.
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Participants are currently in listen only mode. Following.
The company's prepared comments the call will be opened up for questions. Please note that certain matters discussed in this call today huh.
Constitute forward looking statements within the meaning of federal Securities laws.
Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions. The company can give no assurance that these expectations will be achieved.
Forward looking statements involve known.
An unknown risks uncertainties and other factors, which may cause actual results to differ materially from future results expressed or implied by such forward looking statements and expectations.
Information regarding such risks.
In factors as described in the Companys filings with the Securities and Exchange Commission, including its most recent annual report on form 10-K participants are encouraged to refer to the companys filings with the FCC regarding such risks and factors as well as for more information regarding the company's financial and operational.
Oversold.
Companys filings can be found on its web site now I would like to introduce Stuart Tanz, the company's Chief Executive Officer.
Thank you.
Good day, everyone. We appreciate everyone joining us today and hope that you and your families are doing well and continued to be safe.
Here with me today is Michael Haines, our Chief Financial Officer, and Rich Schoebel, our Chief operating officer.
We are pleased to report that our portfolio grocery anchored shopping centers continues to perform impressively strong during this unprecedented time.
The important strategic initiatives that we implemented during the second quarter at the beginning of the pandemic to adopt and best position our centers with the appropriate safeguards protecting tenants and customers alike.
To facilitate the reopening of tenants and to promote shopping activity at our properties as we progressed through the third quarter.
Additionally, our initiatives to create new outdoor spaces to enable certain businesses to reopen has also been embraced by the communities they serve.
In short customers are shopping activity at our shopping centers have returned in force.
In step with customers, returning and tenants business is steadily increasing our base shrink collection rate has steadily increased as well.
The beginning of the pandemic back in April when strict business shutdown orders were first put in place or base shrink collection rate was about 68% at that time, which was the highest in our sector.
Thanks in large part to our longstanding daily necessity grocery anchored focus.
[laughter] working collaboratively with our tenants we are successful with increasing our base right collection rate to 82% when we reported second quarter results.
During the third quarter, we continue working with tenants to re establish their businesses.
As a result of our efforts today, our base rent collection rate for the third quarter is approaching 90%.
Along with customer activity in rent collection steadily increasing leasing activity is also returned to enforce.
While demand for space across our portfolio has helped from throughout the pandemic actual leases beans side did slow considerably during most of the second quarter given all the uncertainty at that time.
However, as our kindness reopen their business isn't shopping activity returns during the third quarter retailers went from just inquiring about space to again wanting to sign leases and move forward expeditiously.
As a result during the third quarter, we executed over 441000 square feet of leases, which was close to setting a new record in terms of first store goal third quarter leasing activity.
Additionally, not only did we achieve strong leasing volume in the third quarter. We also achieved solid rent growth as well posting a blended cash increase of 12% on new and renewed leases.
Overall, we are encouraged that the progress that we've made thus far towards returning to full normal operations.
That said no doubt there will continue to be extraordinary challenges and we intend to remain proactive in adapting our business and working closely with our tenants as the pandemic continues to evolve.
Lastly, notwithstanding faced an extraordinary challenges during the past eight months, all right or Oh I see it was just awarded investment grade rating and stable outlook outlook from Fitch ratings.
To achieve this during such an unprecedented an uncertain time, we think speaks volumes as to the long term strength stability and resiliency of our portfolio when business now.
Now I'll turn the call over to Michael Haines, Our CFO, Mike. Thanks, Stewart third portfolio into making solid progress during the third quarter from a financial perspective, our business strengthened as well yeah net income attributable to common shareholders for the third quarter 2000, 26.5 million equating to six cents per diluted share and funds from.
Operations for the third quarter totaled 31.6 million equating to 25 cents per diluted share as compared to our results for the second quarter net income enough AFFO increased notably in the third world.
To date, we have received 88.7% of our total base rent for the third quarter with respect to the remaining 11.3%, which totaled approximately 5.8 million homes at approximately 1.4 million has been deferred today roughly $2.7 million currently negotiation and approximately 1.7 million was the bad debt reserve for current tenants.
He also reserved approximately 500000 beds relating to pass on us So our total bad debt for the third quarter was approximately 2.2 million.
Turning to our balance sheet, given our portfolio and business progress during the third quarter, we repaid the 130 million on our credit line that we had drawn as a liquidity safeguard back at the beginning of a pandemic.
As a result at September Thirtyth, there was only 103.5 million outstanding on our 600 million unsecured credit facility.
We currently have just shy of 500 million available on our line.
Additionally, we currently have 62 million in cash in your balance sheet today of which approximately 49 million represents the net cash flow from operations that we have carefully conserved since the beginning of April assuming our business continues to progress as we move through the fourth quarter. Our objective would be to utilize the majority of the cash in your balance sheet to further reduce outstanding debt.
Now I will turn the call over Schoebel, our COO rich thanks, Mike.
Echoing steward of Mikes comments, our portfolio tenant base continued to perform well and make solid strides towards returning to full normal operations.
Starting with our lease rate our anchor space continues to be 100% leased and our shop space remains at a strong 93% leased.
In terms of our overall lease rate at September Thirtyth her portfolio stood at 96.8% leased which represents only a 90 basis point differential from where our portfolio lease rate stood prior to the pandemic.
The fact that our lease rate continues to hold up remarkably from is indicative of our long standing strategy of focusing on tennis or provide daily necessities and essential services, which have remained in demand throughout the pandemic.
And speaking of demand as Stuart indicated during the third quarter leasing activity returned and force specifically, we leased over 441000 square feet of space in total, including 134000 of new leases, where we achieved a 12.2% increase in same space comparative cash rents.
Bulk of the new leases, where we shop tenants, where we leased 104000 square feet of space, achieving a 14.9% cash increase in base rent.
In terms of renewal activity, we renewed 307000 square feet of space during the third quarter increase in cash base rents by 11.6% on average, including an 11.9% increase on anchor renewals and an 11.3% increase on shop space renewals.
The bulk of these renewals simply involve tenants exercising existing renewal options in many cases ahead of schedule expirations and with contractual rent increases.
We think our tenants interest and readily renewing their leases. During this uncertain time would double digit rent increases reflects the strength and desirability of our shopping centers.
Additionally, the demand for space is coming from a strong mix of existing tenants, whose businesses have performed very well during the pandemic such that they are opportunistically seeking to expand into neighboring spaces as well as from new retailers again, who are performed very well and are now seeking new opportunities to grow their businesses for more.
Our perspective, the pandemic is accelerating the natural transition of underperforming space being taken over by stronger retail concepts and service providers.
Importantly, we're capitalizing on this trend to create greater synergies and complimentary uses among our tenants, which in turn will enhance the overall strength of our tenant base as well as enhance the consumer draw and appeal of our centers.
Given the significant increase in leasing activity during the third quarter as compared to the second quarter, the economic spread between leased and build space to increase during the third quarter.
At the beginning of the third quarter, the spread stood at 2.9% representing approximately $5.9 million in additional incremental annual rent on a cash basis.
Taking into account leasing activity during the third quarter, the spread increased to 3.4% as of September thirtyth, representing approximately $6.9 million of incremental cash rent to come on line as new tenants take occupancy and commence paying rent.
In terms of anchor lease expirations for the remainder of 2020, we have just one anchor lease expire in the fourth quarter the leases with one of our strongest national grocers. They have a five year renewal option remaining on their current lease however, rather than simply exercising the renewal option. They would like to establish a new long term lease which we are in the process.
Some negotiating with them.
Looking ahead to 2021, we only have six anchor leases scheduled to expire.
All of which are with grocery and drug stores, which we expect to renew.
With respect to the other two anchor tenants. We current expect there were new as well as their businesses have remained open during the pandemic and their stores are going to be forming exceptionally well.
Lastly in terms of pad development activity during the third quarter, we broke ground on a new pad building at one of our shopping centers in the Seattle market, which is fully committed and.
Additionally, we have two other pads that we expect to break ground on the coming months that are also pre leased one at the center in sales in the San Francisco market and one at a center here in San Diego.
Importantly, the pads are pre leased to a strong mix of essential not national retailers, whose businesses have all fared well during the pandemic.
Furthermore, the fact that these retailers are eager to move forward during the pandemic speaks to their confidence in the underlying long term fundamentals of our core west coast markets and to the strength of our shopping centers.
Now I'll turn the call back over to Stuart Thanks Rich.
Here in the fourth quarter as we head towards the holiday season demand for space in leasing activity continues to ramp up we are working hard to make the most of the opportunities with the overriding objective being to enhance the strength and diversity of our tenant base as rich discussed.
We were also continuing to work extremely hard continuing to be highly engaged and proactive and enhancing and best positioning our centers as the pandemic evolves.
For example, with the colder season approaching Weve already secured many key items, such as space heaters, and when barriers and order that our tenants can continue to utilize outdoor spaces in the coming months.
Additionally, we continue to be very proactive in working with local municipalities and staring small businesses grants and assistance towards our tenant base and helping our tenants take advantage of the assistance.
As an example, just recently a municipality up in our Seattle market started to promotional program aimed at helping local full service restaurants get back up and running by the municipality funding a 30% discount to dine in customers.
When they announced the program we immediately contacted all of our dining restaurant tenants almost all of which were unaware of the opportunity.
In light of our business and portfolio continuing to progress we expect.
To reinstate our dividends starting in the first quarter given that there is still considerable uncertainty uncertainty regarding the pandemic when we do reinstate the dividend it will be at a conservative payout ratio in order that we can continue to conserve ample cash flow.
Well, we have learnt largely been in a defensive mode for the past eight months focusing on protecting value through adopting our centers and working collaboratively with our tenants now that our business in portfolio are steadily progressing towards returning to normal operations, we are working to shift back to offsets.
As rich highlighted we have three pads getting underway.
We also have a number of additional pads throughout our portfolio in the planning stages as well I.
Additionally, we continue to make excellent progress on the Densification front.
With respect to the three projects currently going through the entitlement process. All three are steadily progressing such that we could be in a position to break ground on possibly two of the projects during 2021 with a third starting in 2022.
As it relates to the acquisition market after eight months of essentially no activity on the West Coast. We are starting to see some property owners test in the marketplace.
Thus far pricing parameters, an expectations are largely the same as before the pandemic, especially for prime grocery anchored shopping centers need.
Needless to say, we are keeping a close watch on the market with an eye towards being in a position to start our recycling program again in 2021, depending on how things unfold.
In terms of potential off market privately held to acquisition opportunities. While it's still early our sense is that these properties that are well located solid shopping centers, yes, undercapitalized and therefore less equipped to handle tenant turnover during the pandemic could prove to be excellent buying opportunities for us.
In 2021.
We are carefully watching to see how those opportunities develop as well.
Finally, as the pandemic has evolved presenting new challenges at every turn and has been an enlightening experience for all of us at ROI see in terms of how we run our business and how we are having to quickly adapt and keep adapting while also staying safe as well as keeping our loved ones save too.
I'm proud to say that our team has stepped up incredibly and continues to do so every day along the way we've become more nimble and efficient as an organization and while no one knows when the pandemic will fully subside I can assure you that our team is as committed and determined as ever to our mission of working.
Tirelessly at building long term value.
Now we will open up the call for your questions.
Operator.
Thank you ladies and gentlemen, if you have a question at this time, please press the star and the number one.
Again, Thats star one to ask a question.
Our first question comes from the line of Katy Mcconnell with Citi. Your line is open.
Good morning, Katy located.
You might have done.
So.
Yes.
That's on there just so.
Unresolved.
Okay.
Art can you discuss your player and the outlook for ultimately collect and based on.
Sure.
So your question came in a bit blurry, but but so in terms of resolving what is unresolved.
We continue to work through that part of our tenant base every day.
And we.
We are getting close in getting most of that unresolved over the next.
Month, two months I think by the end of the fourth quarter, we should be in great shape, just in terms of having almost all of our tenants result, but again. These are ongoing discussions that are complicated in nature and you know that we are making very good progress on that front.
I think the first part of your question was related to can you just repeat that came through a bit fuzzy here.
Yes.
Yes.
Question.
Our deferral agreements that you're working on bears a portion that's completely unresolved.
So what do we know Mike.
I'm not sure how much in total we haven't deferral I think about 5 million or so that's been totally differ and just as a data point.
The amount that was deferred from the second quarter that started to be rebuild in the third quarter, we rebuild about 411000 or something like that and we've collected about 87% of that so the collection rate on the deferred amount. That's been rebuild is pretty high. So we're very pleased with that hopefully that stays that continues going forward.
Great. Thanks.
Thank you and our next question comes from the line of Mike Mueller with JP Morgan Your line is open.
Yes, hi, good morning, Mike.
Hey, good morning, I'm just.
Was wondering can you walk through take a reserve level from QQ, and then where you ended up in Q3 and what changed in kind of what came out of it what what categories. You tenants with just any color you can give us on that progression from Q2 to Q3.
Well I mean in terms of I mean really it was it was all part of the negotiations that started all the way back in April and May those accelerated during the third quarter and a number of those did get resolved and getting those result, obviously, we got payment for what was sold in Q.
You too and Q3 as well and getting paid in Q3 for Q2.
That increase the overall collection and in some cases, we had to take what we reserved and back that out the you know Ed and reverse that.
So I think that had a bit of an impact in terms of lowering the reserve for Q3 anything else might that you want to add I would just.
Yeah, Rich would know better to talk to the tenants on a daily basis, but I think there's a higher confidence level in the collection rate I know in Q2, we were pretty aggressive and took about 4.9 million or so on the current tenants. This quarter like 1.7, so the big drop yes, but I think it's I think it's because we're more comfortable with the tenant base and their ability to pay over the long term.
Of course during the third quarter, Mike I mean, a lot of our tenants began either got open and you know with the I think as we've articulated with the in huge increase in traffic that gave them. The confidence to also go back and pay us what they owed us for that month and previous to that as well they had the confidence.
And their business is not only surviving but also their businesses.
Picking up and sales and a lot of cases for the tenants though.
Reopened to have actually gotten pretty close to what they were before the pre that the.
Before we the pandemic.
Got it okay and one on one other question too I know you gave us the collection percentage for the quarter do you happen to have.
What it was say in September.
At the end of the quarter.
Close.
Well for the for the third quarter. Each month was really consistent ranged between 80 and 89%. So it's a really really consistent across each of them up.
Got it Okay October are heading in the same directionally, even a bit more positive at this point.
Okay that was it thank you.
Hey, thanks.
Thank you and our next question comes from Michael Gorman with BTIG. Your line is open.
Good morning, Mike.
Good morning, gentlemen, thank you quick.
Quick.
Sorry, if I missed this but Stuart are rich in your conversations with tenants or even reworking some of the leases have any of them started to explore restructuring their spaces or reworking their floor plans. We've seen some of that's come out of Walmart, maybe adapt to some of the new trends that they are seeing as a result of the pandemic, whether it's more omni channel or changing.
Distribution capabilities out of the store or any of your tenants are already starting to talk about that with some of their locations in your portfolio.
Yeah. I mean this is rich I think that you know the tenants as are coming in are you know looking at the what is the new reality and adjusting how they're setting up their businesses accordingly.
You know some of the restaurant tenants, we've been talking to recently are making sure that they have sufficient outdoor seating covered heated.
You know opportunities for curbside pick ups and also you know for the potential of operating as a ghost kitchen.
In the event that they're not able to offer in person dining. So I think that that is the I think people are being cogs.
Cognizant of what could be a new reality going forward and making sure that they have set up their business accordingly.
And just as part of those conversations whether it'd be like it goes kitchens, or maybe a micro fulfillment center and a grocer.
Are they asking for your assistance, whether capex help with zoning or is this more just the something that they're taking on themselves within the four walls.
Mostly its been just the right to do it but.
But they are taking on you know the heavy lifting in terms of the permitting and the rest.
Okay, Great and then one for Mike I'm, sorry, if I missed it but with the investment grade rating from Fitch.
What does that do to the spreads on on your line of credit and also if you were to go into the unsecured markets today.
With with the.
Okay.
Their their rating doesn't really affect our borrowing margin on the credit line and turned one right now because we've got the mid triple B rating from Moodys, So keep that everything where it is and as far as the unsecured market. You know, we just thought going forward to have additional.
Credit coverage on our profile.
Excellent. Thanks.
Thanks, Mike Thank you.
Thank you and our next question comes from the line of Todd Thomas with Keybanc capital markets Your line.
Is open.
Good morning, Todd.
Hi, good morning.
Just a first question back to the the collection rates in general Stuart sounds like each month in the quarter was pretty consistent in that 80, 788 or 89% range.
Just any comments I guess first on our labor and then also do you anticipate getting.
Getting above 90% or do you think that there there may not be significantly more upside here in the near term.
[noise] the trend has been positive continues to be positive I think the answer is yes, we will be trending above 90% I can't give any guarantees but all indications are that we are getting close to resolving a lot of this outstanding ran.
And as part of that.
You know as long as the tenant stay open.
I think you're going to be seen in the fourth quarter head into the Ninetys for ROI sake.
Okay, and then Mike on the the reserve and the breakout around the uncollected rent in the quarter that was helpful. So the reserve itself. You noted was $1.7 million a little over 4 million last quarter. So a nice improvement there.
Would you continue to expect that.
That bad debt line to improve in the fourth quarter or do you think that we swear to stabilize.
Around this level you know until we either see collections improved more meaningfully or or are there some turnover in the tenant base.
Yes, it's hard it's a it's really hard to say, it's too early to predict at this point given that the pandemic is still ongoing it's almost impossible for us to know with enough will be additional shutdowns again, hopefully not so.
Unfortunately remains to be seen.
Okay and just one last question Stuart maybe rich too can you just comment on the health of your local tenant base actions.
Increased about 300 basis points for that.
Segment of the portfolio, but it still sits below 80%.
You know there is some concern there I guess can you can you just speak to that segment of the portfolio and in terms of expectations to further stabilize collections and.
Some of the risk around occupancy loss for for those tenants.
Well I mean, I'll have rich I mean, let's not forget Todd that during the quarter in California, a number of our tenants both primarily.
Primarily it wouldn't be local tenants had to re shut down their businesses. So that had some impact now they've reopened and in some cases the capacity that theyve reopened that is as more than it was before they shut down. So I think that's going to continue to improve our collections for our local tenant base.
As we move through the fourth quarter Rich anything you want to add yeah, I mean, I think that.
I think theres, obviously been a bit more nervousness with the local tenant base than someone who probably has.
But does the stronger and deeper balance sheets as these regional and national tenants had and.
But what we're seeing as these tenants are allowed to reopen.
Is the the sales levels are back to.
Pre pandemic in most cases and in many cases above pre pandemic levels, it's been encouraging to walk some of these sales trends I mean, clearly there was.
Very slow period, there for several months, but when you when you look at the sales volumes that they're able to do currently.
They are in many cases back to pre pandemic and in some cases above pre pandemic level. So we're encouraged.
I think that the local tenant base is hopeful for some additional.
So a support from the federal government.
And I.
I think with that the many of them will be able to weather. This storm.
Okay. Thank you.
Thanks Todd.
Thank you and our next question comes from Juan.
Ria with BMO capital markets. Your line is open.
Good morning Juan.
Hi, good morning out there.
First just on the dividend.
How are you guys thinking about that for 21 kind of referenced one anticipation.
Internal cash flow, which.
We plan to be but are you thinking about setting it based on a fad payout ratio were more on the taxable dividend.
And.
Well, how do you think about a long term payout ratio from a pad or cash flow perspective.
Well the dividend as you know is really the board's decision, but from our perspective.
We will be looking at the taxable side, we will be looking at payout as it relates to CAD or fad.
Or fad. This is very the Paraguay shows are very important to us capex. It's obviously come down this year as we continue to model 21, Capex doesn't look like it's we're going to spend a bit more money, but it doesn't look like it's going to be that much more elevated cope.
So from that perspective I think.
The payout ratios will be conservative.
But we'll be.
I will be at a point, where we believe the yields will be high enough that matters will continue to buy the stock or the dividend yield and we will conserve enough cash to make sure that we can pay all our expenses and retain some cash in terms of delevering the balance sheet.
[noise], maybe I could just follow up on that balance sheet point.
Kind of in a low seven now I think you want to get to the mid to low sixs anytime.
Any timeframe to get there and should we think of you guys is yes.
Net sellers or buyers in 21.
Given we want to balance the opportunity to acquire.
Accretive we attractively, but.
But at the same time, probably wanted to elect a longer terms. If you could just help us think through how you're thinking about that that'd be great.
Sure.
We will be both buyers and sellers and 21.
And Mike in terms of you know, we've got cash sitting on the balance sheet, that's going to build up during the fourth quarter and we intend to take that cash and pay debt down so from a combination of the.
A big increase in cash spend on our balance sheet, because we haven't paid or demand for the three quarters selling of assets. I think this company is going to be in a great position to start growing again in 2021.
Thank you.
[noise]. Thank you and the next question comes from Craig Smith.
Bank of America. Your line is open.
Good morning, Craig.
Good morning.
Regarding your leasing how would you characterize the new tenants in the non anchor space and also maybe how would you characterize the anchor space renewals in terms of what type of tenants and whose you know, particularly.
Particularly in the small space who's interested in taking new space now.
It's coming from.
A broad range of tenants you know I think as we touched on in the prepared remarks.
You know it's people that are looking for great opportunities.
So we are dealing with tenants are looking for new locations to add to their existing as well as some people that are looking for opportunities where they can get into a space that is completely built out as a restaurant for instance at a very low entry cost.
And really looking towards the future.
Looking past the present situation.
As we all know some of these businesses take several months to get up and running and.
The people want to be.
Ready to go.
As soon as they can so it's a broad range and it's coming from the same sectors that we were seeing you know.
For the pandemic.
Okay, Great and then in terms of the anchors.
Were they like off price guys or.
Drug store.
Did the renewals the six renewals.
The news that the new leases were done by essential retailers I think he's asking about the renewals so.
It was a mix up primarily of grocery stores that took down their options during the quarter we did.
Good have you.
No some value operators as well.
And a couple of drug store, but primarily it was grocery stores during the quarter.
Okay and then.
I was noticing property tax in 2020 seems to be up between five and 6%.
What do you expect might happen in 2021 as you fine.
State and local short.
Short of revenue.
[noise] well, we've got probably 15 coming up on November 15th and we'll see what happens there. We don't believe crop 15 will have much impact on our California property taxes.
I do think that you could see some downward movement on property taxes next year because of the impact from the pandemic. Obviously, many shopping centers have been impacted by the loss or decline in N O Y and that's one of the major metrics tax.
Assessors use in terms of coming up with valuations.
I think that could have a a a an opposite impact next year for us and that although.
Although our portfolio has held up exceptionally well I do think that from a a going to the assessor in a you know talking with them about lowering taxes given the problems that we've all seen in retail will certainly help our tax rates I believed to come.
Down next year, So we'll see how it goes obviously prop fifteens on the ballot next week, but we think there won't be much impact to the company in terms of property taxes and 21.
Okay. Thank you.
That's correct.
Thank you.
Next question comes from Vince to Brown with Green Street. Your line is open.
Good morning, Thanks, Mark good morning.
I have a follow up on bad debt, sorry to keep going over this but I just want to make sure I heard correctly I believe you said 500000 of the third quarter charge related to the second quarter receivables.
But there was also a benefit from some repayment of second quarter receivable that you'd previously run off that Youve now received cash for is that correct that there is kind of you know both positive and negative impact from second quarter in there in the third quarter number.
Well.
This is Mike.
I'll try to summarize the so the Q3 bad debt number was about 2.2 million 500000 was related to past and us.
In the second quarter, we are taking a charge against pathogens as well, we always pursue tenants even when they've left occupancy they are still on the radar so.
In Q2 was $1.1 million in Q2, we added another 500000 for past tense.
Got you Okay in place so that was about 4.7 or 4.8 million. This quarter was 1.7 million.
No of the deferred rent that was deferred that related to Q2, a ours that got rebuild in Q3 sales because some of those agreements kicked in record repayment starting in July we build we rebuild about 411 or 412000, I think and about 87% of that was paid so that's just the timing of your collection on the deferred.
Third rent those everything or anything really to do with bad debt.
That's what I wanted to go or no reversals of like cash based tenants or write off that you reverse that that you know that kind of $8 million benefit for example to the bad debt charge Thats, what I wanted to clarify right.
Well the third quarter bad debt for current tests may have been reduced because of the reversals of some from from the second quarter, we feel more comfortable they don't need to reserve any longer where they pay it. So that's why it came down a little bit more that makes sense.
Okay. Yeah that thank you for clarifying that is helpful. And then just jumping comment more or like specifically what made you feel so much more optimistic on third quarter collections compared to the second quarter, just more tenants opened our sales level.
Well it seems like Youre going down from a value of about 4%. You said 1.7 I believe in terms of a reserve for total revenue what made you more comfortable.
Well I was certainly getting the tenants opened that never had a huge impact.
Yeah, I mean, I think the other thing to understand is we look at this at the tenant by tenant basis and we've been in constant communication with the tenant base ahead of the pandemic and throughout the pandemic even more so.
So we have a pretty good sense of how the individual tenants are doing we have visibility into their operating metrics.
And their balance sheets, as well going through the deferral process. So.
Again, when we look at our reserves each quarter, it's on a tenant by tenant basis and every situation is unique and we.
We bring to that the information that we have glean throughout the quarter. So.
As we went through them.
No no that's so where we landed in terms of our thinking.
Okay. Thank you for that color, maybe one more quick one for me.
The first quarter, you disclosed about 13% of your GL a lease to restaurants are you able to share any rough split between full service dining and quick service restaurants in your portfolio.
I think it sooner or rather than the investor from its.
No we don't have a great at our fingertips now I think we can follow up with you with some more specific data we don't have a whole lot of full service restaurants in the portfolio. There are a few.
Many of them are back open and operating including.
Including out in the common areas Weve.
I think as we touched on in the prepared remarks, we've spent some considerable time working with the tenant base to create some really nice outdoor dining opportunities.
But most of our restaurants, either fall into the fast food.
Category or the quick serve restaurant with probably you know a handful that you would consider as full service.
Envisioning the Pie chart in our Investor presentation, I'm pretty sure the full service was about 4% and.
Limited or.
Fast casual like eight or nine and the limited services like for all.
Adds up to about 20.
21, 22 altogether, but that include full service.
Great No thats very helpful. Thanks.
Yep.
Thank you. Our next question comes from the line of Linda say with Jefferies. Your line is open.
Good morning, Linda good.
Morning.
Terms of capital recycling is it fair to characterize acquisitions as being largely batch funded dispositions next year or you know to what extent would free cash help on any of these deals.
The answer is probably yes, we will try to match fund. Obviously every deal is going to be different in terms of what we're selling and what we're buying.
But you know we are we've quietly sort of tip toe back into the market right now.
But we will you know I think as we go towards 22, it will be a combination of really matching that too.
Thanks, and then in terms of the tenants, whose sales are pre pandemic levels are these essential retailers or more like restaurants to increase their capacity with outdoor dining.
It seems to come across the board and but yes, I mean, we have some you know many of the restaurants are doing much better obviously, you know our grocery and drug store anchors are doing quite well.
But it really depends on the individual business and their customer base.
I wouldn't say that it's.
All from one category or another.
Thanks, and then just one last one it seems like T.I.s on renewals for non anchor spaces ticked up what's driving that and would you expect that to continue.
I just I don't know if you would look at that as a run rate going forward again every node and renewal negotiation new lease negotiation is individual it depends on what the tenants' needs are and what we're getting in return.
[noise] thought at times that uptick is really also kind of set our expanding.
As well so.
That's when you would on a renewal.
Give them a bit of T.I.s, which typically we don't on renewals.
Got it thanks.
Thank you and once again, ladies and gentlemen.
Ask your question.
Next question Katy Mcconnell with Citi. Your line is open.
Hey, its Michael Bilerman here with Katie.
Stuart you talked in your opening comments about advancing and breaking ground on two of the three densification projects now.
Next year, and 21 to talk a little bit about the capital that you are committing to those projects and whether you plan to have any partners involved in that.
Sure.
And good morning, Michael well that's goes quickly go through each one of them crossroads with respect to crossroads, where we're building 220 apartments and about 15000 square feet of retail.
Project cost in the $70 million range unlevered yields around eight.
Of course bear in mind that these numbers will still move around as we finalize our development agreement with the city.
And as we go through the working drawings and the construction bidding process.
You know we are right now we're moving forward on the cross roads as if you know we intend to own the project.
But that could change as we get ready to pull permits in the first quarter Novato, a which is our shopping center, just north and Marine County, just north of San Francisco took just took a major step forward with the city in terms of approving a plan. There are 175 apartments 14000 square feet of retail.
A cost and yield really the same range of of the crossroads.
And that particular project probably JV.
And last to know we're going through the planning process with the city, which the city continues to be very supportive with you know 200 apartments.
Still some moving pieces on that one a bit too early to just discuss the economic turns however, like.
Novato, we intend to probably do a JV scenario on that one as well.
Joe.
Sounds like you are I can hear your enthusiasm coming through the call about sort of getting back to growth and having external opportunities.
Especially in the markets that you have had the long term knowledge and relationships with and I'm sure the list of.
Assets that you would want to buy is quite long, especially given.
Now a lot of those owners being undercapitalized, where you believe I think you can bring something advantageous to the table.
And really generate those returns.
And so I want to make sure I'm characterizing that right you were really eager to buy.
Right.
Well, Mike you have known for a second right.
Right I mean, Mike you've known this management team for decades, probably 25 years. The strength of this team is acquisitions. It's it's you know, it's our occupation for going out and finding off market opportunities, where we can buy at good yields, but more importantly through our operating platform lift those yields.
No.
But then I, probably 150 to 200 basis points in a very short period of time, that's one of our great specialties works.
We're excited about what potentially we see coming down the road.
And so yes, you're right.
We see some enthusiasm out there in terms of management, we believe that this long you know that this experience his depth of experience and knowledge of the market is critical in terms of doing what we've done to build ROI see but more importantly, looking forward. So we're excited we.
See some opportunities will be turning the capital to get there and maybe looking at other forms of of of structures, but we think there's going to be some good opportunities for this company in 21, and we're excited to grow again.
Well, and that's where I guess the capital side of things right. The constraint is your you know your equity cost to capital is not going to be.
Given where your stock is just I don't think you're an issue any equity to get that right. So the only way to fund.
These opportunities.
Hi, there aggressively selling assets before you commit to buy because the last thing I think you are in the market would want is to go off and start all the densification projects and go out and buy a couple of hundred million dollars of assets without securing the capital needed to go and buy into.
I guess, how far advanced are your sales discussions in generating net proceeds sales proceeds and how far along are the alternative capital sources outside of the common equity, which I assume is completely off the table given the fact that your balance sheet is more leverage than.
Then you would like it to be in certainly relative to the peer set.
Yep.
You know look we are you know we are beginning to move forward I don't know, how that's going to progress given the environment out there, but we are moving forward and going back to the market in terms of selling some assets Sacramento a.
We had a very good asset here and send you actually under contract at a very low cap rate that virus come back to the table.
And others.
Well, we we probably are going to accelerate some of the buy side and on the same side. You know we are we'll look to deploy that into new assets, we're not raising equity or and you know we have been approach I think as you know Mike by outside capital in terms of you know looking at other struck.
Sure. So we continue to have those conversations we continue to think about that that is our last priority.
Given how straightforward and how simplistic our balance sheet has been.
So you know, we're well, it's really going to be driven through sales of assets and retaining earnings and you know retained earnings and.
We think that will bode well for our management team and bode well for our shareholders and 21.
Thank you and I'm not showing any further questions at this time I'd now like to turn the call back to your speakers.
Thanks.
In closing thank you again for your time, if anyone has any additional questions. Please contact Mike rich or me directly and for those of you participating in neighborhoods virtual conference coming up we soon we look forward to connecting with you that thank you and have a great day everyone.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may all disconnect [noise].
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