Q4 2020 Brixmor Property Group Inc Earnings Call
Greetings and welcome to the Brooks more property group fourth quarter, 'twenty and 'twenty earnings Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone Keypad. Other reminder, this call for.
It's being recorded and is now my pleasure to introduce your host Stacy Slater. Thank you Stacy you may begin.
Thank you operator, and thank you all for joining Brooks' Morris fourth quarter Conference call with me on the call today are Jim Taylor, Chief Executive Officer, and President and Angela Aman Executive Vice President and Chief Financial Officer, as well as Mark Horgan Executive Vice President and Chief Investment Officer, and Brian Finnegan Executive.
And Vice President and Chief revenue Officer, who will be available for Q&A.
Before we begin let me remind everyone that some of our comments today may contain forward looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially we assume no obligation to update any forward looking statements on.
So we will refer today to certain non-GAAP financial measures further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available on the earnings release and supplemental disclosure on the Investor relations portion of our website.
Given the number of participants on the call. We kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter. Please re queue.
At this time, it's my pleasure to introduce Jim Taylor.
Thank you Stacey good morning, everyone and thank you for joining our call and I Trust that each of you your families and loved ones are well as Im sure you are on beyond glad to put 2020 and Arabia, Yes, I'm also very grateful for what the year and revealed in terms of the durability and resilience of our team our.
Our business plan and our purpose with nearly 95% of our base rent for April through December and now collected and our dry leasing levels and spreads and approaching pre pandemic levels and highly accretive redevelopments delivered and attractive incremental returns and our performance continued to accelerate through the fourth.
Quarter and it continued in January where cash collections exceeded where we were at the same point and December and sure. We delivered one of the best performances in the sector and navigating through the crisis.
And that's true whether you measure and in term in terms of cash collections, where we are among the highest impact on NOI, where we are among the lowest.
Adequacy of reserves for amounts not collected or values delivered through reinvestment.
And importantly, we are among the best positioned for the recovery with strong visibility on how we will grow going forward and a few moments Angelo will cover our performance in more detail and addition to providing some color on the specific assumptions underlying the guidance we've provided for 2021.
I'd like to focus my remarks on those elements of our team portfolio on plan and provides us both visibility and confidence.
<unk> outperformance and the months and years ahead.
As always it begins with leasing where in the fourth quarter. We signed another one 4 million square feet of new and renewal leases with a vibrant mix of tenants and grocery and value service and quick serve restaurants and home improvement categories and.
Importantly, we continue to gain share of new store openings for our core cash added to the portfolio of concepts like rent kitchens and also build for significant pipeline of specialty grocery deals that will trigger some very accretive redevelopment and the future <unk>.
Leveraging our attractive rent basis, we achieved cash spreads on new leases and 22% and the fourth quarter and interestingly, where we have active for a completed reinvestments.
For ads approached 30%, reflecting the longer tail benefits of our reinvestment strategy.
And we continued our success and driving strong intrinsic lease terms and achieving annual embedded rent bumps of two 1% and a quarter, while remaining disciplined with capital where we achieved a near record net effective rent per foot and $15 23 SaaS and.
Encouragingly, we also saw an acceleration and small shop activity. Despite the re closure orders with 268, new and renewal small shop deals and the quarter representing over 700000 square feet. We expect this activity to continue to accelerate and disclosure orders are lifted.
During the quarter, we commence another $13 million of new AVR and as at the end of the quarter, we had $38 million of signed but not commenced ABR, which provides us with a tremendous tailwind as we deliver that ran over the next several quarters as reflected in our guidance and Angela will cover in more detail, we believe and at this production with low.
And to deliver growth in 2021 at a level that should set us apart. Despite what we believe will be continued disruption from the pandemic and.
In addition to those signed leases we have a forward pipeline of leases and negotiation of $1 9 million square feet, representing an additional $35 million of ABR.
Brian and the leasing team has truly hit their stride at a pace that leads the sector and clearly demonstrates the demand by growing relevant tenants to be and our well located shopping centers.
Importantly, this leasing productivity also unlocks tremendous value creation and our centers through our accretive reinvestment program.
During the quarter, we delivered another $21 million and reinvestment and and incremental return at 12%, bringing our total reinvestment deliveries during the year to $113 million at and incremental return of 10% stop for a moment and consider that despite a pivot to conserve capital during the height of this crisis. This team still created over <unk>.
<unk> 5 million of incremental value three reinvestment during the pandemic and.
And as we look forward our pipeline our pipeline underway now stands at over $400 million of investments of which we expect to deliver over $200 million this year at and incremental return of 9% 10%.
Of course, as always we remain disciplined and ensuring that we don't commit significant capital ahead of signed lease commitments and that's what makes this reinvestment activity. So much more attractive from both on absolute and a risk adjusted return basis versus ground up development, where you don't have the same levels and pre leasing and you. Therefore don't know if youre building.
Average or appear until it's too late to stop for.
Further we phased our spend to ensure that we don't have too much exposure to any specific project as we demonstrated last year that discipline allowed us to be flexible and responding to the crisis, while still creating significant value and importantly, with each completed reinvestment we drive our centers closer to our purpose of being the center of the communities.
We serve.
As I mentioned earlier, we are pleased to see the follow on benefit of this reinvestment strategy in terms of leasing and spreads at centers that we've impacted which now represents over 30% of our portfolio and.
I'm also excited about the level of grocery activity and our forward pipeline, which will again will be transformative for the centers impacted I strongly encourage you to visit our website to take a virtual tour of the projects, we have completed or underway to get a sense of the scale of what is happening and break tomorrow for.
And an operations perspective, we began transitioning and the fourth quarter back to a normalized opex spend levels as our portfolio reached 97% reopened and there was less necessity for us to reduce can burdens for clothes tenants again, I'm very proud of how our team pivoted during the crisis with a focus on our tenants.
It was a reducing can burdens assisting with access to the PPP program are providing additional service levels in terms of outdoor dining and curbside pickup and additional signage as we look forward our focus from an operations perspective will be maintaining operating margins tightening tenant delivery timetables and continue.
Progress towards are probably on <unk> standard and of course, we will continue to apply the lessons learned over the past year and accommodating the ever evolving needs of our tenants speaking of those evolving needs and I would highlight and closing that the pandemic has also accelerated many of the longer term trends that are important to consider.
As we execute our plan this year and beyond those trends include mall native tenants, such as Bath and body foot locker Kay jewelers sleep number envision works increasingly relocating from mall to our open air centers.
The ever growing universe as service providers seeking to capitalize on the convenience flexibility and proximity of our shopping centers to the consumer.
The increased tenant demand for buy online pickup and store, which can be easily accommodated and our format.
The increased appeal to retailers of locations like ours and your single family rooftops.
The focus by retailers on opening or relocating stores on partnering with landlords such as brakes more that have proven track records and access to capital and.
And the convergence of retail and logistics within the last mile of the customer each one of these trends is individually significant for our business and collectively we believe they will help us continue to drive the outperformance and the year.
Again, thank you for your interest and bricks more and with that we'll turn the call over to Angela before opening the lineup for questions.
Thanks, Tim and good morning, and as Jim highlighted our performance in 2020 and demonstrated many of the core strength of the bricks and mortar portfolio, including the essential nature of our open air retail centers for the communities, we serve and our significant tenant and geographic diversification.
Maybe for you that perhaps I was 33 per share and the fourth quarter for $1 47 per share for the full year.
Fourth quarter NAREIT El Paso reflected six cents per share of items that impacted comparability, including loss on debt extinguishment litigation and other non routine legal expenses and transaction expenses and.
In addition to <unk> <unk> per share of revenue deemed uncollectible and one is on per share of straight line rental income reversal.
Same property NOI was down six 4% and the fourth quarter or $5 four per cent for the full year fourth quarter same property NOI reflected a 420 basis point detraction from revenue deemed uncollectible and on 120 basis point detraction from lease modification deferral agreements and abatement and addition to smaller detraction from percentage rent.
All other base rent and net recovery.
And importantly rent collection levels and continue to improve since April and co.
And with 19 disclosure provided on page 11 of our supplemental package demonstrate and lived.
December 31, we had collected 91, 8% for fourth quarter build base rent, which is approximately 450 basis points ahead of third quarter rent collections as of September 30th and <unk>.
And during the fourth quarter, we continued to collect additional amounts related to the second and third quarter built base rent totaling $12 $8 million or 300 basis points and build base rent during those periods.
Revenue is deemed uncollectible this quarter.
Total $12 million down from $21 million, and the third quarter and $28 million from the second quarter.
And I'll still above our historical run rate the trajectory over the last several quarters reflects both improving cash collections and the appropriate net of reserves taken in prior periods.
At year and tenants, representing approximately 15% of our annualized base rent and were on a cash basis.
As highlighted on page 12 of our supplemental package for the second third and fourth quarters on a combined basis. We are now 72% reserved on all accrued but uncollected base rent, which is comprised of a 52% reserve on executed deferrals not subject to lease modification treatment and and 88% reserve on all our crude but on.
Collected and unaddressed amount.
We provided initial 2021 guidance with a range of $1 56 to $1 70 per share.
And based on same property NOI growth expectations.
<unk> wanted to positive 3%.
The width of these ranges reflects the continued uncertainty inherent and the current environment, which may manifest for the combination of continued rent collections headwinds, resulting and reserves related to 2021 billing, particularly for cash basis tenants and occupancy line.
This dynamic makes it very challenging to provide line item guidance within the same property NOI at this point on the year that said, we believe that our assumptions for reserves and or potential occupancy loss are appropriately conservative in light of the current environment.
Well reserved on accrued, but uncollected rent and occupancy pressure primarily from bankruptcy activity representing clear headwinds in 2020 net will persist into 2021 rent commencement activity driven by strong leasing productivity and value enhancing reinvestment execution.
It presents an important and significant tailwind.
During 2020, despite the impact of the pandemic, we commenced leases representing $39 million of annualized base rent approximately $2 million more than we anticipated based on our signed but not commenced pool at the beginning of the year low.
The full benefit and beef commencements will deliver $20 million of base rent growth during 2021.
In addition, the spread between build and leased occupancy was 290 basis points at year end, representing nearly $38 million of annualized base rent of which approximately $30 million is expected to come on line during 2021, and deliver $15 million and base rent during the calendar year.
In short the annualized <unk> of 2020 commencement the partial year benefit of 2021 commencement.
In addition to contractual rent escalations and the impact of consistently positive rent spreads and put us on a strong position to weather the ongoing impact from the pandemic and 2021, while also delivering expected growth at the midpoint of the range.
And that's always our guidance range does contemplate expected transaction activity during the year, but does not contemplate any items that impact comparability, including loss on debt extinguishment litigation and non routine legal expenses or any one time items. In addition, I would underscore that this range does not contemplate the conversion of any tenants too.
Or from cash basis accounting during the year either of which could result in significant volatility and GAAP straight line rental income.
From a capital allocation perspective, the strength of our forward leasing pipeline is facilitating the reacceleration of our value enhancing reinvestment program and we anticipate spending as much as $300 million and value enhancing capital during the coming year slightly.
Slightly above our annual target for $200 million to $250 million.
And we'll be focused on continuing to reposition the portfolio with credit worthy vibrant retailers to solidify the competitive positioning of our assets and their market, while providing accretive incremental returns and enhancing the long term growth potential of our portfolio.
Turning to the balance sheet, we utilized cash on hand during the fourth quarter to redeem our remaining 2022 fixed rate unsecured note at.
At year end, we had $1 $6 billion of total liquidity, representing our Undrawn $1 5 billion revolving credit facility and $370 million of cash on hand, we have no debt maturities in 2021, and only $250 million of remaining maturities in 2022.
In conclusion, I would like to thank the <unk> team for their dedication and perseverance during a truly unprecedented year, while we entered 2021 and mindful of the current economic backdrop and the challenges that we collectively face. We are confident that this portfolio stands to benefit from the rapid evolution occurring and the retail industry and with that I will turn the call over to the operator for Q&A.
And.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is on the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the store keys.
One moment, please while we pull for questions.
Thank you. Our first question comes from Samir Khanal with Evercore. Please proceed with your question.
Hi, James Good morning.
I guess my first question is just curious to know your views on kind of tenant fall out over the next several months, maybe on the shop occupancy side and maybe even.
On the anchor side, and we Havent heard much about bankruptcies right. So for.
And just curious what your thoughts are for the next couple of weeks and maybe on the demands as we think about the first half and.
And do you think are your views do you feel better maybe as you did three months ago.
And kind of what your views are on the first half of this year.
The Big question, and we tried to capture this and our guidance as.
What the shape of the recovery will look like and how much longer and we're going to be.
Somewhat shutdown as a result and band.
We are encouraged by the performance of our core tenants, who continue to do well throughout this crisis and mindful, though that there are certain tenants and categories like entertainment and restaurants.
And that have struggled and we could see and you see it on our collections from here and we could see some additional.
Failures in that space, if we continue.
Continued through this longer than folks expect so.
I would say in general we feel really good obviously you saw a high level of bankruptcies last year I don't think we're going to be quite at the same level, but I do think you may see some additional failures and those areas that haven't quite fully recovered.
Got it and I guess, just as a follow up for a second question here and you talked about the long term trends of the business. One theme is certainly that migration from urban to suburban I mean are you seeing an impact at the asset level.
Whether its traffic or just retailers, saying look we need we need and this many stores greater open to buys because our strategy is to focus more on the suburban markets and many are you hearing that.
Discussions and Youre doing and each of our leasing concessions at this point.
It really is a common theme that we're hearing from many of the retailers and in terms of.
And where their new store opening pipelines are focused and Brian and I don't know if you want to add some additional color.
Yes, as Jim mentioned in his opening remarks, Sameer, we've been really encouraged by just the breadth of categories and it does speak to the.
And the traffic that our centers are driving our suburban centers are driving.
The demand to be in grocery anchored centers with daily foot traffic, you're seeing operators coming out of the mall and we saw it and our results this quarter with foot locker, Kay jewelers, and Bath and body, who are looking at grocery anchored centers and seeing the foot traffic to deliver the sales that they want and so it certainly coming up from and open to buy standpoint.
We've been very encouraged within those categories. Most have very strong 2021 open to buy pipelines and even into 'twenty. Two we're talking about 2022 deals today. So we've been encouraged from our pipeline activity, but it definitely speaks to what these retailers have seen coming out of the pandemic in terms of traffic driving to grocery anchored centers and again.
Sameer I would say that demand thats the biggest indicator of the trend.
Got it thanks, so much.
You bet.
Thank you. Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Alright, thanks, good morning.
Good morning, a couple questions around the 'twenty, one outlook I guess sort of following up on on occupancy.
And it sounds like the leasing activity is picking up Jim you talked about the forward leasing pipeline, but.
Occupancy bottomed or are you anticipating further pressure on occupancy and lease rates for the portfolio and the near term.
I think it's quite likely that we will see some additional fallout from an occupancy standpoint, as we move through the year and part and those categories that are most at risk.
And entertainment and restaurants, and again, a lot of that will be driven by the duration on prices, but we certainly anticipated debt.
We're down about 150 basis points or so year over year and occupancy.
Could see that.
<unk> declined more and Thats in our and that's in our expectations Angela.
I mean, I would just add to that.
Sort of highlighted in my prepared remarks, our same property range 400 basis points. This year it does reflect on.
A wide range of potential outcomes as we navigate and particularly the next three to six months of the pandemic that may come through additional occupancy loss and certainly the guidance range contemplates that it might also come through some of those tenants hanging on and maybe they are currently on a cash basis and we'll continue to take some reserves based on lower rent collection levels consistent Patel.
Italy, with where we've been but lower than 100 per zone.
Both of those potential outcomes or certainly embedded within the range.
I would say at the low end of the range our expectations for total amount of reserves and kind of access bankruptcy law are more significant than what we saw in 2020 at the high end of the range clearly we've embedded some improvement over what we saw on 'twenty and 'twenty as well.
Okay. That's that's helpful and then Jim on your in your remarks, you touched on margin improvements.
On the back side of the pandemic as we move forward here.
Of your leases are net or triple net how should we think about.
The margin upside that you see for brakes more is it more than just improving occupancy and reducing expense slippage is there sort of a bigger opportunity for for the company.
Our margin is already a pretty strong, which I think reflects the day compare us to the discipline that we have both from our asset level and and overhead perspective in terms of operating the assets.
I'd say the biggest opportunity Todd really comes and improving occupancy overtime right that's going to be the biggest drop for the bottomline from a margin perspective, because we really have been disciplined but during the pandemic and as we merge on those opex spend levels. So I don't think theres really much more that we can do for <unk>.
CNC standpoint, but rather.
What I mentioned in my remarks is as we returned to more normalized levels of Opex spend there is going to be a focus on making sure that we're being disciplined with that and matching that as best we can with occupancy and of course, avoiding leakage, which is <unk>.
<unk> expenses for vacant spaces. So.
That's our focus and I think that the.
Biggest upside will be and the latter part of the year and as we move into 'twenty two is that occupancy.
Begins to pick up and as that forward leasing pipeline and.
<unk> delivers.
Okay, great. Thanks, and just lastly, Angela the $400 million of nearly $400 million and cash on the balance sheet do you expect to maintain.
And elevated.
Cash balance or is there a use for for that baked into the guidance.
No. It's a good question I mean, obviously, we did use a fair amount of the cash that we had going into the fourth quarter for that rig.
And redemption of the 'twenty and 'twenty two fixed right now so we have I think demonstrated that we're comfortable using some of that cash and continuing.
And just wanted to find the balance sheet and push out duration.
And there may be opportunities as we move through the year to put some of that additional capital to work I think based on kind of the continued uncertainty we're comfortable running with higher cash balances and normal at least for for another quarter or two here, but we will look at potential opportunities to deploy that cash is low.
Alright, great. Thank you.
Thank you Todd.
Thank you. Our next question comes from Katy Mcconnell with Citigroup. Please proceed with your question.
Great. Thanks, and good morning could you talk about the price you have dispositions completed for chemo and your expectations around 2021 goodbye and some parameters around potential transaction activity delays from the ear.
Guidance range.
I'm going to let Angela comment on the range of <unk>.
Impact from potential transaction activity.
And I'll, let mark comment a bit on what we're seeing from a pricing standpoint, but I do want to highlight for you Katie that we do expect to increase the level of transaction activity and capital recycling and as I've said before we expect to be balanced in terms of matching dispositions with acquisitions as we move for.
Forward more in line with kind of a long term goalposts that we provided in the past we're encouraged by what we're beginning to see open up for US both from a liquidity standpoint, and an opportunity standpoint, and the transaction market and I'll, let mark comment a little bit on pricing that we've executed pricing that we see.
Going forward.
Mark and I am sure. Thanks, Jimmy now for for fourth quarter, I mean, I know we sold some some net leases so the pricing.
And generally was in line with what we've seen historically found for the portfolio that felt pretty good.
Looking at the market.
As we go into 2021 were actually pretty pleased with the demand and liquidity, we're seeing for assets, particularly for grocery anchor deals that will lessen and $30 million for net lease like assets and for small and anchored strip retail and <unk>.
Recent trades and the demand, we're seeing real time for our assets really.
Really it's demonstrating to us on the cap rates should be pretty stable versus pre COVID-19, particularly for community centers and that's really across all geographies.
That liquidity and supportive I had debt market that appears to be pretty receptive for financing grocery anchor deals by both Cvs and local banks.
And I would say that the net lease market continues to be very liquid with trade buyers institutional and rates really aggressively looking for product, which is allowing us to really achieve attractive sale cap rates across all geographies, which in turn is allowing us to maximize value as we look at exiting non core assets.
On the acquisition side of things, we're definitely seeing better opportunities now and then during the last few years to recycle and assets, where we think we can drive value with the platform given what Brian said earlier regarding demand from tenants some of the occupancy levels and we think we can buy out now and.
And really it's the willingness of owners to transact both on and off the market that we're seeing so and as Jim likes to say on the acquisition side stay tuned.
Yes, and Katie just on on your question around kind of what's embedded in the 'twenty and 'twenty one outlook.
And 2020, we were on net seller as we look forward to 'twenty and 'twenty one as Jim mentioned, we do expect activity to increase and for us to be more balance that.
It means disposition proceeds will be used for acquisitions and a small portion of reinvestment activity, that's not already funded with free cash flow.
In total we're looking at year over year on <unk>.
Dilution from from total transaction activity, including the 2020 transaction activity between four and six cents per share.
Alright, Thats really helpful. Thanks.
And then can you just provide some color around the BLS and contribute the higher new leasing spreads last quarter and should we view that and that's a good run rate as we think about 2021.
Yes, I think you can.
The mix of tenants was broad and importantly, and it reflected a lot of our core tenants as relevant as well and some new tenants to the portfolio I think the best visibility that we can offer you in terms of <unk>.
Forward leasing spreads is really embedded in what we have rolling over the next three to four years. When you look at those anchor rents, averaging $8 to $9 and and you consider again to 80, where we're signing new anchor deals and the low to mid teens.
We've got some runway for the next several years to continue to execute and continue frankly to capitalize on that below market rent basis that we have throughout the portfolio.
Okay. Thank you.
You bet.
Thank you. Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.
I'm, sorry, one moment.
Okay.
Fine.
Understanding there is pretty decent mark to market opportunity and and the broader portfolio and what is the mix and the recent vacancies due to COVID-19.
And at or close to market rents versus below market rents.
Fortunately, what we're seeing what we're recapturing from the disruption and Covid is pretty much in line with what the balance of the portfolio.
Certainly you would see some pressure on our renewal spreads through this period of time and Thats been quite deliberate on our part as we're.
Making decisions.
To utilize shorter term renewals too.
Not not have too much that we got a lease and any one period of time and to keep some of those tenants and occupancy as we set the portfolio up one of the things as I mentioned in my remarks that we find most encouraging as we continue to execute our strategy is the follow on leasing impact for those centers that we have.
<unk> through reinvestment and as I mentioned were about 25% to 30% of the portfolio penetrated as it relates to <unk>.
And for repositioning and Redevelopments and other investments that we're making to really improve and enhance the assets and in those centers youre seeing the spreads.
500 to 1000.
And basis points higher than on the portfolio as a whole so.
We feel good in.
In terms of our ability to continue to execute as we recapture that space.
And I would also tell you that Brian and team.
And had been re leasing that space.
Over the last couple of quarters. When you think about the tenants that have gone bankrupt over the last four quarters a lot of that leasing activity that we're doing now is and those very same spaces.
Okay. Thank you.
And then secondly.
And how many of your centers have really embraced omni channel and focused efforts.
And how widespread across the portfolio and.
And what is bricks more doing to assist tenants, both retailers and restaurants with.
This emerging growth opportunity and we're seeing increased evidence that.
Stores are utilizing retailers and using their store fleet as distribution centers.
Vs.
Rent and industrial space. Thank you.
Yes, and we're seeing it really broad based what began as a trend focused primarily on our grocery tenants tenants like Kroger and others with their click and collect program now is being much more broadly adopted across a much wider array of our tenancy and.
And we're doing everything we can to accommodate from providing pick up land and special areas.
And for that Bovis personnel to meet the customer and in the parking lot and always with an emphasis on safety.
And convenience and we think it's a huge competitive advantage that we have over other property types because of our surface Park.
<unk> reconfigured shopping centers and.
And it comes also at a time interestingly, we're parking requirements are beginning to decline in certain jurisdictions. So we can capitalize on that and utilize our parking areas and more efficiently. We're also supporting restaurants.
With pickup and delivery services and areas, we're utilizing backs and certain properties for ghost kitchens.
So I think there are a lot of ways, where our asset type.
And our properties are located near the consumer and I think a lot of retail concepts and frankly service concepts are recognizing that advantage of having a physical presence near where the customer lives and.
And I think we will continue to be and are positioned to capitalize on those trends.
As the evolution continues.
Our next question comes from Juan Sanabria with BMO capital markets. Please proceed with your question.
Hi, Thanks for the time, just curious on the leasing demand as you think out for a couple of years, how you want to change the mix if at all.
And of the portfolio it sounds like Youre seeing some demands.
And traditional mall tenants that are looking at your centers and.
And maybe looking to add more groceries, but if we think just big picture.
How do you think the mix shift of the tenant base will change and and what's the goal from the management team.
And our goal as I mentioned and I'll, let Brian comment a little bit here as well, but our goal as mentioned is to continue to capture market share of our core vibrant tenants that are growing through this environment, whether it's and value home specialty grocery.
I am excited about the forward pipeline and specialty grocery deals.
We'll go into centers, where there isn't and existing grocery use and I think add another relevant used to the communities they serve.
Our purpose as a company is to make sure that the centers that we own and truly are the center of the communities. They serve so we really look hard at what are the voids and that particular community. How can we better served and the needs of that community to drive traffic to the center bring vibrant and relevant.
And uses.
And make sure that we can continue to generate growth.
And what I like about how we're positioned for the next several years is I think there is a really broad funnel.
Tenant users that want to be and our shopping centers and I think we can continue to capitalize on.
Brian.
Yes, I would just say Jimmy you covered most of it but our core tenancy is doing extremely well and if you look at the categories that Jim mentioned and the strength of the operators within those categories. Our team's done a fantastic job of growing market share and finding opportunities for them to be and our shopping centers and then Jim mentioned earlier, we're testing out.
Ghost kitchens at our properties as we see that and in a small and a small way to see how that goes as that starts to emerge as we looked at many other resolutions that we had with national tenants, where can we free up development rates. So we could do more out parcels and our parking lots, which we have the ability to do and we added five more to the portfolio.
This quarter, so more out parcel uses that are coming in.
And to our shopping centers. So we're very pleased with what we see from our core tenancy and then as you mentioned from a mall perspective, that's something that we were laser focused on coming into the pandemic and you can see it and our results this quarter and it's something that we expect to accelerate here as we get more into the recovery. So we're excited by what we're seeing and the mix of our call.
For tenancy and some of those new uses that we're seeing coming out of the crisis.
Thanks.
Just a question that one.
And one of your peers talked about.
He was on 2022, I don't I don't want to start a whole thing, but any any color you could provide or are you willing to share.
So that thus far.
Well I think the best way to get visibility on our business as Angela alluded to on our comments on guidance is to look at the leases that were signed on.
We have $38 million of signed but not commenced rent that's going to commence over the next several quarter a portion of which will commence in 2021, but a portion of it will also commence in 2022.
I also mentioned the forward leasing pipeline, which represents another nearly 2 million square feet and 35 plus million dollars of ABR and we're in the process of negotiating and.
And it's that forward leasing productivity that really gives you visibility not only in terms of how we could outperform during the pandemic in terms of net impact on NOI, but how we're going to outperform going forward as we continue to bring that tenancy and two paying occupancy.
And so.
We feel we feel pretty good about how we're positioned not only for this year, but the next couple of year and so the other thing I would highlight for you is we have $400 million of reinvestment underway.
Generally pre leased at an expected incremental return of 10%, we expect to deliver about $200 million of that.
During.
During 2021 and.
We continue to fill that pipeline as we drive that forward leasing so.
And I feel good about what our forward prospects are obviously, we're not going to be providing guidance on 2022.
But if you really want to sort of get a look at.
Where our business is headed I would I would ask you to look at the leasing volumes that we've executed what we indicated on our pipeline as well as that reinvestment pipeline, which I think in totality and probably gives this platform more visibility on growth and many others and the business.
I appreciate it thank you.
Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, Good morning, just to follow up on that and maybe then it ends up being a quick answer, but it's great to hear the optimism and the progress on the leasing, but if we looked at the new and renewal leasing summary page. It does look like the volumes are still lower versus pre COVID-19. So I was just wondering if you could go through kind of how relevant that is and your outlook for at least.
Volumes in particular getting back to 2019 levels.
Brian.
Yes, so just if you look at overall.
New lease volume GLA was certainly down but we did the same number of deals and the fourth quarter of 2020 than we did and the fourth quarter of 2019, we actually on our small shop leasing was up 58% from the from the prior three quarters and the most that we've done since <unk> of <unk> 19. So we were really pleased to see the small shop active.
<unk> come through we saw the anchor activity come through in Q3, and as we had talked about coming out of the summer really seeing the execution tick up from what was and the pipeline and then if we look at the pipeline at the end of 2020, it's not far off from where we were at the end of <unk> 19, Despite all of those execution looking at the renewals.
And again, taking the renewal volume in Q4 and Q3 combined it was effectively if you average the two out it was basically the average of what we were signing in 2019 pre COVID-19. So looking at all that the forward pipeline. The uses that Jim talked about the tenants that we are signing deals with we feel very encouraged as we head into 2000 and <unk>.
'twenty, one and into 2022 to really capitalize continue to capitalize on the investments that we're making and our centers and the demand.
That's great.
And then maybe one on the deferrals day you guys did agreed to in 2020 could you just.
Give us some idea of when you expect share received those payments and to the extent that some have already been due.
Have they been received on time any earlier any that are lagging.
Yeah. Thanks Kaitlin.
Have already started to collect on some of those deferral payments and total between what was two and 2020 and collected in 2020 due in 'twenty and 'twenty. One we think by year end 2021, it's about 90% of those deferral payments should.
And then come back to us so it's a pretty high percentage on substantially all of them by the end of 2022.
The collection rate on on <unk>.
For our payments that have been built to date, while its a relatively small number.
Ben Hi, and pretty consistent with what Youre seeing in terms of collections across the entire portfolio.
Okay got it thank you.
Thank you. Our next question comes from Handel, St Joseph with Mizuho.
Please proceed with your question.
Hey, good morning, everyone.
Hey.
So first question I guess Angelus for you a question on cash and County, I think you mentioned about 15% of your tenants on cash accounting for the fourth quarter.
And what's embedded in 2021 guide I guess I'll try and get a sense of if there has been.
And meaningful non cash.
Benefits rolling into 'twenty, and 'twenty, one, helping the <unk> debt here.
<unk> and the high end of your same store NOI outlook and about getting close to the upper end of the Applegate and I noticed a few other things.
I play here, but just curious what.
Could be a potential benefit from some market.
Non-GAAP accounting dynamic okay, yes.
Yes, it's a really good question handle given the complexity associated with with cash basis accounting, particularly during 2020, we effectively went from on a very small portion of our tenant base on cash basis, and the first quarter of 2020, so that 15% number by year end as you mentioned when you move somebody to cash basis accounting you have to reverse all.
The straight line rental income associated with that tenant and we've disclosed that number and our supplemental package for the full year. It was about $35 million of reversals associated with straight line rent and.
And our press release with guidance we did.
Did mentioned explicitly that we have not assumed any additional tenants moved to cash basis, or importantly that any tenants currently on cash basis moved back to accrual.
We have not included reversals and any additional reversals of straight line or any of those reversals kind of being re reverse and coming back and as income.
And it really is kind of a more normalized non cash figure and the current year. If you look at what we reported from straight line rental income and.
And the fourth quarter. It was about flat and that flat number included those $4 million and reversals. So let's say you were kind of $3 million to $4 million on a quarterly run rate basis for straight line, we do give guidance and there's.
And there is a table on that the 10-K, which was filed last night that shows what you expect for <unk> 141 income in 2021, its about $11 million. There and then we have on an annual basis somewhere between three and $4 million that offset those income items and.
Monetization of tenant inducements all of that together should get you to a number kind of between 19 and $23 million a year in terms of noncash income, but it importantly does not assume again any reversals on straight line rent or any kind of re reversal, bringing any of that straight line rent back on for cash basis tenants, it's really just on <unk>.
Continued recognition of straight line for tenants that are not currently on cash basis.
Got it got it that was a lot and very helpful and I may need to come back to you offline.
Thank you for debt.
Yeah, Mike.
And for you and congratulations on the contract extension by the way I wanted to go back to a response of all your question on the cash balance obviously.
On the hiring here the last couple of quarters and his heart.
And it sounds like you plan on carrying debt elevated cash for the next couple of quarters, I guess I'm more curious debt more defensive and you're wanting to hold off a bit more cash given the still ongoing and uncertainty of the environment or is that more timing related to.
Potential upcoming deployments on the rehab and potential acquisitions.
I think it's both right I think I think we're still and a period of disruption. So we like the certainty of having a little extra cash on the balance sheet, but on the other side of it and it allows us to be a bit more opportunistic as it relates to.
And <unk> investments or other opportunities that we might see going forward. So.
There is a bit of drag for having it and we currently enjoy over $1 6 billion of liquidity.
But as you know we tend to be conservative and we never want to be in a position of having to access the capital markets and.
On a particular point and time, we always like the opportunity and flexibility to access at points in time of our on choosing so.
As Angela alluded to we'll continue to assess that quarter and a quarter out.
As we move forward, but we made the decision as we got to year and go.
Go ahead and keep keeps on cash.
Got it got it thank you.
Thank you. Our next question comes from keeping Kim with Truest. Please proceed with your question.
Thanks, Dan and good morning.
So it was good to see some signs of good signs of activity and their leasing.
And I just wanted back on some previous questions and 2019 and excited about $12 8 million square feet for your portfolio versus $9 6.002 million 20, and I'm, just curious as and when you're talking about the good activity and signs of life that youre seeing from net tenants pulling 'twenty, one look more like 2019, and totality or little bit closer to 2020.
I think that if you just look at the activity as it occurred through the year, what's interesting and 2020 is and the second quarter and no. One was doing deals right and you saw some of that activity to get deferred into the third quarter, where we signed over 2 million feet, and then and the fourth quarter.
We signed about $1 million for so we're at a level now thats approaching where we were pre pandemic, Brian emphasized and great momentum that we're seeing and the small shops, which I find particularly encouraging and I would expect 2021 to be here as we continue to March back towards.
Where we were pre pandemic with good strong volume is good spreads.
And importantly, good tenants debt.
Help us accretively reinvest in the portfolio and continue that program.
And if you take a step back and look at the kind of the current landscape and your business.
Those anchor repositioning.
Going forward do you start to make more sense for the same.
Given where you think market rents are going and where tenant demand or the risk profile. When you put that altogether and how do you. How do you think about that program.
Well, we have impacted about a quarter to 30% of our portfolio and we have a pretty big forward pipeline we have for.
<unk> $400 million underway of anchor repositioning and redevelopment and out parcels.
And again at a 10% incremental return and then behind that as you know we've got a shadow pipeline of opportunities that we've identified within the core portfolio to do the very same thing.
And we're focused on putting capital to work at very accretive returns and.
And where we don't see the ability to substantially improve and asset or get to those value added returns.
Start thinking about liquidity and exiting and which.
Should be the remainder of the hold of that asset so.
Our discipline and as always to look at those opportunities, where we truly can create value through this strategy. If we can.
We make another decision.
In terms of what the mix is going forward.
Best place to look is just and the supplement as well as and the shadow pipeline that we've identified.
Okay. Thank you.
You bet.
Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, good morning.
Hey, Hey, Jim.
And there.
So two questions from me first for Brian.
You guys have done a lot of leasing the releasing spreads are great. But a question how is the leasing conversations with tenants changed now versus pre pandemic meeting. Our tenants are do you see them more focused on the absolute rent, they're paying versus let's say the type of centers.
And meaning they are willing to sacrifice some.
Im elements of one center versus the other to get a cheaper rent and then also as they are looking at at the centers and Youre competing against others are the retailers sort of underwriting sales as sort of as is or are they.
Or how are they envisioning sales growth over time, I'm trying to get a sense of how the discussions are today versus pre pandemic.
Yes, good questions Alex ill answer.
And I'll hit on all parts of them. So on the first part look retailers, we're focused on getting the best deal they could pre pandemic and and during the pandemic as well. So I don't I don't think that has necessarily changed what they are very focused on today and I think we talked about and on prior calls us foods and who their neighbours going to be do they have the ability to.
Do the initiatives that Jim talked about earlier, whether it's pick up.
Last mile is a portion of their store, but that co tenancy piece is very important and from a basis standpoint, I think we've shown through the year from a renewal spread standpoint, and where we're signing those leases, particularly this quarter. When we added rent kitchens, we doubled the rent versus a prior bankrupt tenant there we continue to see.
And those opportunities and rent basis as James talked about in the past certainly matters. So.
And that Hasnt been.
From a from a discussion standpoint, they want to be where they can they can have the best co tenants and drive the most traffic in terms of sales how they're modeling sales, obviously 2020 was.
And then and interesting year in terms of certain users had very large pickups and sales looking at that versus 2019, I think it remains to be seen kind of modeling those two out what the true traffic increase is going to be for say, a grocery us or somebody else that had a really large impact and growth in traffic. So it's really taking a look at the.
Two and looking out going forward. So it remains to be seen conversations are a bit early on that front, but theyre, taking a look at sort of both what was historical and then what they achieved during the pandemic.
And Alex.
The one thing that.
Keep in mind is that retailers are using data like they've never had before and so they're getting a lot better and projecting what they expect the sales of a particular bricks and mortar presence to January.
And.
We obviously work hard to understand their sales model.
And third.
Yes.
And.
They're really good.
And it approach.
Okay and.
And I apologize for the background, so and ring.
I'd be glad that my kids and so the phone.
Okay.
It's amazing.
Ring and ring and the kids don't answer it.
The next question is on the heart of your categories sort of the full service restaurants gyms.
On the many places.
The theatres and those things.
Are you seeing those tenants as far as restarting their businesses like do you have confidence that that your tenants are taking all the right steps and Matt.
They're doing everything they can and maybe it's just a matter of local regulations.
Really the impediment or are you concerned that some of your tenants.
Geez.
And these guys don't really seem to be doing the right things. We got to watch. This because this is something that could end up being a problem I'm just trying to understand how the hard hit tenants are taken and be restarting their businesses and if you think that most of them are on the right track versus Harry.
And that may not be doing the right things.
Yes, Alex Hey, this is Brian I would say that our tenant base has learned a lot. During this coming into this it was a shock to the system in terms of the amount of businesses that were shut down, but whether it's been with patio seat for restaurants, whether it's been more outdoor dining or better delivery in terms of product and as they went into.
And two places and the fourth quarter, where we had second brown closures. They were much more prepared for that so we're looking at what the initiatives that were put in place during the pandemic will be like going forward and we've seen many strong businesses that have been able to navigate to a second round closures in California, and one of the interesting things to look at it.
And our north region.
And what happened during the quarter, where we saw the largest pickup in terms of collection rates out of any of our for regions, where we started to see we started to see openings. We started many of our restaurants had prepared for the winter and we're still doing outdoor dining and heated areas intense. So we've been encouraged by what we've seen with a number of our.
Operators in these hard hit categories, it still particularly in California, and some other places that have been harder hit with.
Government restrictions, it's still going to be a challenging few months, but so far with our tenant base. We've been encouraged by some of the initiatives they've put in place coming out on us.
And I would just add Alex we we are really encouraged by what we're seeing from some of the larger format fitness uses users in terms of their performance and traffic.
And as well.
One area that.
It's probably of most concern to us as movie theaters and.
And when they will come back online.
Okay. Thank.
Thank you, Brian and thanks.
You bet.
Thank you. Our next question comes from Fluor's been dictum with income.
And this point. Please proceed with your question.
Thanks for taking my question guys.
So.
It seems like okay. The midpoint of your same store guidance indicates 1% growth.
It seems pretty positive and I think hopefully the market is catching on one of the things I wanted to just talk about <unk>.
Jim and Angela capital allocation, you guys have been pretty skewed and how you've allocated and your capital, particularly towards the redevelopment.
Seems to be very attractive use.
And you may be talk about.
Some of the again your balance sheet is very strong you've got lots of liquidity its not that you need necessarily additional liquidity, but don't you have significant opportunities to harvest low cap rate ground lease income and net lease you have done a look a little bit of that and the fourth quarter.
I would guess you probably have over $1 billion of those kinds of opportunities within your portfolio.
Willing are you to pull the trigger on some of those particularly during during periods like this where.
Demonstrating.
The inherent value and as well as <unk>.
Further bolstering your.
And your capital position would appear to be sensible.
Well I appreciate the question for us and and Youre right, there is liquidity and and those segments of the market as it relates to net lease buyers.
Ground lease expires, that's very attractively priced and has presented a great opportunity for us.
To recycle capital out of our non core assets back into the business back into the redevelopment and when youre able to sell and out parcel at a five cap and put that capital back to work at a time that's a huge.
Multiplier and as Mark alluded to earlier, we do expect to ramp up that level of capital recycling to position us to benefit from what you've highlighted which is.
Some continued attractive pricing.
For both net lease assets ground leases as well as honestly for but smaller grocery anchored shopping centers and so we do look at that hold IRR and and that guides and a lot of our decisions as we move forward. The last thing I would tell you is.
<unk>.
We don't we don't look at it from the need to.
And just raise additional capital where we like our self funded model.
We believe our assets are under rented.
And we.
We will really use that lever to find opportunities for additional external growth right, where we can find a shopping center and then maybe as mark alluded to 80% occupied and leverage our national platform and our access to and relationships with retailers.
To get to what we would believe would be attractive value added and returns so that the net leases for ground leases and frankly.
And some of the smaller non core community shopping centers.
We will provide us and fuel for that forward and external growth.
Maybe to touch.
Further delve into the acquisitions obviously.
People are talking about.
And the attractiveness of grocery anchor and number of your peers.
Grow the grocery anchored portion of their portfolio.
Buying grocer grocery anchored centers right now.
Most people will say that cap rates for those opportunities have actually fallen or gone down because the more capital chasing those deals how do you think about.
Buying potential life and lifestyles completely out of favor.
And the lifestyle opportunities, where you could actually add.
Grocer elements or change to the tenant mix to enhance and improve the portfolio are you looking more of those kinds of opportunities at the moment.
Generally no I mean are there a couple of opportunities out there that may be repositioned into product thats more consistent with our core business certainly.
And we're looking at.
But I think the.
And the greater opportunity is more immediate and that is.
Privately held centers without access to capital debt experienced disruption both before during and emerging from the pandemic and what we're finding is that.
The vacancy inherent in those assets is generally priced well below replacement cost, which gives us an opportunity.
And to come in and utilize our platform utilize our access to capital and our core product type.
To drive value added returns.
But as it relates to really getting out of our discipline.
Don't expect us to go too far.
And that respect.
Great. Thanks, Jim.
Thank you.
Thank you. Our next question comes from Mike Mueller with Jpmorgan. Please proceed with your question.
Thanks.
Curious do you think.
We will see the category or geographical mix shifted all over the next day five years or so given compared to where you were pre pandemic.
Yes, it's a great question, Mike I think what Youre going to see is us continue to exit some of those single asset non core markets. We still have probably 30% 35 of those assets within the portfolio, many of which offers and reinvestment opportunity and significant upside but are probably not longer term holds.
For us after we've executed on that.
And expect to see us continue to clustered <unk>.
And in a bigger way and markets that we're already and like that.
And the mid Atlantic Philadelphia.
Certainly, Texas, Florida.
Southern California.
And those are going to be the areas that you see us continue to grow and where.
And where we think we can put our capital to work and reasonable returns.
Got it and.
And when you talked about increasing the capex spend from to $2 50 up to 300.
Does that include doing anything different or is it just more of the same and youre kind of just tackling the same projects, but just a bigger volume.
It's a function and part of the flexibility that we had in 'twenty to defer some projects with the agreement of the tenants. So these are largely pre leased so we've shifted some of the spend from 'twenty into 'twenty, one, but it's all part of that $400 million thats underway that we've identified.
And we're working hard on continuing to fill that pipeline for 'twenty two and beyond.
And what we're doing right now in fact from a leasing standpoint is setting up the pipeline into 'twenty three.
And so.
That's that's where that that.
Larger level of spend is coming this year.
Got it okay that was it thank you.
Bob.
Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi.
One quick follow up to my question from before regarding the receipt of gifts for all rents Angela I think you mentioned that the rate at which youre collecting them back in line with kind of your other questions on the low to mid 90%. So I guess I was just wondering versus the kind of reserves or.
Cautiousness that you guys took in 2020 versus what Youre collecting today and then it sounds like its not quite 100% of what would be what was deferred.
And should we expect that to have a impact on numbers going forward, either one way or the other in terms of dose and it.
<unk> being reversed or not.
Yeah, I mean, I guess, what I would say is we just went through that exercise of his thoughts and collectability across every tenant.
From a portfolio and think that we're going into 'twenty and 'twenty, one with the right reserves in place right. So we don't expect additional reserves on 2020, nor do we expect for reversals necessarily that said if you look at the disclosure on page 11 on desktop.
And you look at kind of what happened with respect and Q4 with respect to the Q2 and Q3 amount, yes, absolutely. We collected additional cash on amounts that we had reserved both on the deferrals and the amounts that were reserved for for amounts on collected and unaddressed or a deferral agreement. We also took some additional reserves we ended up and a slight net positive position.
And on Q2, and Q3 announcement it was overall about $1 million. So I would say we feel like these investments we made at year end, where we're at.
Accurate and correct. So theres no question as we navigate the next the next few months or the first couple of quarters in particular, theres going to be some volatility around that.
Okay. Thanks.
Thank you. Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hello, Linda you May proceed with your question.
Operator are there any further questions.
There are no further questions at this time I would like to hand, the call back over to Stacy Slater for any closing comments.
Thank you everyone for joining us today have a great weekend.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.