Q4 2020 Retail Opportunity Investments Corp Earnings Call
Ladies and gentlemen, this is the operator todays conference is scheduled to begin momentarily until that time your lines will again be please and holds thank you for your patience.
Once again this is the operator today's conference is scheduled to begin momentarily until that time your lines will again be please and hold and.
Thank you for patients.
[music].
Welcome to retail opportunity investments 124th quarter and year end conference call participants are currently in a listen only mode. Following the company's prepared comments the call will be open up for questions.
Please note that certain matters discussed in this call today constitute forward looking statements within the meaning of federal Securities laws.
Although the company believes the expectations reflected in such forward looking statements are based upon the reasonable assumptions. The company can give no assurance that this expectations will be achieved.
Such forward looking statements involve known and unknown risk uncertainties and other factors, which may cause actual results to differ materially from the future results expressed or implied by such forward looking statements and expectations.
Information regarding such risks and factors is described and the company's filings with Securities and Exchange Commission, including its most recent annual report on form 10-K.
Participants are in car and courage three of 431st to the company's filings with the S. E C regarding such risks and factors as well as for more information regarding the company's financial and operational results.
Company's filings can be found on its website.
Now I would like to introduce Stuart <unk>, the company's Chief Executive Officer, Sir the floor is yours.
Thank you and good day everyone.
Here with me today is Michael Haines, our Chief Financial Officer, and Rick <unk>, Our Chief operating officer.
We greatly appreciate everyone, taking the time to join US today, and we hope that you and your families are doing well and continue to be safe.
A year ago as the new decade was just getting underway on our earnings call. We expressed excitement at that time and confidence that 'twenty and 'twenty could prove to be one of the best years on record for our Oh I see.
However, within just a few short weeks following our call COVID-19 took hold and we all found ourselves faced with extraordinary circumstances.
Today, almost a year since the pandemic began we are pleased to report that through at all of our portfolio has proven to be remarkably resilient.
Our portfolio lease rate has held firm throughout the pandemic, finishing the year and a strong 96, 8%, which is the eighth year in a row that we have finished the year above 96% in fact, we've been above 96% for a record 27 consecutive quarters.
Additionally, during the fourth quarter and the midst of another locked out and we actually achieved positive absorption.
Along with our portfolio lease rate holding strong demand for space across our portfolio also remained consistently strong throughout the year.
While the actual execution of lease of slowed and several times during the year, specifically at the beginning of the pandemic and again and the fourth quarter. When Lockdowns were reinstated our leasing activity for the year totaled over one point to millions of square feet, which is the 10 seer and a row dating back to when we first commenced operations at Rois.
See that we have leased approximately two times the amount of space originally scheduled to expire.
Yeah.
And step what the ongoing demand for space, we again achieved solid rent growth in terms of our re leasing spreads for.
For the year, we achieved a 12, 5% increase the same space cash base rents on new leases, representing and our eighth consecutive year of achieving double digit rent growth.
We also posted another solid year in terms of our renewal activity as well with many tenants exercising the renewal options early.
Our ability to achieve another year of solid leasing results, despite tremendous economic turmoil and uncertainty speaks for the fundamental strength of our long standing strategy of focusing on owning and operating grocery anchored shopping centers located in the demographically strong highly protected markets.
Our success also speaks to our long standing strategy of maintaining a strong and diverse tenant base featuring of central tenants, providing daily necessity based goods and services, which has always been the cornerstone of our business.
While the retail store closures reached a historic all time high in 'twenty and 'twenty, we hardly experienced any such closures across our portfolio and the very limited handful that we did have we quickly re lease the space.
Along with achieving solid leasing results. We also made good progress towards our long current long term goal of enhancing the intrinsic value of our portfolio, most notably through our Densification program.
During 2020 with steadily advanced the entitlement process and all three projects that are currently underway.
And importantly throughout the pandemic the local municipalities and the city planners have continued to be very supportive and actively engaged and moving the process for.
Additionally, in light of the increasing demand for housing state legislature's on the West coast, and now becoming increasingly engaged and supportive of densification initiatives as well.
In addition to our three ongoing densification projects, where we will be adding the multifamily component that's carefully integrated within our properties and for other shopping centers. We are currently working with the adjacent property owners and municipalities who are seeking to develop medium to high dense in the housing within our centers serving as the.
Gateway for their master plan developments.
Needless to say is as these various projects come to fruition over time, it bodes well in terms of the underlying value and appeal of our shopping centers.
Lastly, and the fourth quarter, we just had our first environmental social and governance report, which formalizes what has been our long standing commitment of operating our business and portfolio and of sustainable ethical and responsible manner.
The report highlights of our ESG strategy and achievements today as well as the establishing goals for property and corporate initiatives going forward.
In summary, while working very hard throughout the year implementing the number of the crucial initiatives aimed at keeping our portfolio running efficiently during the pandemic through at all and we were able to achieve a number of strategic objectives. As we established at the beginning of 'twenty and 'twenty prior to the pandemic and successful.
The advanced our business.
Now I'll turn the call over to Michael Haines to take you through our 2020 financial results and the balance sheet initiatives as well as our initial guidance for 2021, Mike. Thanks, Stuart GAAP net income attributable to common shareholders for the year ended 2020 totaled $32 million. According to the 27 cents per diluted share.
For for the fourth quarter net income totaled $8 $9 million, including the eight cents per diluted share.
In terms of funds from operations and also for the full year 2020 totaled $132 5 million equating to a $1 five per diluted share and also for the fourth quarter totaled $34 3 million or <unk> 27 per diluted share or.
Our financial results included the $4 $7 million of noncash below market rental revenue recognition and the fourth quarter and connection with the large anchor space that we recaptured early and released two of new grocery operator, achieving a 33 per cent increase in base rent.
Conversely, the pandemic wave meaningfully on our results to date since the pandemic began which is essentially at the start of the second quarter. We've received 91% of build base rent and the total to date, including receiving 87 per cent for the second quarter 91 per cent for the third quarter and 92% with fourth quarter.
Our overall blend of collection rate of the 91% is rather remarkable, particularly considering that the west coasts of the and shut down through separate times since the pandemic started.
With respect to the remaining nine for some of the build base rent and we have not yet received which totals about $15 5 million of that approximately $608 million has been deferred and approximately $8 7 million equating to five 6% of total build base rent was the bad debt reserve for current tenants. We also reserve of approximately $1 6 million of bad debt related in the past.
So a total of about the from the beginning of the pandemic, meaning starting in the second quarter through year end was approximately $10 3 million.
For the full year of bad debt totaled $11 million, which includes about 700000 nodes of bad debt and first quarter before the pandemic and Lockdown started which was inline with the historical bad debt.
Turning to our balance sheet of the outset of pandemic back in April of the an abundance of caution we drew 130 million under our credit line as of the liquidity of safeguard as the year progressed and our business stabilized, we repaid the $130 million and the third quarter and the fourth quarter, we reduced our credit line balance sheet for further by another $56 million utilizing <unk>.
Operational cash flow the we carefully conserved during the past nine months.
Accordingly, the outstanding balance on our $600 million unsecured credit line was down for only $48 million and year end, which is our lowest year and balanced dating as far back as 2010, which was our first full year operating as a REIT.
In terms of our overall debt composition at year and the company of approximately one point for billions of total principal debt outstanding with just about all of that being effectively fixed rate with only the $48 million outstanding on our credit line being floating rate. Additionally, approximately <unk> 94 per cent of our total debt is unsecured and approximately 95% of the total portfolio.
And is unencumbered.
Conserving efforts operational cash flow throughout the year and paying down debt were instrumental and maintaining our financial ratios and in fact, our fourth quarter ratios were essentially on par across the board with the ratios from a year ago prior to the pandemic look.
And you heard in terms of our debt maturities with no unsecured debt maturing for nearly the next three years until the end of 2023 beyond 2023 of our debt maturities are well ladder with respect of secured debt we have.
No mortgages maturing this year only $23 1 million maturing in 2022, and the no secured debt maturing in 2023 and fact at over $1 4 billion of total debt, we have less and $87 million of mortgage debt currently outstanding and come regularly for over 88 shopping centers.
Turning now to guidance for 'twenty and 'twenty, one historically, our guidance has always been rooted and detailed reliable property level estimates, which we then build upon the corporate level estimates and finally factor and external growth components. This year. However, given that the pandemic remains ongoing it's very difficult to establish definitive property estimates as well as potential external growth efforts.
The news of so much of it is contingent on how long the pandemic will continue to impact our markets and our business specifically.
With that of mind, we're initiating of a full guidance for 'twenty and 'twenty, one with a fairly wide range of 95 to $1 two per diluted share generally speaking the low end of our range is based on the Pentagon and continuing to impact our business through much of 2021, whereas the high end of the range assumes that our business returns to normal operations by early summer.
Specifically, the low end of our range of assume bad debt for 'twenty, one 2021 of about $7 million.
The low end of the range assumes the same center NOI growth was flat for the year as compared to 2020 and term.
And of external growth a little under of a range of things that we do not acquiring properties in 'twenty and 'twenty. One lastly, the low end of the range assumes we pay down approximately $40 million of debt and 2021 through a combination of free cash flow and proceeds from one property disposition, which is currently under contract.
The high end of our range of assumed that the bad debt of approximately $3 million for the year.
For for sector of our actual debt for 2019 was roughly 2 million and in 2018 of our bad debt was $1 7 million.
The high end of our guidance also assumes the same center NOI growth by 3% and 2021 over 'twenty and 'twenty. Additionally, the high end of our range for guidance assumes that the acquisition market begins to open back up as the year progresses and the we require of 40 million of properties. During the second half of the year funded by the one property disposition and free cash flow.
Lastly, while our initial guidance doesn't factor and risen and raising additional equity assuming market conditions continued to improve during 2000 2021 of site, we would look to raise equity opportunistically and pay down our debt further with the goal of bringing our net debt ratio back down below seven times now I'll turn the call over to rich solar of CLO rich. Thanks, Mike.
While many retail properties up and down the west coast as well as nationwide experienced a year of unprecedented tenant turnover and store closures our portfolio in Stark contrast, and our tenant base led by our core supermarket anchor tenants, who posted record sales and 2020 proved to be remarkably resilient.
As Stuart highlighted our over all portfolio lease rate has held firm throughout the pandemic and.
In fact, our anchor spaces remained rock solid at 100% leased.
And while our shop space lease rate did experience a slight decrease and the second quarter at the outset of the pandemic and has remained steadfast and finishing the year at 93%, bringing our overall lease rate at year end to 96, 8%, which as Stuart indicated is our eighth consecutive year, finishing above 96%.
Sure.
In terms of our leasing activity during 2020 for the full year, we leased one 2 million square feet in total the.
The majority of our leasing activity centered around tenant renewals for the year, we renewed a total of 831000 square feet, which is generally consistent with our historical renewal activity.
And as Stuart mentioned, a good number of our renewals were situations where tenants exercise of the renewal options early despite all of the uncertainty and the marketplace, which we think is indicative of the long term strength and appeal of our shopping centers.
With respect to new leasing activity, while demand and interest remained consistently strong throughout the year the execution of new lease deals ebbed and flowed as we went through multiple shutdowns.
That said each time and the Lockdowns, where he's prospective tenants quickly came to the table to finalize deals such that we signed upwards of 400000 square feet of new leases in total for the year.
In terms of re leasing spreads for the year, we achieved the 12, 5% increase on the same space, new leases signed and of seven 9% increase on renewals.
During the fourth quarter, the mandated shutdowns and November and December did take a bit of of toll in terms of impacting our re leasing rent growth for the quarter, most notably as it related to renewals, which was the majority of our leasing activity and the fourth quarter.
A number of long standing tenants, whose businesses have been slowed by the shutdown requests and to have the renewal rent remained flat during the first year of the renewal term.
While we Didnt agreed and many of these on the ones that we did as part of the agreement the contractual rent increases and subsequent years of the renewal we're rapidly adjusted to make up for the flat rent in year, one and certain restrictive lease provisions were removed to our benefit as well.
With respect to new leases that were signed in the fourth quarter, which totaled 110000 square feet, all of which being shop space. We achieved a nine 1% increase on a same space basis.
And where to renewals for a number of new leases, we agreed to ramp up the contractual increases more so on the backend of the new leases.
In addition to the Lockdowns and the fourth quarter impacting our leasing activity. It also impacted the ability of certain new tenants to take occupancy and commence paying rent.
Accordingly, the economic spread between leased and build space increased during the fourth quarter.
At the beginning of the fourth quarter the spread stood at three 4% representing approximately $6 9 million and additional incremental annual rent on the cash basis.
During the fourth quarter, new tenants, representing only about $929000 of the $6 9 million took occupancy and commence paying rent.
Additionally, new leasing activity during the fourth quarter added about $2 7 million and annual incremental cash rent.
As a result of the spread between leased and build space increased to 4% as of year and representing approximately $8 6 million of incremental annual cash rent, which is the largest dollar amounts spread between leased and build on record for the company.
And the $8 6 million of incremental cash rent comes online it will help propel our same center cash NOI growth going forward.
Safe to say, we are highly focused on getting these tenants up and running as quickly as possible and 2021.
And speaking of 2021, we currently have only for anchor leases scheduled to expire and all of which are of central tenants that have remained open and performed well during the pandemic.
Two of them are scheduled to expire and the first half of the year, both of which are grocery operators and both are seeking long term extensions and one is also looking to expand their space in light of their store being one of the best performers and their chain.
The other two anchor leases expire and the second half of the year, one of which is of pharmacy. We currently expect that both will look to renew their leases.
Lastly, we have about 573000 square feet of shop space scheduled to expire in 2021.
The bulk of which are again of central tenants, while it's early and the year and Theres still a lot of uncertainty and the marketplace based on the level of inquiries for space that we are receiving particularly from new opportunistic tenants seeking to lease highly desirable space. We think that there is considerable pent up demand across our portfolio of such that we are reasonably confident.
And our ability to quickly released the rolling shop space and posted another solid year. Additionally.
Additionally, we intend to continue proactively seeking opportunities to recapture underperforming space early and quickly released the space to stronger necessity based and service based tenants. The I'll turn the call back over to Stuart Thanks Rich.
Given the current demand for space across our portfolio together with the lockdown and starting to be eased again on the West coast. We are cautiously optimistic of our business returning to full operations in the coming months.
That said in terms of rent received thus far and the first quarter given the latest locked out of only just begun to be lifted and reduced capacity mandates are still in place for many businesses are collectively and it's been a bit slower at the start of 2021 currently at about 88% for January to date.
We expect that by the end of the first quarter, assuming conditions continue to improve that our collection rate will be back up around 90% and will steadily increase from there as the year progresses.
In terms of the acquisition market on the West Coast, we are starting to see some limited activity returning.
Thus far and cap rates are in line with pre pandemic pricing.
Good example of that would be the property that we currently have under contract to sell which is located here in San Diego.
And the buyer approached us last year, just before the pandemic started but had to pullback given all of the uncertainty.
The buyer came back to US recently essentially at the same price that they had offered a year ago.
Looking ahead, while we don't have additional property dispositions and our guidance at this time if activity and the acquisition market continues to favorably ramp up we would look to move forward again with selling of our last two properties and the Sacramento market and perhaps a few other properties as well.
In terms of us pursuing new acquisitions, we continue to keep a careful eye out for interesting off market opportunities focusing primarily on privately owned well located shopping centers that have become under capitalized and less equipped to address re leased and and rollover issues as a result of the pandemic.
With respect to the company's dividend back at the beginning of the pandemic out of an abundance of caution and to preserve our liquidity position. The board temporarily suspended quarterly dividends today in light of our steadfast portfolio of performance throughout the pandemic. The board has reinstated our dividend declaring any.
Actual cash dividend of <unk> 11 cents, a share which is based in part on the estimated minimum payout as it relates to our projected taxable income for 2021, as well as being able to continue to conserve ample cash.
Finally, while this past year has been incredibly challenging on so many different fronts, both as it relates to our business and as it relates to our personal lives.
I am humbled and inspired by the extraordinary collaborative efforts that the entire team and ROIC C has exhibited over the past year.
It is their collaborative unwavering commitment and dedication to our business that has and will continue to be the driving force behind our success.
Now we will open up the call for your questions operator.
Thank you Sir as a reminder to ask the question you will need the press star one on your telephone keypad and if your question has been answered you meet the press the pound Gaeta, we'd draw yourself from the queue. We will pause for just a moment for <unk>.
To compile the Q&A roster.
Yeah.
Our first question comes from the line of Craig Schmidt from Bank of America. Your line is open.
Good morning, Greg and Craig Hello, and thank you.
And what would the drivers of the higher G&A expense in the 2021 guidance.
We'll trigger during 2020 of our G&A dropped by about $1 million versus the G&A in 2019, the increase from 2021 of those largely attributable to a bit more compensation cost as well of the out of the ongoing costs associated with our new ESG program.
Okay, and then I'm just wondering if you could comment and how you're noticing the west coast municipalities, becoming increasingly supportive of the.
Densification efforts.
Sure Hey, Craig it's rich.
They believe that these projects.
We will bring a lot of value to the communities and you know and address the <unk>.
<unk> shortages that they're all experiencing and.
While most of our meetings have turned virtual this year at some level of it's actually made the process more efficient.
By being able to bring a variety of people together very quickly. So I think as many companies of discovered during this pandemic, there's new ways of doing business that have become much more effective and the cities have have stepped up and are.
Very excited about the projects moving forward.
Are they showing more cooperation in terms of giving you the entitlements.
Yes.
And in one circumstance the required no additional retail we're allowed to do a 100% residential and and and others. They are.
Working with us on zoning changes that are necessary and actually taking the lead in terms of you know guiding us down the correct path to to make it as efficient as possible.
Okay. Thank you.
Thanks, Craig Thank you.
Our next question comes from the line of Katy Mcconnell from Citi. Your line is open.
Good morning Katy.
Good morning, everyone.
Can you update us on the expectation for total Capex spend this year and maybe walk through any other moving pieces that the impact on 2021 anthem.
And just help us understand.
And why the dividend payout ratio.
Yeah.
Well I'll talk about Capex of rich and I think that you know obviously it really is dependent on the the deal that's in front of us in terms of the level of Capex required, but I wouldn't say that we've seen a measure we have not seen a measurable increase and the overall cost depending again on the of the type of space and.
The prior user as well you know it can be quite inexpensive easier going restaurant to restaurant, but it can be quite expensive of youre growing retail the restaurant, but on average.
We're expecting that those costs will be in line with the historic numbers and the other thing in terms of Capex I think as we articulated and our last call is we've got for very exciting pads under construction that will begin to deliver NOI something we started last year of course, but that will deliver some nice NOI as we move through.
Through the second half of the year those projects those pads of 100% pre leased with essential retailers and we're very excited that we were able to get all of those out of the ground and we will really it would be nice to see that incremental bump in terms of NOI and that's where I think if I'm correct, Mike some of that Capex will come from as well.
Correct that's correct.
Hey, Stuart it's Michael Bilerman speaking, Hey, Michael how are you.
Good.
Going to ask about sort of leverage and I think you guys talked and the opening comments about the desire to delever, but that we're just going to be something maybe out further and the future. When the equity was at a better price for you to do that.
And you know stocks and 16 box pre pandemic you were 18% to 20, so you're not too far off of where the shares were pre COVID-19.
How should we think about.
Tapping equity either through sale of stock or through future sales of assets and how should we think about sort of the leverage target, which is both a debt.
Debt to EBITDA, which.
He has two components the debt load and grow and get EBITDA. After the pandemic, but also debt to gross asset value. How should we think about the range is that you want to be in and how youre going to get there.
Sure well look we are going to continue to sell assets, we've got one and San Diego under contract.
And depending on how the margin right now we're seeing some nice.
And the market is beginning to.
And the unfreeze and from a demand perspective, it's all about grocery drug and in terms of buyer demand.
So as that demand continues to pick up and we will accelerate sales of of a number of assets Sacramento and potentially other assets within our portfolio.
So that will help the deal the delevering aspect of our portfolio and we're focused very much on that in terms of stock I mean, obviously.
When the opportunity arises we will look at potentially.
Hopefully.
So you know get some equity and in terms of selling some stock, but as you articulated.
We're not yet back to where we're at but our ATM is active and if the right opportunity arises depending on the on the other side of the pipeline and in terms of buying and we may accelerate some of that as well in terms of of range. We're comfortable in the mid sixes from a net debt to EBITDA perspective.
And I think we're making good headway there, we're anticipating that with the sale of assets and with the fundamentals on the west coast, getting better, which which hopefully increases that collection right now into the mid nineties.
We think we will probably be and a pretty good shape, given our payout ratio that we'll be able to conserve more cash and that will we will get to that target much quicker as we get through the year.
So I hope that answers your question.
And it sounds like you've put the payout ratio of deliberately low to raise that cash.
The day, rather than paying of the shareholders to delever the balance sheet, even though the yield is going to be below peers, maintaining net free cash flow to delever versus raising equity was a better source is that fair.
Absolutely Mike you hit it right on the button.
Okay alright. Thanks.
Thank you.
Our next question comes from the line of Todd Thomas from Keybanc Capital. Your line is open.
Good morning.
Hi, Thanks, good afternoon, good morning.
And just following up real quick on some of the commentary around the dispositions Stuart I'm curious who are the buyers of assets the <unk>.
Higher profile for the San Diego asset under contract and and also what you're seeing on the market.
And now are you seeing institutional capital step in high net worth whats the the buyer profile look like.
It's both it's 10 31 and it is institutional capital of the San Diego properties being purchased by institutional capital.
But it's really a combination of both of that is becoming very active and the only place for really seen it active because theres no because the financing market really isn't there for anything but grocery drug anchored assets.
Is that segment of retail that's where the activity is right now.
Okay.
Alright, and then rich and and <unk> and Stuart I guess I appreciate the commentary around collections and the portfolios lease rate as as restrictions are eased and and we move further into the reopening do you have a sense for how much fall out or at risk.
And see there is embedded in the portfolio and the near term relative to the to the 92, 8% year and build rate.
Yeah.
I think this is rich.
We're expecting that we're going to be able to keep the portfolio lease rate.
The reasonably steady throughout the year were estimated at around the 96% range.
There will be some continued fallout here probably into the you know at the end of the first quarter.
But as I think we've talked about and the prepared remarks and of the leasing team is very excited about the level of inquiries, we're receiving and the number of.
And people looking to to secure space.
Okay and rich do you do you expect the the release the releasing rent spreads.
Yeah throughout 'twenty, one to continue to be impacted by tenants looking for for flattish renewals and it sounded like and exchange for for a flat renewals on some deals you've been able to get stronger annual rent escalators later and the leases that is that expected. The continue do you anticipate those trends to continue.
Yeah, I mean, I think that obviously every situation's unique which is what we tried to touch on in the prepared remarks, and every operator's impact from shutdowns and the rest of our different but.
On average, we're expecting that of re leasing rent growth was.
And remain in the 10% range.
I mean, historically as you probably know most of our assets of about 100% occupied historically and what we have found as you know is a little of vacancy has popped up and some of these assets due to the pandemic. The overall demand has really been strong.
If we come out of this pandemic a bit earlier than anticipated.
The summer I think.
The pent up demand on the ground for that space is going to pick up at.
At historical levels that maybe we haven't seen and if that occurs taught and then re leasing rates will move and a much higher direction very quickly.
Okay and just one last one can you just describe it.
Some of the.
The demand that youre seeing the tenant demand and.
Provide some color I guess on the new opens and and the leasing pipeline in general in terms of the types of tenants the categories that you're seeing show up.
Sure So I'm and again, it's very broad based and you know even given all of the negative press out there of about certain categories. We still have strong demand across the board and Thats coming from our restaurant tenants fitness and medical is still a very large pet.
Across the board we're seeing.
Tenants had of ready to step up and backfill these spaces, because theyre looking towards the future theyre not looking back.
Alright, thank you.
Thank you.
Our next question comes from the line of who Juan Sanabria from BMO capital. Your line is open.
Good morning.
Good morning, gentlemen.
Just hoping to piggy back on Michael's question earlier around the dividend just wanted to make sure I understand some of the dividend is going to be kind of at this level, which you are assuming is equivalent to your.
The tax threshold for the.
For the year or is it something that you're going to reassess quarterly.
We will reassess this quarterly depending on how strong the fundamentals get and how fast we come out of the pandemic. We will then obviously the board makes that decision but.
And if things do start to look much better as we move through and into the summer. Then obviously, we will look at readjusting that dividend.
Okay, but the goal would still be to keep it lower to return cash to help the leopards that is that fair.
Yes that is fair and currently in terms of the the time element that we're in right now, but if things do change we have that flexibility if we need it.
Okay, Great and then I was just hoping you could talk to a little bit the January and collections to start and maybe help us give some context in terms of where you were at this point of view.
And December to start that months or.
On the same relative time these days and.
Is there any increased.
The stress or something but it sounds like the collection of maybe dipped a little bit temporarily in January.
Yeah.
Yes, I mean look as you probably know or maybe you don't California shut down its economy and mid December.
And so that had a bit of and impact in terms of collections in January of the good news is he.
Our governor reopened up, California, it's really coming from California, and more than the Pacific Northwest.
And.
That's what really had an impact but the good news is that as we move through the balance of this month and into the last month of the quarter, we're seeing that accelerate and as we've seen throughout the year.
Because.
Deferrals and and sitting down with tenants takes time.
Those dollars typically flow and a bit later than usual, so I am and I am expecting and we're expecting that that collection late late rate will continue to build as we go through the quarter and I'm hopeful that by the time, we get to our next earnings call that number certainly should be in line with where we left off and the fourth quarter.
And just one last one for me on the Densification efforts any color on potential spend that you're earmarking for 'twenty one.
Richard you wanted to talk about any Capex point, we're not expecting to break ground. So the spend is relatively modest in terms of the entitlement process I don't have the specific number here in front of me, but it's the big capital spend will be coming in 'twenty two into 'twenty three.
I think last year, Mike if I'm correct. It was about $1 million, if I'm correct just over $1 million in terms of spend and and now that most of that spend is done at this point, it's really moving into the next phase, which is permitting and thats why there won't be much capital spend from that perspective, correct Yep that's right.
Thank you.
Thank you.
Our next question comes from the line of Mike Mueller from JP Morgan Your line is open.
Good morning, Mike.
Hey, good morning.
So a couple of questions first where the where do you think the 92, 8% occupancy trends and and the first half of the year and Stuart I think you used the term kind of getting back to normal operations by mid year, what exactly does that mean does that mean you take.
And like mid year of your occupancy troughs and everybody is in place today, all of a sudden and start paying rent for the bad debt reserve of evaporates or just how should we.
Get our arms around normal operations by mid year.
Well, yeah as it relates to occupancy, we still feel pretty good about maintaining our range of 96% plus or minus.
The quarter by quarter of this year.
Okay and on the 92 eight on the actual occupied level do you see that drifting down and the first half of the year.
I think it will dip down a touch and the first quarter, but you know as long as we don't go back into another locked down Mike I truly believe what we're seeing right now on the ground.
That will accelerate as we move into the second quarter. If there isn't another lockdown I mean, it's amazing when they turn things off things stopped but when they turn things on its amazing how ex how fast and how much demand accelerates.
And what we're hearing on the ground from our leasing staff right now as things are have accelerated a lot over the last several weeks. So it's just really all about you know staying where we are and opening up the markets further and we feel pretty good in terms of what we're seeing out there right now and there are several tenants that we don't.
And we're hoping to open last year that are basically teed up and ready to go. So we do think that those will open fairly quickly as these restrictions are lifted because they really just been waiting for those restrictions to be lifted.
Got it.
Okay.
I think that's it thank you.
Thank you.
Our next question comes from the line of Polina robust Schmidt from Green Street. Your line is open.
Good morning, and good morning.
Hi, there and.
Hi, Ren.
Hi.
The base rents for the quarter showed a greater decline booths and.
And year over year and sequentially down and one of your occupancy losses, yes.
And what did you say no rent collections from very well.
And the cash basis and.
And can you please and provide a brief update in terms of compensation and percent of and rent collections, how they're trending and for this group piece.
Well I'll, let Mike talk about the base right in terms of of the tenant base, we actually have a very detailed page on that and our supplemental package, it's broken down by tenant.
Tenant category and it gives you the trends from the start of the pandemic all the way through to.
And to where we're almost at today and primarily what we see there. Its just the its the lockdown is still the tenants and our portfolio of couple of theaters some.
From fitness couple of hair salons, nail salons, and full restaurants, that's really where the impacts coming from in terms of composition and.
In terms of the base rents Mike.
Yes, I think I understand your question of the.
Q4 base rent declined greater than the occupancy and I think thats, probably due to the timing of when the abatement agreements were actually entered into so there were some of abatements and were recorded in the fourth quarter, which pulled in some periods prior to that so it looks like the first quarter is artificially depressed because of that the timing issue when the when of those agreements are actually entered into and then and as for I think you had a.
Question about any tenants on the cash basis and net.
Given that we've been consistently collecting about 90% of build base rent through the pandemic and of the bulk of our tenants make up that 10% of our opening back up we don't expect it will be the need to shift any tenants two of cash basis at least not in any significant way.
Thank you very much and that explains it and.
And then if I look at them.
Presenting for <unk> collected by category.
And I see that and sporting goods store is there the connections declined quite significantly between three and Q on Q.
And the ones that explained by a particular tenant or.
If you could share any detail about that and be sure.
Go ahead.
So that was driven by or actually just one national sporting good anchor tenant that we have that because of the shutdown and the fourth quarter hadn't paid the rent yet we expect to have that resolved with that tenant very soon.
Thank you very much.
Thank you and thank you.
Your next question comes from the line of Linda Tsai from Jefferies. Your line is open.
And good morning, Linda.
Good morning.
In terms of the acquisitions, you are looking to exit Sacramento, but of the other markets you're in already all else equal.
Well, which day.
You broke up a little of you broke up Linda bet, there and we didn't get the actual question can you just repeat that please.
Sure sorry about that.
In terms of.
It was one of the leaves the Sacramento, but of the other market share and all else equal which are you most interested and.
Well, it's not so much the market, it's really the shopping centers themselves I mean, it's really looking at the internal growth going forward and these assets.
And how much growth.
And there is I mean, if we see assets that are fully leased stabilized and don't have much growth going forward those would be a candidate to sell.
So it really has to do with internal growth.
As it relates to selling these assets and then redeploying that into assets, where we can see of growth rate that would be much higher.
And in terms of Sacramento, we're down to only two shopping centers, there and we believe we'll be able to get the finally dispose of those depending on the market of course, but that's the top of our list. This year in terms of selling those assets and taking that use of proceeds and paying down debt on our balance sheet.
And then just in terms of overall demand from what sectors are you seeing and increased tenant.
So it's pretty broad based.
Again, as I mentioned a bit earlier the.
It's coming from our restaurants, and fitness and medical and.
Including.
Veterinarian.
So it's the whole gamut.
Operators that are looking to secure these higher lead desirable locations within our centers.
Yes.
Our next question comes from the line of Chris Lucas from capital one of your line is open.
And that's growing and good morning, Chris.
So I guess Stuart encourage that the municipalities Youre working with the kind of moving at a better pace as it relates to some of the work you need to do for the Densification I guess.
Guys of built up of very large sort of victim book to build level.
Level of revenue I'm, just curious as to how youre thinking about how quickly the municipalities who work with we'll be able to get the appropriate permitting done and get those tenants and is it going to be better than it was pre pandemic or do you think.
Consistent with what you guys were seeing pre pandemic.
It will be better because for two reasons number one the amount of activity in these set of center city story have slowed down considerably because of the pandemic and although we find that staff may be working off site.
They seem to have a lot more time in terms of getting on the phone with Richard and I and and others.
And then before the pandemic. So building permitting is certainly giving more because of that has slowed down substantially it's certainly helping a lot.
And then I think in terms of demand and what we're also seeing is I think some of these cities are losing tax revenue.
And I think that's also playing a role here that they really are trying to do everything they tend to generate revenue going forward give.
Given the pent the impacts from the pandemic. So that's what's really adding to this overall.
Environment that we have found to be very favorable in terms of moving the entitlement process a lot quicker than we ever had anticipated.
Okay. Thanks, and then the rich on the on.
And your tenants that are not open.
Were there any tenants that could open but don't because of capacity limits is there much sort of much of that and the portfolio right now.
Yeah. There is definitely a few tenants there that have been ready to open but have either not open due to the hesitancy.
The shutdowns or Theyre, just not allowed to open given the restrictions I think of Stuart touched on that is loosening up across the west coast and the tenants are gearing up to open many of them are sitting there ready to go just.
And just waiting for the the.
And the ability to open.
But as capacity limits being a limiting factor to that in other words. If you are only able to run at 25 per cent of other businesses tenants you have that are saying, that's just not good enough we need to get the something north of that.
Yes and no.
A lot of the tenants like the restaurants and even some of the personal services are and through our initiative of we've made.
Exterior.
Opportunities available to them and the common areas. So that while they may be limited to 25% inside and they are able to make up the difference outside but there certainly are.
And some other tenants and.
Of the ones I'm thinking of it would be like movie theaters, where it just really from their perspective is and economical to open at a 25%, but again and Thats loosened up we're expecting them to open up Luckily, we have very little exposure to movie theaters and some of these other categories like that.
Okay, and then last question for me and me.
Sticking with you Richard when you guys look at.
New tenants.
One of the things that.
Sort of been happening a little bit is the wage pressures have certainly been.
And being led on the West Coast are you looking at.
Concerns or do you underwrite for future wage pressure on some of the tenants that youre looking at or is that not of concern for you guys. When you were underwriting.
Dennis.
Obviously it is a concern for the the tenants themselves were not seeing that translate into the the rent and for the most part on the West coast.
The the.
The minimum wage is already.
At those levels.
And are very close to them and have been for some time.
No understood what you've seen some sort of temporary for dollar increases and some municipalities and you've seen some groceries close because of the how you're thinking about the whole of the hazard pay and the rest yes.
And we've not heard from the tenant base that that's an issue obviously, we've seen the dip.
Press, that's out there, but it has not impacted us.
Thank you for that and that's all I have I appreciate it.
Great. Thank you.
We have no further questions at this time.
I'll now turn the call over back to Mr. Stuart <unk>, Chief Executive Officer.
Thank you and closing I'd like to thank all of you for joining US today, we truly appreciate your interest and ROIC.
If you of any additional questions. Please contact Mike Rich or me directly you can also find additional information and the Companys quarterly supplemental package, which is posted on our website as well as our new ESG report, Thanks, again and have a great day, everyone and be safe.
This concludes today's conference call. Thank you for participating you may now disconnect.
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