Q4 2020 Federal Realty Investment Trust Earnings Call
Greetings and welcome to Federal Realty Investment Trust fourth quarter of 'twenty and 'twenty earnings call at this time.
All participants are in a listen only mode. The brief question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero from your telephone keypad.
Please note that today's conference is being recorded.
I will now turn the conference over to lay of Brady and please go ahead.
Hi, everyone and thanks for joining us today for federal Realty's fourth quarter, 'twenty and 'twenty earnings Conference call. Joining me on the call are Don Wood, Dan G of Jesper I guess when do you see are dawn Becker and what's the thought.
It'll be available and to take your questions at the conclusion of our prepared remarks.
A reminder of that certain matters discussed on this call may be deemed to be forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 forward looking statements include any annualized and projected information as well as statements, referring to expected or anticipated events or results. Although federal Realty believes expectations reflected in such forward looking statements are based on reasonable terms.
And of real good future operations and corporate.
Warming may differ materially from the information and our forward looking statements and we can give no assurance that these expectations can be attained the earnings release and supplemental reporting package that we issued yesterday. Our annual report filed on form 10-K, and our other financial disclosure documents provide a more in depth discussion of risk factor the may affect our financial condition and results.
Operations we.
We do ask the given the number of participants that you limit your questions to one or two per person during the Q&A portion of the call feel free to jump back and the kill them. If you have additional questions.
And I will turn the call over to Don Wood to begin the discussion of our fourth quarter results.
Thanks, Leah and good evening everyone.
We closed out of 'twenty and 'twenty just about as we thought we would with the fourth quarter at the <unk> per share of $1 14, and the total year and $4 52 per roughly 29% of 2019 as record results.
The fourth quarter and total year numbers exclude the debt repayment charge that we took when early retiring our 'twenty two bonds and.
And as miserable as 2020 was and it was pretty miserable.
We're very clear as to our priorities and can see our path forward.
There's no doubt that and the second wave of government shutdowns and our coastal markets the ramped up around Thanksgiving last year and.
And largely continued through today.
There are at least some encouraging signs of some loosening of late have and continue to hurt us in terms of rent collection and the likely business failures that would come from.
And despite that our growth prospects of really strong with the following three things happened.
One back of the need vaccinations are delivered to a large segment of the population and our markets number two our coastal markets actually reopen and number three of the consumer behavior reverts to uninhibited freedom and the spending that goes with it behavior that we are supremely confident will happen.
And while that's certainly not the environment that we're living through our operating and yet the.
And the sheer volume of leasing and other transactions that we executed at the end of last year of 103 retail deals for 469000 square feet.
Coupled with the strong leasing demand environment and as evidenced by the many substantive discussions we're having today.
And some very important management promotions and alignments that we've just announced set us up extremely well from a strong post COVID-19 recovery as those conditions prevail.
Alright, so where do we go from here.
Well as previously announced the sale of Sunset place and two other shopping centers and December effectively generated $170 million of proceeds and debt relief and put out a press release in January that you should check out for more detail if you haven't seen it.
And using that capital along with cash on the balance sheet, we repaid $500 billion of senior unsecured notes half of which were retired early the rig.
Of which means that we have no public bonds maturing until June of 'twenty and 'twenty three.
So with little debt due in the next two and a half years, along with nearly $800 million and cash remaining on the balance sheet and of completely untapped billion dollar credit facility. We've got something of a war chest on that should we find retail opportunities that fit our business model and 21, and 22 and make no mistake we're at.
And we looking including in markets with high job and income growth, where we haven't looked before.
A little more geographic diversity, and our income stream and carefully considered is an objective of ours.
But today with the traders day, when the day traders mentality, rather so prevalent and so many corners of the investor and analyst World. It's hard to look past short term results, particularly those of higher multiple companies or far from immune from the economically devastating effects of government imposed shutdowns, most notably seen and the <unk>.
Italy populated coastal markets.
85% of Federal's property operating income comes from California, and Massachusetts, particularly some of the New York, New Jersey, Metropolitan Philadelphia, Maryland, and Northern Virginia.
These markets have the most restrictive government imposed COVID-19 laws and the country by far.
And they make true 2021, more uncertain and at some of our peers. Nothing we can do about that serenity per hour comes to mind every day that I grabbed and with that.
But those restrictions sure don't diminish the quality of the real estate that we own and these first ring suburbs of major metropolitan areas, nor the tenant demand for our spot and these properties and the future as evidenced by the leasing volume were doing along with the conversations we're having with many retailers about their future real estate plans.
So here's an interesting fact.
When you bifurcate our entire portfolio.
Between the 75 per cent or so of the essential service type shopping centers that we own.
And the retail component of the 25 per cent or so of our properties that are mixed use of our lifestyle oriented.
Performance varies greatly as far as a percentage of rent collected or percentage of operating income and ammunition from last year pre COVID-19.
Predictably, it's what you would think the mixed use and lifestyle tenancy heavy and restaurants theaters gyms and the like.
Been disproportionately hurt by the shutdowns.
No real news there you'll know that.
But the irony is that those assets represent not only some of the best real estate the federal Realty owns but arguably some of the best and most desirable retail real estate and the country that's not changing.
So in a nutshell 75 per cent of our properties. The necessity based ones are performing in line or arguably better than other and necessity based rights, despite being and government restricted coastal markets think about that in and of itself that's pretty impressive to us.
The remaining 25 per cent of our properties the mixed use and lifestyle ones have been disproportionately hurt because of their merchandize mix, but represent our best most desirable real estate and therefore naturally have superior growth prospects, particularly from the beaten down levels are currently from Westinghouse.
That cash grow cash flow growth formula feels like of winning want the us win.
Vaccinations are delivered to a large segment of the the population and our markets when our coastal markets reopen and when consumer behavior reversed the uninhibited freedom and the spending that goes with it.
Everything we see suggests that it should be a strong 2022 and.
And we'll talk more about that and dance gods.
And our celebratory note I hope, you'll join me and congratulating, Jeff purpose and our other executives who've been promoted effective with our board meeting earlier this week.
I Hope you saw the press release that we just put out.
Many of you have gotten to know Jeff over the years and I'm sure you share my appreciation for the intelligence first real estate, Saudi without question for the unimpeachable integrity.
Jeff and I am and close partners for over 20 years now and this elevation and responsibility comes and the crucial time, given the expected post COVID-19 retail real estate environment, we need to be as tight and productive as humanly possible.
No.
All of the inevitable speculation and we get it out there by saying that forming the position of company President and Chief operating officer Shouldnt be construed to mean that I have plans of going anywhere anytime soon.
Don.
But as I've continually talked about and acted upon and career development and succession planning are always top of mind at every level of our company. This new position is of great training ground.
I'm sure there'll be lots of questions. Following our prepared remarks, so I'll cut it short today and mine, there and turn it over and Dan for his comments on the quarter before we open the lines of your voice.
Yeah.
Thank you Don and Hello, everyone.
We're generally pleased with the progress, we see and our portfolio as we closed out the difficult year.
While all of our centers remain open with 98% of our retail tenants open and operating and some capacity as of February one.
COVID-19 induced the government restrictions continues to provide challenges to their businesses.
We reported <unk> per share of $1 14.
And I'll come up a couple of cents from third quarter.
And I'm trying to assess what specifically is the direct negative impact of COVID-19 is difficult.
So let me walk you through some of the drivers of our results during the quarter on the positive side, we continue to see and true.
And be encouraged by the resiliency of our tenant base overall, the collectability of adjustments continued.
Continued to shrink from $55 million and the second quarter to $29 million and the third quarter. So just 19 million and the most recent.
From a sequential perspective this progress was offset by a number of items many of which were one timers.
Four cents of impact from several nonrecurring items heading DNA.
<unk> of drag from higher property level expenses, and we're primarily seasonal in nature as well as <unk> <unk> of headwinds due to the timing of fourth quarter dead capital transactions that we executed.
As a result headline progress versus the third quarter was muted.
Year over year relative to the fourth quarter of 2019, we sort of direct negative net impact of COVID-19 for the quarter of 37 per share and continued improvement over the second and third quarters direct negative COVID-19 impact of 83, and <unk> 48, respectively.
Collections continue to improve and the 72% and 85% levels previously reported for <unk> and <unk> respectively.
And are now up to 89% for the fourth quarter.
Solid progress despite weakness in December and January due to the second wave of government mandated restrictions in place and the majority of our markets.
As a reminder, our approach to reporting collections is very transparent and and all.
Our view of the appropriate approach, but the.
Nominated of is comprised of all monthly build base rent plus charges for Cam and real estate taxes and is not adjusted for deferrals and abatements and our numerator all deferrals and abatements are classified as uncollectible.
Also note that our denominator remained fairly consistent throughout 2020, roughly 70% to $71 million per month.
During the fourth quarter, we continued to take the tactical approach as we negotiate and work with our tenants through this unprecedented impact on our businesses.
$36 million of deferrals were executed and total for 2020 of that amount $22 million with higher credit and accrual basis tenants.
Abatement of agreements now totaled $37 million as additional rent concessions will provided as government restrictions impacted our and its ability to operate at full capacity.
The payments will continue and 2021, primarily the result of temporary percentage rent arrangements as we have made the decision to partner with many of the of our tenants to get to the other side of the pandemic together with the objective of longer term benefits and stronger sustainable growth.
As we did and the first six months of the pandemic. We took advantage of these negotiations to improve many qualitative lease provisions and exchange for that written flexibility and.
Incremental percentage rent upside, where we have abated rent removal of development parking and use restrictions eliminating tenant lease termination and co tenancy rights and the deletion of below market tenant.
And then extension options or enhance the long term value of our assets and exchange for the near term concessions.
The following the surge of productivity during the third quarter, we had another solid quarter of leasing.
With almost 470000 square feet of total retail deals.
And then Ed and 33000 square feet of office leasing, bringing our total to over half a million square feet of fourth quarter deals signed.
Combined with the third quarter, that's over 1 million square feet of leasing to close out the second half of the year.
We are also very encouraged by the level of activity of activity and the leasing pipeline.
As a result of our occupancy metrics have demonstrated the surprising resiliency with or at least metric standing at 92, 2% at year end flat versus the third quarter statistics, and our occupied metric remaining and the nineties at 92%.
These levels are all 202 hundred 30 basis points, respectively versus year end 2019 levels.
While we still expect.
Continued pressure on our occupancy over the next few quarters and expect to dip into the upper <unk> at the trough as we have previously discussed and the continued leasing activity at the volumes, we achieved and the second half of 2020 will set us up for more pronounced growth from 2022.
We continued to see strength from the same leasing demand drivers we've talked about on prior calls.
First urban and CBD tenants migrating to top tier per screen suburban assets.
The tier tenants upgrading their real estate to the best and market open the air locations and.
The third new to market lifestyle, and digitally native tenants targeting our best in class open.
The open air mixed use and lifestyle properties.
As Dom highlighted while our lifestyle and mixed use oriented assets of underperform and the Covid environment.
The demand from these best in class lifestyle tenants has been strong.
As evidenced by lease deals and the openings during the pandemic with brands such as.
Nike live and let them sephora or be Parker room, and board Serena and Lily, Our Terex Ward Love Sac Sarin Blue Mercury Nickens, Zoe Shake Shack suite.
Levine bakery, salt and strong and anchor restaurants, such as Teleferic Barcelona.
The pizza Chico Salina, Spanish diner, and plants with two openings to need more than just a few.
Plus many more under negotiation.
Needless to say our best in class mixed use and lifestyle real estate is poised for a significant rebound and 'twenty two.
Our residential portfolio.
It's held up reasonably well during the pandemic with collection levels up towards 98%.
The only exception being of our 450 units at Assembly row, where the montage has felt some weakness is expected.
Average comparable leased occupancy for our 'twenty 700 comparable residential units stood at 95, 1% down only 60 basis points from year end 2019.
Our existing office portfolio has performed solidly during the pandemic as well with collections, averaging 97% and occupancy remaining stable.
As we've discussed previously however lease up of office space and our development pipeline will be slower than we had expected pre COVID-19 as corporate decision makers postpone space planning needs by at least a year to 18 months.
That being said pre leasing at the cocoa walk stands at 75% with South Florida office the main demand remaining strong.
And Assembly Puma is building out its new headquarters space and 55% of block five D and Grand Union Boulevard and Puma at this point plans to move all of their employees in the summer.
I can rows of 63% of 909 Rose Avenue spoken for.
And once that channel west lease up <unk>.
And speculative however openings are not expected until 2022.
Now to a quick discussion of the balance sheet and an update on our further enhanced liquidity position.
The fourth quarter was an act of one of the capital markets from an early October we raised $400 million of unsecured notes and the green bond and the second half of December we repaid $500 million of unsecured notes in December we sold $170 million and assets at a blended in place yield inside of 4%.
This left us with $800 million of cash available and an undrawn $1 billion credit facility, providing one 8 billion of total liquidity at year end with no bonds maturing until 2023.
With our $1 2 billion dollar and process development pipeline continuing to be executed upon.
We have just over $400 million left of that to spend.
Okay.
As Don mentioned, we find ourselves today sitting with significant dry powder.
And with Dons and my remarks today we.
We hope we have conveyed to you the optimism that we have for the future of our business and the strength of our portfolio the truly thrive on the other side of the pandemic.
Our ability to generate outsized cash flow growth is fairly clear of win as Don said vaccinations are delivered to a large segment of the population and our markets.
And those coastal markets reopen.
And consumer behavior, reverts to uninhibited and freedom and spending.
But the timing for those three things to occur it's far from clear and certainly not clear and 2021.
As a result for 2021, we are not providing formal guidance at this time.
The best we can do for you if you need a stake and the ground is that it's roughly going to be flat to 2020.
With the first quarter of 2021 of roughly a one dollar per share and.
And build each quarter from there.
We do ironically if.
Youll significantly more confident and providing an outlook for 2022 than we do for the current year.
Based upon the leasing activity and demand, we see for our real estate the <unk>.
Strength of our essential retail portfolio, the significant upside and our mixed use and lifestyle retail assets, the resiliency and stability of our existing residential and office and the phasing in of <unk> from our $1 2 billion the development pipeline and 2022.
'twenty three and into 'twenty four.
We expect 2022 <unk> per share will be and the low of $5 range.
Representing double digit <unk> growth year over year.
So stay tuned.
With that operator, please open the line for questions.
Thank you.
Well now be conducting a question and answer session.
If you'd like to ask a question. Please press star one on your telephone keypad and the confirmation tone of indicate your line is and the question queue.
And you May press Star two of you would like to move your question from the queue.
And for participants using speaker equipment, and it may be necessary to pick up per handset before pressing the star keys.
One moment, please while we poll for questions.
Thank you our first question will be coming from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.
Oh, Hey, good evening first Scott, Jeff Congratulations so awesome awesome the.
For you to get the the new titles business cards, and all of the phone and stopped and then congrats to Barry and and the rest of the folks who've got and promotions.
So two questions here.
Don.
Just thinking big picture of your.
You're not alone in traditional coastal rights and we're now exploring other markets, presumably down south of the Sun belt, but it's interesting because for the past two decades.
The business whole coastal coastal coastal and then suddenly with Covid everyone's looking elsewhere. So my question is is it really COVID-19 or you guys have been thinking for several years now about expanding to new markets, maybe they are down to the sun belt, but the COVID-19 and what's happened with just sort of the you know the of the catalyst the expediter.
Yeah, Alex that's a great question and it really is you know the.
The first of all I don't want to.
The comments to be construed as not being positive with respect of the coastal markets at.
At the end of the day, it's jobs at the and and good paying jobs at that and when you when you sit and you think about.
Kind of where we are in those markets and those first tier suburbs.
Suburbs that looks really strong now when you go forward you say, okay, where would you like to put incremental capital doesn't mean, we still won't look and the markets that we're in that we know, but it does mean that through COVID-19.
Pretty darn clear that there will be other jobs centered growth place that does that.
And we're starting pre COVID-19. Unlike almost everything has accelerated as a result of it. So you know when you think about.
You know markets like Phoenix, when you think about markets more like Florida, and what's happening in South, Florida, and a couple of others.
I do think it would it would be wrong amongst the not effectively understand the dynamics.
And in them and to be able to to act on it to the extent, we can get comfortable with the highest quality stuff and.
And those markets, you'll never see us going down the quality and Thats, a really important point.
Okay and then the second question is.
It also seems like recently, there's a lot of demand from entrepreneurs people starting up whether it's the new restaurants, and new concepts and yet at the same time. There are still tenants were struggling and I don't just mean like the movie theater or Jim, but some others. So can you just sort of walk through whats happening why is it or how is it that we're seeing the spurts of.
The new tenants forming at the same time that you're still seeing a bunch of people struggle. It just seems to be this odd paradox and just one of better understand is it purely just the categories themselves and that's it or are there other dynamics.
At work that are driving some of these new leases that youre seeing.
Well first of all there are certainly.
Lots of dynamics, but one of the single most important things to remember is is companies that that are struggling at this point and continue to struggle and here you know.
The <unk>.
I cannot say enough about the impact of the government restrictions I mean, we're a business of contracts and when you know the government steps in and and effectively doesn't allow the contract to be to be performed it's it's the weirdest time I've ever been involved so apps.
Absent that you do have new business is being formed with new basics.
The legacy costs of all businesses and having to be able to figure out how theyre going to make money going forward with all of those legacy costs is sometimes much harder.
And our new business coming in and if you take a look at what some of what's happening and the gym space for example, you'll see new purchases of <unk>.
James.
Wood packages of Jim's at a fraction.
Of the cost that you thought that that Jim company was worth of that share that Jim Company Wadsworth 12 months ago now when you come in with a new low basis, you've got a completely different P&L you had a completely different business plan different balance sheet and the ability to afford and to pay.
And what you need to do it again some of that high quality real estate. So it's the natural cleansing.
And that won't just be of 'twenty 'twenty, one and this is.
Is a phenomena that will take a number of years to work through but you will see the single biggest thing from my perspective as businesses coming in with a lower cost basis to start versus their existing legacy competitors.
Okay. Okay.
Thank you Don.
Our next question from the line of Steve Sochua with Evercore. Please proceed with your questions.
Thanks, Good afternoon everybody.
Don I guess on the on the leasing.
I was just wondering if you could provide a little bit more color I appreciate what you and Dan talked about in terms of the activity in Q3 and Q4.
And I'm just curious if the strength is concentrated by region. If it's concentrated more of a byproduct type of price point within the portfolio and just trying to get a sense from maybe where you were shot and the greatest and and in areas, where you may be seeing glass demand.
Let me start out this way so on the call, Steve or Wendy <unk>, who as you know has the the biggest part of our portfolio and a lot of that is essential based assets and let some boxes and let her speak to that and then <unk> is also on the call that can give you a much better idea on the mixed use kind of kind of stopped.
If you will and and that so listen to those two and then I'll try to put it altogether Wendy.
Thank you.
On the.
And on the eastern region.
I've been looking at and as I've been looking at the pipeline and if you look at our pipeline in January of this year versus January of last year and before the pandemic can happen, we actually have more activity on the east and and more in our pipeline and when I say pipeline I mean, new deals so.
And I'm very encouraged by what I'm seeing I talk to retailers and all the time and I continue.
To see a interests and a flight to quality. They are and when you think about it is very logical right. So a lot of the retailers coming into 'twenty. One maybe end of 'twenty, two maybe theyre going to make less new deals and they made the four so the deals that they make are important from a re.
Risk mitigation standpoint that they go from properties that they know and have a history of strong sales, whether they're highly of minutes high whether their general essential properties, because I have both on the east coast.
They they want and mitigate that risk they want to make the right choice and where we're going to have the advantage is the history pre COVID-19 of the very strong sales and high quality real estate and.
And people believe that that high quality real estate is not for average changed because of Covid, So and I'm very encouraged by what I'm seeing.
Yeah, and Steve I'd add onto that.
Think of it is real.
And no different here on the West coast. The demand is very broad based.
Whether it would be and our more traditional the central centers, including the prime store portfolio or Santana row, or quite frankly of our other lifestyle and mixed use projects from the east coast, which are.
I've had some involvement and over the last couple of years as well the the list of tenants of Dan write off.
That's from our entire lifestyle mixed use portfolio and all of those properties have.
The active leasing and active negotiations going on right now and we've got.
Two retailers under construction of Santana third the store shortly three restaurants under construction at the moment and we're about the sign a lease with the.
And noteworthy operator out of the San Francisco, that's doing there.
They're the first restaurant outside of San Francisco So.
We're very encouraged by what we're saying and the key a little bit off of Alex's prior question and thank you Alex and by the way for the congratulations.
And.
Uh huh.
We're not and necessarily of financial crisis. This time around so there seems to be plenty of capital.
For some of these newer concepts to get capitalized we're seeing that very specifically and the restaurant business right now.
So there doesn't seem to be a shortage of capital and like <unk> said.
And everybody wants the best real estate.
And so whether you're kind of new and and somewhat starting up or you've been around for a while and you can open fewer stores now and you could a few years ago a lot of focus on our real estate and it is very broad based.
Yeah.
Great. Thanks, Good color, maybe second question, Dan just in terms of it sounds like you've got a lot of capacity on the balance sheet.
What are you seeing and the transaction market whats happening in terms of distress and.
You know how are you sort of weighing that against potential developments down the road when your mixed use assets.
Assets that you've got phase threes and fours.
Yeah, well listen first of all of the last part of your question first Steve the.
We got plenty of development that the.
And.
And and.
So so first of all Europe, you are years away in terms of of development.
Development product coming online.
So you get to the acquisition.
Side so.
We learned of real good lesson in 2008 910.
And Jeff and I were just talking about and lamenting about it.
Last time and that was how at the in the end of the great financial crisis, or theyre, not going to be a ton of distressed assets for us too.
For us to acquire and they werent.
There weren't at all because great assets.
Are often not distressed and and not the stressed in terms of price and.
So it wasn't about us going down quality and the earning a lot of and getting a lot of stuff, which is kind of why at this point and time.
And we're looking for the best stuff around.
There are people willing to talk to us about that.
The prices do seem to.
And to be firm, but a little bit better than they were certainly.
Pre COVID-19, but those prices are not cap rate prices, because what NOI here your capex.
As you look at the are really great real estate prices and Thats kind of how we're looking at the at the.
Potentially using some of that wood I mean, the cash that's on our balance sheet is insurance. The reason there is so much of the insurance. That's why we did it that way we believe going forward given what we just told you we need less insurance.
And so accordingly.
I don't have a treasure trove of of transactional information that on deals that have just happened.
You know, we could really talk to you about in terms of where we're trying to trying to go but suffice it to say, we do believe we will find some opportunities.
In the markets, we want to be including our existing markets and one or two new ones that effectively let us get.
Get deals done in a way that will be accretive now and certainly accretive to value with more development opportunities associated with them going forward.
Great. Thanks, that's it from me.
Yes.
The next question comes from the line of Derek Johnson with Deutsche Bank. Please proceed with your questions.
Hi, everyone. Good evening. Thank you.
How how have development yield expectations changed for the current projects or even the entitled projects can we.
Get an update on some of the key inputs like land prices, maybe construction labor and materials and of course and importantly rents.
So do you expect a compression and yield of say 100 to 100 by 125 basis points, possibly.
We don't see it as that much there will be some compression and I think if you look at the 8-K that.
We put out we did get more conservative on the.
A couple of those assumptions there is still a lots of figure out yet and.
And again it depends on the product and certainly.
Hard to figure out on the office side today, but it is not and construction costs.
And holding period, so youre Carey.
You can certainly expect it to add to a longer period of time, it's most likely and buildout costs from.
From a Ti perspective, if you will for four more office space.
And then.
And then in terms of rents you know man I got to tell you. It's your kidney and it's anybody's guess to some extent, but our office and residential development, which is most of what our development is our all in mixed use properties that are well established.
And effectively are the best product that is available coming out of Covid. So you shouldn't expect us.
Dropping the rents and any significant way.
I don't think we'll need to do that there may be some there'll be some extra carrying cost associated with it maybe a little bit more ti, but everything we still see still see it says that the developments that we are completing will be accretive to value and accretive to earnings.
Okay. Thank you that's that's pretty helpful. I'm, just I guess changing from office over to maybe the watch list like how does it stand today post the pandemic to me I mean, it seems like a lot of companies previous had previously on watch list have gone dark so the question.
And is this the watch list pretty washed out at this point and.
And if so are we you know a couple of quarters away, maybe you know third or fourth quarter of this year of trough occupancy and then of course growing the albeit from a lower base.
Well.
And let me go first and then anybody else.
Got a perspective, please add add into this year, but but.
I do think there is there is truth to the way you phrased that question with a couple of exceptions and the biggest exception really is and.
In terms of small business.
And and when you look at small shop, and small business and and I could not tell you.
You'll never talk to anybody more frustrated.
And I am with respect to two.
Some of the restrictions that are extremely severe.
And on our on our properties and.
And it's not only restaurants, it's other other.
Uses also from.
The government entities and so to the extent that I don't know when they'll be lifted I don't know when and.
How long those businesses come last.
The spec stimulus is coming soon but it's February and whatever it is the 11th or something and.
<unk> been talking about it for months and months and months. So on the small business side. Those are the people who are being hurt the most.
And the.
And that's different than the big companies that are better national chains.
Frankly, we make our money on the small businesses that effectively turnover become successful and can pay more rent. So I do see that being a very positive catalyst as we looked out going forward I. Just don't think it's right now and that's where that's where you know maybe it's a good time for me to say what I.
The the silly thing that the that we put out there today and that is and all my years I have never been able to say that I'm more comfortable with it with the forecast with the abuse of the future one year out.
And then I am today.
And I am which is why we're not giving 2021 guidance, which is why we're effectively talking about 2022 with more specificity.
Is kind of crazy and my history of.
Kind of doing this job, but it is the way it is today and so we thought we'd get out there and try to get both both the sell side and the buy side to realistically start looking at least from federal Realty's perspective at the at our growth profile, which.
Since the <unk> to our board of directors looks extremely positive.
Certainly not in February of 2021.
Good stuff done thank you.
Our next question is from the line of Nick <unk> with Scotiabank. Please proceed with your questions.
Hi, This is Greg mcginniss on with Nick Jan and I, just wanted to confirm your comment on the the not actually guidance numbers did you say around $1 flat for Q1 'twenty one it seems like a fairly significant drop per SKU forces I wanted to get some clarity there.
Yes no.
That's that's fair of you heard me right roughly a dollar.
I think that look the government restrictions the second wave that come on that came on.
And in December has impacted kind of our momentum and collections and so forth and.
We expect to impact our business.
The business of our tenants and the first quarter ex Nick I, just gave this whole big and passionate speech about slightly too and it took me back to February of 'twenty one.
Yeah. So I think we will likely take a bit of a step back, but but I think you can build off of that and and.
And get back to where we.
Well, we don't have a lot of the visibility and that's why we're not providing guidance on the.
On the 21.
Okay, that's fair okay.
And I'll give I'll, let you be a little more and passionate about 'twenty two here on the next question. So.
The collection of nice day.
Great collection right now, it's trending near the bottom of the peer group.
As you've mentioned, it's kind of a product of portfolio of geography, but as we have the vaccine gets disseminated and restrictions are lifted is there any reason that by the end of the year rent collection shouldn't be and.
In line with everyone else.
Assuming those three things that the.
That I talked about no but.
Again, if you kind of go back to the conversation right, 75% of the company's right there now.
Alright, and go back to the comments I'm, making so so understand that sir.
Certainly the same thing of our better with respect to the residential and the office. So it leaves the retail.
Of 25% of the the company, which is the mixed use and lifestyle store.
That is really dependent upon stuff that is out of our control.
And and so as and as an investor and Investor is going to decide whether he believes and that real estate and that growth is coming are not dependent on me, but dependent on what what he believes about vaccinations, where he believes the about the openings from government restrictions and what it believes the about the consumer and that's kind of where I would leave it.
Yeah, our central base assets.
Basically are at or better.
And our peers at 92% collection levels only down the El basically at about 90, 293% of last year's numbers. They are they have performed as well in worse and more restricted markets. So we feel as though their performance is at or as good as anyone out there and it is.
Really the lifestyle and mixed use where we've we've felt that impact.
Great. Thank you.
Our next question comes from the line of Michael Bilerman with Citigroup. Please proceed with your question.
Hi, It's me.
And I want to come back and the guidance as much as you don't want to talk to us right and this.
And who isn't it.
It sounds like some of that.
And so I mean, I, you know, we're not and zoo.
Uh huh.
He said my name.
I guess I'm, having a real hard time trying to put your pieces together because you sound darn confident and you can make assumptions for.
And what things could be the here.
You don't have that much of a complicated business your balance sheets and good shape you've lost all of these things away you have confidence from the leasing from I guess I'd like you guys can be a little bit more specific you have almost and 11 million episode drop that you're communicating between the quarter that just ended and were a month of and a half into the first quarter can you detail.
And if there were things and the fourth quarter that are not recurring that would cause that varian and what else is happening to drop from $1 14 to one and then again of what you're saying Don like you've got more confidence from 2022.
A lot of 'twenty and 'twenty two is the is where youre coming from and 21 and.
And.
You're embarking on a $5 number that's almost $40 million of NOI of of that.
So what are the components of that how much of it the NOI how much of its investment how much of the development how much of of the G&A how much of its interest expense.
The key Michael.
And the confidence to get there, yes, Michael Mike.
Michael we're not providing formal guidance that we provided.
And typically on our November call, we provide preliminary goalposts day, where we don't provide any assumptions behind it given today.
We've provided a goalpost okay.
And for 'twenty and 'twenty, one and that's what we provided to you we're not providing assumptions.
I think in light of Covid I think that we're.
Comfortable providing what were providing and the assumptions will hopefully come at some point later this year and 2021, when we have better clarity.
On kind of the environment and when those things are going to happen and will allow us to have the visibility to provide the level of detail and assumptions that you're asking for.
You know, Mike and I'll, Let me go let me just add something and then.
When you.
What I don't want to do is go down the rabbit hole you want me to go.
And let me be very specific about that when you go line item by line item as you do you put a specific amount of of exact.
The exact NIST, our credibility or false.
Of understanding that that's actually what's going to happen, we don't know that Mike when you break. It you know the components of this business you know the development that is underway that we give updates on every single call. You know the amount of rent that were collecting effectively we just broke it out between 75% of the company the.
Central component and the lifestyle component of the company the.
The notion of how we grow earnings and what we've been able to do is definitely a question for and Investor to decide do you believe and this this business plan to be able to get there, but if I do it your way, Mike Wood I'm winding up with our billions of questions on individuals' line by line.
Item that suggests that they are more accurate and we are able to provide at this point. So we're not going to do that.
I I I respect that.
But at the same time every one of your competitors is taking their best shot at numbers and that's the reality of might be and like I.
I guess of them.
But you put out like my view is you just you teased people by saying, we're going to get the buy box and 22, and it's gonna be a buck in the first quarter 'twenty one.
Without giving the contacts of.
How you get there right I, rather and how youre going to get ahead of your airlines again textile and it Mike.
I think we've given you a ton of the context to the extent it is not enough and certainly by and other stock of recommend and other stock. So what's been happening anyway, but when you sit and you think about the quality of this real estate and where it's going I think all of our investors understand how they're going to get there because everybody, including you have the model.
And can certainly figure out and make assumptions in that model in terms of how that would happen. It's not so crazy to do take some work.
But it is not so crazy to do.
We can and we know where the street is the streets of <unk> 14 for the first quarter you did about <unk> this quarter and you're saying if the dollar all I'm asking and you have gotten a net.
Narrowly focused way.
Michael on that the assumptions broad assumptions behind the dollar relative to the Buck 14 and.
And the in the fourth quarter.
We've started collections and January are down and behind December's collections.
Remember collections were a little bit weaker.
We have three and a half million dollars term fees and the fourth quarter. Another strong year of term fees and we're not projecting net.
Our occupancy is projected to go down and the first quarter why kind of indicated we expect it to head into the eights.
Percentage rent is down and plus we sold a number of assets and we're sitting with significant cash on the balance sheet.
Relative to where we're putting those proceeds to work immediately we're building.
Capacity and financial capacity and flexibility, but it will be dilutive and the quarter.
Before we deploy that net cash that is the rough roadmap from $1 14.
So roughly a dollar.
That's what I'd like thank you very much.
Our next question is from the line of once and not pay out with BMO capital markets. Please proceed with your questions.
Alright, thanks for the time I enjoyed listening to that prior exchange.
Just from the acquisition front.
I was curious on the.
The target of assets you're looking at.
And it's more the essential grocery anchored type of assets or more.
The lifestyle mixed use type of assets and.
And if those assets that youre looking at to acquire or are more stabilized or maybe redevelopment opportunities where you could see some value.
Just curious on kind of the target of what you're looking at and and maybe any sense of how youre looking to remix of reshape the portfolio as of as part of that.
Discussion of that.
That's a fair question, you know, we and I hope with a little bit of luck you see both.
And because to US and this is kind of the way. It is we really believe and it's not about a particular format.
Or a particular type of shopping center, it's about the growth prospects and if we think the growth prospects are in a more stabilized asset that has rent upside because it should be re merchandised and and.
Kind of and once they federal lives, but federalized effectively then and we like that and a lot. If it's one that's been mishandled and mismanaged and could be redeveloped.
And maybe maybe the some vertical.
Investment there, we like that too it depends so the first thing we're aiming for is the right markets with the right barriers to entry with the right demographics. So that we can get comfortable and job growth. So that we can get comfortable that we've got a pretty good chance with doing what we do of creep.
<unk> overall higher sales from the tenants and higher rents and therefore, so you'll see I hope Youll see look I mean, who knows where the what gets done what can get done, but we're looking at at and both opportunities for mixed use development with some kind of a stabilized piece of their first and then you know of.
Development down the road and and a more stabilized asset, where we think theres some rent growth.
And possibilities and the other way to create value and I hope that's helpful.
Yeah.
Thank you.
Our next question is from the line of Craig Smith with Bank of America. Please proceed with your questions.
Great first of all I just wanted to congratulate Jeff.
Jeff and John and the others, they've got promotions so congratulations thanks.
And so I.
And I wanted.
I wanted to just talk.
And talk about occupancy and.
And where it might cross I'm, assuming that the fourth to first quarter includes the seasonality that would usually come with a lower occupancy number.
But it seems like the maybe and impact from the second wave of government mandated and closing which could also way.
And on the occupancy number maybe extending into the second quarter.
Just wondered if you had any thoughts on that.
Greg, It's and that's right and first of all of the first point is exactly right. The first quarter is seasonally always the toughest.
And for our business, but the other point.
And again kind of goes back to the small business comment.
And yes, they've got the longer the government closures are mandated the harder it is for those small businesses to do continue because they're depleting resources.
And you know day by day as it goes through here. So while I don't have an exact number I cannot give you a.
And you line for the for the model with respect of how many businesses go out and what that means to the overall occupancy perspective. It is reasonable to assume that there'll be a hit and I don't know if you want to put a number out there and all of what.
It is but we always thought frankly for a year now, which I think is pretty cool well, we've thought that our first quarter and maybe into the second quarter, we'll see will be and the high eighty's.
And certainly on the small shop space.
It will be the anchors of hanging real tough.
Great and then and just what are the retailers telling you about your assets I mean, the the definitely the unique what are the ones that the same to you that are kind of struggling to get by and get to the other side of the COVID-19 and what are the new tenant same.
About your properties.
Wendy and I hand that to you.
Yeah I.
And I think that.
In terms of the existing tenants that we have there and our centers of what they love about the.
Tuesday, and the background.
And when we have restaurants for example that have multiple locations. What we're seeing is because of our highly and monetize projects and all that.
Okay, so and not only the curbside pick up and outdoor dining and the controlled environment that we can help with.
We are are they're focusing more on getting up and operating and our centers versus other choices that they may have sort of from the.
The existing Senate tenant standpoint, we're seeing we were seeing frankly, a big uptick and the restaurants until we had that second wave of shutdowns again.
Our highly and monetize projects, where we can influence and what's happening to help their businesses has been.
Critical on new tenants coming in what we're seeing and one of the things that I want to mention is.
We have ability to have like a reset button nights of the retailers. The go on Hey, I have the I have the ability to look potentially at some other opportunities that I never could get into before because historically, we've never had the vacancy where now we have some opportunities on the flip side and I don't I don't want to lose the point is that weird.
Federal Realty, having the ability to reset as well and and look at how we want to upgrade our real estate. So so weird when I was saying that we have at.
We have a disproportionate activity on those higher and lifestyle projects from new deal standpoint.
And which shows the strength of Oh, My Gosh, we now have vacancy and the centers that we never had vacancy and before and we have a host of relevant tenants that want to get in and opportunity in the center. So it's been part of them.
Yes.
The tag onto that I'd tag onto that Craig by saying you know.
And I think this is true kind of out of the GST as well, it's never been more important to be of good landlord and the good tenants know that and.
And by that I mean, you know.
Somebody that's going to invest and the property somebody that's going to be there.
And the leasing commission and the tenant improvement.
Chuck when its due.
Somebody that.
Is going to continue to operate and invest and the asset and merchandise at the way that particular retailer needs to be merchandised and manage to maximize their business.
That's never been more important and not having you know.
Our secured loan lower lender the deal with the.
The dictate some of those decisions the.
Savvy tenants are very aware of all of that and I think all of that plays too.
Our strength.
Great. Thank you for that.
Yeah.
Our next question is from the line of Mike Mueller with Jpmorgan. Please proceed with your questions.
Yeah, Hi, first of all of quick clarification, when you talked about.
Occupancy going into the high Eighty's, where you're talking about the 92% lease level or the 90% occupied level.
Of the 90% occupied level.
Got it Okay and then.
The new restaurant deals from talking about is it primarily.
The sit down and full service and I guess, where do you see the dynamics going a couple of years down the road versus where it was pre pandemic.
Yeah, and it's interesting so we are doing.
We're all over the place.
On the restaurant.
The restaurant alternatives that we'd like to offer and any particular property one of the things that we're really doing a bunch of us trying to.
Reconfigure outdoor space and create more of it.
We're using it.
And part of our property improvement plans and are the stuff that we're doing we're using more pergola, we're using more.
The furniture and areas and landscaping to create those those places, which restaurants are asking for and what you know.
Maybe we put you in touch might cause it's a it's a long and.
Complicated answer actually.
To kind of the business plans of new food.
Uses but put you in touch with like the stew Beale.
And our shop Who's got the.
He has got a lot of these type of properties and so while the quick service stuff.
And that we're still doing and we will continue to do is pretty much as it was but again, even there are looking for outside seating.
Wherever possible any of their common areas or specific to them. It is also the sit down restaurants, and the sit down restaurants that have the ability to be inside outside of I see that.
I see that not to the extent of it today, but some piece of that is.
That comfort with eating outside to continue that what's happening in a bigger way for us pre COVID-19 and like everything else was accelerated through the COVID-19 process. So a big variety and in terms of what's what's going on but definitely more of a focus of outside.
Got it okay. Thank you.
You bet Mike.
Yeah.
Our next question comes from the line of Chris Lucas with capital and Securities. Please proceed with your questions.
Hey, good afternoon everybody.
Hey, Don just a simple question.
The board and committed to the dividend through this whole process looks like some of them, they're going to continue to be.
And you have a sense as to when you might be able to cover the dividend with your operating cash flow.
Yes.
Awfully by the second part of our of 2022, we'd be there and then all of 2023.
Okay. Thank you and that's all I have.
Our next question is from the line of Linda Tsai with Jefferies. Please proceed with your question.
Hi for these younger retailers seeking space, what the parameters do they have in terms of occupancy costs and is it different from legacy retailers and you know what flexibility do you provide to help them and their path to sustainable growth.
Well, what we're doing Linda to start is a lot of these deals have a low.
Fixed rent and a high percentage to effectively figure out the question that you're asking.
Because while there are lower bases going in and.
The the question of of how much volume and Theyre going to be able to do where the price points are going to be able to be two years from now.
Are different than what they will be and the first 12 months when they they open up so I love your question and I spend a lot of time thinking about that and talking about how those business models are going to work and the bottom line is there is uncertainty with it and so and sharing that risk with them from a percentage rent basis, but to the.
Extent day work being able to to actually earn more rent than we use the earn on it is our objective of whether we get there and that'll depend upon the you know the first 12 to 18 months of the openings of our restaurants like that.
That makes sense and then all of the <unk> blended leasing spread of plus 1% versus the minus 1% and <unk> and improvement, but not where you want to be you know and the vein of expecting clarity next year, what sort of average blended leasing spreads are possible and and 2022.
Yeah, that's it and that's a good question and I I hope for the big and the high single digits.
At that point and again with us always of the it'll depend upon the mix of the.
You know of big deal here versus.
Smaller deals et cetera.
And that's where I hope to be also the one thing about one day did you say on the restaurant side every deal we do Theres a landlord rights of terminate after two or three years, depending on sales levels. So we're kind of going in this with you.
But you don't have 10 years to figure it out of you know what I mean.
So it's a pretty good balance if you will of us of sharing the risk.
Thank you.
Our next question comes from the line of pulling of Rojas Smith with Green Street. Please proceed with your questions.
Hello and.
And as you think about expanding your geographic footprint, how would you describe your appetite for lifestyle centers community centers or any of the power centers. I think you have mostly and talked about the lifestyle centers, but I wanted to have a general idea of when you have at all sort of on that.
And it's the property types.
Well, that's what we should what we should do and I think you're new to the retail side of of Green Street is covering are no, but I'd like to spend more time with you offline to kind of go through what our business plan because we are pretty agnostic. If you will in terms of the retail format.
For everything from you know.
The community based the grocery anchored shopping centers to more of a power center to more of the lifestyle Center and obviously the mixed use components. So.
Really what we are open to us I mean, we're real estate people first and foremost and so the looking at at the format of the center is is not the first thing. We're looking at is we're open to all of it. The first thing. We're looking at is the ability with that piece of land and net debt shopping.
The environment that they have for us to be able to create value either through raising rents or through redevelopment and or oh, or even and then further going vertical.
That makes sense, and then and didn't get any credit at all today, the and that the rights of work from home and will facilitate of Americans migration from expensive cities tomorrow, and affordable cities potentially humming and the marketing cities like San Jose and California, and some of them.
Assets or things of that you will not and suffer at all from and its potential trend.
Oh, no I very much believe and those trends will will.
Change the office environment dramatically and in the country.
I think the most important thing is the product you have wherever wherever that product is is the best and the market. There is always going to the demand and the markets in which we do business and certainly or office it just better be.
And what employers want.
And if you.
Kind of look at where our office product is in terms of the mixed use communities that we're in with being fully and monetized with being brand new buildings, which is really important with respect to air and HVAC.
<unk> and et cetera, I think we're in the right places with the right product.
And and so you know office is not generic.
And and that's what has to be viewed very carefully post COVID-19.
Okay, so you've and even the trend, but your assets and what was the.
And just okay.
[laughter], that's our yes, that's our business plan and that's what we believe okay.
Okay. Thank you.
The next question is from the line of Floris spend day with Compass point. Please proceed with your questions.
Thanks for taking the questions and I'll be brief by the way, Jeff, but congrats on the on the promotion that's great.
Yes.
And I know I sense, a little bit of frustration and your part.
About you know these questions about our guidance et cetera, and you do have the pretty big development pipeline that should produce you know call it $60 million of NOI over the next couple of years have you I mean.
You have done it in the past, but how about putting out of and NOI Bridge, you know three years, hence or something like that to get people more comfortable is that something that you would consider doing.
And certainly take it under consideration, Florida, and just the just to respond to the frustration and the frustration is with the the bullying of the line by line. This is what you should do Youre right I don't take that well at all.
Because we're running the company the best way, we can communicating the best way the weekend and <unk>.
Certainly, we'll take suggestions, but we won't be both.
And then maybe a follow up.
Little bit about some of the the newer markets I mean, Archie already and one of those markets that is seeing some some of you know the heady growth is as people go to warmer climates, and particularly referring to Miami and and do you see I know you just walk away from and asset there or sold and assets.
Do you see yourself.
Re upping and that markets.
Over the next.
12 to 24 months.
Very possibly burnt, possibly Florida, Yeah, no look we made a bad deal.
With that one but that doesn't change the fact that.
The job growth migration.
<unk>.
Business friendly.
The environment could could be good for us going forward I think you're going to love cocoa walk when you see that the.
And that completed I know you love tower shops, which is.
Completed the those are going to be two of our best assets and the company and <unk>.
So so yeah you bet you, we're open and more.
Great. Thanks, that's it from me guys.
Thank you at this time of have reached the end of our question and answer session and I'll turn the call over to Leah Brady for closing remarks.
Thanks for joining us today, and we look forward to speaking with you over the coming weeks.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.