Q4 2020 Site Centers Corp Earnings Call
And the and that's what happens when a lot of big box and kind of national chains moved in the Puerto Rico.
We're now past and their primary term there and their options and so when you get to the end of their current a number of them have been above market and and so I would say, we're still still dealing with some roll down.
I think the last two years or so we probably dealt with the bulk of them. So there is a little bit of a role now and the left but I I don't think that the spreads are as strong as they are in the U S. On a trailing 12 months.
Okay, and then just looking here.
David.
One is you know and looking at slide 12 of the Powerpoint you guys are still have the anchor and small shop is is it's pretty small as a percent of the ABR. So when we think about rent spreads and your ability to drive rents, which is clearly something you've well articulated.
And by pressures that the big anchors the rent bumps are pretty modest.
Pretty tepid and of the real juice comes from the smaller tenants, but for you guys of the smaller tenants are a small part of the portfolio. So is it really that that small part of the small shops really are driving the outsized or is there more juice as these anchors role that we may not typically be thinking of.
I think.
And I'm trying to unpack that question.
I mean, if you look at the near term growth of the company a lot of as occupancy related.
The number of anchors being signed and existing vacant spaces is the large debt.
We're going to see a lot of good solid growth from brand and 10 year leases from credit and filling space and like Hunter said, it's not just the AVR. It's also the leverage on the Triple net switch the landlord of staying at the point once that stabilizes I mean, the back of the matter is.
And any portfolio and it's heavily weighted towards the national credit whether the anchors of shops.
The national credit tenants and they get something from being a credit worthy tenants and the general rent bumps every five years not ramp it onto every year. So the.
This product type of opening of product that is geared towards national pen and once you fill up the space and get to kind of of <unk>.
Stabilized occupancy.
The growth is not that high because the.
Tenant rent bumps.
And to be 10% of every five years and so you kind of a cap on your growth.
I think that's what you're asking.
Now where that would change where and that would change is it.
Something we haven't seen and of wild, which is rent growth and anchors and and that's an interesting subject.
I don't think you've generally fee and rent growth until you have of lack of.
Supply and as you can tell by our leasing volume, we still have to lie.
But it sure feels like that supply is winnowing down pretty fast and some of my hope is once we get through this and kind of big wave of box leasing.
The the opportunities that we have left let's say and office depot leaves of runs out of term.
And we want to replace that my hope is with the small inventory that we are going to be able to push anchor rents and that hasn't happened and the one.
Okay. So that's really the point, where you're talking about the rate of growth, which is some of that is just coming from getting back underwater space peer one aside and the other part is just as you rapidly lease up the anchors that the scarcity and then allows you to get leverage there. So it sounds like that's the true step part of it which is good.
And it's exactly right I feel like and the near term. This is all about.
Occupancy and mark to market and whoever leaves step.
Step two would be the market rents go up and.
And and I have not seen the market rents and anchors coming off of it.
I just haven't I don't and I don't think they've gone up and years.
Having said that if.
And your average household income of over $100 and there's no new supply and the end up leasing.
The amount of space.
<unk> thousand square feet and the comparable last year at some point, we're going to have a pretty low inventory, which means that the point, where we can start selecting tenants and we can start pushing rents as the owner.
The other thing.
We have been manufactured and rent growth for the <unk>.
Mexico projects that we've talked about and the last six months. So if you look at page 17 of our Sop effectively every one of those projects is the is it.
The reconfiguration of space, you're going from anchors to shops, and some of it's honestly, it's the small relative to your enterprise, but it really does start that up.
You can kind of continue this path for a couple of years.
Okay, and just finally the of the 6% sort of outstanding you've collected 90 for whether in cash of deferral of the 6% of outstanding should we think about that being 6% pending vacancy for.
Sort of split the difference three per cent vacancy three per cent that you'll collect how should we think about that remaining six.
Yeah, and Alex on and and normal recession.
If you look at tenants that don't pay rent.
And there's always the question Mark of what.
And does that tenant kind of go away and I think that's the basis of your question right. How much of the unpaid is simply not going to go open back up and pay rent again.
But if I look back and in my experience and previous recessions I would say, there's two reasons why.
And it does not paying goes away reason number one is there a bad operator and they run out of money.
The reason and number two is there a good operator, but they don't really see of future and your property or in their business and.
And so they throw and the Palo before things get worse I mean, those generally are the two reasons why and non paying tenant goes away.
And with respect of the first.
Like I said before.
The 50, if our top 50 tenants of 60 per cent of our ABR 41 of those of public companies and they raised $50 billion. This year I'm not concerned about access to capital. So I don't think and our tenant roster of running out of money from the tenant perspective is an issue.
The second would be and they don't see a bright future and you know at this point you know good operators that have a negative view of the future don't signed new 10 year leases and so it just it feels like the risk of our non paying tenants going away.
And this part of this particular.
Particular recession seems pretty low.
My caveat would be.
If there are sectors like full service sit down restaurants, which is pretty small, but it's there and the theaters and <unk>.
Experiential types of retailers, if they're just not able to hang on because of the pandemic causes a much longer tail than other types of businesses, then that the risk but for the most part I feel pretty good about those kind of there aren't paying not not eventually leaving.
Okay. Thank you very much.
Thanks, Tom.
The next question comes from among some of the keeping linking please go ahead.
Yeah, Hi, it sounds like you put a couple of more tenants on a cash basis and the fourth quarter is that just cleaning up the roster at year end or are there any of other troubled tenants that you could potentially put on a cash basis. This year.
Hey August corner, we did put some more cash basis kind of on the.
The list and the fourth quarter I think of as a percentage of of AVR and we're just over 13%.
Over the course of the year, it's likely we could add some more.
And you can come back to my comments, though theres not much we're tracking on the bankruptcy of front that could change right, but there isn't much for tracking so so as of today, it's not a long list of we're worried about this and not on the kind of spaces, but.
And as things change of the course here and certainly and certainly could change your view on some tenants.
Got it and are you expecting any additional I guess reserve reversals or have you received any income that you've already that you previously written off and the first quarter so far.
We have we haven't quantified that we'll do so with the with first quarter results, but yeah.
Yeah absolutely.
Got it and just to clarify is is there assumption for that sort of income and your 'twenty 'twenty one guidance or is your 'twenty 'twenty guidance, excluding exploring that sort of stuff.
This excludes any reserve reversals.
Got it thank you.
The next question is from Kelly, you know real high strength.
And it seems to please go ahead.
Good morning, Chris.
Could you. Please elaborate on the increased demand for it that you're assuming for former pier one looks at and.
And between eight and 10-K, it would be ideal and he could see site and some of the.
And specific examples.
And and also and you mentioned and you were saying some of the new contracts and rich I'm not sure. If it's for the same type of bauxite.
The difference.
And I'm ready to earn and basically the appreciate it. Thank you yeah.
Good morning.
I would say that.
The demand increase for the eight to 10000 square foot range is off of a pretty low base. So I wouldn't take that as being.
And indicator that there is sudden and outsized demand.
There are a couple of tenants that recently started to growth.
And they are a couple of new categories as I mentioned before we're under NDA from a couple of new concepts. So I Unfortunately can't really.
Go into great detail about the specific types of tenants.
But theres been a couple of tenants that are <unk>.
Wanting to get into properties, particularly ones that are and wealthy suburbs and and so the first few of that Theyre trying are in the eight to 10000 square foot range.
And I think what's been more impactful honestly is the demand for larger boxes.
The $25 to 50000 square foot range, that's been more surprising to me and I think there is a little bit more on the new concept front for those larger spaces and then there is the eight to 10000.
But it really runs the gamut I mean, you've got.
Some grocery concepts, you've got sporting goods concepts.
Got delivery services.
<unk> got kind of logistics style tenants, they're taking the eight to 10000 square for space that are less retail and more of logistics.
There is tenants that are medically oriented.
A lot of people and the suburbs appear to be moving their doctors and dentists and.
Attrition from the cities to the suburbs.
The long term and that's propelling a lot more of kind of health and wellness.
A lot of the health and wellness categories seem to be kind of moving away from individual 500 square foot suites, and office buildings and moving into kind of of collective health and wellness suite in the suburbs and so that's kind of one of those categories that built that eight to 10000 square foot board.
Got it thank you.
Okay.
Next question comes from Kevin Kim with true Securities. Please go ahead.
Thank you good morning.
Can you just talk about.
High level of the sales activity that youre seeing and I know I know youre on track every tenant obviously, but whatever information that you do have the sales activity that youre seeing in the <unk> this year versus last year.
And maybe for traffic.
Thank you and as Conor.
And to David's point on one of the downsize of the National tenants one of them is sales and sales collections and we get very little information on that front I think it's just about a third of our tenants report sales.
And I would kind of point you back to.
Our public tenants right, that's where we get the most information and and are anecdotes with with our during a portfolio review. So I don't have great information for you there what I would just say, though and you start taking down our top 50, you'll see fairly dramatic sales increases for the home improvement from home furnishing groceries to the discounters.
Or starting to ramp up a little bit there, they're probably the laggard, but but everyone else has put up especially of the Kraft business I mean, you've been putting out of 2013 comp so.
We have some data on that from.
A couple of weeks ago for a couple of months ago excuse me of presentation.
But I would point you to our public tenants on that for them.
Okay.
And what was your retention ratio.
It's one of the simple fact that lots of stuffs don't report and.
And I was curious if.
Right.
And what you expect going forward.
And 2021.
You are correct, we do not report of retention ratio I would say for anchors.
Historically better than 90% to 100% range of that in the quarter and Theres nothing in our pipeline and makes me think of EBITDA from that for shops to David's point of its much lower historically and expenses salaries and <unk>.
I guess the balance even lower and just given given the fall out of the recession. So our blended it's probably down marginally and the kind of of Ats, but for anchors its extremely high.
And the implicit in your guidance.
And that doesn't change much or improvement of how are you thinking about that.
Yeah, and remember most of it most of our anchor leases roll and the first quarter.
So our visibility on that front is extremely high.
Okay. Thank you guys.
And welcome.
The next question is from Linda Tsai with Jefferies. Please go ahead.
Hi puts the best way to think about dividend growth going forward.
And the best way to think about dividend growth is the.
I think the board of directors is kind of thoughtfully and carefully considering.
What day of growth rate of the dividend is and I think all of US management and the board of looking very carefully at the durability of collections.
I don't think anybody wants to get over our skis.
Until we really see.
More of a conclusive and two the COVID-19 environment.
So we're really basing it on the current collections for this quarter and I think the board will assembly reconsider it every quarter and look at where collections are from a long term basis.
I think there is that there's a payout ratios and we think is appropriate.
Conserving capital for US is great because it allows us to.
Fund a lot of leasing capex and hopefully some acquisitions coming up.
So I think we're going to be pretty careful with.
And the high watermark.
Once the collections get back to normalized.
And be pretty careful about the the high watermark for the dividend over time.
Thanks for that color and then to clarify you said that the least rates stay stable from for Q levels does that also mean that the 290 basis point signed but not occupied spread starts to compress.
I don't think so and if you look at our slide Linda.
And if it's 10 or 11 and we've got the sign on page 10, and we've got the sign but non opened kind of cadence of of.
The commencement so from a commensurate we're really not going to see a big uptick until the back half of the year lease rate is always really difficult to forecast against my comments were not tracking of material bankruptcies at the time, but David point, we could have some additional shop all out of the stop material for us, but it could be a little bit of pressure, but I do think based off of our leasing pipeline is stable.
And and we're hopeful and we'll start to accelerate over the course of the year, but we're not willing to commit to that just yet.
For the leased to occupied gap and I mean looking out of the based off of activity like I mentioned to Michael the.
The pipeline David mentioned are just the anchors right. So if we have additional pads and convenient joined the retailers. In addition to that you could see an acceleration of our and expansion of our lead dogs by GAAP, even with the signed not open pipeline commencing in the back half.
But we shouldn't right, where all of the 90% leased.
We've got a lot of room to run on that from.
Got it thank you.
The next question is from Chris Lucas with capital One Securities. Please go ahead.
Hi, Good morning, everybody, Hey, David just going back on the anchor.
Sort of retention rate number.
As it relates to the the leases that you have does it have no options left with them.
Is there a.
Similar expectation or how should we be thinking about those 11 leases and.
So it's a pretty small number but just kind of.
Some of our expectation on.
I'm, sorry, excuse me and give me a little.
So what youre, saying is if a if an anchor tenant and our portfolio of runs out of term and the options and their naked.
Right and what's our expectation on retaining them versus replacing them and that what you mean correct, yes exactly thank you.
Yeah, Yeah, I think and.
And the in the recent past because theres been so much.
Kind of anchor churn in the past three or four years.
You were we were more likely to retain.
And existing tenant they ran out of term.
Does the Capex is low and they have they have at least the proven business and that property and we can probably get a reasonable rent increase.
And by reasonable I mean kind of a traditional 10% bump.
What's going to be very interesting is is throughout this year and it looks like our inventory of available boxes in and wealthy suburbs is going to go down pretty dramatically.
And it means we're going to have some tough choices to make win.
Tenants that are maybe not top tier.
Run out of term and I share feels like we might be and an environment, where we start purposefully, replacing tenants with better ones and that's a pretty good spot to be and.
We've done a little better and in the last quarter, where we decided to not renew an existing tenant go ahead and take the vacancy because we want to replace them and so maybe theres a year and of half of downtime, but you end up with a much stronger long term property.
That's a good position to be in and it feels like we're kind of at the beginning of that right now.
The retention from the tenant side might be stronger and this environment and the question is whether the landlord wants to keep that retention.
Or would rather replace the tenant and so as an example, and shoppers world and Boston there have been the number of tenants that we've decided we would like to replace them and upgrade the tenant roster.
And when you get these windows, where anchors of our active it's best to take advantage of them because it doesn't last forever.
Okay. Thank you for that and I guess, the that's sort of boost with the the other part of this which is.
And I think pre Covid a lot of the conversation among the national tanker and national tenants was about right sizing or footprint.
And that conversation sort of put on hold right now is the sort of reevaluate how they want to.
Our work.
Work with the consumers in terms of how they want it and build their distribution.
Yes, and Thats one of the most fascinating subjects that I I personally haven't developed a conclusive of opinion on but it is really interesting.
Now moving.
You and I have talked for years about anchors.
Wanting to downsize their space and get more efficient.
It almost feels like there had been the number of examples of where that's the reversed.
During COVID-19 and the reason I say that is <unk>.
Demand for space. That's 30, 40, 50000 square feet has increased and.
And so we're doing less box splits and this last year and we're doing more full box leasing I'm not exactly sure. What the reason is I mean, we have pulled some of their building permit drawings just to kind of look at what the new footprint looks like and it does appear that the tenants are making sure they have enough square footage to be flexible on.
Delivery from store and if you look at some of the new building permits you can see.
The the involvement of a different type of loading and delivery of dock of different type of customer pickup of lean and those things take square footage and it's hard to shrink of your store down to just in time of inventory and at the same time want the inventory and the store and so it feels to me like if that trend of shrinking footprint might be reversing a little.
Net.
Okay. Thank you for that and the last question for me is now that you guys sort of sort of concluded the sort of of the joint venture.
The construction between you and Blackstone him and he's got a handful of them.
Oh from.
Assets on a wholly owned basis, how should we be thinking about the group of assets that you picked up on a wholly owned basis in terms of the long term viability of them and your portfolio versus.
And you know future disposition proceeds potentially.
Yeah.
I think you should assume the same thing with our existing core portfolio theres going to be a handful that we sell fairly soon.
Because we want to recycle that capital into higher growth assets and.
And Theres a couple that have a really strong tenant sales they've got.
Contractual rent bumps coming up or the orders out parcels that we can build so of the nine that we bought I would say a third of them are probably sell fairly soon and a third of them are stable and growing at the same rate as the rest of the portfolio and a third of them have some tactical redevelopment, where we can add an out parcel of subdivide the box or.
And some vacancy and so.
That's kind of it.
To me, it's the proxy of our overall portfolio, we're always going to be selling the bottom couple of assets not because they're necessary and lay batter risky, but they just run out of growth and and.
And this industry I think once you run out of growth there are other ways to make money and I'd, rather see us continuing to recycle.
Great. Thank you for that and the color this morning.
That's correct.
This concludes our question and answer session and I would like to turn the conference back over to David.
For any closing remarks.
Thank you all very much and we will speak to you next quarter.
Okay.
The conference is now concluded thank you for and community.
You may now disconnect.