Q1 2021 Retail Properties of America Inc Earnings Call

May 5, 2021

Greetings and welcome to the retail properties of America first quarter, 2020 One earnings conference call. At this time, all participants are in a listen only mode.

The question and answer session will follow the formal presentation if.

If anyone should require operator assistance during the conference. Please press star zero and the telephone keypad.

Please note this current which is being recorded.

And I'll turn the conference over to your host John.

Turning from Luke.

And begin.

Okay.

Thank you operator, and welcome to the retail properties of America first quarter 2021 earnings conference call. In addition to the press release distributed last evening, we have posted the quarterly supplemental information package with additional details on our results and the invest section on our website at www Dot RPI debt.

Count.

On today's call management's prepared remarks and answers to your questions may include statements that constitute forward looking statements under federal Securities laws. These statements are usually identified by the use of words, such as anticipates believes expects and variations of such words of similar expressions actual results may differ materially from those dish.

Scrubbed and any forward looking statements and will be affected by a variety of risks and factors that are beyond our control, including without limitation those set forth and our earnings release issued last night and the risk factors set forth and our most recent form 10-K, 10-Q and other SEC filings.

And as a reminder, forward looking statements represent managements estimates as of today may five 2020, one and we assume no obligation to update publicly any forward looking statements whether as a result of new information future events or otherwise. Additionally on this conference call. We may refer to certain non-GAAP financial measures you can.

A reconciliation of these non-GAAP financial measures for the most directly comparable GAAP numbers and definitions of these non-GAAP financial measures and our quarterly supplemental information package and both the fourth quarter 2020 in first quarter 2020 one earnings releases, all of which are available and the investor section of our website at Ww.

W Dot RPI dot com.

On today's call our speakers will be Steve Grimes, Chief Executive Officer, Julie Swinehart, Executive Vice President and Chief Financial Officer, and Treasurer, and she and garrison President and Chief operating Officer.

After their prepared remarks, we will open up the call to your questions with that I will now turn the call over to Steve Grimes.

Thank you, Mike and good morning, everyone. I appreciate you joining us today I'm pleased to report on our better than expected results for Q1, which built on the sequential gains we delivered in Q3 and Q4 of last year, the constructive macroeconomic public health and consumer sector trends, we outlined in our last earning.

Carl have continued over the last 90 days and combined with strong execution by our team our financial results continue to trend positively as Julie will detail.

Our stronger than expected performance in Q1 provides incremental visibility for the year ahead and enabled us to raise our full year operating <unk> guidance by five cents at the midpoint to 83 to 87 cents per diluted share and narrowed the width of our range from eight to force that.

Our team continued to utilize the combination of our high quality portfolio and and increasingly constructive economic backdrop to deliver results the job.

<unk> market, which forms the heart of the consumer economy continues to strengthen with the unemployment rate falling and nine of the last 10 months and and April weekly continuing jobless claims dropped and the lowest since the onset of the pandemic.

Ongoing monetary and federal stimulus as well as urban to suburban migration continues to fuel housing the largest asset and most consumer balance sheet combined with vaccination progress, which includes more than half of the U S population, aged 18 years or older receiving at least one dose consumer con.

The confidence continues to rise.

And I told the similarly positive outlook driving our Q1 leasing volumes to more than double year ago levels, and new leasing spreads of 21% as Shane will outline at the same time with the unemployment rate well above pre pandemic lows and consumer confidence still well below pre COVID-19 levels, we think their room.

And a long runway for additional gains and our business we.

We also benefit from our portfolio positioning through a broad swath of the sunbelt and other markets seeing corporate and population migration, our largest footprint, Texas ranked first in total population growth among all U S States and recently published census data.

We supplemented the leasing gains and our operating portfolio with the accelerating leasing activity at our expansion and redevelopment project delivery of these organic growth projects, including our largest project to date at one Loudoun will help to quicken, our return to historical earnings levels and open the door for diversifying our revenue stream.

And the programmatic edition of other developments to our roster.

Our sustained financial and operational progress enabled our board and to increase our quarterly dividend for the second consecutive quarter to seven per common share and the first quarter up from six cents and <unk> and the prior two quarters respectively.

The board will continue to evaluate our performance each quarter when declaring the dividend balancing tax considerations and the broader aim for growth and this payout over time, the reset of our dividend level amid the pandemic has afforded us increased retained cash flows that adds to our ability to accretively reinvest and our platform.

We also advanced key environmental social and governance matters during the quarter, we completed the implementation of our energy management system, which will assist and our efforts to evaluate and report on our power water and waste usage. Our board also remains focused on delivering on our goal for further diversity amongst our directors.

Our team is concentrating on capitalizing on the rising tailwind and delivering on the underlying economic return potential of our well positioned portfolio and expansion project, while appreciating the uniqueness of the current operating environment. Our first quarter results represent a significant step forward on our path toward returning to historical levels.

Of operational and financial performance.

And our increased full year 2021 guidance reflects our confidence and additional positives the head with that I will turn the call over to Julie.

Thank you Steve This morning, I will review, our first quarter financial results, including rent collection trends, our balance sheet positioning and our updated 2020 one guidance I'll begin with an update on rent collection, we collected 96 per cent of our Q1 and build base rent.

Up from the 94 per cent, we previously reported for Q4 2020.

The trends across the use categories remained on par or slightly improved as compared to last quarter I am encouraged to see another quarter of incremental progress on the statistic.

And our aggregate 96 per cent base rent collection includes approximately 70 per cent collection of Q1, 2021 build base rent from cash basis tenants up modestly from last quarter, our cash basis tenants as a percentage of ABR decreased to 11% compared to 12 per cent as of year end 2020.

The decrease was primarily due to several early move out of cash basis tenants during the first quarter, partially offset by our overall smaller ABR denominator as a b R declined 80 basis points sequentially.

Regarding deferrals at the start of the year total deferrals due to be repaid totaled $20 million. The majority of which is contractually due during 2021 day.

Just on tenant concession structure, and our accounting policies and $10 million was already recognized as revenue during 2020.

The majority of the remaining $10 million yet to be recognized as revenue is due from cash basis tenants.

Our deferral of collection experience during Q1 2021 was strong as we collected 93 per cent of the for point $8 million of base rent due in Q1, which resulted in income recognition of $1 $7 million during the quarter.

Once again this quarter, we continued to collect amounts from prior periods of portions of which represent deferral of repayments, our Q2, 2020 base rent collection rate increased 300 basis points and each of Q3, and Q4, 2020 increased 100 basis points.

The Q1, 'twenty 'twenty 196 per cent base rent collection rate and the improvement in collections from the last three quarters of 2020, including our <unk> 93 per cent deferral of collection rate help to illustrate the the health and strength of our current tenant base and also triangulate with the positive macro indication and Steve outlined as well as the robust current leasing demand.

And Shane will detail.

Our strong collections during the quarter and better than expected tenant retention and contributed to our generation of 24 cents of operating <unk> per diluted share down three cents of year over year and up nearly 5% sequentially and.

I noted in last night's earnings release within Q1 operating F. S. All of 24 cents or three cents of what I would call out of period impact. This impact consists primarily of prior period amounts received in cash during the first quarter from tenants accounted for on the cash basis of accounting and from tenants, who had previously moved out but for which upon.

Move out we had fully reserved any remaining accounts receivable and the impact is reflected within the lease income sub caption uncollectible lease income net.

Year over year, the three cent decline and operating F. S. All of $5 $1 million was driven by the occupancy fallout from the pandemic and the impact from non payment of current quarter cash basis tenant charges reflected within uncollectible lease income net the.

The occupancy fallout is evident and declines in base rent and expenses net of recoveries also year over year increases and interest expense and G&A expense due to cash bonus recognition timing differences contributed to an aggregate decline of approximately six cents per diluted share from all of these factors the.

The six cent decline was partially upset by the out of period <unk> benefit I previously discussed.

Sequentially, our nearly five cent of operating <unk> and improvement of $10 $7 million is explained by the three cent out of period benefit and two cents from the aggregation of lower G&A expense higher noncash net straight line rental income and base rent improvement due to a smaller impact from lease.

Sessions and an increase in income recognized from repayment of deferral. Despite the negative impact from the sequential occupancy decline I encourage you to review our disclosure and our supplemental, especially on page 20, which provides additional detail supporting base rent and uncollectible lease income.

So on page 19 of our supplemental we continue to include rent collection statistics, and we added new cash basis tenant collection of information as well as collection detail for deferral, including quantifying. The portion that was already recorded as revenue and 2020, we hope many of you'll find our efforts towards even more transparency helpful.

And as always please reach out if my team and I can help clarify any of the information on the pages.

Regarding same store NOI, we experienced a year over year decrease of $1 $9 million or 2.3 per cent.

The aforementioned out of period impact of approximately $6 million almost completely relates to the same store properties and as such limited the same store NOI declined to just 2.3 per cent.

The negative contributors to our year over year same store NOI decline include a 260 basis point decline and same store occupancy and the impact from non payment of current quarter cash basis tenant charges as our cash basis tenant population significantly increase the year over year the.

The impact from deferrals collected offsets the impact from new tenant concessions and Q1 2021 for purposes of additional analysis. We include same store base rent and uncollectible lease income disclosure on page 20 of our supplemental.

Our constructive cash collection trends, including the receipt of deferrals and collection on annual real estate tax reconciliations helps to reinforce our strong balance sheet positioning total liquidity measure at $888 million as of quarter and up $119 million year over year and includes $38 million of cash on hand.

As well as our fully undrawn $850 million unsecured revolving line of credit.

Our 10 point for a million dollar sequential improvement and quarterly EBITDA Ari is further affirmed our existing sound leverage position.

Turning to guidance, we are updating our full year 2020, one operating <unk> guidance to a range of 83 to 87 cents per diluted share compared to our initial guidance of 76 to 84 cents. This new range reflects our strong first quarter result, and the constructive tenant and macroeconomic factors discussed earlier are up to.

The guidance range does not contemplate future recognition of out of period income items like we saw in Q1. However, as we still have 11% of our tenants accounted for on the cash basis of accounting and the potential for additional out of period income into the.

Our Q1 results reinforced the optimism toward our business that we hope to start the year and I look forward to delivering additional progress on our opportunity set in the coming quarters with that I will now turn the call over to Shane.

Thank you Julie our first quarter operational results reflect continued upward of economic momentum and the large majority of our markets and addition to the increasing tenant bias toward profitability.

Core merchandising and distribution of.

All of this combined for relative acceleration and demand for high quality retail assets and the quarter. Our continued pragmatic approach combined with our high quality portfolio drove quarterly leasing activity to nearly two and a half times year ago levels of 687000 square feet.

<unk> to build upon the signing of momentum seen in each of the prior two quarters.

These new lease signings also carry of approximately 180 basis points of annual contractual rent increases, adding further visibility to our forward contractual growth profile.

Free anchor box rent Commencements, and all of which occurred earlier than planned and Q1 enabled us to increase anchor occupancy by 20 basis points sequentially to 94, 9%.

And these earlier rent starts also helped us narrow our leased to occupied spread by 20 basis points sequentially each of 120 basis points and Q1.

As the year progresses, we continue to expect our improved anchor occupancy and merchandising to drive small shop signings in the coming quarters, while velocity remains significant we once again demonstrated the pricing power of our portfolio delivering our third consecutive quarter of accelerating leasing spreads.

Which increased 200 basis points sequentially to five 8% of.

Our 21, 3% spread on new leases and a 3% spread on renewals drove this aggregate result. Additionally, our first quarter comparable new lease ABR per square foot of $31 60 is highest since Q2 2019.

And reflects the demand we're seeing for small shop space, particularly at our lifestyle and mixed use assets.

Of our payback period for the Ti is associated with these new lease signings measure and average of 1.3 years compared to an average lease term of seven three years, reflecting our continued efforts to maximize economic return duration and merchandising mix.

Lastly, our new leases also illustrate and ongoing pushed increased tenant credit quality to further improve the already sound durability and a rent roll as demonstrated by our aggregate collection results over the last year.

The increasing health of our tenants is tangible and both of the accelerating base rent and deferral of collection results as well as our decelerating lease amendment activity.

Lease amendments accounted for approximately 1% of Q1 and 2021 build base rent down from approximately 3% and in Q4 2020.

Broadly improving sales and consumer sentiment also helped drive further incrementals of stabilization and our total portfolio occupancy statistics and the quarter as our occupancy declined and nominal 20 basis points to 91, 5% decelerating for the second consecutive quarter and representing the lowest sequential occupancy.

And traction and our portfolio and the last five quarters.

And we're growing leasing momentum at our redevelopment and expansion projects and to the strength, we are seeing and our existing operating portfolio and affirms our differentiated ability to drive incremental organic growth.

At loud and pads G and we signed 21 of the 99 multifamily units at fine and the quarter.

In addition, we leased 74% of the 33000 square feet of office space of Apache with an anchor tenant and the remaining office space and lease negotiation.

The sooner than expected progress of Apache bodes well for the delivery of pad H and we feel strongly that the significant expansion project is positioned to continue the overall success and.

And vibrancy of our existing lifestyle and mixed use footprint at one loudoun downtown.

The circle East, we signed urban Outfitters, two and 8300 square foot location. This move from another location and the Charleston market reflects the positioning and merchandising of our site and the potential to attract other retailers and the area from other outdoor or indoor formats.

Madison Reed opened in April and the complements the earlier anchor openings of Ethan Allen and Shake Shack and Q1.

We look forward to announcing additional leases as momentum continues at Tulsa.

In summary, we remain encouraged by the demand picture, we see across our asset base as we outlined during Q force call. We continue to expect to see velocity and our leasing statistics and the second half of the year due to broad recovery and consumer sentiment coupled with pent up demand.

With occupancy of likely to make a cyclical trough sometime in the next few quarters, we expect commensurate widening and our leased to occupied spread over the balance of the year with the more significant economic benefit of these new leases likely in 2022.

With that I will turn the call back to Steve.

Thanks, Shane and Julie for your to update and lots of insight and that commentary with that operator can you. Please poll for questions.

Sure and then at this time and will be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad and call for me.

And from tone will indicate your line is and the question in queue.

Of course, starting to feel like to remove your question from the queue, who participants using speaker equipment and may be necessary to pick of your handset before pressing the star keys, one moment, please while we pull for questions.

And our first question is from Todd Thomas with Keybanc Capital markets. Please proceed with your question.

Hi, good morning.

First question on <unk> and on investments and I may.

And I have missed it but I don't think I heard much about our acquisitions and any other prepared remarks, and I know you're focused on the development pipeline, but you know those projects seem to be advancing and I just wanted to get your thoughts on investments as we move further into the recovery.

Sure. Good morning, Todd This is Shane.

So having just 10 markets right over 80 per cent of our rent and this case and to end markets. We have a select list and those markets. We know well the markets are still pretty tight and as you would imagine, but theres some interesting possible deals off market, but nothing yet to really to report.

We still don't expect it to be a significant transaction year for us and generally sharepoint developments remain a priority from a capital allocation standpoint, but there are some indicative of that you know some opportunities may be loosening up theres, a few bigger assets. It looked like they're there they're getting closer to the trading so some pricing.

Or is there a.

And as well as a couple of portfolios that generally core and nature and certainly of heavier grocery components. So loosening up of a bit I think from here. It just depends on tax policy and a few other things as it relates to the broader economy as to what comes to fruition, but again, we don't expect a significant year on transactions, but certainly have the balance.

You could do it should we see the opportunity.

Okay, and then I guess sticking with the development and.

And the <unk> pipeline.

Can you talk about plans to move forward with some of the additional phases of these projects and also begin to move forward on some of the additional projects that are that are in the pipeline altogether, just just given sort of the increase and in tenant demand and I'm curious if that's enabling you to begin advancing.

Discussions and start dates for some of those projects.

Sure.

Obviously allowed and just touching on the current and process a lot of is going extremely well and tell us and we continue to move them from a leasing perspective, along the along the cadence we outlined at the beginning of the year and and even in Q4, so to your point I'm turning to the kind of that next here.

And we've got multiple sites you know over 425 units right now and that next bucket, there and entitled I'll I'll go into a little more detail or and the second and about two to 250000 feet of call. It mixed use office with retail and the first floor and general So next up at Loudon pad T.

The.

Giving the given the office successes, we've had here on the expansion of.

And I'm happy to report that we are now 100% pre leased for the office and and G and H subsequent to quarter and so with that pad T, which is about 40000 square feet of office of the first of all of retail. We are currently updating cost there and and that would certainly be and the front of the queue.

And so I'm crown, we're finishing costs of their for 40000 square feet of offices with first of all of retail again and mixed use project and a very vibrant environment Naperville, We've got about 50 multifamily units as well as first for retail which is about 15000 square feet.

And then carillon. So Carolina is the big one hospital opens a bit late but will open in June prospectively.

We have our MLB building, which is about 125000 feet entitled and are just finishing costs, there, which is obviously you know more and more important every day.

And as well as the 375 or so of multifamily units on the back pad. So again.

Lot of velocity and general Oh, all of these projects are entitled So I think for us and and to your point around tenant demand.

We don't have a lot of trepidation around the demand side, one where local the business too we've we've certainly entitled and none of these projects and are generally expansions of existing assets. So.

I think the broader macro setup and our footprint and comfort with the markets. We're very comfortable of the demand profile I think it's just costs and we continue to work through that I think again scale has some advantages, but I think we're all aware of of fairly rapidly escalating costs I think the other part of this especially for some of the loss.

The buildings.

And it's just time, what does it look like for most of the supply standpoint delivery and what are some of the possible issues. We may have to work through as it relates to the deliveries and and hard costs and general so.

Very large pipeline, obviously entitled the only issue is cost and more visibility there so I would expect.

And the next quarter or so we would have much more visibility than we do today around most of the.

Got it or are there any starts or material expenses.

And with any of these projects anticipated and 21 you know for.

For the future projects and phases are or would you expect them to mostly begin commencing and.

2022 or beyond.

That's a great question.

Yeah, and I would ask for another quarter, but I mean from an infrastructure standpoint alone.

Next you know just kind of an early start off the ball Carolina, and we have a lot of instruct the infrastructure on the ground as we kind of cap the site off early last year.

Out of that no significant early infrastructure investment that we would need to put into the ground. This year to kind of start later in the your early next year. So long story short don't see any significant dollars going out over and above the planned investment, which is basically allowed and towson and this year.

Okay. Thank you.

Okay.

Our next question is from Wes Golladay with Baird. Please proceed with your question.

And the rest of your phone on mute.

Oh, Hey, sorry about that hey, good morning, everyone. Just have a question on how do you think the last I guess.

The resolution for the last four per cent of tenants that are not paying rent and how do you see that playing out this year I do see a share of about 1% on the abatement right now.

Sure good morning.

I can just tell you that you know if you look at it as kind of a dashboard of the business right now and triangulate around I'll call, it collections and retention and comps and volume.

The business just gets better and better it's hard to say what that the last 3% in this case looks like we still had a little over 100 basis points and active bankruptcy.

And the quarter as well so it's a little tighter than than just 96 or 97, but.

All of the indicative as you look collections and if you look at our retention I think it's an interesting pattern on the last four quarters, it's almost a linear progression.

We were at I think we trough that mid sixties Q3 last year and retention, we quite honestly thought we would be.

Low to mid seventies. This quarter, we actually are about 80 per cent for Q1. So retention was better there and then if you look at comps and and velocity overall and leasing so yeah.

And again dashboard and the business everything points to continued momentum and I think that you know we've had some attrition and around the weaker tenants we've talked about cash basis. So I'm sure, we'll get into that and the call, but if you look at our occupancy attrition and slowing down and addition to continually tightening on collections I think it just points to better resolute.

<unk> and momentum as the business develops through the year and.

And I would just I would just add to that the you know again this quarter as we've seen and each of the previous quarters, there's growth and improvement in prior amounts collected right and we called out the approximately $6 million impact from some of those prior period amounts we reported on page 19 of our supplemental the 300 basis point improvement back looking way.

Back to Q2 of 2000 2100 basis points improvement from Q3 as well as Q4 so.

And so we do continue to see tenants pay on those older amount. So I think for a lot of hopefully a lot of that resolution of the the balance that has not yet received off the 96 per cent for call. It the four per cent will come in and just you know as we enhanced our disclosure again, pointing the page 19 of our supplemental the cash basis tenant population is the only collect the we're only collecting.

70 per cent from those guys and that's you know within and that's as a component within the 96, so absent cash basis, you've got the higher collection rate and I think it demonstrates why those guys are on the cash basis, and you know, but with that said, it's the only 11% of our a b or its down from year and I'm hopeful that we continue.

See improvement from the from that group of tenants and yeah. We saw there's and there's really two ways for that that those tenants can come off the cash basis right and we've got you know.

And they could move out as we saw in Q1, we saw them quite of few move outs and which is one way to the to resolve and then on the other hand, you know with some of you know some continued demonstration of on time and full payment and monitoring of that tenant health, which we're actively doing for each and every tenant I'm hopeful that you'll see some of those tenants come.

Off the cash basis and that none of none of that expectation is contemplated in our guidance range, but if if it were to happen. It would obviously be good news for the for the numbers and for the for all things for the company.

Got it and and at what the expanded disclosure and.

One quick question of it may be on the I might might have missed it but do you have you of a a spot on the disclosure of where you talk about all of the rent from cash based tenants that have not paid which couldnt accrue for but potentially it could be upside.

We we don't have it in total, but and I. Appreciate the question I guess, we have elements of the current period right. So I've got 70 per cent collected on the page and we've even quantified that in terms of dollar. So the the 30 per cent not collected is part of the expenses recorded as I guess, it's contra revenue technically within uncollectible lease income and but I can tell you the.

The build not yet collected population from our cash basis tenants at the end of the quarter was $10 $8 million, but that includes about two and a half million of deferrals that when I called fairway of deferrals from last year.

Again, none of that 10 point Adas is contemplated in our guidance range, but history would tell you some of it could come in and I think some of it should come in and again. Our teams are very focused on collecting as many dollars within that that bucket as possible.

Got it got it and well maybe one last one on the last call. There was talk about demand being pretty good with the exception of of the space between 5010 thousand square feet are you seen any uptick in demand for that type of space.

Oh, a bit better I think generally demand overall, just continues to increase and you see that and our velocity, especially kind of Q1 to Q1, you know we were up two and of FX rate and just pure velocity. So, but you know I think some of our bankruptcy backfill as we had six bankruptcy backfill and the quarter.

And two or three of those were pier ones that were splits.

Which also helps from a comp perspective, so a.

A bit better, but I wouldn't call. It out exclusively I think momentum in general is just off overall.

Got it and thanks, everyone.

Sure.

And our next question is from Katie Mcdonald with Citi.

And with your question.

Great. Thank you could you provide some more color on what drove the stronger the lease spread progress. This quarter you just touched on it a little bit.

But how should we think about mark to market upside going forward, given the snap checks than all.

All of it all our people.

Sure.

Good morning.

It's hard to paint kind of of linear picture I think that and this environment, especially in an inflationary environment, we don't expect rents to be untouched either right but.

You certainly see pockets of outsized comps going forward.

But we'll see what it kind of looks like and.

Totality.

But I think Theres, a couple of things and I'll just use really our baseline ABR from here right at the base. Our ABR has diluted over the last couple of quarters, especially given the inline move outs, but I think you know the most relevant context here is just the pipeline. So last quarter, we were at $14 million and.

Just pure dollars, which was a pretty robust number.

For us on its face, we converted two and a half million and the quarter to new signed leases.

So really you're kind of of net 11, and a half a million and if you just take the pipeline and don't move it from Q4 of.

But since then we're at $16 million. So the pipeline, which was fairly robust you know net net to net has grown 35% to 40% and just a quarter I think when you Peel it back, it's even more compelling and and certainly interesting.

Our average rent and that $16 million of over $26 a quarter ago. It was 25. So you can feel kind of not only considerable velocity, it's 450 basis points of the ABR and 550 to 600 basis points of occupancy and that pipeline, but the pricing power of the portfolio and just the general accretion relative.

To the low 19th we're running at today so.

Definitely the momentum, but also pricing power and and we certainly feel like that will play out through the year.

Great. Thanks, and then given more thought on the non anchor side of this quarter can you talk about how you're thinking about.

Mall shops, and Intel and.

And whether you are factoring and further for outgoing forward.

Sure. So again and the pipeline is considerable and I think is the most important part of.

Our intent has always been to negotiate.

Down to kind of the last dollar of if you will and try to save and every tenant we can right obviously if.

And if you can get a tenant to come back and forego capex, especially in a rising capex environment. It makes a lot of sense that being said, we also need to make sure we understand what our actual rent roll looks like and again looking at collections at 90, 697, and a little bit of additional fallout, we continue to tighten that that spread so the.

Rent role today is much more tangible than it was pre COVID-19 and theres been some interim pain, but I think.

From a long term perspective, it's much more visible and tangible as far as fallout from here.

We still expect occupancy to trough and the next couple of quarters I think for some moderate of fallout from here.

And with the momentum and the pipeline we are very focused on replacing any tenants obviously, especially in this part of the cycle that we don't feel will make it and really focusing on forward cash flows and merchandising.

And Katy just real quick in terms of collection from different space.

The site tenant tenant space sizes are there's not a lot of dispersion. So we collected in the quarter and some.

The sub components of the 96 per cent collected and the quarter anchors. We collected 96 that mid space. So call. It five to 10000 square feet 96 per cent small shop, and 97%. So small shop actually led the way technically this quarter.

Okay.

Alright, great. Thank you.

Okay.

And our next question is from Chris Lucas with capital One Securities. Please proceed with your question.

And good morning, everybody, Hey, Julie just a couple of questions on the updated guidance just in terms of what's the what's not and.

Is there any contribution from the pad the G and H one.

And one loudoun.

This year's guidance or is there any drag associated with the.

The delivery of those two pad sites.

Yeah. Good good question, Chris It's I would say its minimal and the current year because you know you've got the elements of if you factor and the capitalized interest that once you.

Bring the bring the space and the service and out of the CIP that you can't capitalize anymore for that portion of along with real estate taxes operating expenses theres, not theres not much noise up or down and the current year. So 2022 would be on a different story and certainly 20 and 23 of the first full year of stabilization. So would you would you.

Like some additional guidance spots in terms of I thought you were gonna go a different route with what's in or out.

Well it was going to go with what are you assuming with your cash basis rent collections.

And what 70% of the first quarter.

Great happy to answer so perhaps I can start with some brief comments around the midpoint moved so we moved the midpoint of guidance up five.

And really based as I said on our strong performance in Q1, we also benefited from taking a peek at April collection levels are and that really helped influence us to move up to the five cents. So again very proud of the 96% of of build base rent collected during the quarter I can share with you. We also recovered 95 per cent of recoveries.

Also from the first quarter and you know really we were curious about this deferral of layer I think we've talked about that on the last call for many of our tenants who have deferrals from 2020. They we were asking them to start paying and January and we were curious to see how successful those efforts would be as kind of an additional layer. So the fact that we collected 93 per se.

And on that layer gave us some some additional confidence and optimism.

And you know when I think about April it's.

It's looking like Bill base rents were already 95 per cent collected and the deferrals are trending nicely and the high Eighty's and cash basis tenants for April have paid 80%. So I think you hit the the the main mover, it's cash basis tenants and as you know and appreciate the.

The you know kind of binary nature of the accounting rules. They don't it doesn't even allow us to benefit from hindsight. So the fact that we collected and I think it's $300000 more in April on Q1 of mounts from cash basis tenants, which would have taken our 70 per cent collected from those guys up to I think 70 and 76 per cent we can't read.

Core that in Q1, although I can think about it when I when it comes to the guidance. So the midpoint move was again largely based on strong performance in Q1, a little peak into April and you know and the in the range I think about the LOE and as being you know how would we get there it would likely take of a reversal of the strong collection trends that were experiencing coupled with some.

Some of occupancy declines and and to your point, specifically are kind of moving backwards on the cash basis collection level of 70 per cent.

To get to the high and you know occupancy and retention expectations or at least met if not exceeded and we would continue to collect the vast majority of both you know currently do rent and the deferral of but again, what's not in guidance would.

It would be any of that $10 8 million that west asked about so any of the the build but not collected amounts from cash basis tenants I am hopeful that we'll get a lot of it but that would you know if we got all of it it would certainly take us above the high end of the range and the other the other factor with cash basis tenants not contemplated in guidance.

There are any changes for the population. So again I kind of mentioned some folks move out and I think and I'm hopeful that over time. Some of these cash basis tenants will demonstrate you know a much healthier position and we can and we will reassess whether we really feel that they will be able to honor their end of the lease and stay in the <unk>.

Space through the term and that's really kind of the the root of the cash basis assessment because theres. Another you know $15 million of straight line. So this is noncash but of straight line that the reserved on these tenants and so you know in an extreme example, if if we were to move all tenants off the cash basis today.

Would record $15 million and straight line and we would have more flexibility to assess collectibility on that $10 8 million that the rules require us to just not record yet.

And again not in any element of guidance.

Thank you that's all a lot of good color. Thank you. So much and then change and there was the question about from acquisitions before I guess, just curious as to what you were thinking about potentially on the disposition side.

Particularly if you were thinking about either future capital needs for development starts of war.

You know recycling capital to cause the pay for and <unk>.

Acquisition.

Sure sure.

So and.

And I think we talked about this and the last quarter's call, but we have.

I don't know of 30 or 40 pads that some are lined up to go and.

And some we continue.

And of that last personalization of wherever we need to be for from a liquidity standpoint.

We still have a few other triple net large assets that we've circled that may happen. This year that would certainly trade at very compelling cap rates of almost regardless of what the trade would be or use of proceeds. So we do have of Goto bucket is generally non core first triple net and nature and Theres a few other assets obviously from.

And asset management standpoint, we could dip into if we thought it was prudent and the market was there.

But generally we as you know Chris we try to make sure that we have at any given time, a bucket of assets that are liquid and it would certainly kind of obtain compelling prices if we need to go to it.

Great. Thank you for that I appreciate it.

Thank you.

And our next question is from Derek Johnson with Deutsche Bank. Please proceed with your question.

Hi, everyone.

Can we get some further insight on the circle East how are the broader discussions progressing post urban and can you give us a sense of the leasing pipelines there and also how the stabilization of the timing has changed.

And then I guess lastly on this as any inside of that how out.

The lines residential lease up is performing since that will only help the negotiations.

Sure good morning, and <unk>.

And we continue to progress I think you said the last couple of quarters or at least from when we moved it out to 'twenty two stabilization of that.

We would progress you know one two maybe three leases a quarter and we're definitely running that cadence right now urban obviously at 8300 feet and moved the needle quite a bit given the denominator there.

And we've got urban Ethan we've got Madison Reed, there now and we've got shake Shack, which is which is open and so we.

We've been patient you can see the merchandising and the quality there and has paid off in that regard and and I think maybe to your implied point with that that lineup the trash and gets better and so we've got L. O wise right now gets us kind of north of 50%.

And we certainly have many more active showings that we did even a quarter ago, you know kind of as the Sun comes out and share point, you know the colleges everything and that corridor just points of better stabilization.

And then the Avalon Bay is no different I think anecdotally they are.

70% or somewhere around there right now from a lease standpoint, so they continue to progress kind of hand, and glove with us and if theres more tenants to be mined in and outside of the corridor. So.

Great great activity, especially relative to you know even a couple of quarters ago, and you can feel it and not only the least but certainly the pipeline.

No. That's that's very helpful. Shane and and is restarting carillon somewhat hinged on demonstrating success and Derisking Circle East House, and especially as one loud and has had.

And it's proven to be in my opinion of success.

Yeah, that's of Great question.

Yes, but maybe qualify a bit I think and I'm not diminishing towels and it's it's not insignificant it's $40 million, but.

With with loud and that 120 of $130 million and.

You know being I won't say, a runaway success, but already 100% pre leased and the office and the multifamily at quarter end was 22% you know we're already I would say post quarter and were.

Almost 35 per cent of the multifamily already so.

I think what we're looking for is more validation and proving to our investors that and.

And the only do we have the the dirt and balance sheet, but we have the team to pull this off and I think loud and given the gravity or on a relative basis to to our portfolio of proving that concept.

And in conjunction with Telus and I think is important so to your point Caroline is certainly large and certainly has a lot of qualitative and quantitative aspects that let's say it should be again of a phenomenal success, but yes, I think some of our thought process is.

When do we go and and you know just how much credit. If you will are we getting at that stage.

Eric I'm going to add on there.

Eric I'm and add onto all of that chain said. This is Steve you know from the back.

And of the developments you might recall that we had what we call. The big three so Caroline was every bit of piece of that the one thing that I'd like to add is is that you know I think last year. How unfortunate. It was it was a bit of a blessing in disguise because it really has provided a lot of clarity around the real prospects for these projects and it has.

It allowed us to avoid some what could have been some mistakes along the way and Shane has.

Sharpened as pencils. This entire team has and certainly certainly has delivered on everything that we said coming out of the onset of COVID-19 and I think time is going to be on our side here all of that being said you know order of operations from a capital perspective continues to be lease up and as Jean has pointed.

Very repeatedly the the momentum is very very strong.

And then coming into further projects that we know that we can deliver on and good time at good returns.

And then we'll be very opportunistic when it comes to acquisitions dispositions and <unk>.

Julie has made sure that we of the balance sheet to execute on this we have all of the tools and the toolbox to do it.

And so theres nothing, but you know of clear fairway and front of US right now with the lack of clarity around what we could be doing with these assets and the timing of when we should be doing that all of that being said not a lot outside of the one loud and project. This year as quarters go by as Shayne and pointed out we might tighten up when we might start some further construction.

But I would encourage you to stay close to the supplemental pages that Julie details in terms of what the development pipeline is.

What is actually coming onto the front of the page. If you will and then more importantly, the results of what we are delivering to date proving to be very strong. So just wanted to add that to change the commentary.

Well noted Steve Thanks.

And our next question is from.

Our next question is from Linda Tsai with Jefferies. Please proceed with your question.

Hi, and.

In terms of moving off of cash basis. Julie you mentioned the main consideration is can they stay through the term is the key metric primarily occupancy cost ratio or what's the process you go through.

Oh, Thanks for the question it's.

Tell you, it's a very detailed granular process and it's sort of I guess two pronged. So I ask my accounting teams, who are frankly, not close to our tenants right. There there they are of a different role.

And to monitor the data so what are we seeing for these tenants that are on the cash basis are they paying in full and are they paying you know just their current rent are they also able to pay their deferral of layer. If they have one of our or are they paying and full but they're late payers, which is different and different than if they're never paying.

And what trends are we seeing well, let you know we're not interested in creating volatility by moving tenants on and off so I would tell you. It's a it's a lower hurdle to go on the cash basis and at the height of little bit of of higher hurdle to come off but there is a tremendous amount of judgment. So accounting will gather data kind of present and initial of thought about.

Okay. These guys have been paying for six months on time that seems like a good candidate to the vet with Shane side of the House and then we go in and consult with the property managers of the asset managers, who are closer to the tenant in terms of any you know kind of anecdotal conversations or any other until that they have and we really value their input and because there.

For the tenant and and have a very valid opinion on the topic. So it's very much of a collaborative approach internally, it's not a categorical approach in terms of tenant use either in either direction. So yeah. I can just assure you that those conversations will continue to happen each and every quarter and we are committed to continuing to provide the information.

On the page if you will so pages 19, and 20 of the supplemental is a hopeful hopefully it helpful. The two investors and and as I mentioned always happy to get on the phone to talk through where there's a lot of lot. We said on the call. There's a lot on the pages and the and the information out there.

Thanks for that color and then the new tenant concessions and the first quarter due to the nature of those arrangements look like is it forgiveness or percentage rent component for a period and is your expectation that concessions continue through the remainder of the year.

Yeah the <unk>.

And as from Q1, we're the only 1% down from I think it was 3% and Q4 and certainly much much larger and the earlier quarters and you know for them and all of that's changed the way and as well, but the and this was across very few tenants and the category that we described on page 19 is that the theater abatements or full lease modifications or.

Kind of combinations of abatement and deferrals I believe the significant one that I'm thinking of was off of lease modification that involved the abatement with a challenged and use category tenant.

Thank you I would say in general it is a hybrid of these are tenants that are trying to open back up or have shown some merit of success and and opening back up here and and the late spring and we're cleaning up trying to clean up all balances are as well as some kind of a temporary percentage rent. So so youre.

And kind of statement is correct. There is a blend and we're just trying to understand if they can make it and with a very short time.

The time period.

Thanks for that just one last one of the one three year payback on tea is how does that compare to history and what's the expectation going forward.

Great question.

It's obviously I think the tis are low, especially given.

The the $31 ABR on the new population. So it just it's hard to really say window of what it looks like going forward, especially in an inflationary environment I would just tell you with every lease we try to get the most of the lease and so and this case great real estate.

And we still have leverage and given the momentum will continue to try to to exercise that leverage but it's hard to tell you what that payback looks like with any confidence going forward.

Thank you.

Okay.

And as a reminder, if you have any questions you May press star one on your telephone keypad and doing so will place yourself in the question and answer queue.

Our next question is from Paulina and realize Smith with Green Street.

Please proceed with your question.

Well the morning.

And then any sense of how much have kind of rates for lifetime centuries.

Versus 2009 pool.

Or maybe more broadly speaking how do you think the interest in the asset classes.

And the private market and the last months.

And any corner or updated thoughts from these from and it would be helpful.

Sure good morning.

And the last month I don't know if there's any indicative out there that would say interest is better or worse.

Obviously been and asset class in general of that has you know with the higher proportion of non essential been hit a bit harder I would tell you, though on surprisingly well.

Lifestyle is thrown around fairly loosely so in this case just qualify it lifestyle with the mixed used component true true mixed use in this case, which has multifamily and viable office interest the very high right. If you have and asset with proven sales.

COVID-19 aside which is viewed as kind of of temporary blip, especially given the the broader enclosed mall issues and the continued kind of momentum around.

Reconfiguration and re tenant Inc, and kind of the proven pricing power, especially in the last really quarter or so right, which has yet to play out but at the moment one of them. There. The question. It really is just sponsorship you know these assets if you're out of that big complex assets.

And <unk> that are 500 billion plus what is what is the appetite on a one off basis from the sponsorship standpoint, and I think that has yet to play out but I think generally.

The best assets get better and I think COVID-19 has only kind of put an exclamation point on that that transfer of power. So I would expect more interest to the extent there are sponsors out there that are looking for more expansive retail exposure or alternatively need.

Retail exposure you know of.

At some number but also very much covet very viable multifamily and office that is driven really by the power of of great retail amenity.

Very helpful and then it'll and and.

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