Q1 2021 Retail Opportunity Investments Corp Earnings Call
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Ladies and gentlemen, please standby the conference call will begin on the challenge.
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Welcome to retail opportunity investments 2021 first Corp conference call participants, a cramp free and the lesson home and Halloween the continuation of paired comments the call will be opened for questions.
Please note that certain matters discussed in the call today constitute forward looking statements. We didn't do many of the federal Securities laws, Although the company believes the day.
Expectations of play in such forward looking statements are based upon reasonable assumptions. The company can give no assurance the dis expectation will be.
Such forward looking statements involve known and unknown the race and certain.
Keith and other factors that may cause actual results to differ materially from future results expressed or implied by such forward looking statements and the expectations information regarding use of twist and textures is described and the companion filings with the securities and exchange condition, including its most recent annual.
The fourth and Swan turnkey participants are encouraged to refer to the company's filings with the S. E C from garden, such risks and factors as well as for more information regarding the company's financial and operational results and the company's filings can be found on the website now I would like to introduce is to retrench.
The company's Chief Executive Officer.
Thank you good day, everyone. We appreciate everyone joining us today and hope that you and your families are all doing well.
Here with me today is Michael Haines, our Chief Financial Officer, and Richard <unk>, Our Chief operating officer.
It's the only been a few short months since our last earnings call. We are pleased to report that a lot of encouraging progress is now underway on the west coast.
All of business is up and down the West coast are now allowed to be open.
In terms of our portfolio. We are pleased to report that today over 99% of our tenants are currently open and operating.
And we only have just a small handful of tenants that have yet to reopen primarily of few salon fitness and restaurant tenants all of which have indicated that they are preparing to reopen soon.
With businesses reopening customer traffic and shopping activity of also both ramped up and.
Additionally, with over 99% of our tenants now open our rent collection is heading towards pre pandemic levels as well.
Notwithstanding that the West coast only recently began reopening we still received approximately 92% of our build base rent and the first quarter.
Since the shutdowns began being lifted our collection rate has been steadily increasing.
As highlighted in our press release, we've already received approximately 93% of our base rent for April which was ahead of our historic pace during the pandemic.
Assuming there are no setbacks regarding the pandemic, we expect our rent collection rate will head towards pre pandemic levels as we move through the second quarter.
And step with 10, and three opening customer activity ramping up and rent collection of steadily increasing leasing activity is also returning to pre pandemic levels.
Occupancy typically drops from the first quarter following the holiday season, however, given.
And given the considerable pent up demand per space that had been building across our portfolio. During the last shut down as many businesses were waiting for the rollout of the vaccines to begin and we were able to capitalize on that demand and actually achieved positive rent the absorption and the first quarter, while also achieving positive rent spreads.
And importantly, the new leases that we are starting the are with terrific new necessity and service based tenants many of which are new businesses and trainer and markets for the first time, along with the growing number of established business the seeking to expand their presence and our markets where they have a very strong customer base.
Many of these businesses were either unexpected or in some cases positively affected financially speaking during the pandemic and are now looking to capitalize on their success by expanding in our core markets.
Along with the leasing and business activity is steadily increasing and we were also seen municipalities, becoming increasingly more engaged and responsive in terms of the permitting process and recognizing.
Recognizing the importance of helping businesses and their local economies rebound as the pandemic subsides.
We are working hard to make the most of this the speed up the process of getting new tenants up and running.
Additionally, it is helping in terms of advanced and our pad development initiatives, which were capitalized on as well in fact, the way things are starting to take shape. This could be a strong year in terms of tenant and pad openings.
Going forward, assuming there are no setbacks in terms of additional shutdowns and again, we are becoming increasingly optimistic that our business could return to full operations in the months ahead.
Now I'll turn the call over to Michael Haines, Our CFO, Mike <unk>.
Stuart starting with our first quarter financial results GAAP net income attributable to common shareholders for the first quarter of 2021 were $7 4 million equating to <unk> per diluted share from.
And from operations for the first quarter total of $31 million equating to <unk> 24 cents per diluted share.
Same center net and operating income, which includes all 88 of our shopping centers totaled $47 2 million for the first quarter of 2021, which is five 6% below our same center NOI for the first quarter of last year prior to the pin debit and.
Notwithstanding the first quarter number, which we anticipated we continue to expect the same center NOI will be between zero and 3% growth for the full year.
To date, we've received 91, 8% of total bill of base rent for the first quarter as Stuart touched on during the good portion of the first quarter the west coast with cylinder business restriction mandates. So first of the collect nearly 92% of our build base rent and speaks to the strength of our grocery anchored portfolio.
With respect to the remaining 8%, which totals approximately $4 1 million $1 6 million of that we set aside of the bad debt reserve, while our bad debt is still a bit elevated as compared to our historical quarterly bad debt $1 6 million of the notable improvement over our quarterly bad debt during the height of the pandemic.
Going forward, we expect it will trend back down closer to our historical quarterly rate, which prior to the pandemic kind of consistently average well below $1 million.
In terms of the remaining $2 5 million of build base rent and not yet received we've agreed to defer $1 4 million of that and in terms of the balance of all businesses now allowed to be open again, and we expect to receive the bulk of it as we move through the second quarter.
Turning to our balance sheet during the first quarter, we continued to utilize free cash flow to pay down debt, specifically, we paid down $34 2 million of debt during the quarter overall since the pandemic began we've lowered our total debt by approximately $75 million a day.
And with the $34 million pay down and the first quarter as of March 31 of the outstanding balance under 600 million credit facility was just $14 million.
Lastly in terms of revenue guidance, we remain on track to achieve the <unk> between 95 and.
The $1 two per diluted share for 2021, now I'll turn the call over to rich level of our CFO rich. Thanks, Mike expanding on Stuart's comments leasing activity and demand per space over the past couple of months has been accelerating sharply.
The demand runs the gamut from existing tenant relocations and expansions to new tenants moving their businesses to our centers from other competing properties to new businesses entering the market for the first time are expanding the reach on the west coast.
The underlying theme that we're consistently hearing from existing as well as perspective tenants is that they are all optimistic about their business prospects going forward.
As a result of this increased activity as Stuart indicated our portfolio lease rate increased during the first quarter to 96, 9% as of March 31.
Breaking that down between anchor and non anchor space, our anchor space continues to be 100% leased as it has been throughout the pandemic and our shop space is now over 93% leased.
While the tenant optimism and demand per space of strong given that we are not yet entirely out of the woods with the pandemic. During the first quarter. There was a fair amount of back and forth in terms of negotiating the initial base rent, which is reflected in our rent spreads that increased by four 9%.
While the spread is below our typical double digit increase on new leases from our perspective, our number one goal coming out of the pandemic is to enhance tenancies at every opportunity.
And we're doing just that focusing on businesses that have performed impressively well throughout the pandemic.
Just decided a few examples during the first quarter, we signed new leases with several new very strong urgent care health and wellness businesses that have performed very well over the past year and are now expanding their presence on the west coast.
And the fast food sector, which has performed very well throughout the pandemic, we signed a new concept operator that is rapidly expanding on the west coast.
We actually saw and not just one lease with this new operator, but three one and southern California, one in northern California, and one up and the Pacific Northwest.
Additionally, we signed leases with two fast food operators that both have an incredible loyal following one and northern California, and one up in Seattle.
Both operators and therapy.
Both operators rarely opened and new locations and our highly selective when they do.
In fact, the operator and Seattle promoted for weeks their new location as being top secret with the countdown, culminating in a big reveal event under center, which is crossroads that drew a huge crowd of followers tour center on the night of the reveal including local press and the city officials.
Turning to our renewal activity, which like new leasing has picked up notably with an increasing number of tenants coming to us early to renew their leases specifically during the first quarter. We renewed a total of 66 leases in terms of renewal rent a good number of the renewals involve tenants exercising renewal offers.
And is that contractually stipulated the initial rent at the start of the renewal period remain on par with the previous rent with fixed rent increases going forward over time. Additionally.
Additionally, on renewals, where the new rent was negotiable and similar to new leases. There is a fair amount of back and forth as to the initial renewal rent.
And as a result, our overall increase and cash rent on renewals for the first quarter was three 2% again a bit below our historical average per renewals.
Importantly, as with our new leasing activity, our renewal of activity largely centered around tenants that have been open and performing well throughout the pandemic and have invested interest and staying at our shopping centers given the strong loyal customer base and the surrounding community.
With leasing activity, increasing and the first quarter not surprisingly the economic spread between leased and build space increased during the first quarter.
At the beginning of the year the spread stood at about 4% representing approximately $8 6 million of incremental annual cash rent.
During the first quarter, new tenants, representing about $1 million of that $8 6 million took occupancy and commenced paying rent.
Taking that into account along with new leasing activity during the first quarter the spread increased to four 1% as of March 31, representing approximately $9 6 million of incremental cash rent to come online as new tenants take occupancy and commence paying rent going forward.
Thankfully as Stuart highlighted local municipalities are starting to become more responsive and expediting the permitting process as a result, the level of activity in terms of new tenant build outs together with existing tenant expansion and relocation where that is now underway across our portfolio is certainly comparable to pre pandemic Act.
<unk> and may even surprised the past that in the coming months.
Lastly, this welcome New municipality engagement is also helping to accelerate our pad pipeline. We currently have a dozen projects underway in various stages of development ranging from the planning stages to several that are nearing completion altogether. The projects will add roughly 60000 square feet and add over $2 million and annual rent.
And once they are all completed which we had anticipated would be over the next 18 months of.
Assuming the various municipalities continue to be proactively engaged and helping expedite the process many of our pad projects could get completed well within that timeframe.
Overall based on the momentum that is building across our portfolio, we are becoming increasingly optimistic as Stuart comment and that 2020, one could be a strong year in terms of portfolio operations and leasing, particularly in the second half of the year now I'll turn the call back over to Stuart Thanks Rich as.
As the momentum and activity builds across our portfolio. We are also now starting again to seek out acquisition opportunities we.
We are focusing our efforts specifically on off market opportunities to acquire and neighborhood shopping centers that are simply grocery anchored with maybe one or two sub anchored and necessity based tenants over the past year of the properties and our portfolio of that hands down performed the best with essentially no issues during the pandemic where exact.
And its profile.
And while it's a bit too early to talk specifics, we do have several off market opportunities that we're currently looking at closely that fit this profile of nicely.
In terms of dispositions beyond the one property that we sold last week for $25 8 million, which generated a gain of over 9 million looking ahead as the acquisition market is now starting to come back and earnest. We are planning to move forward this quarter with marketing for sale of our last two properties and Sacramento.
Once we sell these properties will we will fully be exiting the Sacramento market.
Finally, with the pandemic subsiding and we are now making plans to return to working and the office starting in June.
And and preparing for everyone's return we've implemented implemented significant enhancements to our office aimed at ensuring the safety and wellbeing of everyone. Following all of the proper protocols and then some additionally.
Additionally, we have of Chinas currently assisting employees with scheduling vaccination appointments to debate over 80% of the company has been vaccinated.
A year ago at the beginning of the pandemic, we had no idea how working remotely from home would pan out.
Fully to our entire team's credit and everyone has stepped up incredibly.
Over the past year, we became a more nimble and efficient organization and we have also become closer as individuals'.
Looking ahead, while having to relinquish the comfort of wearing sweats or pajamas, all day, and again faced commuting and California, which will be an adjustment for us all we have great optimism of what we will accomplish in the months ahead as we come back together as a stronger closer organization.
And continue on our mission of building long term value.
Now we will open up the call fear of questions.
Operator.
Ladies and gentlemen, if he had the question at this time. Please press Star then the number one key on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue price the pound key.
Your first question comes from the line at catching Mcdonald, we'd see any of your line's now open.
Good morning and data.
Good afternoon, everyone.
And so given you saw positive net absorption this quarter do you expect John you can see while continue to improve from here or are you assuming you could still see some potential occupancy part from the tenant category of toy rent questions, they're still pretty low.
I think that that occupancy will continue to stay strong for us I think that as we move into the third quarter and certainly the fourth quarter I'm expecting that that will continue to be a positive number in terms of absorption.
Okay. Thanks, and then just on the acquisition side can you talk about your appetite to get more I'll piggyback.
The equity funding at the.
This level based on the debt that you aren't today.
In terms of equity funding all of the acquisitions, Mike well, we havent raised any equity right.
And Mike I would say just given that we don't have any debt maturing this year and our credit line balance is almost zero. We don't we don't have any immediate use of raising the equity instead of we start acquiring properties again, and we will look to raise the equity to help from those acquisitions together with the proceeds from the Sacramento dispositions.
Okay, great. Thanks.
Thank you.
Your next question comes from the line of Craig Smith with Bank of America. Your line is now open.
Good morning, Craig.
Good morning, or good afternoon, Greg and good morning, Yeah, Hey, I.
I was wondering with cap rates on a per class a grocery anchored centers and the west coast of California, Oregon, and Washington, and it's been a lot of chatter and where would those cap rates stand relative to pre COVID-19 cap rates.
Well, there hasn't been a lot of activity and the market in terms of our high quality grocery drug anchored shopping centers, what we have seen more recently cap rates have actually.
And traffic.
In fact, you could say that given.
Given the fact that capital today is much more focused and towards the grocery drug anchored segment of of retail.
And what we're hearing is that cap rate compression should continue.
As we look forward for the rest of the year.
So although there hasnt been any meaningful transactions that we can look to what I can tell you and the chatter. We're hearing on the West Coast is that capital of this now beginning to build for this product type and we're expecting the valuations to go up and cap rate compression to continue that.
Cap rate compression will be probably less.
And then it was before the pandemic.
Okay, and I had been hearing similar thing.
And then and in terms of the increasing construction cost is that impacting your plans for the densification efforts youre pursuing and particularly the first three.
Something we're watching very closely I think where we're at in terms of the process here in terms of permitting we do not expect to break ground. This year. It would be early next year and we.
We're hopeful that those pricing will come back more in line with where it was pre pandemic.
Okay. Thank you.
Thank you.
Your next question comes from the line of Michael and me would be T. I E. Your line channels.
Good morning, Mike and Mike.
Good morning out there quick question on the tenant side of things and I'm just curious what the conversations are like that you are having.
With some of the tenants that are on the more challenged side you know from your perspective as a landlord you're almost a year and clearly you've got a lot of demand on the leasing side. So what are the conversations like with those tenants that still arent.
You know still aren't able to either get open and are still aren't able to pay the rents at this point.
The the tenant base is still very optimistic and I think they all at this point see the light at the end of the tunnel in terms of getting opened and operating at full capacity and pre pandemic levels.
The tenants that have weathered this storm to this point of.
And are really just focused on the future.
At this point, we're having almost very few conversations relative to rent deferrals.
You know we've been very successful and.
Getting grants from local municipalities and other aid sources to our tenant base.
And so that they've been able to weather the storm. So what we're hearing is just a lot of optimism.
Okay, and then maybe you know away from the the restrictions I know this came up on the last quarter call, but suck Kroger closed two of their locations.
The course of the past couple of months because of wages, obviously, a lot of raw material pressures on some of the retailers are you seeing increased pressure on your tenants away from just the business restrictions and even in and their normal course of the business.
No I mean, obviously you know what we do hear a lot about is the minimum wage and the impact that has also some.
Hesitancy and you know some employees willingness to come back to work.
Given the government support that they're currently receiving but having.
Said that you know our tenants again had been able to staff the stores at the necessary levels to keep going forward.
We're actually working with.
Kroger on expansions and some new click and collect initiatives that are of some.
The things they are testing out of a few of our properties. So the.
The tenant base again is from the anchors all the way to the the small shop tenants of very optimistic and.
They're weathering. These these various aspects of that theyre dealing with.
Okay, Great and then maybe Stuart just kicking and step back from a strategic level and piggybacking a little bit on Craig's question. As you start looking more at the acquisition market sounds like it's heating up a little bit more as you look to market the Sacramento assets.
What are you thinking about looking at the N O Y and looking at the rent rolls of either of potential target or as you're thinking about selling some of these assets are you are you projecting complete returned to pre pandemic levels, just because of obviously the cap rates of one half of the equation and how you're thinking about the the NOI side of the equation.
And as you underwrite assets.
Very conservatively.
And in most cases in terms of the deals that we have on the table right now which are again off market very high quality.
We're giving no credit to the NOI associated with any tenant that has either had deferral or we think potentially could go out of business.
So we're underwriting again.
Very conservatively and more importantly.
And we realized that whatever we buy at this point, we're really focused to make sure that theres strong internal growth that and value that can be created after closing.
Fantastic and then just one one last mechanical and Mike on the dividend obviously, it's been a benefit from the retained cash flow perspective.
How is that trending from the taxable income side of the equation.
Are you going to be required to boost that and second half.
From a taxable income perspective, or do you have room there.
And that's kind of hard to tell right now Mike we <unk>.
Originally set of to be of.
Kind of tide or matched to what we anticipated 2021 taxable income to be but thats going to move around a little bit.
Particularly if things improve more rapidly than we thought so I'm kind of measuring and as we go through the year and and if we need to increase the to match taxable income and then we will end up doing that for sure.
Alright, Thanks, gentlemen, I appreciate the color.
Thank you.
Your next question comes from the lineup Juan Sanabria with BMO capital markets. Your line is now open.
Good morning Juan.
Good morning, Thanks for the time.
Just hoping for a little bit more color on the guidance range is both for same store and <unk> and what would be the drivers for the top and the bottom and where do you feel most comfortable and island and.
And are you, including any noise of onetime benefit from any tenants you maybe cash economy.
And then some deferrals paid back at all.
Well, we're still comfortable with our range of zero to 3% per the year, it's going to be kind of lumpy as we go through the quarters, but as of yet.
Remember, we're measuring 2021 against 2020.
We didn't we didn't move anyone to cash basis of accounting.
All of the revenues and the crude.
And the balance sheet as shown on the collection side. So we're still comfortable with the <unk> guidance of 95 to $1 two and the same store of zero to 3% given where we are today.
Okay.
And then just.
Following up on Craigs earlier question on.
And cap rates can you give us any color on the cap rates from the San Diego sale and kind of what Youre thinking you can get per Sacramento, and how that compares to maybe just a range of.
The going in cap rates for potential acquisitions of your underwriting conservatively the day.
Sure San Diego with income and placed on closing and in the low fives.
And in terms of Sacramento and the range, there is probably going to be anywhere from 6% to 8%.
And any color on kind of what youre seeing for acquisitions is to think about the two.
In tandem.
The current acquisitions.
We are looking at the of these are extremely well located high quality assets.
John.
I can give you sort of a range.
Probably in the five five to six range with the ability to create about 150 basis points of yield.
The yield increase and yield over an 18 month period of time.
Great. Thanks, and then just one technical question what was the change in the same store asset count sequentially.
And the first quarter, we get the added one asset.
Michael I think it's the same pool right same quarter in the same quarter.
In terms of the.
And what would not be and the same pool I think it's the exact same pool of this last year you know what we'll quickly look Michael Haid of quick look at that but I believe.
It is the exact same pool from last year one.
Yes, the 88 properties of the book curious same pool exactly.
Yeah.
Maybe if I look at the fourth quarter, you had 87 assets and the same store pool.
And 88 the.
The fourth quarter versus first quarter.
Couple of work is now and we can take it offline.
Yes, I think it might be summer work, which was the acquisition, we did and Seattle I'll just outside of Mexico in the Metro Seattle market that may be the one property, we bought the and.
During the fourth quarter of 2019, so it's now and in the pool for quarter over quarter got it.
Thank you.
Thank you.
Your next question concerns the line and Wes Golladay with Baird. Your line is now open.
Good morning.
Hey, good morning, Stuart Good morning, everyone can you maybe talk about the timing of commencing that $9 $6 million of ABR, maybe frame it up as to how much of this year and and how much next year and it would be back half loaded.
Yeah, I think debt.
Most of this will come on.
A big chunk of it will come on by the end of this year certainly back loaded into the third and fourth quarter of course, it's always changing and we're always adding to it as well so.
But we do expect to bring that number down this year.
Got you and then you and you also mentioned maybe taken a different approach on the scene right now of new and renewal and I guess when do you anticipate going back to I guess going back to our achieving historic levels of renewal renewal leasing of new leasing spreads.
Yeah, I mean, I don't know, if it's really and a new.
Focus that we've always been focused on keeping the properties highly occupied.
And but we do foresee that going into the third and fourth quarter that we should be getting ourselves back to more normalized spreads.
Okay, and then when we look at the tenants that are not paying you obviously have some deferrals, but I guess, where the bucket that is of your reserving against.
Are they mostly gone by now or is it still.
Is it more of a dispute of we don't think we need to pay when we were closed and going forward and they may be a good tenant I guess, how much of a true these at risk out of the run rate going forward.
Well I think we've been.
Fairly conservative in terms of our reserves and yes. There is certainly a subset of tenants that we are.
Going back and forth on as it relates to some positions they've taken about whether they have to pay rent or not.
But in those cases as I said you know we've tried to be conservative in terms of the reserves we placed on them.
At this point, it's really down to a very small set of tenants that we are you know.
Going back and forth with us on this and as people have been opening up we've been able to resolve of many of the ones that were lingering.
Got you and then and one last one and then we've got the.
And the portfolio of the throughout all regions is pretty well leased with the exception of the crest asset, which is well located and about 69, 2% I guess any plans to bring that back up to a highly straight.
Over the near term, yes, yes, yes, and we've got a good demand for the space and Seattle I think as many people have seen Seattle the suffered from.
Things other than the pandemic this year and.
I think as businesses are opening up and of the the.
The office buildings continue to <unk>.
Increased their day time occupancy, we expect that the you know the Seattle market will come back very strong and Thats downtown Seattle and not the overall market Chris correct.
Got it thanks for taking the questions guys.
Thank you.
Your next question comes from the line and Todd Thomas with Keybanc Capital markets. Your line is now open.
Good morning, Todd.
Hi, good morning.
A couple of questions I guess on acquisitions of transactions Stuart historically, you've acquired pretty core or I guess core plus assets with some below market rents in some instances as you as you begin to look at investments here or are you targeting similar assets or are you starting to see and target more value add.
And our opportunistic investments as you as you look ahead.
A very high quality stabilized assets.
What we have our ion and right now and what I think will begin transacting on as we move through the core.
Okay. And then you also you commented that capital's beginning to build for grocery and drug anchored centers. I think you mentioned that it's not where it was pre pandemic, though can you just elaborate a little bit more on that comment and describe the competitive landscape today.
Day in and who you're seeing in your markets show up in terms of competition as you start to look at investments and and what that's like a little bit.
Sure.
From a capital perspective, what we're hearing on the ground is that there has been and will continue to be of very large shift from multifamily and industrial into retail with the primary focus of grocery drug anchored.
Cap rates and those sectors have now into the threes I think capital realizes that they can now get a better spread for assets that are very stable and nature of very defensive in nature, and very and when I say stable. That's long term cash flow from the capital perspective, we're seeing of certain flow now of.
The capital, leaving certain sectors and coming with the again into the grocery drug anchored format.
In terms of.
The buyer profile.
And certainly the 10 31 market is heating backup for grocery drug anchored.
And institutional capital is also beginning to heat up again.
The institutional capital side less of the market during the pandemic. There now we're beginning to see them come back. So the competition is really coming from the 10 31 market.
Institutional capital and some private buyers.
Okay. That's that's helpful.
And Mike in terms of the guidance.
You know the.
The you reaffirmed the guidance the <unk> guidance and that included the $25 8 million dollar sale.
Is there any are there any additional dispositions the two sacramento assets or anything else that's embedded in the guidance and what's the timing.
Like what should we expect with regard to Sacramento.
I would think maybe sacrifice probably the backend loaded for the year, but it wasn't it wasn't built into our original guidance and so if we do transact and so those will probably likely look to just 10 31 of the into new assets.
Okay, and then just one last one Mike with regard to the bad debt. So at 1.6 million and the quarter and you mentioned that you expect to see that get back.
Towards pre pandemic levels, which was you mentioned below a $1 million per quarter when do you see that.
Starting to happen do you expect that and the second quarter or do you think it'll take a little bit longer and that.
I don't know if we'll get all the way back down below 1 million by the end of the second quarter, but as of the whole West Coast continues to open up and our collection rates kind of cut back of our pre pandemic levels.
The bad debt naturally just going with the drop off.
But the may not happen right away by the Q2 might be and believes into Q3, depending on the re openings.
Okay, Great alright, thank you.
In Q.
Your next question comes from the line of Mike Mueller of Jpmorgan Your line's now open.
Good morning, and I, just hey, good morning.
Quick follow up on the reserve if youre looking at the at $1 6 million and can you just give us a sense as to where there are some chunky components in there or is it like lots of little tenants I mean, just what's making up that $1 6 million.
If you recall at the time.
And I don't know that its.
And the tilt in any direction, we go through the reserves on the tenant by tenant basis, and we look at each individual case and and.
And make the appropriate reserve based on the circumstances of that tenant.
So it's a very detailed tenant by tenant review.
As you would expect it's probably kind of more heavily weighted towards the restaurants, the sure absolutely and entertainment categories.
Got it Okay, and then I think I think it was used to or mentioned talking about medical tenants in terms of leasing activity and.
Just curious when you when you think about those uses and bringing them diseases into a center, where you haven't had them before I mean, do you view them as more of like a junior anchor.
Rents compare to other forms of.
Retail you would had and Theyre beforehand, just any sort of color would be great.
Rents are typically very strong higher.
As of typically a bit more.
And.
And in terms of the tenant mix there of great tenant to have because they certainly are necessity based and.
And it does seem like.
Given the circumstances that we've all been through.
The people certainly loved the fact that they have the convenience of Guinea and their car and getting medical attention very quickly.
And I think that's what's driving a lot of us.
Throughout the country and our portfolio is the fact that someone can versus getting on the internet and get in their car and within a minute the two minutes get medical attention.
Got it okay that was it thank you.
Thank you.
Your next question comes from the line Linda Tsai with Jefferies. Your line's now of them.
Good morning, Linda.
Just a follow up to Mike's question in terms of the Ti is being a little higher from you uses like urgent care, what should we expect for Ti spend directionally in 2021 versus last year or maybe 2019.
While overall capex of the company is going to be relatively light for two reasons number one and no. We haven't had any anchor fallout and thank God touch wood.
And so from that perspective.
We don't really see.
The debt from that perspective.
Perspective.
Capital or <unk> will be relatively very low for us from our in line shop space, depending on how much turnover we have.
We also believe that that number will trend and less as well in fact, I think if you look at our supplemental and the first quarter of it.
Of the year, that's exactly what's been reflective.
I don't know Richard if you want and I guess, the only thing I would add to that is on these tenants of take a bit more ti. They're also the type of uses that we're signing longer term leases and they typically don't go anywhere because of the cost to relocate is quite high and once the improvements are in place, we're able to utilize that for our future tentative.
Someone were to leave the center so.
It's really at some level of and investment and the property that will reap the rewards going forward as well.
Thanks for that.
And then just in terms of the.
The color that you provided on the targeted acquisitions and smaller grocery anchored with one or two other tenants what percentage of your existing portfolio fits this profile and then what of your thoughts on why this was the superior performing format during the pandemic.
Well certainly when you look at our portfolio outside of Fallbrook and crossroads.
And which are two larger centers.
Our two and my humble opinion two of the strongest assets all of the West coast.
Everything else basically fits that profile and.
In terms of looking at the profile.
I think at the end of the day, certainly I think as you know Linda This management team has been doing this for close to three decades. This has been the product type debt that time. After time after time has been the most resilient.
And more importantly, coming out of the pandemic.
And this tenant base, it's certainly been the tenant base that has held up.
And as it relates to deferrals or abatements and more importantly, the.
And the fact that these tenants.
And my view and our view are going to sustain going through this pandemic and looking forward are going to have the ability to keep paying rents at or higher levels and they have and the past.
Thank you.
Yeah.
Your next question concerns the.
And my apologies and your next question comes from the line, it's Chris Lucas with capital One Securities. Your line is now up and.
Good morning, guys.
How are you.
And the right.
I'm, good rich and I was hoping to get a little more color on the book to Bill maybe if you could provide a sense as to whether or not there was any particular markets. It is more active than others at this point relative to sort of of the pro rata share of.
And the portfolio.
No I wouldn't say, it's weighted either towards any particular region.
Okay.
And is there much.
Book to build and the Sacramento portfolio and I'll, just curious as to what sort of.
Necessary there to get the.
Those assets to a point, where the lease upwards.
<unk> got the assets ready for sale.
No there is no.
There has not been significant there is not a lot of dollars represented from the sacramental portfolio and that number.
And then I guess bigger picture Stuart from Portland is going back into the extreme risk <unk>.
Restrictions on Friday.
And I guess I, just wonder from a tenant's prospect and particularly small tenants that are most impacted by the sort of open not open and limited open.
Difficulty and getting.
And we used to come back what are you hearing from them in terms of their ability to continue to persevere and an environment, where they're sort of on and off on the kind of it seems like every six week basis at this point.
Well remember, Chris It's county by County.
It's a temporary shutdown and fast what we've been told is this will be the last shutdown.
Our exposure in terms of the tenants that are going to be impacted is minimal.
And and <unk>.
And I would tell you the group Thats probably been impacted is just the full service restaurants may be a bit of fitness, but all and all that segment of our portfolio is holding up extremely well.
The collections are very strong and the tenant base that we currently have today as we as we had and the pass are very optimistic in terms of the marketplace.
So to us, it's just a small sort of bleeping in the process here.
And it's very temporary in nature. So we don't really see any impact in terms of this this shutdown.
Thank you that's all I have.
Thanks Richard.
Your next question comes from the lineup the lean new volume from Wood Green Street. Your line is down low.
Good morning.
Hi, there and if you look to kind of see during the quarter held up much better than I anticipated.
The erection any and not interesting and specific numbers, how do you think and occupancy were trending and the year.
Slightly decline slightly or more meaningful movement.
And we have any range in mind.
I would love to hear how are you thinking of this metric.
Given the demand for space the leasing team is.
And is very busy and.
We expect debt.
Wow.
The second quarter may be sort of on par with the first quarter as we go throughout the year, we expect to hopefully get our occupancy up just to touch to finish out of the year very strong theres a lot of demand for the space out there coming from a lot of different tenants.
And then.
And what do you see on the ground and do you think investors or we obtained our perception of the market share.
Changed at all in the last 12 months and have you noticed for example, the more interest in certain regions over others.
Any color on the market trend.
Or what caused the corridor and of course and it would be appreciated.
I think you know as you know what the tenant base of scene out there as the store was touching on and the strength of our grocery drug anchored portfolio and the fact that they have.
Our properties have essentially remained open throughout the pandemic has increased the desire to come to our properties we have.
Brought tenants and from enclosed malls and from promotional centers and.
Big nor regional type of centers into our property because they see that as a.
Where they can operate more fully and have the foot traffic.
That can support their business. So we've seen a shift of tenants.
Looking at our product type coming out of other product types and the velocity of foot traffic is definitely increased I mean as I think as you know Carlo because I know you are in California.
We expect our governor to open up and take all restrictions off by June 15th So from that perspective, the optimism has never been stronger on the ground.
And we believe that the velocity of foot traffic will continue to build.
And at our centers.
And they have been strong throughout the pandemic as rich said because were grocery drug anchored but we're really starting to see even more velocity now that most people are vaccinated on the west coast and the fact that.
And the all of the restrictions will be lifted shortly.
Okay. Thank you.
Thank you. Thank you.
The next question comes from the lineup of Michael Gorman with BT and EE your lines now.
Hey, Mike just a quick.
Just a quick follow up.
And back to the acquisitions, there's been a lot of discussion nationally about changes to the tax structure capital gains maybe changes on an inheritance taxes and I'm curious some of these off market deals that youre looking at I would assume O P units are going to be of factor.
If that's the case and how are you thinking about OPE units here as a competitive advantage given the potential volatility and in some of these tax structures that could influence behavior.
Yeah, No. It's of Great question, Mike and I do agree that the chatter from L. P units continues to get.
To be more frequently.
Obviously, our stock with the increase and appreciation is getting to a point where the.
And the conversations are you know certainly developing and into potentially some deals.
But I do think as if the tax structure does change in terms of what the new administration is proposing that could accelerate the old key fronts in terms of transactions and also potentially more deals for us to acquire given the fact that the sellers will be.
Looking at bigger tax impacts.
And as it relates to both at the corporate level and at the personal level.
Excellent great. Thanks very much.
Thank you.
And we have no further question at this time I will now turn the call back to the percentage.
In closing I'd like to thank all of you for joining US today, we greet greatly appreciated your interest and ROIC if.
If you have any additional questions. Please contact Mike Rich or me directly also you can find additional information and the Companys quarterly supplemental package, which is posted on our website as well as our 10-Q, thanks again and have a great day everyone.
Ladies and gentlemen, and this concludes today's conference. Thank you for your participation have a wonderful day you may disconnect.
Okay.
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And.
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