Q1 2021 Kite Realty Group Trust Earnings Call
Good day, and thank you for standing by and welcome to the Q1 2021 type for Yoki Group Trust earnings conference call of it.
At this time.
All participants are in a listen only mode. Later, we will conduct the question and answer session.
Instructions will follow at the time, if anyone should require assistance during the conference. Please press Star then zero on your Touchtone telephone I would now like to turn the conference over to your host Mr. Brian Macquarie. Please go ahead Sir.
Thank you and good morning, everyone welcome to Kite Realty group first quarter earnings call.
Some of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties.
<unk> results may differ materially from these statements.
For more information about the factors that can adversely affect the companys results. Please see our SEC filings, including our most recent 10-K.
Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.
On the call with me today.
Realty group.
Our chairman and Chief Executive Officer, John Kite.
President and Chief operating Officer, Tom Mcgowan.
Executive Vice President and Chief Financial Officer Heath fear.
Senior Vice President and Chief Accounting Officer, Dave Buell, and senior Vice President capital markets and Investor Relations, Jason Cole.
I'll now turn the call over to John.
Thanks, Brian and good morning, everybody. Thanks for joining us today.
Springs here, and we're feeling particularly optimistic and it really doesn't have anything to do with the improving weather for.
For the first time in over a year. The news regarding COVID-19 is predominantly positive as we sit here today over 50% of adults in the U S have at least one vaccine shots and at the current pace theres potential for 90% of adults in the U S to be vaccinated by summer.
We realized that the global progress against the pandemic is uneven, but I am very encouraged on what we're experiencing here on the home front, especially in our target markets.
Our tenants are open and operating our collections continue to be sector, leading up to 97% this quarter and the velocity of the demand for our well located centers is accelerating we.
We had another very strong quarter of leasing signing over 426000 square feet of space of blended lease spreads of 12, 2% and six 4% on a GAAP basis and cash basis, respectively.
Excluding a single strategic anchor renewal, we realized blended leasing spreads of 16, 7% and 10, 5% on a GAAP and cash basis, respectively as.
As we mentioned the R&R last call the strong leasing will cause the spread between our leased and occupied rates to widen our current signed not open NOI is approximately $10 million, which will come online in late 'twenty, one and early 'twenty two.
Another impressive aspect of the new leases is the quality of tenants we are signing.
This quarter our portfolio gained another total wine and more at coal Creek Commons in Indianapolis and another all day at our newly acquired Eastgate crossing community Center in Chapel Hill.
Ladder addition, makes eastgate crossing a very unique dual grocery anchored center with all of the joining the existing trader Joe's.
As we told you last quarter, we've got great expectations for Eastgate crossing in all of our assets in Raleigh.
Speaking of Raleigh, as I'm sure you've all heard earlier in the week Apple announced the creation of a 1 billion dollar East Coast campus in the research Triangle Park located in the Raleigh Durham MSA per.
<unk> will be of direct beneficiary of this announcement as we own Parkside town Commons of 350000 square foot target and Harris Teeter anchored center that is adjacent to the future of campus.
Assuming an average salary of $187000. The 3000, new employees will generate over $550 million of annual spending power.
Not only of this great news for Parkside Town Commons and reinforces the migration to warmer cheaper markets, such as Texas, Florida, and North Carolina, We're even seeing this play out and the reallocation of congressional representatives with those same three states adding seats.
With the announcement of the Weingarten Kimco merger K R. G is now the most compelling way to directly invest in Sunbelt open air retail real estate seven.
78% of our ABR is located in the south and west.
Our next closest peer has less than 50% of the ABR in the same markets. We're proud that our strategy is paying dividends and we continue to prudently look to expand our exposure to these markets.
As we discussed on our fourth quarter call, we partially match funded or Eastgate acquisition by selling 17 ground leases for a combined $41.8 million. One out parcel is awaiting final subdivision approval and should close next quarter. This trade demonstrates our commitment to maintaining our low leverage while at the same time acquiring.
Accretive opportunities.
In terms of our portfolio of lease rates, we believe were at or near the low watermark.
On the anchor front, we've already executed for leases and are negotiating multiple leases on the remaining 23 vacant boxes.
Anchor acceleration is off to a very strong start.
You can see the economic opportunity on page 21 of our Investor presentation, as we discussed last quarter, assuming the current ABR for our in place anchors theres the potential mark to market of nearly 20%.
To increase transparency, we have added page 22, and the investor in the sub so you can track our progress as we lease up boxes.
The for leases signed to date have achieved a 12% lease spread and over a 40% return on capital.
These metrics also provide confirmation the care of Z remains focused on return on capital not buying up lease spreads.
As we said before and I'll say again, we're very focused on maximizing total return to our stakeholders.
We believe the market does not fully appreciate the potential upside in our NOI given the robust current leasing environment.
Please keep in mind, the Wellcare Gee had some of the highest occupancy dislocation in our sector. Our revenue decline was one of the lowest.
This means that low paying often dying tenants have finally left our centers.
Not only should this enable us to outperform when it comes to NOI growth, but allows us to create value by upgrading tenancy, which often results in cap rate compression for the property.
In order to demonstrate the potential magnitude of this re leasing opportunity and what it could mean to care Gs forward NOI, we've provided new detail in our investor presentation as shown on page four we have the potential to increase our NOI by roughly 14% simply by leasing up vacant space to pre COVID-19 levels.
At current portfolio ABR.
No, we aren't saying that the guaranteed outcome of providing any sort of forward guidance, we're simply doing the math using information from our supplement to show investors what is possible.
Before I turn the call over to Heath I want to again, thank the entire care G team and I really can't express enough gratitude to the men and women of care G.
The strength of our operations is impossible without them.
There are very good times ahead for of K R. G and I cannot wait to see what the future holds for US now I'll turn the call Heath.
Thank you John and good morning, everyone.
One of Echo Jon's enthusiasm for the momentum we're seeing in our industry, especially as it relates to leasing I'm equally enthusiastic about some of the structural changes, we see coming out of COVID-19.
Many retailers of a renewed appreciation for the value of brick and mortar locations. Realizing the importance of these distribution channels as a re imagine their supply chains and the.
Other pleasant surprise, we are experiencing as we emerge from the pandemic is the change in the national narrative over the course of the decade, we have steadfastly maintained that the relentless reports regarding the death of retail were greatly exaggerated.
It seems the financial pundits are finally, starting to acknowledged the value of retail real estate.
Turning to our first quarter results, we generated 34 cents of NAREIT <unk> and we also generated 34 cents of <unk> as adjusted.
As a reminder, last quarter, we guided the 2021 <unk> on an as adjusted basis, so as to reduce the noise associated with Twenty-twenty receivables and Twenty-twenty bad debt by way of example to the extent we are unable to collect any of the 2020 of accounts receivable it will become of bad debt expense in 2021.
But it'll be excluded from our <unk> as adjusted the same holds true in the reverse as we continue to collect 2020 bad debt, we will recognize that as revenue, but it will also be excluded from our <unk> as adjusted.
As set forth on page 17 of our supplemental the net 2020 collection of impact in the first quarter was de Minimis with the collection of $2 $2 million of prior bad debt offset by $1 $9 million of accounts receivable, we've now deemed to be uncollectible.
There are other several notable items on page 17 of the supplemental the demonstrate our improving fundamentals on a sequential basis total bad debt. This quarter was $1 $6 million as compared to $2 $6 million for the fourth quarter of 2020.
Our first quarter recurring revenue has ticked up compared to fourth quarter of 2020 as for accounts receivable, we collected $5 $8 million of that was outstanding at year end, including deferred rents today total outstanding deferred rent stand at $3 $5 million down from $6 $1 million at year end with only 30.
Dollars delinquent to date with the.
The strength of our small business loan program. The total balances down to one $4 million and not a single tenant is delinquent needless to say these are all encouraging signs regarding the health of our tenants.
The last quarter, we did not give same property NOI guidance as we don't feel like this is a meaningful metric in light of the pandemic impacted 2020 results. Our same store NOI growth. This quarter is negative two 9% as a result of COVID-19 related vacancies. This includes the benefit of approximately $800000.
Of previously written off bad debt that we collected in the first quarter. Excluding those amounts are same store NOI would be negative for 5% at 160 basis point difference is just noise from 2020 and is precisely why we didn't provide guidance on this metric while we're committed to reporting this number.
Is best taken with a grain of salt.
Our balance sheet and liquidity profile remains solid our net debt to EBITDA pro forma for the ground lease dispositions was six six times down from six eight times last quarter. During the first quarter, we issued $175 million of exchangeable notes due in 2027 of these notes of an interest coupon of point.
75% in.
In conjunction with these notes offerings, we entered into a capped call transaction to increase the conversion price of the notes to $30 26.
The proceeds of this transaction will remain on the balance sheet to retire the 2022 mortgages as they become due next year, excluding future lease up costs, we have only $15 million of outstanding capital commitments and have roughly $420 million of liquidity.
We are extremely pleased with the execution and the added flexibility this delivers to our balance sheet.
We are raising our 2021 guidance of <unk> as adjusted to be between $1 26, and $1 34 per share. This guidance assumes full year of bad debt of approximately $7 $6 million and no additional material transactional activity.
We are in the early stages of the recovery and while we have put some points on the board we still have room to run we have an enviable balance sheet are best in class platform, a strong portfolio of assets and our market strategy that continues to pay dividends.
Thank you to everyone for joining the call today operator. This concludes our prepared remarks. Please open the line for questions.
Thank you and as a reminder, if you have a question at this time. Please press the star and then the number one key on your Touchtone telephone.
If your question has been answered on your and you wish to remove yourself from the queue. Please press the pound key again to ask the question that will be star one on your Touchtone telephone, we'll pause for a moment of couple of other key.
Any last year.
Your first question comes from the line of Floris Van <unk> from Compass point Your line is open.
Good morning, guys. Thanks for thanks for taking my question.
Why don't you.
Maybe talk or have you describe a little bit more of the opportunity at Parkside Town Commons.
Is there expansion possibility.
Are you just.
Does that center need refreshing does that have a parcel opportunities to take advantage of the additional demands or.
What kind of impact do you think that could have on on rents there and on tenant demand.
Well, Hey, Floris, Hey high level I mean, it's an existing shopping center that we develop the ground up.
It's a stabilized property, although it does have some lease up opportunities and some potential to grow as it relates to how parcels, but I think and I'll, let Tom handle that and the SEC, but in terms of of the overall macro there I mean, it's really an opportunity for us to kind of highlight what's.
Going on in that market and the growth that it has experienced since we've been down there and frankly, we own I don't know just under 1 million square feet in the Raleigh Durham Metro MSA. So it really for US is the bigger opportunity to continue to look to expand there but.
But as far as the particular property Tom what you want to talk about that low first first of all we purchased the property.
Quite some time ago with the vision of the part going to continue to expand to the south so it muddle the numbers for you to think about the largest park in the country.
It's got 300 companies 55000 employees over 7000 acres. So it gives you a sense of.
For the mass scale and.
The key to this is we have a main driver of Kelly of Chapel Road coming through the center of our projects that then intersects with the park of Blue of Stephens drive, which what's really draw of the bag.
The majority of these types of businesses down for our parcel and when we did this and worked with the research Triangle Park. Our parcel was really considered third southern anchor of services. So this is all come to fruition and the fact that of Apple coming is incredible.
<unk> project, we've got close to 300 apartments, we've got great tenants with targeted Harris teeter's et cetera, but we do have the expansion possibilities.
Possibility that would be on the reuse side. So we're in the process of looking at that but we feel like this those property is kind of a benefit from the mass of that.
The Cushing from the North and Floris. This is Heath I also mentioned, it's not all of just about Apple.
Given their location there. It's also about their vendors. So we think theres going to be a huge uptick in office demand and also the hotel demand because of again once Apple arrives there their vendors will follow so it's going to be of multi year.
Tailwind for that area.
Hi, Thanks, maybe maybe one other question if I if I if I may.
You guys are talking a little bit about the.
The upside potential.
NOI here.
Which seems pretty pretty strong.
How do you guys feel about.
What has happened with maybe John if you could comment on the the wind Gordon transaction in and how does that how do you think that positions you.
Sure.
Kite.
The potential buyer or seller.
And how do you think of what is what does that mean for values in the shopping center space.
Well.
For us I think for.
We're going through it's a good transaction and it's clearly a good look through and value.
As we mentioned on the prepared remarks.
It certainly highlights I think the strength of our portfolio and what the value of that would be and of transaction.
So it's very very difficult to assemble high quality open air retail in the markets that we're in and which we highlight as the south and west is very difficult.
They are what they are thinking.
And then in our case.
Maybe even a little more so than in what the Weingarten case was that we have significant continual upside in this really pretty straightforward leasing program I mean when werent.
Below 91% overall.
That's a lot of runway for a company that's been 90, 596% for a long time pre COVID-19.
And when you look at the rents that we have in our portfolio and really I'm just telling you. What you can find on page four of our Investor presentation. There is a lot of room to run here.
I'm pretty conservative valuation. So I think it's a positive I think I think it was of great transaction for everyone involved.
And look these assets are very hard to come by so I get it I understand the the thought process there.
So all in all of its all positive for us.
Thanks, John.
Thank you.
The next question comes from the line of Katy Mcconnell from Citi. Your line is open.
Thanks, Good morning, everyone.
Morning color R&D additional anchor space that you bought back during the quarter and John.
And when should we expect to see a meaningful ramp.
Based on her.
Yes.
Yeah sure I mean, we basically in the additional anchor space. We got back was kind of a combination of a couple of explorations and then frankly are wanting to take space back.
So this is really more in line with what our what our overall program is which is to get spaces back that we think the tenants are or.
Aren't right for the property and property and struggling a little bit and we want to be.
Bring down our exposure to people like that so very positive in that regard.
In terms of as I said on the call. My view of this is that the Thomson enlighten us a little bit of if he'd like to but my view on it as you were pretty close to the bottom of that Katy it's pretty close to that.
This quarter next quarter.
But really we're much more focused on the fact that we have.
<unk>.
10 more deals that we think we can do in the near term maybe maybe eight I don't know, but we've got a lot going on in the hopper in terms of negotiating leases and LOI isn't there's just a ton of volume there's a lot of.
Really interesting things going on and it really just circles back to the fact that there just is no. There's very limited inventory of this high quality open air retail and a lot of tenants are focused on open air high quality retail in and is that just nothing been built for 10 years. So when you own stuff like we.
Do you get a lot of phone calls Tom you want to add to that.
One example of this is the two leases that we signed here just recently with all of the in total one these both for replace former Stein Mart's completely unproductive will say they are somewhere in between five and $6 million of sales of we're going to we're going to transpose those two.
Tenants that are going to be doing $15 million to $20 million.
Other credit.
Coach better co tenancy, so each one of these or looking at it as the net positive and so far we've been very successful of <unk>.
Replacing them with much higher tenant for the drive greater traffic to the projects.
Okay. Thanks.
Then you seem pretty favorable trend in sunbelt markets throughout the pin.
So I'm curious if you can just comment generally on overall transaction Michael Schrum for next year seeing any compression in cap rates for share.
As of adults.
Yeah, I mean, no question that.
The these are these are the markets that we're in a pretty hot and it's something we've known for a while and I think now we're reaping the benefit of that strategy of that shift that we made a few years ago.
I think the easiest look through Kt is the public comp, which is the you know.
The mid five cap.
That was talked about in terms of the kimco Weingarten deal that's probably your easiest look through the most comparable.
That I would think.
Thats a public print in terms of the private market.
That's what we said on the last call I mean, you just can't find properties that we own are want to own.
At cap rates that arent somewhere in the fives.
Maybe a very low six depending on the deal, but you just can't find them.
And look there's more product coming on the market, but that's where the cap rates are.
And it makes sense because of the Unlevered IRR that you can produce.
Buying assets in that range are still very good unlevered IRR is in today's world, especially when you look at the durability of the cash flows right and we've proven that I think better than anyone.
You know, 97% rent collection.
<unk> is obviously almost back to exactly where we you know where we were pre pandemic, where with very we're very close to that now so and that is a direct correlation of the quality of our real estate as we've said in the quality of our people and the way that we go about our processes, but.
These these assets are definitely sought after.
Okay from Sevan.
Thank you.
Your next question comes from the line of Todd.
Thomas from Keybanc capital markets. Your line is open.
Okay.
Hey, Thanks, good morning.
I wanted to follow up first on on investments and I just wanted to ask specifically about your appetite.
To invest here.
Are there more deals like eastgate available and sort of what's the outlook like for transactions in general as we move further throughout the year.
Sure Todd.
I think we definitely as.
As we said on the last call.
We are very active in and understanding everything that's going on in our target markets.
And that includes what properties that we think we would like to own what properties are available we think of it might be available or we'd like them to become available. So we're very focused on that.
We're in the enviable position of having a very strong balance sheet very very strong liquidity and limited capital needs are.
Over the next few years other than what we've identified in terms of our lease up program. So yes. The answer is yes. We're we are actively engaged and always looking at opportunities I think we'd be very we're very selective in that because of the way we've curated the portfolio.
That said I do think there are other opportunities like eastgate out there.
And if we find something or things that would meet that criteria. We believe we're in the position to take advantage of it and not everybody else is so that's a nice place to be.
But you know it's kind of we'll take that on the case by case basis, Todd but.
Certainly there's there's more today than there was six months ago and Todd. This is hated also I just want to mention that obviously as we're looking at acquisitions. We're also keeping an eye on our leverage and so it's not our plan to obviously undo all the hard work we did in 2019 of getting our balance sheet. So yes, we'll look at opportunities, but we'll be responsible about it.
Okay.
More generally I mean do you think that you know we've seen a couple of larger.
Public to public transactions here, but you know thinking about the environment.
Stepping back I mean, do you think that there could be some.
Some smaller portfolios from some larger scale transactions coming to market and getting done.
On the retail space do you expect that type of activity to continue.
Dave to what we've seen.
In prior years.
Yes, Todd I think assuming.
The world kind of stays on the trajectory that it's on.
I would think that there's going to be other things happening and as I just said in the previous question.
So there's this very limited supply of this type of product that we own and a few other zone.
So I do think when there's opportunity to get scale with that you know that makes sense as long as he said that youre doing that with the eye on your balance sheet and look we've we've worked pretty hard to get one of the best liquidity profiles in the sector.
And so that's important to us, but yes, I do think that there is an opportunity for people to start thinking that way.
And I do think people are thinking that way, but.
Time will tell.
Okay and just.
One one last question on.
On the.
The decrease.
In the <unk>.
Portfolio of lease trade in occupancy a little bit it sounds like things are starting to stabilize as you look at the leasing pipeline and the lease up of vacant anchor and shop space going forward. How quickly do you think it might take to capture some of the upside that you've.
That you are discussing and that you've outlined and do you think that the environment.
Today is such that the process to sign leases get tenants in and paying rent is any faster or accelerated compared to prior periods or is that not.
You know what you are sensing today.
No I think we've said this before the trajectory of leasing anchor spaces really hasnt changed in terms of the timelines associated with.
Getting the space back getting it leased and getting it to commence rent, which on average is probably 18 months.
To do that.
As I said in the call and Tom alluded to as well we have a lot of deals in the pipeline right now and matter of fact, we do of weekly.
We call of Rec approval Committee, which is our real estate Committee.
We have of meeting on Monday that has 16 deals on the docket. So that give you. An example of the level of activity. So that'll be a long day for all of us, but it will be a good day.
So Todd I think I think that's the same the difference is there's just a tremendous amount of interest, particularly again in the markets. The we're in.
We're not the only ones that realize the strength of these markets obviously so.
But when you look at the as I said the $10 million of.
That we have coming in terms of leases that are signed but.
But not yet occupied the majority of that.
Comes at the end of this year and some into the beginning of 'twenty. Two so that kind of tracks. This timeline that we've been talking about.
Alright, thank you.
Thanks.
We have your next question coming from the line of Daniel Santos from Piper Sandler Your line is open.
Good morning, Thanks for taking my questions. So my first one just the kind of switch. It up is is on ESG clearly at the bigger focus for investors Board members and you know there are some clear environmental benefits to shopping centers for example versus the individuals' shipments. So I guess I wanted to give you guys of an opportunity to maybe expand on how is ESG.
Into your overall strategy and maybe talk about ways that you are sort of communicating that to to the broader community.
Sure I mean, there's no question that we would agree with you that theres a lot of.
A lot of room to run in our ability to get.
Get very focused in on this I do think that the the physical.
Physical real estate in terms of the distribution point for retail is much much better for the environment than this idea that we're going to ship of box that contains a tube of toothpaste.
To Europe in an airplane in the truck and people and et cetera. So I think people are beginning to understand that Dan I think it's a topic of conversation.
For sure.
And I think we can really excel there and we're only scratching the surface on what these physical properties.
We can do there in terms of.
The the simple things such as wind and solar but then there's water Ah theres just so many things going on so it's just the beginning we've done a better job in the last I'd say six months of communicating what our goals are there.
By filing our inaugural grasp and by putting our goals out to the to the investors as to what we want to accomplish this.
The everybody on the team is kind of involved in this so I think it's early we can have more for you later, but we're it's a big deal.
As an industry I think we.
We can do a better job in terms of working with ICSC. The put some numbers around this because of what we're talking about how how it's environmentally better for us the bricks and mortar versus this online tsunami that we're seeing so I think you'll be seeing over the course of the next six months or a year from real hard data showing that what we're doing at our carbon footprint. This is the way less.
And then the online channel.
Got it that's Super helpful. And then I guess, if you could comment you know I appreciate your comments on the at the top of the call about the change in the narrative and sort of renewed appreciation from retailers aside from maybe rent in space taken is that sort of shift in attitude playing out in other areas of your leases like maybe youre getting sort of.
More favorable favorable terms in areas, where you wouldn't have otherwise.
Yes, I think the bottom line is that we're in a very balanced place right now.
I'd say during obviously during COVID-19 the everything was turned upside down and it was difficult to know what we couldn't couldn't do in terms of leases, but I think were back to pre COVID-19 and even better in terms of our ability to negotiate and get what we need but we are of partners. We're partners with our retailers we want.
The retailers perform well.
So this isn't a one dimensional thing or it's not a one sided.
And I think we have we do the best we can in that partnership.
And but for certain we believe that we're we're in an environment, where we have a product that is greatly desired.
Right now and we're certainly going to do the best we can to maximize that.
And we're also working with tenants because coming out of coming out of COVID-19. They are of course seeing pressure in terms of their deliveries of what the reporting for the street.
So we're trying to be a good partner.
Tenant needs to stores in 22, how do we work best to get that done for them, whether it's start drawing working cooperatively with them. So John is right. It's a two way street, we like our balance right now, but we're going to continue the remember that.
Customer first and we're going to do everything we can do the outlook.
Yes, I mean, I think just to add to that because it's a good topic.
Net.
We're just seeing.
The demand right now and we're seeing it from also retailers that we havent seen it from in the past.
The open air retail segment is getting a lot of attention from physical retailers and attention from retailers that didn't look at it before so.
That's adding to our ability to kind of get to.
To be in this position and an enviable position that we have more users than we do space right and where we obviously have a lot of space to lease right now in front of us, but that's why we're so positive about it it's the absolute opposite of maybe what it would've been in the past Oh My gosh, what are we going to do were like Oh My God. This is awesome.
Right.
So that that is helping quite a bit. The fact that we have a lot of new people jumping into the space as well.
Great. Thanks have a great weekend.
Thanks.
Thank you. Your next question is from the line of Chris Lucas from capital One Securities. Your line is open.
Good morning, guys. Thanks for taking my questions.
On the balance sheet of.
Obviously COVID-19 is.
<unk> made a message of sort of the net debt to EBITDA numbers as it relates to sort of what your longer term target kohl's or when you think about stabilized portfolio EBITDA.
Where do you guys want to be and you look at the I guess. The example that you put in the supplement is there some sort of excess capacity that the.
Maybe we're getting able to create because of.
Rent for getting in the demand you're seeing.
Yeah listen, Chris just because of the COVID-19 I don't think our long term leverage goals of change that we said before COVID-19 that we're somewhere between the mid to high fives is where we're comfortable sometimes with the float above it sometimes we flow below it I will tell you. The you know based on our current dividend levels and our cash flow levels and the lease up that we have in front of us we're really.
Looking at having that net debt elevated net debt to EBITDA come down fairly swiftly so.
We'll be back to those target levels.
For you know it so again, our philosophy hasn't changed.
Again, the the uptick and Leverages is simply of erosion of our EBITDA and we're going to grow that back over time. So that's how we're looking at it.
Okay, and then John or Tom I guess, just as it relates to the anchor.
You've laid out sort of how long it takes to get from sort of lease signature to commencement of I guess I'm, just curious sort of pre pandemic world.
Of the anchors had sort of narrow windows in which they were looking for space being deliberate or is there any change to how they are thinking about when they want the space is there any more sense of urgency from them in terms of getting those.
It's open.
Chris I would say the primary national retailers.
We all know they maintain their there are two basic windows.
But what we're seeing on the grocery space in the beauty space and quite a few others is the how do we get our stores open as quickly as possible and that's what we're working with a lot of tenants on that help them reach that goal of this from a relationship standpoint, but with the big National store Windows has not changed.
But we're seeing the others below them try to be far more aggressive in terms of getting their store counts based upon what they are dictated to the street Chris.
Chris as John back again, I do think the one thing that probably has changed there is their willingness to work on spaces that maybe they wouldn't have looked at before in terms of configurations.
So we've been very successful in doing non standard configurations, there used to be such a focus on a particular width and depth now you know theres a lot less focus on that more focus on the real estate like I Love. This real estate I want to be there.
We've got a couple of deals going right now that are very creative and as I said, we're also bringing players into the space who weren't in the space before so that helps that also I think I think as Tom was saying the the delivery schedules that that has a lot more to do with how they get the product and the timing of getting the product in and obviously not wanting.
The open into the wrong season for that particular retailer, but we're also finding guys coming to us going can you squeeze us in can.
Can we need another deal in.
In early 'twenty two right can you get a sense, so that theres a lot more flexibility the aircrafts.
Great John Thank you for that and last question for me is just as it relates to the.
The competitive change maybe for transactions in the warmer cheaper markets are you seeing new capital sources come in to compete on transactions.
Either coming from out of the area that you haven't seen before or maybe people who had previously been focused on the rest of your industrial looking at retail now is the is on alternative investment for them.
Well I can tell you, we're certainly seeing more people.
Wet weather they weren't in it before or not and it I mean, there's a lot of capital and frankly capital queuing up and again people are on to this idea of warmer cheaper sunbelt whatever you want to call it.
And so it's the popularity is definitely bringing capital.
And so and I think Thats why were seeing all of the sudden in the last literally.
Now six weeks more product that is coming to the market.
But frankly the.
It's interesting the more product the tighter the value the titer of the cap rate seems to be.
And people I think there's this is heath as Keith alluded to the common narrative that retail was bad is over and now all of the sudden open air retail is good right and so that brings more people into the market and maybe you've got people that manage money the.
Now our happy to bring deals in.
The then or open air retail so.
I just think it's all good.
I think the product is strong we've known that before the growth rates are good.
And in <unk> case, we've got so much upside I mean, it's just we just got to go out and execute Chris That's what we do and we're going to do it.
Thanks, John that's all I had this morning.
Thank you Mike.
Next we have Wes golladay from Baird. Your line is open.
Hey, Good morning, guys. You did mentioned the benefits of upgrading of the tenant roster and you said it many times that demand is good. So I'm just wondering if you plan on recapturing a lot more space this year.
Look I think we've recaptured what we could Wes.
The rest would come.
Just kind of more naturally through explorations, which is not tremendous amount. So I think we've recaptured what we can recapture there may be couple of deals on the margin.
But that's why I said I feel like we're kind of getting close to bottoming out.
I'm not positive debt, that's not another quarter of way, but we're pretty close.
And now we're focused on on the runway and we're going to run hard on that.
Got you and then looking at the new lease volume, but average about 135000 square feet in the last two quarters. I mean is that a good run rate or I guess bounce around because of the sharp anchor mix and then maybe of.
Add on to that question would be the Ti ticked up a little bit higher but was that due to mix shift as well between anchor and shop.
Yes, I mean, the latter yes. The second part of your question, Yes, it's hard to predict those on a quarterly basis in terms of square footage.
Just like I said, we got 16 deals or something come into our committee on on Monday, I've only had a chance to briefly review, but it's a combination of shops and boxes in couple of out parcel deal. So.
I don't think we can predict how that would be quarter by quarter of west, but overall you know we have we have you know.
Mostly anchor space to lease in front of us the even though we have some shop space. So there will be particular quarters, where it's all anchors.
Got it I appreciate taking the questions guys.
Thank you.
And again, if he would like to ask the question. Please press star one on your such non California again Thats Star one on your Touchtone telephone. Your next question comes from the line of Craig Smith from Bank of America. Your line is open.
Thank you.
As one of the strip, we'd still have a.
Pretty heavy exposure to the off price retailers I Wonder if you could comment how the moon performing in 'twenty, one and if you've noticed how the in stock positions.
Disposal of that.
In terms of performance Craig the had been performing very well certainly in our portfolio and to the extent that we get sales reports, we see them getting right back to where they were and better.
So you know I mean T J Ross Burlington.
Rack I mean, these guys are all doing strong business and by the way. The apparel trade is just coming together right now when you think about where COVID-19 has put people and now the fact that more people are getting out and about.
Apparel is looking pretty good for the next couple of quarters. So I think we've seen very strong performance in terms of merchandising Tom I don't know if you want to comment on that in terms of the stores themselves.
Yes, I would say when we when we jumped in the COVID-19 the ROI.
<unk> and other people, obviously had some supply chain issues that they're dealing with and there is times of which the stores product levels were down and so the battle was together then as quickly as possible. So.
Everyone or speaking to field the life that has been resolved.
But the project or eight appears to be strong I mean, we talked of these people every day, we're bullish they're looking for additional stores and I think they feel like the post COVID-19 World plays plays well for their hand.
Do you stand in the.
The favorable position given you have such a good the exposure to these names for their expansion needs.
Sure I mean, I mean to the store.
I think what we're talking about Craig is the fact that we've got this anchor portfolio.
The original 27, now 23 spaces to lease that's a lot of opportunity for us with the partners that we just mentioned T J, Ross, Burlington et cetera, Nordstrom rack, but beyond that.
That's where we're seeing so much more demand.
In terms of the grocery segment in terms of us cutting up a couple of these boxes and bringing in the retailers that formerly Werent open air players.
It's a litany of opportunities for us right now and frankly, because our ABR on the boxes. We got back was was pretty darn low. That's why we're excited I mean, we just have all of this lease up scalability and upside and more most importantly.
Cash flow growth EBITDA growth.
And when you get a 40% return on capital that's a lot of cash flow. So yeah, all good on that front.
Okay, and then lungs, one we chose.
What's your strategy with la fitness and mattress firm.
As far as the law I mean, they certainly appear to be a survivor in the space at this point in time.
You know we've done as we've mentioned we did a couple of fitness deals, but not not very many.
On the smaller side, we're seeing the Orange theory come back pretty hard on the small side, but look I think I think we're going to be careful with what we do in the space, but where we are definitely seeing pickup there.
With them and in terms of mattress firm.
We haven't really changed our thought process there once they came out of the bankruptcy they were pretty heavy equity.
We haven't heard much out of them other than them paying rent which is awesome.
And Craig the less of 1% of ABR. So we'll watch debit and we will see how it goes.
The other non fitness of some pretty exciting people out there with new concepts like the USC and so we'll be very careful as we measure our risk and exposure, but we still see that of an expanding market.
Okay. Thanks, Thanks for the thoughts.
Thank you.
I am showing no further questions here from.
I would like to turn the tobacco Mr. John <unk> for any further comments. Please go ahead Sir.
Well again, thank you everyone for joining us.
And we hope to actually physically see some of you soon.
And we are very much looking forward to the next couple of quarters and very optimistic.
What's in front of us thanks again.
And this concludes today's conference call. Thank you all for joining you may now disconnect.
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