Q1 2021 Site Centers Corp Earnings Call
Good morning, and well from the site Centers' first quarter 2021 operating results conference call all.
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Oh now I turn the conference over to Brandon Day Investor Relations Day. Please go ahead.
Thank you operator, good morning, and welcome to affect the nurse first quarter 2021 the earnings conference call.
Joining me today is chief Executive Officer, David Lukes.
The financial officer of kind of furniture.
In addition to the press release for sure because of this morning, we have posted the quarterly financial supplement and a slide presentation onto our website at www Dot <unk> dot.
Dot com.
You mentioned that the support our prepared remarks during today's call.
Please be aware of that certain of our statements today may constitute forward looking statements within the opinion of the federal Securities laws.
These forward looking statements are subject to risk and uncertainties and actual results may differ materially from our forward looking statements.
Additional information may be found in our earnings press release, and our filings with the U S. D C, including our most of you kind of report on form 10-K and 10-Q.
And the addition of where you will be discussing non-GAAP financial measures, including F. F. L operating <unk> and same store net operating income the.
The non-GAAP financial measures reconciliations of the most directly comparable GAAP measures can be found in our quarterly financial supplement.
At this time, it's my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning, and thank you for joining our first quarter earnings call.
We had an excellent start to the year with another quarter of near record leasing activity continued improvement in collections of deferral of payments stabilization of our leased rate of over $200 million of growth capital raised.
Of this year already feels a lot different than 2020, and the operating environment continues to improve each week with accelerating demand per space.
The company is in a fantastic position because of the work of our site centers team. So a sincere. Thank you to all of my colleagues for their contributions.
I'll start this morning, with a summary of first quarter events, and then discuss our equity offering and our acquisition pipeline as we look to grow our portfolio of assets in wealthy suburban communities.
Consistent with last quarter.
100% of our properties at 99% of our tenants remain open and operating as we continue to provide convenient access to goods and services in suburban communities.
Collections continue to move higher and as of Friday, we've collected 96% of first quarter rents.
Unresolved monthly rent is now running less than 3% with the majority of remaining tenants and the various forms of settlement negotiations.
We continue to take the tenant by tenant methodical approach to resolving any unpaid rents, which along with the girl payments is driving continued progress on prior period collections.
Kudos to our leasing and our collections team for their incredible work this past year.
If you consider the past 12 months from April 2020 through March 2021.
And measure the durability of our portfolio during that time the.
Free supportive data points have emerged.
Number one rent collection on our contractual rent basis continues to move higher we've now collected 91% of rent from April 2020 through March 2021.
And after inclusion of the girls for accrual accounts when do you expect to collect over 95 per cent of base rents.
Included in the 91% number is $2 million of the Pearl pay rents from cash basis tenants.
What was the one time positive benefit to us in the first quarter.
Number two leasing volume is very high we've completed over 700000 square feet of new leases. During this period inclusive of 23 anchor leases over 10000 square feet.
And number three bankruptcy of move outs have been relatively low, which we believe is a testament to our credit quality and the improvement of retailer of balance sheets combined with the higher top line sales number which are pushing occupancy cost ratios lower for the tenants.
The resiliency of our portfolio and the increasing demand per space at our properties is a true Testament of our team the quality of our real estate the credit quality of our tenants and the durability of our cash flow.
More importantly, it is a positive signal for future cash flow since many cash based tenants are paying current rents along with background, which does give us a greater confidence in the durability of our income stream going forward.
Moving to leasing we had another quarter of near record activity with 219000 square feet of new leases, including nine anchors, which is half of all anchor signings in 2020.
We continue to expect the remaining anchors that I identified last quarter to be executed by mid year with a dozen or so of additional anchors in the works.
There's a good chance we end up executing more anchors this year than our peak pre COVID-19 years for the comparable portfolio.
And in terms of our new deal pipeline the level and quality of demand continues to grow and I am extremely optimistic about the future activity.
Current will give you some details on the pipeline of relative to our company, but needless to say our optimism on the operating side is spilling over into investment activity, which brings me to our first quarter equity offering.
We raised just over $225 million of equity in March with $150 million of the proceeds used to retire preferred stock.
We expect the use the remaining cash for acquisitions and currently have $50 million of assets under contract.
Importantly, the offering puts our company and our balance sheet in a position, where we can pursue accretive acquisitions with cash on hand.
Our improved retained cash flow, which is now running north of $40 million annually and additional future sources of capital like the RV I preferred or select accretive disposition.
So what's driving our increased confidence in growth.
We believe that we are at the beginning of the multiyear positive operating environment, driven primarily by pandemic induced societal shifts that I've previously discussed.
Specifically the increased movement of the suburbs continued strong household income and wealthy communities and a growing work from home culture.
Quite simply the street changes or putting more people with more money at the footsteps of our shopping centers more frequently and this is leading retailers to increase the value of their own existing store fleets and launched new concepts, which is broadening the universe of tenants taking space.
All of these factors taken together are increasing the value of convenience, which is fueling market rent growth in open air properties in select wealthy Submarkets. These trends are simply too of parent to ignore and we intend on investing around the thesis.
We will provide more detail on the assets, we expect to acquire like targeted returns geography of format. As we move later in the year and close on the assets.
But we are incredibly encouraged by the size and the profitability of the opportunity and we're looking to accelerate our investment activity.
And with that I'll turn it over the current.
David I'll comment first on our quarterly results and operating metrics discussed the revisions to 2021 guidance and conclude with our balance sheet first quarter results were primarily impacted by uncollectible revenue related to the pandemic total uncollectible revenue at site share was a positive $1.7 million.
Included in this amount is $5 million or just over two cents per share of payments and that reserve reversals related to prior periods, primarily from cash basis tenants.
Outside of the G&A, which was just under a 1 million dollar benefit.
No other material, one time items that impacted the quarter.
In terms of operating metrics the lease rate for the portfolio was down 20 basis points sequentially.
This was almost entirely related to the sale of the anchor pad with the comparable portfolio of flat.
Based on minimum bankruptcy activity, we were tracking today and the leasing pipeline that David outlined we believe the lease rate has stabilized.
Trailing 12 month leasing spreads were relatively unchanged from the fourth quarter with renewals impacted by strategic short term deals that I called out last quarter as a bridge the upgrade tenancy.
He's done a leasing pipeline today, we continue to expect blended leasing spreads in 2021 to be consistent with 2020, though there will be volatility given the size of our portfolio.
Moving forward, we're revising 2021.
Guidance to a range of 94.
The $1 two per share to incorporate first quarter results, including the recent equity offering.
Bottom end of the range of assumes no improvement in collections with continued how can she had ones.
Actually the top of the range assumes a steady improvement in collections and a return to a more normalized pre COVID-19 operating backdrop, along with $75 million of acquisitions in the back half of this year, which includes the 50 million of that David mentioned.
2021 JV and RV I fee related guidance pieces are unchanged and based on the RV I asset sales completed to date, we expect third quarter 2021 of RV ice's to be Atmos $4 million we.
We have not reinstate the same store NOI guidance at this time, but based on first quarter results and our latest free forecast. We now expect same store NOI guidance, including redevelopment to be at least positive four per cent for the full year.
More details the follow on that front as we move through the year.
Lastly, we provided the schedule on the expected ramp of our $14 million signed but not open pipeline on page 10 of our earnings presentation. Despite of 158000 square feet or $2.8 million of the annualized base rent commencements in the first quarter. This pipeline increased over $1 million from year end of represents just under four per cent of Roche.
Share of first quarter annualized base rents.
If youre. The also include John sorry of anchors the David referenced the pipeline increases closer to five per cent of our base rent, providing a significant boost to net operating income and cash flow over the next two plus years.
Turning to our balance sheet included in the receivables line items at year end is approximately $7 million of net COVID-19 related deferrals, we expect to close in the future.
Details on the timing and composition of the balance of are outlined on pages eight and nine of our earnings slide deck as I mentioned earlier, we are encouraged by deferred all repayment terms of day with the vast majority of the remainder of revenue attributable to other tenants lastly.
Lastly in terms of liquidity the company remains well positioned following our first quarter equity operating with minimal 2021 maturities.
Mel Watt of secured maturities until 2023 and minimal future development commitments. Additionally, we have full availability under our 970 million dollar of lines of credit.
Pro forma for the equity offering and the signed not open pipeline. The company is running right around our six times debt to EBITDA target, which is in the top quartile for the sector, we have substantial liquidity and free cash flow and continue to believe our financial strength will allow us to take advantage of opportunities that David outlined to drive sustainable growth and create shareholder value with that I'll turn it back to the.
Thank you operator, we are now ready to take questions.
Yes. Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
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At this time, we of pause momentarily to some of the roster.
And the first question comes from Rich Hill with Morgan Stanley.
Hey, good morning, guys I wanted to just spend a little bit of time unpacking the quarter and I know you gave some details on this but the unpacking the quarter between you know past rents that were caught up in <unk> versus the impacts of strong leasing velocity and <unk> and I bring it up because obviously the.
There's various different accounting under GAAP for for deferrals and what was collected what was previously.
<unk> accounted for in past quarters versus what's now so if you could just maybe walk us through what was what was past quarter catch up versus strength in <unk>, if that makes sense.
Yeah, no absolutely rich it's Conor so included in the first quarter. If you think about dollars that relate to prior periods, it's $5 million and that's all flowing through the uncollectible revenue line items now the pieces of that to your point some of that our cash basis tenants kind of coming.
Coming off of catching up on prior rent some of our kind of spaces. The pearls, but if youre looking at point of a kind of a ramp from the first quarters of the second quarter. The way the investor that is just removed five $9 of an uncollectible revenue items and that will give you a good run rate for the second of course.
Okay. That's helpful and then as a follow up to that and I'll jump back in the queue. It looks like your leasing velocity is really strong and I go back to sort of some of the comments you made post the spinoff of RBI, where he made a case of site centers was really well positioned.
With below market rents and maybe higher vacancies, but intentionally higher vacancies. So I guess the question for you guys is is the leasing velocity that youre seeing reflective of the broader industry or is it something unique to site centers portfolio that you intentionally set up several years ago.
Yeah.
Rich, it's a difficult question to answer because.
The sector is quite large and we only own 78 wholly owned assets.
It's hard to comment.
Although I will say when we did this.
We selected assets that we felt had the ingredients and stay well occupied and be desirable for tenants in the half rent grow.
And I do think that's going to be true.
But I will say.
I don't think any of us really anticipated debt. These big societal shifts would take place and I do think these macro themes I mean, particularly the the suburban kind of movement in the kind of continued wealth durability in the wealthy suburbs and then there's kind of lingering work from home culture that seems like it's going to have some per.
<unk> I do think that those are tailwind for the entire sector. So.
Just based on tenant conversations we have they're active in a lot of properties I.
I feel good about the leasing volume because it feels like they are hitting the highest income suburbs first but I don't doubt that the next few years are going to be very active in the sector and the only thing I say rich we are skewed obviously towards the national tenants, we've talked a lot about this over the last year the national tenants are better capitalized they have.
The figure it out the the e-commerce omni channel angle better than others, and so that is the distinct advantage for us.
Out of roll into the numbers and I think why you're hearing this level of excitement from US is we're 91 four per cent lease Theres. No reason this portfolio of can't be 90, 596% lease and so that's why I think youre hearing us talk about this multiyear tailwind and our confidence around that continues to grow based off of the leasing pipeline we have today.
Okay. That's very helpful guys. Thank you.
Thanks Rich.
Thank you and the next question kind of Kathy Mcconnell of Citi.
Yeah.
Great. Thanks, good morning.
So given the occupancy that's been lighter than expected to day do you think it's bottomed out at this point and how are you thinking about all of that revenue from the small shop kind of bucket at this point.
Okay I'm, sorry, we missed the first half of that question.
And I just said given the occupancy that's been lighter than expected do you think it's bottomed out at this point.
Aye.
We're feeling like.
With the the leased to occupied spread right now it's difficult to come up with the scenario where.
Where occupancy has not bottomed I guess that the triple negative way of saying it but yes. It really feels like just the amount of leasing velocity of sales strong.
Even if there were a couple of more bankruptcies. This year. It just feels like there's no way Atlanta go backwards.
And Katy on the shop side, I mean, we're not seeing more dramatic ball out there there are some jobs, but the cash.
And of the initial wave that we saw fallout has definitely tapered off quite a bit.
Okay. Thanks, and then on the transaction from are you seeing much news minimum pricing or by our competition picking up as the new deals today.
And you know the kidney the the buyer competition has actually been somewhat.
Consistent I guess the real issue is how much inventory is out there I mean last year not many assets where were put on the market by sellers.
And I don't think that the.
The the spare showed up.
The debt.
The owners of real estate private owners had the cell and so if its their choice of sell they're going to wait for a better time. It does feel like the debt markets became a lot more accommodative in January and I do think that has allowed more of traditional sellers to say hey look the that's there. The equity is is a it's it's been raised by both private and public.
Companies now at the time of the lift property. So we're seeing a little bit more activity in the past couple of months.
And it's the it's competitive it definitely is competitive.
Yeah.
Okay, great. Thanks.
Thanks, David.
Thank you and the next question comes from Todd Thomas with Keybanc.
Hi, Thanks. Good morning, just first a quick follow up on the I guess the prior period adjustments I'm kind of at the same store NOI growth also reflects the $5 million of prior period adjustments I believe which I thinks about a 400 basis point positive impact in the quarter does the better than 4% same store NOI.
Growth that you're anticipating for the year assume any additional prior period adjustments in future quarters.
Yeah Todd Zone.
The balance of our same store is about $4 8 million of the $5 million is included in same store net was about a 500 basis point boost for the quarter. So so apples to apples same store NOI be without prior claim adjustments down about five or 6%.
Going forward on that number the short answer of style I mean guidance today does not include any of the prior period adjustments.
Okay got it.
And then David back to acquisitions.
You know I guess a couple of questions. One can you comment on.
Of the types of assets that you're targeting whether theyre stabilized or you know are you targeting assets with with vacancy and lease up opportunities and then can you also comment on.
The level of competition that you're seeing I guess, you know if we think back over the last several years or are more of the buyer pool for retail assets has been somewhat limited.
And I'm just wondering if that's changed at all and if you're seeing new investors or types of capital are showing up today.
Yeah.
Sure I mean, I can be I can be.
Generally specific in that if you think about what we've said is working from our perspective, it's a wealthy suburban communities. The tend to have lower square footage per capita and they tend to be heavily based on convenience the more convenient the property.
The more likely the tenants want to be there and we're seeing that with our leasing volumes. So I think that we're somewhat format agnostic whether it's.
The grocery non grocery strip.
The format I think is much less important than the likelihood that rents are going to grow so to your point about the targets. If we're targeting these three macro trends that we think are multiyear trends.
What's most important is rent growth and and this is of great time to be investing early in a cycle. Because if you believe that rents are growing and I do think they are.
It's a good time to be coming in at this basis. So we're less focused on existing vacancies and we're more focused on really high quality stable assets that have rent growth.
Okay and can you just comment on the the competition that youre seeing a weather.
Whether whether that's changed at all in recent.
For any of these are investments that you're you're looking at compared to what you've seen in prior years.
Yeah I guess.
It's not there's not quite enough activity at the be able to say, whether theres more capital out there. It feels like there is it feels like.
You know a lot of private investors have started to realize that cash.
Cash flow growth is happening and part of the reason for that Todd as debt.
I think I think the viewpoint of couple of years ago on the sector was that it had a high percentage of capex of leasing capex.
But if you go into a rent growth.
Scenario for the next couple of years and you have stabilized properties. The capex is going to drop pretty fast because you just simply can't spend enough Capex. If you don't have vacancies and so it becomes a renewal business, where the renewal spreads are high and the Capex is low I think that as the cycle, we're heading into and I think it's not lost not of lot of private.
Capital So when we've been out bidding on properties, we definitely think we're competing with what kind of core plus type of capital.
In the in the in the private sector.
Okay. Thank you.
Thanks Todd.
Thank you and the next question comes from Alexander Goldfarb with Piper Sandler.
Hey, good morning morning, Bright and early so just a few questions here first Conor on the cash tenants, obviously, we all love cash and it's great to get paid cash, but as we think about your full year numbers, how much how how how you always.
It was kind of the a b R. However, NOI. However, you want to gauge it how many of your tenants are now cash and what is that delta, meaning if you collected 5 million in the quarter was that you were you build $5 million of cash rents of about eight 5 million. So we can think about <unk> 5 million benefit in the second quarter third quarter fourth quarter, etcetera, or how do we.
About the the cash.
Cash and how it's going to impact.
Earnings.
Yeah.
Good morning.
So 13 per set of our tenants are on cash basis accounting. So in terms of numbers. It's unchanged from year end I think we could get kind of one hand, how many new accounts.
Actually this last quarter or so.
No material change in the pool, if you think about coming back to Richard's question of how that flows through the income statement of cash basis collections were about 80% of in the first quarter and so if that that the collection rate was unchanged in the second quarter at 80% you would see our uncollectible revenue.
The first quarter number flattens 5 million so call. It round numbers about nature of three $5 million that would be what the kind of drag would be on earnings or overcome flow.
Assuming the same pool and the same collection rate now the problem is the core may change, we may take some folks off cash basis of accounting of the odds of them being a pair of though or we would want to see a steady state of collection for the non brokered. So I don't think that would materially impact, but there could be some fallout as well from calculates the patents of arent paying the were in litigation or coming true.
Feldman of within their at home. So, it's a really long way of saying, it's going to change the pool will change, but I think from a run rate perspective for you. If you just take the current uncollectible revenue from the first quarter back out $5 million and assume if you assume no impairment of collections. That's a good number to use the onboard.
Okay. So for those of us still out in the first type of coffee Cotter.
The so the 5 million that you booked in the first quarter is is your full year guidance the.
The 94 to $1 two is that assuming the 5 million benefit in the second quarter third quarter fourth quarter or just not assuming that.
Theres no theres no prior period adjustments and guidance for the rest of the year.
So looking at the trends as I mentioned in my prepared remarks, we are trending towards the top end of the range right. We're staying steady improvement of at least the activity, we're seeing a steady improvement in collections.
The bottom end of the range assumes the deterioration in occupancy which is why we're not seeing but it's April 20th of again, we're trying to be prudent we're in the middle of the pandemic.
So any other prior period of reversal of Alex would be good guys too to earnings of the guidance.
Okay. So the simple answer is that if you get another 5 billion of the NEC each quarter, you're going to be at or above the top end of guidance correct. That's all.
If we got it $5 million of quarter for the next three quarters, we'd be above the guidance range.
Okay Awesome. Okay. Second question is going back the act but.
The only the only thing of just Alex is this I mean, those are cash basis tenants right. So implicitly we don't expect to collect that right. So that's the that's a big enough right.
Yeah, but things are getting better. So okay. Second question is on acquisitions of.
You know just given where you guys are trading on the applied cap rate sort of in our numbers high sixes.
And the fact that it sounds like cap rates for assets, we're going to continue to compress.
How do you how do you think about making the math work as far as using your currency to buy assets and as part of that.
David you emphasized the benefit of national credits, but at the same time you guys have been a.
Willing to buy you know centers that are sort of non anchored more smaller neighborhood type centers, which I would assume would have more small shop. So how do we think about sort of the balance of buying centers with preponderance of national credit versus infill in the neighborhood, you want and to competing with your cost of capital versus.
Of where cap rates, probably are in the market, which I'm, assuming it's the inside of where you guys are trading.
Yeah.
It's a great question.
Since I've had three cups of coffee I can answer it quickly.
I think of it.
Alex the way that I'm looking at it is from an Unlevered IRR perspective, and the thing to remember about cap rate compression as Theres, a reason and the reason is market rents are growing and capex is going down.
And those two functions in the IRR do make a tremendous difference so as I look at our cost of capital I would still like to see us make acquisitions that are approaching net round.
Round numbers, 10% Unlevered IRR.
And it may be that you can get that in the mid fixed cap rate. It may be the you can get that at a low five cap rate, but I do think that if we're selecting the right asset in the right Submarkets and we have confidence that there's rent growth natural rent growth on renewals, that's a big piece of the function. So tilting the what you mentioned about format type.
Don't think were against any format and acquisitions as long as it it kind of targets the submarket and the rent growth profile of it that we think is is available to us.
Most of the acquisitions, we've made in smaller neighborhood centers do have a pretty sizable component of of the national credit tenants you know that.
The horizons of the Starbucks the banks all of those types of tenants are active in and wealthy suburban communities and those of the properties of the tenant drive a lot of convenience traffic and can boost market rents over time, the real difference between them and the larger format asked that is they tend to control of the real estate for of shorter duration. You know some of these boxes have 2030 years of true.
Term with options that not necessarily the case in the smaller assets, even if you have credit, but you're able to access the rent growth a lot faster than you can with larger boxes.
The only other thing on kind of.
Accretion dilution is.
David made a comment in the prepared remarks that we have north of $40 million of retained cash flow now.
Also have the RBI proud of so there are a number of sources of capital we have where we can we can invest and not worry about ultra coat of dilution. The other comment you made is we referenced accretive dispositions being selling at a lower spread than what we're buying so I would just tell you. We are incredibly focused on earnings growth along with the intrinsic value growth.
I don't think we were buying just for the sake of buying and we're not we're not focused on earnings growth.
Okay cool listen thank you. Thank you Tyler Thank you David.
Thanks.
Thank you and the next question comes from some of your kind of all with Evercore.
Hey, good morning, everyone I'm.
Just curious I mean, how do you think about the long term growth of the portfolio coming out of the pandemic here I know you talked about anchor.
Anchor leasing of that peak revenue you talked about shifts you're seeing kind of you know.
The kind of during the pandemic. So as we think about the long term growth I know I kind of look back.
For the portfolio I believe if you know them.
Or from the Investor Day, I think it was like 2.5% or something back in 2019, maybe it's still early but just kind of wanted to get your initial thoughts of the kind of thinking about the recovery here.
Yeah.
Samir, it's a really interesting question because.
I think at the time that we had our Investor Day conference the macro trends where different if you remember that two 5% growth included 150 basis points of bankruptcy every year, because we were in an environment, where there was a lot of retailer churn.
And we also assumed a pretty heavy capex burn in order to make that you know in order to basically keep occupancy and keep a little bit of growth, but it had a cost to it.
What's really changed in the last maybe you said September October last year is that the.
The amount of leasing from large box and small shop tenants, particularly on the national side has been so robust and surprisingly so that I think that the the growth rate is higher than we originally thought and the bankruptcy rate is lower.
And whether that continues for 10 years or from two or three years.
I guess, we'll find out but it sure feels like if you look at 2022 versus 2019 portfolio NOI portfolio. It feels like there's a bull case emerging where 'twenty two is kind of surpassed 19 highs.
And I think of comes back the katie's questions about occupancy of it if occupancy is not deteriorating rents are growing.
And then it really means that 2022 is shaping up to be likely.
At least at least even and likely better than 19 was.
I guess as a follow up you think about you know Ana.
Why growth and maybe the breakdown of that is there anything thats change on either of the contractual rent bumps side is it kind of school debt.
Sort of one percentage for anchor boxes or are you getting more than that these days.
Well in an uncertain.
<unk>.
Or non credit tenants I didnt getting higher bumps is is achievable, we've been getting higher bumps than normal on the smaller shop deals for sure.
The differences were.
We're 90 per cent credit national credit tenants and so our existing portfolio of it doesn't benefit quite as much from those tenants. The consigned annual bumps. One one thing you could look at this kind of interesting. If you look at page 14 of our sub.
We did add a little bit of disclosure, which I think you'll find interesting youre looking at the signed but not open pipeline of leases compared to the lease expiration schedule of the existing portfolio.
And what it shows is there's a delta the rents are higher in the box the box average per the leases. We've signed the date in the last 22 that are that are not opened at about almost 17 Bucks a foot in the existing is about 14, so youre seeing of natural spread on the on the new leases, both the shops and anchors and the compounding nature of those.
When they hit their options is helpful, but to your point the industry I don't think has changed in terms of is it naturally is at 10% growth every five years for anchors and its kind of 2% to 3% growth of shops, and I I don't see that changing dramatically, which is why we lack of acquiring properties that have near term explorations because of that.
Really where the growth is going to come from.
Alright, that's very helpful. Thanks, so much.
Thank you.
Thank you and the next question comes from Linda Tsai with Jefferies.
Hi, Thanks for taking my question.
Spoken about the Stein Mart boxes, having solid leasing upside, but may be more pressure on the pier. One boxes is the still the case for pier one in the context of the leasing strength youre describing.
I think generally it is linda.
We talked about three or 400% mark to market on some of the same our boxes.
We've just gone back at the end of last year, or so, but I would say that's generally consistent on pier one that I would say it's marginally better.
Or are we talking about some new concepts in that eight to 10 square footage.
The range last quarter, the medical users of <unk>.
Couple of new concepts and that exact eight of 10000 square feet.
So I would say, it's marginally better but in general it's fairly consistent with prior periods.
Yeah.
Thanks, and then on micro fulfillment in the build out of these platforms to the extent that's happening in your portfolio and it reinforces the value of that distribution point or landlords, helping to pay up for these build out costs or is it the retailers.
I think it's generally the retailers I mean, if you look at the the Capex.
Been required the new anchor leases it is kind of noteworthy.
We've been signing leases with the Capex, which is not inconsistent, but all with the with previous years I think we're averaging around $40 a square foot on average.
So I don't think that we've seen any additional cost for the tenants to change the interior of their space, but we have noticed it Linda I mean, we've seen some of the permit drawings.
Every time the tenant goes in they have to submit permit drawing through the city of we're able to get a copy of the drawings and review of them and you do see some changes on the interior of the store related to a little bit larger sorting areas of little bit smaller customer areas.
A big tilt towards customer pickup areas in the parking field and how that interaction occurs so I feel like the cost is being born from the tenant side at this point.
But it is interesting to note and I agree with you that it is happening.
Just one last one of the $50 million under contract or those in regions.
What are your properties are already or you kind of you know me.
Agnostic.
They are in regions, where we already have.
Staff and the portfolio.
Thank you.
Thank you and the next question comes from Floris Van <unk> of them with Compass point.
Good morning, Thanks for taking my question guys.
Obviously very.
Encouraging reports.
The net effective rents are up the.
Pipeline seems to be strong.
I'm intrigued by your comment about going on offense, obviously your balance sheet as it is in decent shape now as well.
Are you guys also thinking about JV says as the way to buy.
The to buy assets and maybe if you could provide some some commentary on your.
View of the of the Kimco true.
<unk> changing the sentiment perhaps in the sector.
For other investors as well as yourself.
Yeah.
Sure heard of a happy too.
Oh, sorry, the Apache.
The three cups of coffee wasn't enough.
The company and this company has a long history of joint ventures, and I do think that at.
We're always going to be a part of our platform, but it has to be for a purpose.
And if you look at the JV as we've done in the past couple of years is the purpose of it has been a recap of the portfolio. So that we could recycle capital.
The need to do that before was to Delever, our balance sheet and kind of prepare for or bad times, which turned out to be a good move.
At this point, we do have capital the one best from multiple sources and at this point I think we are continuing to invest on balance sheet.
But I'm certainly not.
Out of favor with doing.
Ventures as long as they have the purpose and debt purpose could be the partner brings you a deal and they want to be involved with the REIT. It could be that the scale of the opportunity. We find is simply too big for us and we'd like to have a partner.
So there can be multiple reasons and I'm not against it and I think you can assume that we'll be very careful about it but we're open to joint ventures.
From the from the industry standpoint, with the the Kimco Weingarten announcement, I mean, I do think it was positive for the industry I agree with you that it seems to have stopped a little bit of of animal spirits, because it's the it's a big deal and it's positive for the industry. The pricing I thought was a particularly a pretty good read through because I do think of.
It's a bit more consistent with where private market pricing is so its felt like validation of that.
And the other thing I think is interesting is that.
If you look under the Hood the the Weingarten portfolio does have quite a few similarities to the sites in our portfolio, we have similar ABR per square foot.
We have similar grocery sales volumes, we've got similar demographics, although I think we're helped that a little bit higher household income.
And if you really carefully look through the portfolio, you'll see that we have a pretty similar mix between grocery anchored power center.
So I thought it was great for the industry and I, particularly thought it was it was kind of a good read through for us.
Thanks, David and do you expect that there'll be additional transactions like that in your view do you think that this is you know sort of waking people to the possibility and and and.
And where do you see or how do you see yourself positioned in the in such a situation.
I I think your guess is as good as mine, whether there's more public activity I, certainly think there's going to be more private activity I mean, the amount of private capital.
For yield and they are starting to see durability.
The durability is what I think was proven over the past 12 months I mean for us it would be having collected <unk> 91 per cent of rents through a pandemic as the.
It's impressive and I think the industry has proven quite of bit of durability.
But now I think you're starting to see growth and whenever you get market rents growing in that sector I do think the private capital start to raise its head and it feels like we're getting into that period I think we'll see because there haven't been a lot of private capital investments to date.
But we'll see over the next couple of months.
Thanks, David.
Thank you.
Thank you and the next question comes from Mike Mueller with JP Morgan.
Yeah, Hi, David a couple of quick questions. Here first did you mentioned the cap rate on the $50 million that you have lined up for acquisition.
I did not but I did say that once we close we would be happy to talk a bit more about.
Unlevered IRR I think is probably a better way to look at it personally.
But I think once we close on the acquisitions, we'd be happy to walk through the the reason and the rationale and the investment thesis, but I'd like the kind.
Kind of pumped on that for now Mike.
Got it and then you talked a little bit about per.
Properties that are working with union, having better growth potential and just curious if.
If you look in a market of soft market what makes.
Is one property more convenient than than the other.
It feels like the the the.
The most of the tenants have decided that proximity to the street.
With visibility and access is really important what we've been measuring as a couple of things with the measuring traffic counts because during the pandemic you have so many more people in suburban communities that are home all the time the traffic patterns have changed you know, they're not as dramatic on a Saturday and Sunday, but there are much more dramatically positive on a tuesday or Wednesday. So.
We're being very thoughtful about tracking geolocation cellphone mobility, and we can kind of witness how communities are acting when they're home five days of week seven days of week.
It tells you something in the tenants you are seeing it as well so I would say traffic patterns.
Simply the amount of people that are nearby the property and then relate that the how much square footage per capita is in the market. That's really why I like wealthy submarkets because they tend to have much stricter zoning laws and so the supply is less.
And the result of that Mike is pretty amazing and then we've had a couple of shop deals. We signed in the last couple of months that are approaching $100 a foot in suburban strip centers or average shop rent right now in the portfolio was $28 50.
So that's what I mean, where I'm, saying, we are definitely in a period, where the convenience is extremely desirable and the tenants are willing to pay for it and to me that the good time to be investing if youre seeing at the beginning of that cycle.
Got it and maybe maybe one last one Connor for the $3 3 million reserved kind of the clean number which you strip out prior period can you just give us the rough breakdown of whats the whats.
Of that $3 million in terms of categories.
Yeah, It's a mix Mike I mean, obviously, it's if you look at our our Jack on categories that are open it's not surprising the laggards are more COVID-19 sensitive so fitness theaters entertainment.
So it's a little bit of mix I would say in that.
Or some sort of local names that we expect to pull out like I like I mentioned and it's just the question of why and then we've got the right backbone in place.
So you can see kind of the survivorship bias that number of shrink.
Over the next couple of quarters, so theres not one sector, Mike that's jumping out, but it's the kind of the the same the same Jon rose the same categories that we've seen over the last year.
Got it okay that was it thank you.
Thanks, Michael.
Thank you. The next question comes from Chris Lucas with capital one.
Hey, good morning, guys.
David just the sort of a big picture question as it relates to the inflation outlook of the want in PA.
All of how you think about your re tenant the next or things that you were looking at in terms of acquisitions or is it.
Sort of two two early in the process of seeing reflation to sort of make that an important part of the analysis.
You mean consumer inflation, Chris the I mean correct correct.
Yeah, Yeah yeah.
Yeah.
Yeah, I think you would probably agree or not be surprised that there's two pieces of inflation.
That I think of really important ones of risk and ones of benefit.
The one of the risks of inflation is.
The long duration leases that tend to be flattish.
They tend to get.
They can't keep up and Thats why sometimes these convenient properties that have shorter duration leases are a lot easier to raise rents during an inflation and keep up with market.
And market rents are growing so that's a good time to be finding acquisitions, where we know we can adjust the rent roll a little bit sooner.
Once its fully occupied I think the second piece of the puzzle is really interesting and that is.
If you have a lot of national credit tenants and they sign a lease with a certain occupancy cost ratio.
And five years later, they're still paying the same rent, but there their sales have escalated with inflation.
Whats happened, while the landlord hasn't benefited because we don't have percentage rent clauses having.
Having said that their occupancy cost ratio is much lower and so I think what's going to happen is the probability of options being exercised will go up if you see more inflation and so that does reduce the amount of future capex and future tenant burn because there's simply more profitable in place. So we do.
About the was quite a bit, particularly on our acquisitions.
And I think it would be marginally positive.
The downside of course is exit cap rate and what's the what's the effect on cap rates. So I think that's kind of the two sides of the coin that we think about.
Okay.
You sort of opened up Pandora's box when you talked about the occupancy cost and what I'm getting at is you know.
How how are you guys dealing with the sort of sales in store versus.
E Commerce, this whole omni channel and how that impacts the essentially what sales are.
Perfect.
The retailer sort of pushing back on how the other.
Got it.
Yeah, I feel it's a it's an issue that I know many people in the industry have been talking about for a number of years. The good news is we have almost I mean, so little percentage rents in the company that we just don't have to deal with it but I agree with you that it is a challenge.
But that the ultimately drives rents rather than any of the occupancy cost of an important factor just from the month of as you described before so it's something that I remember at some point in terms of it.
Right to David's point, we have very little of overtime and then on top of the only about 30 kind of of tenants report sales right. So it's just not a big part of the business now if we do get sales does it muddy the water whether you have of click and collect included an hour of returns included absolutely. So the David's point, it's a focus of ours, but it's not necessarily impacting our day to day.
Business.
The other thing to remember is debt.
I get it.
The thing about the occupancy costs should.
The drive the rent the tenant is willing to pay but it doesn't really drive market rents because that has more to do with what the other tenants are willing to pay for the same space and given the amount of box leasing activity going on there is competition brewing and so I think it is market rents have more to do with.
Multiple people seeking the same space and that's that's a good situation to be in.
Sure Hey, kind of while I have you can.
Ken can you.
Help me sort of.
I'm looking at the signed not opened.
Chart from last quarter, and I'm comparing it to this quarter. It feels like just looking at it adjusting for the $2 8 million that you brought on board in the first quarter. It looks like there's some more ramp to third and fourth quarter of this year.
Compared to where you were in the prior period is that related to some.
You know faster delivery of space or was that related to just the more oh.
We used the sides.
I would say, it's a little bit of bolt Chris. So the one we have more visibility on just rent commencement sort of handled more confidence and the second to your point, it's probably a bunch of shops that we think we can get open this year and to David's point.
Signing 70 $89 per chops, they turned into kind of many anchors right in terms of the contribution.
So that's probably the two factors driving the way, we can dig into that and come back to you, but that's my gut.
Okay. Thank you that's all I had this morning appreciate it.
Thanks, Chris Thank you and the next question comes from Tammy <unk> with Wells Fargo.
Yeah.
Hi, good morning.
I guess, maybe just following up on the recent transaction between Kimco Weingarten I guess are you sort of satisfied with the scale and efficiencies at your current size or where do you see real benefits from being a larger company in the shopping center industry and then correct me if I'm wrong, but it sounds like you are looking to be of net acquire them this year from them.
I'm sort of curious if you had the five year target in terms of size or is the plan just to be opportunistic depending on market conditions.
Thank you.
Tammy.
It's a great question given the announcement of that merger I think what we're most happy with is the runway we have in the near term and by near term I mean, probably two or three years. It just it feels like we've got a lot of growth runway our balance sheets in really good.
We don't have any commitments for development.
Haven't committed to high Capex mixed use properties and the and I really feel like we're in a position where we can make external investments.
For high quality properties with with cash that's coming from multiple sources. So it feels like we're in a really good spot.
<unk>.
And back of your question of scale the.
Of the G&A load of this company can be flexed quite a bit and so it feels like we're going to get the benefit of being able to grow.
Without having to increase our G&A and that's a good spot to be and so I do think there is a benefit of scale and I think we're beginning to get more scale over the next couple of years.
So yeah, I guess I'll leave it at that.
Okay, great. Thanks, and then I'm just wondering are you actively marketing any assets for sale today.
We are always actively marketing one or two.
Last quarter, we sold a single tenant box a pad that was across the street from our main shopping center.
There are a few assets that once they get to 100% leased.
They've got long term credit tenants.
It's more likely that there's an arbitrage between what the private market is willing to pay for that flat lease and what we would like to recycle that capital into so theres always a little bit of recycling, but it's not meaningful.
Yeah.
Okay, great. Thank you.
Thanks Tammy.
Thank you and if it doesn't go to the question and answer session I would like to return the floor of David Lukes for any closing comments.
Thank you all very much of your time, and we will speak to you next quarter.
Thank you.
The conference has now concluded thank you for attending today's presentation.
Your lines.