Q2 2021 Brixmor Property Group Inc Earnings Call
Greetings and welcome to the books more property group for a good segue.
Current quarter 2021 earnings conference call at this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Stacy Slater Senior Vice President of Investor Relations and capital markets. Please go ahead.
Thank you operator, and thank you all for joining Brooks' more second quarter conference call with me on the call today are Jim Taylor, Chief Executive Officer, and President and Angela Aman Executive Vice President and Chief Financial Officer, as well as Mark Horgan Executive Vice President and Chief Investment Officer, and Brian Finnegan Executive Vice President.
These revenue officer, who will be available for Q&A before we begin let me remind everyone that some of our comments today may contain forward looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings and actual future results may differ materially we assume no obligation to update any.
Forward looking statements also we will refer today to certain non-GAAP financial measures further information regarding our use of these measures and reconciliations of these measures for our GAAP results are available in the earnings release and supplemental disclosure on the Investor relations portion of our website.
Given the number of participants on the call. We kindly ask that you limit your questions to 1 or 2 per person. If you have additional questions regarding the quarter. Please re queue. At this time, it's my pleasure to introduce to introduce Jim Taylor.
Thank you Stacey and good morning, everyone. We are very pleased to report yet another quarter that reflects the strength of our team our well located portfolio and our value added execution execution that not only delivered sector, leading performance going into and through the pandemic, but also provides us with them with the momentum.
Outperform again as we emerge this year and into 2022 and beyond.
In a few minutes Angela will provide additional color on our results and our raised guidance as well as our continued growth in cash flow liquidity and balance sheet strength.
As you dig into our results this quarter, even after adjusting for the recovery of prior period billings, which continued to accelerate you'll observe that our base NOI is nearly fully recovered to 2019 pre pandemic levels and our traffic levels at our centers now exceed where they were in 2019 that Rick.
He is truly striking and it demonstrates the quality and resiliency of our open air retail portfolio, but that recovery is not the most important takeaway rather the key takeaway is how we will grow from here and now.
Other words, how the very same amount of them that drove our experience of the low its negative impact from the pandemic will also drive our continued growth and outperformance, especially through a dynamic and evolving retail environment.
I would like to shed some additional light on that combination of factors unique to break some more that we believe will continue to drive our outperformance for years to come.
Those factors begin with rent basis, as you've probably heard me say before if you're looking to drive growth in ROI and thereby deliver value rent bases matters, we benefit from our portfolio of established well located and highly trafficked shopping centers that attract the very best national regional and local.
Tenants tenants, who drive healthy sales volumes and enjoy reasonable cost of occupancy in fact, our groceries enjoy an average cost of occupancy of 1.5 per cent.
For us this focus on rent basis as foundational we've harvested those assets, where we see limited upside in rents and have focused our investments, where we see an opportunity to drive growth.
Upside in rents is most evident in our new leasing spreads which were $19.8 per cent for the quarter, which I believe will lead the peer group and and they were $19.3 per cent for the trailing 12 months again likely well ahead of the pack even through the height of the pandemic. If you look at our expiring anchor rents over there.
The next 3 years, the average expiring rent is $8.78 per foot, which is significantly below the average new anchor rat, we've signed a $12.60, a foot over the trailing 12 months that again included the height of the pandemic, that's a cash spread of 44%.
The upside in our portfolio has clearly been battle tested over the last year and it will be even more striking as the economy continues to improve.
2 additional factors driving our visibility on growth are executed leasing volumes in our forward leasing pipeline under Brian's leadership during the quarter. We signed another 700000 square feet of new leases at a record rent of $19.48 a foot and with renewals we signed a total of 1 point.
6 million square feet of deals.
We grew our leased occupancy another 30 basis points on a sequential basis and grew the balance of signed but not commenced rent at the end of the quarter to $42 million. Additionally.
Additionally, our forward leasing pipeline that is deals in legal and underway is comprised of another 2 and a half million square feet or another $44 million of base rent.
That's unparalleled visibility on our forward growth.
What's also very exciting to me is a continued improvement in tenancy, including within the grocery segment as we've capitalized on the disruption caused by the pandemic to bring in better tenants at better rents.
Brian will cover that in a bit more detail during our Q&A session.
This very same leasing activity. It's also driven our highly accretive reinvestment pipeline a fourth key factor driving our growth, which now stands at $433 million of investment at an average incremental return of 9%.
During the quarter, we delivered another $20 million of reinvestment projects at an average incremental return of 18%.
To provide some perspective at those yields these deliveries create as much value as over $200 million of ground up development at much lower risk.
We expect our total deliveries this year to be between 175 to 200 million at a very attractive average incremental return of approximately 10%.
I'm really pleased here with the continued execution under bill and hygiene of our redevelopment and construction teams.
I'm also excited about how this reinvestment activity not only drives great ROI and as I've talked about on previous calls compression in cap rates for the centers impacted but also for how it drives our momentum and our fifth key growth factor the lease up of our small shops.
During the quarter, we drove an additional 60 basis points sequential increase in our small shop occupancy and set a post IPO record average small shop rents of $25.15 on comparable new space as we improve our centers for our reinvestment program and our enhanced operations we see.
Clear follow on benefit in both rate and tenant quality and the lease up of our small shop spaces, where we believe we have several hundred basis points of growth potential.
From a capital recycling standpoint, we are seeing attractive opportunities for external growth or to use an analogy more fuel for our value added be Rx engines, such as the acquisitions of Bonita Springs, and Champlain, which we closed this quarter.
We're focusing our acquisition efforts on those opportunities for us to leverage our platform strength for additional growth and ROI Mark will provide additional color on our pipeline and acquisition market overall and the Q&A session as always expect us to remain disciplined in the allocation of capital as we always strive to be.
Across all facets of our business.
While the acquisition market has gotten increasingly competitive we do believe there'll be significant and attractive opportunities for us to leverage our platform for external growth and as Angela will cover in a moment, we have over $400 million of cash and an additional 1.2 billion of availability under our line of credit.
As well as growing free cash flow to fund those opportunities.
In closing I'd like to express my deep gratitude and appreciation for the entire brick smart team, which is the best in the business for their continued commitment and amazing execution across all facets of our business from leasing to operations to redevelopment to construction investments debt financing.
Counting to legal and finally, and importantly to talent.
Your performance over these last 18 months has truly been phenomenal.
Our first cultural tenet as a company is a great real estate matters, but great people matter far more you prove that tenant each and every day well done Angela.
Thanks, Jim and good morning, as Jim highlighted the recovery continued to gain momentum across our portfolio in the second quarter with further improvements in collections level.
Rental growth in billed occupancy and robust leasing productivity driven by sustained broad based tenant demand for open air centers.
May read out for thought was 46 cents per share in the second quarter and same property NOI growth was $13.9 per site.
Same property NOI growth was driven most significantly by revenue was deemed uncollectible due to continued improvements in collections trend during.
During the second quarter, we collected over $7 million of previously reserved space rent for over $10 million of previously reserved for base rent and expense reimbursement income outpacing the reserve required for current period billing due to the ongoing improvement in cash basis tenant collection.
Ancillary and other revenues and percentage rents were also positive contributors for same property NOI growth this quarter base.
Base rent and net expense reimbursements were negatively impacted by a year over year decline in build occupancy and with respect to net expense reimbursements are year over year increase in operating costs as we have reported to normalized service levels across the portfolio or tenants are reopened.
Well the strength of the current leasing environment has contributed to a sequential increase in leased occupancy over the last 2 quarters significant rent commencements drove an increase in billed occupancy this quarter for the first time since the beginning of the pandemic.
During the second quarter, we commenced leases representing nearly $13 million of annualized base rent while back filling the signed but not commenced pool with new leases representing over $14 million of annualized base rent.
As a result, the signed but not commenced pool now total $2.4 million square feet, representing nearly $42 million of contractually obligated revenue approximately 50 per cent of which is expected to come on line during the second half of 'twenty 'twenty 1.
As highlighted earlier, we are encouraged by the consistent and sustained improvement we're seeing in collections level with overall second quarter cash collections totaling 96, 5% as of July 27, Inc.
Accordingly, second quarter collections from cash basis tenants, which represent 15% of our annualized base rent.
79% as of July 27, which represents an increase of nearly 1100 basis points from the first quarter cash basis collections rate at the time of our last call.
Well, we are not yet back to full collections levels across the portfolio. We are seeing significant resiliency demonstrated by some of the most impacted segments of our tenancy.
We have updated our 2021 expectations to a range of $1.70 to $1.76 per share based on an improved same property NOI growth range of 4.5% to 6%.
Our current expectations reflect our strong performance in the first half of the year and the positive trends, we are seeing across the portfolio. While also remaining appropriately balanced given potential uncertainties related to the adult for variant.
Consistent with our methodology last quarter, the low end of our range assumes no additional recoveries of previously reserved for now and no additional improvement in cash basis collection.
The high end of the range, primarily reflects a further improvement in cash basis collection, but depending on magnitude may also reflect a moderate amount of recoveries of previously reserved amount.
Importantly, the high end of the range is achievable with no recoveries of previously reserved amount and with some continued shortfalls in collections from our cash basis tenants.
In addition, I would underscore that our revised guidance range does not contemplate the conversion of any tenant to or from cash basis accounting during the remainder of the year, which could result in significant volatility in GAAP straight line rental income.
As always our guidance range does contemplate additional expected transaction activity, but does not contemplate any items that may impact comparability in future periods, including litigation and non routine legal expenses loss on debt extinguishment or any 1 time items.
Turning to the balance sheet at quarter end, we had $1.7 billion for a total liquidity, representing our Undrawn 1.25 billion revolving credit facility and over $400 million of cash on hand.
We have no debt maturities in 2021, only $250 million have been attorneys in 2020.2 and debt.
To EBITDA on a current quarter annualized basis is now at 6.3 times.
In line with our pre pandemic level.
As a result, we are well positioned to continue to capitalize on the recovery and execute on our long term balanced business plan and with that I'll turn the call over to the operator for Q&A.
Yeah.
At this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad, a confirmation tone will indicate that your line is in the question queue. You May Press Star 2 if you would like to remove your question from the queue.
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Our first question is from Jeff Spector with Bank of America. Please proceed with your question.
Great Good morning regulations on the quarter.
I'd like to focus the first question on small shop occupancy Jim.
That was 1 of the key points you mentioned in your opening remarks.
For that grew this past quarter.
And you talked about.
Diversity of tenants and better tenants on the small shop side can you just discuss that a little bit further please.
Absolutely you know sensitive since we began now little over 5 years ago, 1 of the things that we saw was an opportunity to improve the operations of the assets bring them to the probably on VI bricks more standard, but also importantly, accretively reinvest capital in those shopping centers.
Enters look better they perform better and it's part of that we're seeing real follow on momentum in our small shop leasing and you're seeing it not only in the sequential improvement we saw quarter over quarter, but you're also seeing it in terms of the rents we achieved as I highlighted we're setting a record small shop rents.
Since you know post IPO of $25.15, but also importantly, the quality of the tenants and in fact during this disruption we've seen many local and regional and national tenants capitalizing on the availability of space in our centers and we're bringing in much better tenants Brian.
I would just add I mean, the categories that were signing leases with tenants within those are fairly broad based if you look at the Q O Q ISR restaurants medical financial institutions are we've.
We've been able to capitalize on that day men and the team's done a really nice job as Jim mentioned capitalizing on the improved operations at our centers and our Reinvents, but reinvestments that we're making and then just to touch on Kyocera restaurants, Jim mentioned, a higher quality of tenants 1 of the things. We're starting to see is tenants that were primarily in central business districts and <unk>.
Intown areas really start to go to the suburbs and we had an example of that this quarter, we signed our first lease with chop that our village at Newtown redevelopment and consumers are just demanding more for the suburbs and if we look at our centers there are attractive opportunities to come out and give me a little kick and get new locations, where in a number of discussions around the portfolio with tenants like that so.
We've been really pleased with what we're seeing so far as well as what's in the pipeline going forward and you know importantly, Jeff as we deliver those reinvestments, we'll see that improvement continue to accelerate because you know as you're as you're taking down in anchorage, you're reconfiguring, a shopping center, you're going to have more vacancy and we see that by several hundred.
Basis points, and our reinvestment pipeline. So we're real excited about how we're positioned to drive.
No that that fifth important growth lever.
Thank you very helpful. Second question would be are turning to external growth can you talk a little bit more you know what you are seeing where you know we we continue to hear I think you mentioned cap rate compression.
Lots of money now chasing.
Shopping centers in particular grocery anchored shopping centers can you discuss that a little bit more and maybe the markets you're really focused on.
Be happy to and I'll have mark chime in with a little bit more granular detail, but as a general matter. We have seen a real return of institutional demand for this product type, particularly given.
How it for formed through the pandemic and a lot of our institutional investors, who had red line. The assay class are now coming back in and Theyre bidding some pretty impressive values for particularly fully leased shopping centers you know I think our opportunities as we demonstrated it beneath.
Springs, and Champlain are gonna be those assets, where we can leverage our platform our leasing our reinvestment to get to appropriate returns, but we're also capitalizing on that debt on the other side in terms of some of our capital recycling.
Recycling, but we see a number of very attractive opportunities, we see more product coming out into the market and we're quite bullish on what the prospects for external growth, they're gonna be mark as far as where we're seeing opportunities. It's really consistent with what we've been doing over the past 5 years, we're looking to redeploy capital in markets, where we can leverage our.
Our platform and drive value. So we're always looking at both 1 off and portfolio deals in our market, but it is important to remain focused and disciplined on finding deals where we can drive value with assets versus simply.
Hitting the bid on a marketed deal.
From a cap rate perspective.
We've seen cap rate compression on particularly over the last the last quarter, we've seen multiple deals for grocery anchored assets.
And for the low fives and even into the mid force for certain assets and we're clearly hearing inbounds for institutional investors, who are telling us that they're seeing value in open air shopping centers, particularly relative to some of the lower cap rate assets like industrial for multifamily as Jim kind of mentioned, what's most interesting about the cap rate compression. We are seeing is that it's really occurring across most of.
And air asset types, so we're seeing it in.
Secondary markets for markets in tertiary market and we're also importantly, seeing significant capital formation around power Center type assets, we're seeing more liquidity there as well.
Thank you.
Jeff.
Our next question is from Captain Mcconnell with Citi. Please proceed with your question.
Great. Thank you so in the context of the improvement you saw in net effective rents this quarter and relative to pre pandemic levels can you talk about how lease negotiations mopping is tenant housing trends.
Expect to see further upside from cash.
Katie Hey, this is Brian the team's done a really nice job as you pointed out continuing to hold costs in line, we haven't seen a material uptick in as Jim mentioned, we signed rents at the highest that we ever have across the portfolio.
In terms of lease negotiations tenants still want the best deal that they can get that hasnt changed we havent seen a material shift, though in terms of asking for new clauses or.
Anything really different outside of what we had seen previously except for from our perspective I think we're finding the tenants are much more flexible in terms of the type of users that they're allowing us to bring into shopping centers, we talked to an anchor tenant recently, who said to us low because I look at a panera pad or a Starbucks pad, that's the type of customer that I that's low.
The type of traffic that we wanted to center. So we've been able to add that flexibility more in those leases and temp tenants are much more receptive to that upfront than they would have been say 3 to 5 years ago, but other than that we haven't seen a material shift in negotiations.
And you see it not only in the net effective rents, but you see it in terms of the average embedded rank growth you see it in terms of the average term and we're real pleased with the breadth of demand, which obviously helps us drive those terms.
Okay, Great and then can you go back for more color around that 50 basis points of GLA that you expect to maybe in the near term.
Just to get a better sense for how build occupancy trend from here that for the thoughts on buyback and timing for the pipeline that barrel.
Yeah. Katy this is Angela I would say that that number as you know a pretty consistent number and kind of represents just frictional vacancy in the portfolio based on a retention level, that's been pretty consistent over the last few years. So nothing really to note. There in terms of the outlook for occupancy and obviously, we're very encouraged to see a sequential increase in and not just the lease rate. This.
Quarter, but also the build rate we've continued to command a significant number of leases.
Signed but not commenced pool over the last several quarters and you saw that really really turn the build rate a positive this quarter for the first time since the beginning of the pandemic you know Theres still you know.
Areas of the tendency, we're watching particularly those those cash basis tenants that make up those collection shortfall today, but we're really encouraged by the growth we've seen in that part of the tendency over the last quarter and you know, we're working very closely with them to return non pet.
Rent paying and keeps them in occupancy.
And you'll you'll you'll continue to see the benefit of that signed but not commenced coming into our numbers over the next couple of quarters as Angela said in her prepared remarks about half of it will commence this year the balance over the succeeding quarters and then importantly behind that is what we have in our legal pipeline.
Which is another 40 plots of million dollar deals.
With great tenants are that we're excited about not only the quality of the tenancy, but also the additional reinvestment projects that they will lead to accretive reinvestments beyond the 430 plus million that we have underway to debt.
Okay. Thanks, everyone for you that.
Our next question is from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Good morning, I, just wanted to follow up a little bit on the leasing environment. Jim you. You know you discussed the the rent for for new anchor lease deals and in the in the quarter about 44% above expiring rents over the next few years I think you said in and also mentioned the poor.
Folios health ratio of 1 and a half per cent for grocers.
At roughly 20% new lease spreads now for 3 quarters in a row, which is you know pretty pretty solid at this point and in the recovery you are above 30 per cent for many quarters prior to the pandemic. So I'm just wondering if 40% is that achievable over the next several quarters as we move forward just given the sharp ran an anchor rents that you're achieving.
Great question that 44% represents the spread over what we've signed from a new deal perspective, not just this quarter, but over the trailing 12 months versus what we have coming due over the next 3 years and it is a it is 44 per sat on a cash basis, obviously that's there.
Anchor piece of our forward pipeline. It will have some small shop rollover too, but we think we have some good spreads there and we believe that will be in a position to continue to realize and harvest that mark to market.
Over the next several years and thought I would just comment on the comparison you made there was a 20% versus 30% previously we have had a higher percentage. This year of small shop leases, so that comp basis, there's going to be much higher.
And what we saw previously and we're signing leases like we had said earlier at the highest rents that we ever have so we're really pleased with what the team has done there. We also from an anchor perspective. This is the most anchor deals we signed this quarter tied for the most since the start of the pandemic and as we look at the anchor pipeline, we feel really good about the depth of the tendency there.
There, particularly in the grocery segment, we signed 11 grocery deals since the start of last year. We've got another 21 in the pipeline across the ethnic traditional specialty categories and if you look at that that pipeline. If we were when we sign all of those we will take our percent of grocer ABR from around 70 per.
For sense of 77 per cent. So we feel really good overall about the depth of the tenancy in the anchor space, but particularly in that grocery segment.
Okay, and then I think there was a comment I think Jim you may have a made a comment around the lease negotiations.
How those discussions are strengthening around the average embedded rent growth that you're achieving in new leases.
What what is that like on on new lease deals that you're signing today and how does that compare to the average.
You'll escalators and the escalators that are embedded in the portfolio. Overall today. Yeah. You know, we're still achieving close to 2% on new deals, which compares to a portfolio. That's in the low 1% range and climbing every quarter that we put new leases into the pool. So we've been real real pleased with.
That and obviously, we're getting higher annual bumps in the small shop leasing which is another thing we're excited about as we continue our momentum there.
Okay. Thank you.
Okay.
Our next question is from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Hey, good morning, good morning down there.
So 2.2 questions first Angela as you guys you know get paid back on rent, obviously, a great thing for people to make up a what's in arrears. How is it going relative to your original underwriting. So last year you guys assess the portfolio you took reserves against you know tenancy you thought would be questionable there were others, who you thought.
Would be money good in general how do you think that underwriting is going so far is it pretty much on plan or are you better than you thought or maybe there are some tenants that surprised.
Well look I think we've been very encouraged over the last several quarters by the extent to which we've seen recoveries of previously reserved amount you know I would say the new lease guidance really requires you to look at tenants kind of Holistically and not reserve just specific balances, but but look at the broader context of the tenant.
Often over the duration of the lease term. So the exercise is a little bit different than I think the way you laid it out but nonetheless, as we did move significant a significant number of tenants to cash basis last year and I mentioned in my remarks, we have 15 per cent of our ABR on on a cash basis at that point, we've been really very pleased with the debt recovery.
We've seen and that was kind of particularly over the last quarter with collections from cash basis tenants now, reaching just under 80 per song.
Okay and then the second question is for Jim Jim a number of years ago. When you took over as CEO you mentioned the sort of commitment as a public company to grow cash flows grow the dividend and then obviously you guys went through an asset transformation portfolio overhaul and then we had COVID-19 now that you know things are back on track now that especially the new.
You win that retail has gotten the newfound respect tenant demand et cetera, as you sit and look at the portfolio overall in the company overall do you feel like you can return to that mantra of delivering consistent earnings cash flow growth year in year out or are there still either its legacy COVID-19 issues that you need to resolve or maybe.
Get some portfolio tweaks or something like that that you still want to achieve before you feel comfortable to return to that original comment that you made when you joined a number of years ago. I think we're really well positioned for growth Alex on really all fronts and look at our underlying cash flows you're seeing those grow significantly as well I think we.
Cash flow better than many in the sector and I think that has to do a lot with our operating discipline, our discipline with capital and I think we've done all of the necessary predicate stops to harvest those assets that have lower growth potential and really position ourselves for sustainable.
Hannibal growth, obviously, the pandemic through everybody a curve ball and you know, we we I think we're appropriately cautious.
Cautious with our capital during that but we said today with tremendous liquidity and enhanced and strengthened balance sheet and I think really all of the levers we need whether its rent basis continued strength in leasing.
Actual deliveries of our reinvestment and of course, the potential for accretive external growth opportunities to deliver I think on what the promise and opportunity of this company is.
Okay. So basically any redevelopments that you undertake or anything like that none of that would really be materially disruptive to your ability to grow.
And and grow cash flow as correct absolutely you know that's the beauty I appreciate that question and that's the beauty of the granularity and short duration of our of our reinvestment pipeline. We did habits, we highlighted gosh at our Investor day in 2017, a ramp up but we also began delivering on time and to.
19.
On a more steady state basis does those redeveloped reinvestment deliveries, which are very attractive yields they're granular you know the average duration of 1 of our projects is probably 6 to 8 quarters.
So you know you you see that coming in every quarter and I. Just again invite you to look at what we're delivering as I mentioned in my remarks this quarter.
We delivered $20 million, which doesn't sound like a lot, but that was at an 18 incremental return and as I highlighted in my remarks, that's over $200 million of ground up development value creation.
So you know as we continue to deliver close to $200 million at a 10. This year with another 250 million underway today with more projects coming into the pipeline. We're at a nice run rate Alex.
I'm, taking assets down for reinvestment in delivering so that that allows us to continue to grow rather than saying, hey, wait a minute, let us ramp all this stuff up and then we'll deliver we're delivering now.
Okay. Thank you.
Beth.
Our next question is from Juan Sanabria.
<unk> with BMO capital markets. Please proceed with your question.
Yeah.
Hi, just.
To start a numeric question on guidance the implied second half quarterly episode run rate is a bit.
Lower than the second quarter number.
Ex the total of 1 times you call out in the press release, which is about 1 sense. So just hoping you could give us some of the piece parts to get us to that midpoint of the implied second half guidance for if you can comment on maybe some some elements of conservativism that are built into the numbers.
Sure I'm happy to answer that the the once that I think you're referring to is the total amount of bad debt. We recognized in the quarter, which was positive $2 million, which is about a penny I called out in my prepared remarks within that 2 million positive number was actually around $10 million.
<unk> from prior periods, where cap rates, which is actually 3 to 4 things on top of that we did have about a penny of lease termination income recognized during the quarter as well and.
That is really setting up 2 different strategic re merchandising plans across the portfolio.
So those were the main factors that sort of provide the variance from the 46 cents of <unk> recognized during the quarter to the run rate implied in guidance for the next 2 quarters as I mentioned on line.
Conversely should not guidance. We don't include really especially at the low end of the range any recoveries of previously reserved amounts in that number.
Great.
Thank you very much and then per the small shop occupancy so you're just a tick below 85% as at the end of the second quarter.
Where do you think that can get to and I think the pre pandemic level was <unk> 86 per cent do you see that as kind of the high watermark or do you think he can get higher than that based on the demand you're seeing.
And any sense of the timeline to get there.
It's a great question, we actually see potential above where we were pre pandemic and part because of what we're doing with the portfolio the better operations the reinvestment.
So we expect to be a few hundred basis points above where we were at the peak prior to the pandemic high 80 per cent range, maybe 90 per cent.
And we will get there not this year, but we'll get there over the next few years as we deliver these reinvestments and we lease up around the strength of the new anchors.
Thank you.
Hmm.
Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, good morning.
Jim I think you've talked before about how a lot of creating competition for space and how that supports higher rent. So I was wondering if you could give more of your latest views on just that leasing demand and to what extent you are able to create this competition for space.
Centers, Yeah, I'll have Brian comment a little bit here, but you know what we're really encouraged by is the breadth of demand from both our core tenancy as well as new to the portfolio type tenants really in all space categories said that it does put us in a position to generate competition and deliver the results that we have been.
Yeah, I would just add if you look at the tenants, who we signed leases with this quarter within our core tenancy, we signed leases with Burlington Ulta Chipotle Starbucks all tenants that we signed multiple leases with this year and then some new tenants for the portfolio like or we did our first deal with dollar General's pop shelf and <unk>.
A mix of these new entrants as well as the strength of our core categories is driving that competition for space and you can really see that in the rents we were able to achieve this quarter again, the highest rents that we've ever signed the rents on our pipeline for the highest that we've ever had and we're getting that through competition that we're driving for space, whether that's in the anchor.
For the small shop space. So our team has done a really nice job of both creating that competition for tenants that are looking for infill locations as well as those that are looking into new markets and have large open to buys for next year. So we've been really pleased with how our team has been capitalizing on the demand and creating that competition to drive the highest rate.
Got it and then maybe just on the acquisition side was wondering if you could give some of the details on what made the champlain marketplace and attractive acquisition and more broadly.
Jim I think it was you earlier in the commentary you talked about how you think there are acquisitions to be made.
But it's you got to pick exactly the right..1 so just wondering if you can give some more commentary on kind of what that opportunity is and how it breaks marken differentiate when there is so much capital that's interested in shopping centers, Yeah, I think our big competitive advantage as the platform that we have and scale and the relationship that we have with tenants, particularly our.
National accounts tenants to understand where they're likely to open new stores relocate existing stores or even closed stores and those insights along with the relationships help us I think more.
Actively evaluate the potential of acquisitions and we're focused on acquisitions that are in our existing markets like Minneapolis, Champlain, where we see great upside in the rents, particularly in the small shop rents in that center with a little bit better operations and focus.
Or what we saw in Bonita springs with anchor box rents well below market.
We believe we're in a unique position to kind of assess those opportunities.
To add value through better leasing better operations and reinvestment.
And drive returns and I'll, let mark comment, but where we're real pleased with the volume of product that we're getting to see come to the market not all of it is gonna be a fit for us.
Because some of it may have more risk of downside than upside but within that.
Volume of deals that we're underwriting we think we'll find a great great places to pick our spots.
What I would add is that it all comes back to us the strategy. We've been following for 5 years, we've been building a target off that list. We know the marks for or we can drive value and those are the assets, we will lean into to try to wonder if he really wants to find those assets, where we can drive value with the platform and that's why we spent a lot of time in the market looking for assets, where we see under management of risk.
See reinvestment opportunities and really try to drive towards those loans like of Natus for like a Champ line that we just closed down.
Yeah.
Really take Caitlin the approach of trying to be a value added investor.
That's where our strength is.
Makes sense. Thanks.
Okay.
Our next question is from Kevin Kim with Jewish Securities Securities. Please proceed with your question.
Thanks, a lot good morning, good morning, just a couple.
Couple of questions on your redevelopment pipeline for <unk>.
1 what is the percent leased or pre leased.
It's well over 85% I don't have the exact number but we will get that for you.
Okay, I mean, that's a.
Hey, Barry.
Positive for me its got pretty much derisked, yes.
It's it's pretty granular key then as you can tell we're not we're not taking a lot of speculative for us here yeah.
It came in right at that things don't really get added to the in process pipeline. Our reported externally until we have you know the anchors kind of committed and signed up which is what drives that number higher I think we're actually kind of around right around 90%, maybe a touch over from a lease perspective at this point.
Okay.
And in your supplemental you show your Shadow pipeline about of about 30 projects I'm, just curious I guess high level like how has your confidence.
Confidence level changed over the past year on these projects and how.
How viable it can be near term.
You know, it's it's increased and it's it's really increased in 2 ways first of all you know.
We're seeing more and more robots demand for many of those deals and our shadow pipeline from a lot of our core tenant categories as well as some of the new categories that Brian mentioned, which are allowing us to increasingly pull some of those projects into the active and you can see it when you look at it.
Over a quarter, but the other interesting thing has been how this disruption has allowed us to get after more opportunity earlier than we otherwise might have thought where we for example had a gym go bankrupt in long island, and we were able to replace that with a great compelling specialty grocer that was not.
A transaction that was in our forward pipeline, but something more importantly that we opportunistically.
We're able to capitalize on and you know I'm I'm really I'm really encouraged not only by what we're identifying as our shadow pipeline, but by how we're responding and creating value to this disruption.
And really bringing in better better tenants that allow us to then accretively reinvest and allow us to drive great follow on growth through small shop leasing.
And just roughly what is the shadow pipeline representing parents basketball dollars, it's over 1 billion.
Okay. Thank you.
Net.
Our next question is with Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning, Hey.
Our analysis of the tenant watch list appears to be much improved compared to the last few years with weaker tenants washing out others able to refinance debt or experience financial benefit from our central retailer status.
Curious what your current view is on your watch list or a b a b our exposure to higher risk tenants today, and how local tenants, especially on the personal services side fit into that framework.
Yeah, I would start with just some comments on that the national tenant landscape, where I would say, we very much agree with kind of how you framed it up and laid it out we had tenants on our watch list pre pans out Macs that have really benefited from some tailwind starting the pandemic either operationally.
From a sales perspective, some of which are have been able to raise capital and really recapitalized. During this period of time as well. So there's been some really I think positive developments with respect to our larger national tenants.
When you look at kind of the you know the collections that we provide as you point out you know other personal services and restaurants are 2 of really the 3 categories that still continue to slightly lag the rest of the portfolio.
Those are very granular tenant basis and both of those categories and you know are kind of guiding principle throughout the pandemic has been to get as many tenants as possible to the other side and really work with good operators to make sure that they are able to kind of you know benefit from net recovery as well and that continues to be how we're approaching a lot.
That tendency our leasing teams our collections team they've done a fantastic job in terms of staying in touch with those those tenants really understanding at a granular level you know what their specific challenges are.
And I think have done a great job of working with them through this period of time to to get them to the other side and we're encouraged that that that last segment of tendency will revert to cash payments for the next couple of quarters and I might just just highlight there, particularly relative to an earlier question we've been very pleasantly.
Surprised.
Hi, there.
The progress on the watch list in terms of tenants that we were previously concerned about it's Angela.
Stated recapitalizing being better sales better improvement so.
It's a very encouraging trend that we continue to see.
Okay, great. Thanks, so much for the color there.
Second question here it.
It seems like there's the potential for fairly remarkable portfolio evolution by signing those grocery leases.
Maybe hitting that 77% exposure.
Just curious what spaces. Those grocers are tasting are back filling in for centers and then to what level you could see further expansion of grocery exposure in the portfolio.
I really appreciate the question because I think I'd highlight something that we've been doing for a number of years, which is transforming the asset it's been a very granular execution space by space Center by center.
You see it working its way through our reinvestment pipeline you can track all that we're doing and you can see it at the centers themselves and we're really pleased with how they're responding. These grocers are back filling gyms are back selling portions of larger boxes in some cases, they're taking over entire boxes.
It really runs the gamut, but in the process of putting in a grocery use and as Brian alluded to in his remarks pro forma will be closing in on 80%. It's it's a use that we're able to draw more energy around dry more more true.
<unk>, but where we're seeing that not just in the grocery segment, but in all the other segments that where we're doing these anchor repositioning deals with so it is a transformation of the portfolio. It is happening and it's it's happening across hundreds of our app.
So it's not just a couple.
Okay, great. Thank you so much.
Okay.
Our next question is from Derek Johnson with Deutsche Bank. Please proceed with your question.
Hey, everybody. Good morning, Yeah. Most of my questions were answered, but it's certainly nice to say hi.
Hey, how many big box vacancies do you still have in the portfolio.
Derek it's over.
For 100, and we would have I think for big box vacancies across the portfolio right now for me the exact number but that's about where it's trending.
Okay. Thank you and just sticking on anchors I guess.
How do you feel about the over saturation of off price retailing, certainly seems to be 1 of the healthiest segments, so far but from a merch mix perspective, any new categories like not grocers.
Or you're liking right now to keep centers fresh any newness to sort of call out.
Yeah, I mean I.
Really almost in every segment, including value I you know what's interesting over the last couple of years is I think what a number of retailers have recognized is the value of having an open air format near where the consumer lives Brian alluded to it in the small shop space, where we see a lot of that's our restaurants coming out of.
A more urban markets and into suburban assets, you're seeing it in value is youre seeing some interesting new concepts, you're seeing it in grocery, but the kind of unifying theme is particularly with these multichannel distribution models is get close to the customer and that's something.
Our shopping centers offer retailers from a key advantage standpoint, what's exciting about the off price category is there continues to be share for those operators to take because there's department store closures across the country that apparel spend is going to these off price operators. They continue to carry better.
Within their stores.
Stores continue to evolve in terms of the size of the prototype and there are certainly new markets with some of these off price operators are not in yet to create more competition and you have and the best thing about them is the treasure hunt aspect of the off price category, where you can put a number of operators together in the same shopping center and their sales are going to get better. So we continue to see group.
In the segment.
They're driving a ton of traffic to our shopping centers and they've been great retail partners for us as we continued to reinvest in our assets.
Thank you.
Our next question is from Floris van Dijk them with Compass point. Please proceed with your question.
For us.
Hey, Jim how are you good.
So.
I apologize for the for everybody else on the call, but if you V..8 we're a nation it would be I think 16th and the Olympics and the metal accounts I just thought I would.
You know who's keeping track Goetzke thing right exactly exactly so.
Just wanted to follow up on the.
Your investments in your you've taken a differentiated approach you're not buying another company you are investing in your own portfolio.
The video you guys put together on the Meronek I thought it was quite a quite a sharp.
But.
A lot of questions have sort of touched upon this but but it'd be great. If you guys.
A lot of data because you've spent close to 1 billion already in your 5 year history on on on assets in your portfolio during that period, if you could give us an.
An example, or a more granular data in terms of the the increase that you've seen on that capital invested in your small shop occupancy in those centers also what has happened to your same store NOI in those centers that you have touched relative to your own portfolio, how how they perform presumably.
But they've done better and also in your view what has happened to cap rates and how much of a cap rate compression.
Do you think you've been able to achieve and you can presumably site some of the assets that you've sold relative to where you carried the match before as well.
If you could sort of I think it would be really useful for for investors to get it to.
To get a better sense of that simply too too because you've got another 1 billion in the pipeline as you rightly point out.
Obviously past performance might not be a predictor of the future, but certainly would it would help.
You know, Florida, So I think it's a great point and we need to continue to shed light on all the value that's being created at the assets I would tell you. It's reflected in our bottom line results and the reinvestment activity that we've been generating as a significant contributor to our sector, leading same store performance both going into.
The pandemic and then chocolate check it out stock what the impact was in the pandemic and then just see how we're positioned coming out we really stand apart and that has been driven in large measure by our disciplined use of capital.
We're driving occupancy gains in the assets that we focus as we've alluded to in the past and we can continue to provide this data of several hundred basis points, we're driving record rents right and you can see that in our rents each and every quarter.
And that is a direct consequence of the reinvestments in the better operations that we're bringing to these centers.
And then also as we've talked about on prior calls it's not just the high single low double digit incremental returns that we're driving and we give you all the projects in the supplement it is as you highlighted the impact on cap rates for the assets that have been impacted and oftentimes that can be a hub.
<unk> 200, plus basis point compression in cap rate so.
I appreciate the thoughts and we will continue to focus on ways to better highlight what's happening in an admittedly what is a pretty granular execution. We can point to a single massive project and say look at all of this value, we're creating we're creating it across a couple of hundred everything from in <unk>.
Parcel to a complete redevelopment of a shopping center.
So.
Really appreciate the thoughts and we are trying to show you along the way every quarter, what we're delivering the yields that we're getting and you know through the activity itself you can see how we're improving the centers.
Yeah.
Thanks.
Maybe.
No further question in terms of your view on on cap rates in the markets.
You know the the you know.
Obviously, there's been some some bigger transactions recently in the private markets as well and then.
What that means for your own portfolio.
Bart.
As far as cap rates I think the easiest way to look at it is that over the past I'd say quarter for months, we've probably seen a 50 basis 0.5 basis point compression in cap rates and I think that's really in across.
Across asset types in the open air sector. So when you look at I think our portfolio would be pretty similar impact over the life.
So for us.
Thanks, that's it for me.
<unk> for us.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back over to Stacy Slater for closing remarks.
Thanks, everyone for joining us today.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
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