Q2 2021 Kite Realty Group Trust Earnings Call
[music].
Good day, and thank you for standing by and welcome to the quarter..2 2021 Kite Realty Group Trust earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session.
You will need to press Star and then the number 1 on your telephone keypad. If you require any further assistance. Please press star zero and I would now like to hand, the conference over to your first speaker today, Mr. Bryan Mccarthy Senior Vice President of marketing and Communications. Sir. Please go ahead.
Thank you and good morning, everyone welcome to Kite Realty group second quarter earnings call. Some of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties actual results may differ materially from these statements for more information about the factors that can.
Adversely affect the Companys results, please see our SEC filings, including our most recent 10-K.
Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results on.
The call with me today from Kite Realty Group are chairman and Chief Executive Officer, John Kite, President and Chief Operating Officer, Tom Mcgowan Executive Vice President and Chief Financial Officer Heath Fear Senior Vice President and Chief Accounting Officer, Dave fuel and senior Vice.
<unk> capital markets and Investor Relations, Jason Colton.
I will now turn the call over to John.
Thanks, Brian and good morning, everybody. Thanks for joining us today.
I think I would say that.
The only thing and maybe more compelling than our quarterly results as the impending merger between kite Realty group and RPI.
Regarding that please note at this time, we're unable to provide any additional information beyond what we've disclosed publicly to date.
And what I can tell you.
Is that every day, we learn more about RPI.
Our conviction regarding the merits of this transaction grows exponentially.
We are very much looking forward to discussing the outlook.
Of the combination after we closed the merger and.
In the meantime, the primary goal on both sides is continued operational outperformance.
Yes.
With respect to our second quarter results, the continuing theme as retailer demand during.
During the quarter, we leased 637000 square feet, which is nearly double the amount of square footage as compared to the second quarter and 2019.
And an additional 211000 square feet sequentially.
Blended lease spreads were 14, 7% and 9.2% on a GAAP and cash basis, respectively. The outsized volume.
And as our total retail portfolio lease to approximate to occupied spread to 310 basis points.
And with current signed not open NOI of approximately $12 million.
Our anchor acceleration program is also progressing nicely.
We signed 3 anchor leases this quarter for a cumulative total of 7 anchor leases since the program's inception.
These 7 leases are expected to generate cash yields of over 36%.
The specific details of our executed and potential anchor leases are laid out on page 4 of our investor presentation on <unk>.
Only will we realize a healthy uptick and NOI based on these deals, but we're vastly improving the merchandising mix and creating value.
Back filling empty Stein Mart spaces with tenants such as Adidas, All day, and total wine will dramatically increase traffic and compress the cap rate of the underlying centers.
With respect to the remaining boxes demand remains extremely strong with several leases and negotiation and at the LOI stage.
And we look forward to providing more details on these deals on our next call.
We've also been experiencing healthy demand for our small shop space across a variety of categories such.
Such as beauty and cosmetics health care service tenants and the return on fast casual and full service restaurants.
The strong box and a small shop demand resulted in a portfolio retail leased rate of 91, 5%.
This 100 basis point increase from last quarter is indicative of the continuing recovery and our financials.
On page 3 of our Investor presentation. Our total 21, 2021 revenues will be only 2% lower than the annualized first quarter of 2020.
Many of you ask when will we fully recover to pre pandemic levels. While we still don't know the exact date, we do know that we are quickly gaining ground.
While the last 18 months have been tumultuous to say the least.
Through it all we remain focused and work to operate from and offensive posture.
Today, we find ourselves driving towards the completion of a transformative merger.
The opportunity currently in front of US was only made possible by virtue of the successful execution of a series of initiatives.
Prior to the end of 2019.
And this put <unk> and 1 of the strongest financial positions and our sector, which allowed us to intensely focus on operations during COVID-19, which resulted and sector leading collection rates.
I think its worth taking a look back at the hard work over the past several years that put us into this position of strength.
During project focus we share our lower growth and most vulnerable assets, resulting in a portfolio of high quality properties with long term durable cash flows.
We exited some low growth markets to focus on markets that are benefiting from favorable demographic trends.
We reduced our leverage and cleared out our near term maturities our net debt to EBITDA. Currently sits at 6.4 times. Despite the fact that our lease rate dropped by over 500 basis points and 2020.
We dialed down our development pipeline and structured our non retail projects to minimize risk and capital outlay.
We started and this business as developers across all property types.
And if there's 1 thing we learned is the.
These developments should never be a financial mandate, but rather a risk adjusted decision around the highest and best use of the property.
We also learn and like most things in life when it comes to development timing is everything.
Finally, we assembled the best team and the industry a team that embodies our intentional and results driven culture.
The team that is poised to get even stronger once we joined forces with RPI.
Nothing ever happens great without great people.
With all of this and mine. The next bold move we're taking doesn't represent a new direction for <unk>, but rather the next step down a path that we are firmly committed to.
Before I turn it over to Heath.
I want to again, thank the <unk> and <unk> teams.
And and intense few months and it's going to remain that way through the end of the year.
And the utmost confidence that the team will remain focused maintain operational excellence and emerge as a unified best in class platform now.
And now I'd like to call turn the call to Heath.
Good morning, everyone.
John I couldnt be more thrilled about the impending merger.
Having spent 2 years at RPI and uniquely positioned to understand the quality of the combined portfolios the cultural similarities and the potential on the platform.
Turning to our first quarter results, we generated 34 of NAREIT <unk> and we also generated 34 of <unk> as adjusted.
As a reminder, we our guidance of 2021 <unk> on an as adjusted basis.
<unk> the noise associated with the 2020 receivables and 2020 bad debt.
As set forth on page 19 of our supplemental the net 2020 collection impact and the second quarter was minimal with the collection of $1.6 million of prior bad debt offset by $500000 of accounts receivable and we know deem on collectible.
We continue to refrain from giving same property NOI guidance for 2021 provided that we are committed to reporting the same.
Our same property NOI growth for the second quarter is 10, 1%, primarily driven by a reduction in bad debt as compared to the prior year period. This.
And this includes the benefit of approximately $500000 or previously written off bad debt that we collected and the first quarter ex.
Excluding those amounts are same store NOI growth would be 8.9%.
That 120 basis point difference is just noise from 2020 and is precisely why we didn't provide guidance on this metric.
It's also important to note that when comparing same store results across the peer group for 2021 keep in mind that <unk> consistently achieve the highest levels of rent collections in 2020.
With respect to outstanding accounts receivable items as of last Friday, the balance on our outstanding deferred rent stands at $2.1 million as compared to $6.1 million as of December 31, 2024.
Furthermore, less and $5 million of deferred rent payments are currently delinquent of which 70% is already reserved.
The current outstanding balance on our small business loan program is $1.2 million as compared to $2.2 million at inception, and not a single borrower under the program as delinquent.
Our balance sheet and liquidity profile not only remains solid but continue to improve our net debt to EBITDA was 6.4 times down from 6.6 times last quarter pro forma for the $12 million of signed but not open NOI or net debt to EBITDA is 6 times.
Excluding future lease up costs, we have only $17 million of outstanding capital commitments and have roughly $620 million of liquidity. We are extremely pleased with our flexibility and our balance sheet.
We are raising our 2000 and 'twenty 1 guidance of <unk> as adjusted to be between $1.29, and $1.35 per share and increase of <unk> at the midpoint our guidance assumes full year 2021 bad debt of approximately $6.4 million.
Of which $2.6 million has been realized as of June 32021.
This guidance assumes no additional transactional activity, including the previously announced merger.
We are looking forward to closing the merger with RPI and I'm excited to provide 2022 guidance for the combined company.
Thank you to everyone for joining the call today again as John mentioned earlier, we are unable to answer any questions on the pending merger. So please focus your attention on our operating results.
Operator. This concludes our prepared remarks, please open the line for questions.
Thank you as a reminder to ask a question you will need to press star 1 on your telephone keypad again, just press Star and then the number 1 on your telephone keypad and digging move your question from the queue just suppressed accounts. Please standby, while we compile the Q&A roster.
Our first question comes from the line of Louise Brian Dicom from Compass point, Sir Your line is open.
Good morning, guys. Thanks for taking on any questions.
Good morning, and Florida.
Heath.
So it looks like it's a pretty good quarter.
Just.
Maybe if you can just comment on I think on page 5 you put in the the.
Potential NOI growth from this portfolio, which is as a percentage of your existing NOI is pretty high.
14%, how do you see that falling over the next couple of years and and how confident are you debt.
That's going to occur.
I mean, sorry.
Can you say, how do I see it and following also.
And over.
Over and over what time period do you see Diamond ring I should say sorry.
That's clear and the question and.
How certain is it because part of that is obviously.
And is dependent on lease up and demand and what are you seeing in terms of tenant demand.
Sure I mean, it's really all dependent on lease up right. So I think we're very let's put it this way after the quarter that we just had and leasing.
<unk>.
And we feel very good about achieving.
Somewhere on that chart.
We said that the potential is 14% we kind of gave you.
Little view to the right of that and that Investor presentation page of what it looks like in terms of 510 and 15%.
So across the board that looks very good as it relates to value for the company, but when you lease 600, plus thousand square feet and a quarter, which is.
A significant chunk of our of our total square footage and 1 quarter I think we feel pretty good about that Florida and when you look at the demand across the spectrum that I kind of mentioned in the prepared remarks.
On the demand is why and I mean, it's not just in 1 segment of the market.
And remember this is against the backdrop of no supply no new supply really so I think we feel very confident that we will continue to lease as we are.
It's not only leasing space look at the spreads that we generated and on those leases.
No.
I'd have to say it was better than a pretty good quarter I'd say it was a great quarter in that regard closer I'll add and look at that 14% and you look at the components of it you already have 6%, which is signed not open up $12 million of NOI half Thats coming online. This year and then with the strength of the anchor lease up which is another 5%.
Told you that we have 27 and boxes 7 of them were done and also on our materials were telling you that we have 5 are in lease negotiations on 5 and.
And LOI. So we've already have a beat on 17 of about 27 and so we think this is a this isn't really a fairly quick exercise.
It's not going to be overnight, but.
John said the demand remains strong.
Great, Thanks, and maybe another and.
Another question I guess follow up on on.
Cap rates that youre, seeing and the private market and.
And on what that and.
And where you think your own Capex, you've put that obviously and this and that same slide on page 4 as well, but where you think cap rates for <unk> should be at doing and what is the market and missing.
Well I mean to the second question I would say that the cap rates, we put on that page 5 of the investor presentation, We think args and that spread somewhere.
As it relates to and Thats based on what we're seeing and the private market I mean, thats not just a swag and that's what's occurring in the private market I think youre familiar with.
There is a pretty sizable portfolio that is going to trade soon.
And the low 5 cap rate, we looked at the portfolio.
Good portfolio and is being bought by 1 of the private equity sponsors to my knowledge.
And let's get a trade and the low fives and its a good portfolio, but I wouldn't say that it's 1 of the best I've seen.
And I think it's really hard to get product.
And it's again why we're so excited about our pending merger as debt.
What we are going to do together.
And how we're going to do it you just can't replicate that and when you find these quality portfolios and they get on the market you have 15 legitimate bidders all cash hard money.
I mean, it's it's very very aggressive.
And when people go after property like this so I think that it is what it is it's maintained that kind of 5 to 6 range that we've talked about.
I just.
And I don't see that changing Floris I think right now there's just.
And not enough product and you look at the you look at yields and the market that you can get another places you look at the durability of these cash flows.
And you look at the upside right that occurs when you are buying something right now because theres, usually a little bit of vacancy so on.
And Thats, a long winded answer floors, but the cap rates, certainly where I think we would we should be represented would be on that page 5 somewhere in that range of cap rates that we displayed debt.
5.5 to 6.5.
And and.
And on the lower end of that and not the higher end.
Thanks, John and I appreciate it.
Thank you.
Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Piper Sandler Sir Your line is open.
Oh, Hey, good morning, and thank you.
So John as you guys think about RPI and.
And then also the getting back into regular normal course acquisitions or ramping up the redevelopment program or undertaking new external investments how do you how do you think about.
Sort of the balancing of the management time needed to integrate RPI versus getting back out and doing the normal course investments.
And especially as as you just indicated the florists like.
The investment market is certainly heating up.
Yeah.
Quick question on Alex I think it's.
And at time allocation is like capital allocation, we're looking for the highest return we can get.
Whether thats investing our time on investing our capital and right now with.
Without going beyond what I'm allowed to go beyond we obviously believe that the highest return on our time and capital to be integrating the.
And the companies after we merge and of course, we're actively working on that right now so.
It is a great question because time is money and we're very focused on that.
We've always believed that were pretty smart capital allocators, and I think that will come to bear here.
And Theres a lot of opportunity there for that so and then the great thing is when you look at the lease up platform and.
And the lease up opportunities that we have in front of us and they have in front of them and we have in front of we.
I think it's awesome. So there is just really really good opportunity there.
And also mentioned that and none of us are and the release of our day jobs.
And the transition activities are happening we're still out there looking were still underwriting things we're still looking.
Maintains ourselves and defensively so John.
Because it's not mutually exclusive we are.
And the transition activities are above and beyond what we're doing every day basis.
But heath.
If I understood what John said it sounds like the focus of the company post closing is going to be the integration and dealing with the combined portfolio Thats, where the bulk of the time will be spent.
Less so on the <unk> on new external stuff Thats and.
And I took weighted.
I think the message and Alex is that we're very focused but we're not 1 dimensional so we're very capable of being able to get something like this done and integrated and be efficient. We've done something similar we were very efficient. We were very ahead of the game you don't wait until you close and then figure it out.
When you close Youre running youre running youre on the sprint.
Youre not just waiting around to figure out where the courses. So I think I think we're very capable of doing that and executing and being aware of what's going on and being aware of the market opportunities.
Which is what.
That's why we have a great balance sheet and you continue to protect that great balance sheet to give your optionality and I think that's what I was trying to say with the prepared remarks is that.
This balance sheet that we have and that we've worked hard to get only gets better by the way and then we have lots of optionality with a cheaper cost of capital.
Okay, and that's helpful and by the way John and I didn't know that you did anything other than run I never knew you to set our walk I always thought of you.
Thanks.
I appreciate that.
No problem.
So second question is sort of the Covid question forgive, but you guys, obviously are having sunbelt heavy Florida.
Recently from what you've heard from your tenants or property managers or or maybe your own site visits is there anything and the shopper dynamics, whether it's at the stores restaurants et cetera.
<unk>.
Indicate to you that people are starting to go back to the Covid meant.
Our mentality the courting the <unk>.
<unk> trips to centers or is everyone. All the shopping patterns restaurant patterns and everything is normal like people normal shopping trips lingering.
And all the all the early bird specials, and Florida, Lakeport specials, whatever all those normal people are doing normal stuff I'm, just trying to figure out if the right.
Covid Delta and whatever is having an impact or it's really not.
No I mean at this point and the answer is no at this point. We are we are business as usual we have traveled the country extensively and the last 2 months.
And are doing it again this week, so where we are where we're traveling where we're going we're seeing significant demand.
Being busy stores busy restaurants.
Obviously each individual.
Situation and people are going to adhere by what they have to adhere by.
And I am not tremendously worried about that at all I have personal opinions.
And are informed by a lot of research and data that would lead me to believe that this is going to we're going to talk about this a lot for the next several weeks and then we're not and I think theres a lot of data that would point to that in fact, you mentioned, Florida and some other markets and the south who are already seeing numbers.
Come down.
Off of the.
And what you mentioned the Delta area, which is really what is predominantly going around and is predominantly going around on amongst unvaccinated people.
Predominantly so it is what it is Alex it's out there the media loves it they'll lean into it and we will lean into operations and.
I think we will win.
Thank you.
Thank you.
Thank you. Our next question comes from the line of Chris Lucas from capital 1 Securities. Sir Your line is open.
Hey, Good morning, guys, just a couple of quick ones for me.
Just on the pending anchor lease deals I guess, just trying to think through whats the timing commencement for rent would be for those so these 'twenty 3 'twenty 4 type openings are they something that could hit and 22, assuming it gets on.
Yes, so so Chris and <unk>.
And therefore, we'd be at Eddy Street Commons will be opening up.
Trader Joe's.
And we have we have a nice sequence of deal flow, we signed in 'twenty, 1, but 2 and the first quarter 'twenty, 1 and the 3 and the second quarter and.
Youll see quite a bit of progress and the third quarter as we take on boxes, but and it's a pretty consistent run as you get through the quarters, but we'll see obviously the majority of this occurring in 2022, but when you're referring to specifically the pending ones, Chris I mean it.
Really those deals havent been signed yet right. So the pending deals.
And we'll see when we get them signed and.
If they get signed in Q3, then you obviously have a potential opportunity for late 'twenty..2 if you don't it's 23, so in terms of when they opened and pay rent that's the beauty of having the significant pipeline that we have is that the cadence over 22, and 'twenty 3 will be consistent over each quarter and it will.
Grow and.
And it's why I mentioned number and prepared remarks.
And our annualized revenue is only down 2% right and <unk>.
And where it was pre Covid and you see this pipeline that we have that tells you Wow. There is a pretty good runway to proceed and 19, let alone be there. So I think I think we're in really good shape and I think the cadence is great and the team is executing.
This is 1 of the beauties of having a platform that we have that's been there before we've executed on a major initiative like this before and.
And we're executing now and differences are yields are higher.
And when you look at our return on capital and that's the difference that's way higher.
And so I'm pretty psyched about what that means what that means is more free cash flow, Chris and as you know thats, what we care about and then Chris 1 other thing and.
As you look at the tenants that were replacing people like Stein Mart office depot et cetera, or bringing on incredibly different quality of tenant that is kind of derive massive amounts of additional sales to our centers, so or hidden or hit and a lot of key components as part of this pro.
Graham.
Hey, Tom Let me follow up with you then on the.
On the anchor deals that you have signed and even and the conversations you are having on <unk>.
Other deals.
The tenant flexible on the space and they stick to a format box.
And they want to keep it and then I guess the other question along those same lines related to the flexibility as it relates to opening has that.
And it all is there or are they still very focused on some narrow windows throughout the course of the year.
Well first of all first of all I would I would talk about the fact that in terms of delivery, but without question.
To maintain their sequence Theres no question that they like to have stores open in late fall and if you don't have that day and move over but we're doing a lot of things upfront by spending and capital getting design moving working with their construction folks to make sure we're meeting those timeframes.
Without question. So that part has been that's been working well and we've got a lot of great relationships without question.
And then in terms of handling handling these deals from start to finish I think that has continued to go well.
The negotiations haven't been tremendously different from what they were on the last several years. So we have this positive momentum we have people that want to get stores open and we are going to be and a good source of debt situation moving forward and on the third quarter as well so Chris in terms of your question regarding flexibility John Yes.
Definitely our more flexible now.
And again Thats, a supply demand issue right, you've got lower amounts of supply and you've got and <unk> got strong demand the retailers learned a lot through COVID-19. They adapted their business is tremendously through COVID-19. So today when we're looking at a site plan and.
We think we have lots more flexibility than we used to relative to a particular retailers.
And general footprint and in fact, we've got multiple examples right now of deals. We're working that are outside of the traditional footprint. So I think they're much more flexible they are much more creative and more flexible as landlords I mean, we're more flexible on what we're willing to do so.
So it is a great marriage of that and Thats just because we are both benefiting from this increased consumer demand.
Okay. Thank you and then my last question is going to be just on the shop space demand.
Is that mostly coming from national and regional tenants or is there some local tenant activity as well or has that been sort of splunk.
And then okay.
I think thats, what we what I was trying to say my and the prepared remarks, Chris it's extremely broad base.
When you look at the deals we did and this quarter, we basically did for.
For example on on even and just looking at renewals and you look at the type of retailers that are renewing its across the board guidance.
<unk> like pure Barre, and the joint and Sally beauty and towards these tacos and Orange theory, and then new deals, we're doing new deals with noodles and.
No.
The joint is doing new deals restaurants are doing new deals. So I think the small shop space is probably more broad based and it's ever been and I think theres been a lot of business formation.
Coming out of Covid, and I remember, we talked about restaurants, and Covid and the.
And the failure rate and then it was just amazing how quickly new restaurant concepts came up and chefs, who are and and 1 restaurant move to another created their own the franchise business is strong and look the reality is the consumer is strong and debt.
Debt levels and at the consumer level are very reasonable frankly.
And Theres a lot of money moving and the system, So and again low supply great real estate great locations. It's another reason why we love the upcoming deal we both have both of those.
Yes.
Diversity is unbelievable compared to where we were 5 years ago All day.
Medical services Pest services educational and it just goes on and on which is a great benefit to us and I think Chris.
<unk>.
I think there is a point worth talking about for a little bit because it is the open air platform in a nutshell is that playability that flexibility that we have in these and.
And these retail distribution points that aren't massive debt, we can control and redirect.
And the average square footage of these things is less and 200000 square feet. It is not hard for us to adapt and move them around and they also all generally have more parking than they really need so we have that upside as well.
We're now tapping into and net communities are beginning to realize.
And it doesn't make sense these old parking ratios don't really makes sense.
So look I think this open air business and this platform has got so much room to run.
And we're really in the beginning of a new era of.
Retailers.
Expanding into our types of properties because of this last mile point that we have that is just unmatchable on online retailer can never match that and that's the that's what we're super excited about.
Great. Thank you for.
And answering my questions. This morning.
Thank you.
Thank you once again as a reminder to ask your question just press Star and then the number 1 on your telephone keypad again, just press Star and then the number 1 on your telephone keypad. Our next question comes from the line of Craig Schmidt from Bank of America. Sir Your line is open.
Thank you.
I guess keeping on.
Small shop and anchors.
It looks like the anchors sequentially increased 120 bps and the small shops increased 40 bps.
Is it a matter of.
Meeting the anchors to be in place to drive the small shops.
Sure.
On the hesitancy from the small shops that they are not growing at the same pace.
Yeah.
And now it's great great question and.
And I think look I think generally in these situations, especially coming out of Covid national retailers move quickly right small shop retailers are entrepreneurial they've got they've got to put it together I don't think it's unusual for the anchors to lead and and it is true and generally speaking anchor.
For us draw.
Small shop players are drawn by the anchor composition, So I think it bodes well for the future of the small shop program.
And we want that to increase we want that 30 basis points to come up also.
We had a very specific hit and the big box side with the Stein Mart.
Dislocation and that enabled us to kind of market that in 1 way right like we had people literally coming Craig saying show US every Stein Mart box.
While they were still going through bankruptcy right.
So I think we just got a quick quick I'd start there, but I don't think its indicative of anything that we would worry about moving forward and I think the best thing and we Didnt mentioned this since we're talking about small shops. When you look at we always talk about how do you Judge health Craig.
The small shops.
And we did 2 small shop non option renewals, we've talked about that a lot and the past when a small shop tenant lease expires and they have no options I mean, we got and 11% cash spread on that that gives you an indication of real health and the small shop space.
Great and then I guess.
Looking at the elevated leasing volume or you expected that to continue into the third and fourth quarter or maybe it would be to sort of pre pandemic levels from leasing.
And I don't think we are.
Look I think we're and this unique situation, where theres a lot of pent up demand. We certainly think were elevated and we will continue to lease a lot of square footage can't predict exactly how much as we mentioned on the call. We have several leases and negotiation that happened to be anchors and that's a lot of square footage. So I think over the next couple of quarters you have.
You have likely to have some pretty strong square footage numbers, but honestly, Craig we never really get very fascinated with a quarterly number and anything we just it's a quarter. It is not representative of the.
And the next couple of years or whatever it's a quarter. So we'll continue to pound away.
On the leasing team and.
And frankly, the whole company is focused on this outcome of leasing and Thats as you know that's the way we are we drive to that we drive to that goal, we will hit those goals and.
And we want to outperform them, but the demand is just so broad based.
And I can't say enough about our platform and the quality of the real estate and the demand that's out there and the retail universe.
Theyre, making money and they make money at our shopping centers, it's kind of that basic.
Okay. Thank you.
Q.
Thank you. Our next question comes from the line of Todd Thomas from Keybanc Capital markets. Sir Your line is open.
Yes, hi, and.
Good morning, John you touched on development in your prepared remarks, I mentioned that development decisions are considered carefully and the timings everything.
You have a few projects and process today, how are you thinking about development over the next couple of years.
It seems like lease economics have improved.
And I'm just curious.
And if there's an appetite to take on some additional development exposure as you think about allocating capital.
I think look for our current balance sheet.
<unk> sized.
And we're being appropriate in terms of our.
Risk based math that we go through time and we have.
As you know we have we have a couple of projects and the pipeline.
And that are that are more mixed use and nature.
We're very feeling very good about those I think as we get through we're going to focus on executing on those.
I think our main.
And the main reason to discuss that as going forward.
And when the company has a bigger balance sheet.
You can look at that and a different light because youre not going further out on the risk spectrum I think the timing is good and certain <unk>.
Pieces of real estate to take advantage of that so that's an exciting future opportunity, but as we sit today just <unk> balance sheet.
We're going about it appropriately.
Okay, and then just a question for Heath on the balance sheet. It looks like you moved some some cash and the short term instruments can you just speak to that.
What sort of yield youre generating and I guess, how long you might look to keep that cash invested.
Sure.
Proceeds from the exchangeable notes and we did Todd and Thats and Theyre, probably to the end of the year and we're getting 50 basis points on that so rather than have it sit there and get nothing we decided to put it in a short term instrument and then.
And the debt in 2022, it comes off and a par will start tapping that money to pay off our secured debt and 2022.
Okay got it.
And that's all thank you Greg.
Thank you.
Thank you. Our next question comes from the line of Wes Golladay from Baird. Sir Your line is open.
Hey, good morning, everyone I wanted to go back to a more of a bigger picture question here I guess.
And just where do you think we can get back to the early 2 thousands pricing power based on the supply and demand and balance sheet.
And that we're seeing I guess going forward.
I don't know I mean, if you look back to that timeframe.
And there was obviously great great demand and the difference then was that people were leaning into new construction and a big way. So over the next few years you take 2000 to 2004.
And there was a tremendous amount of stuff built and I think over time that diluted the pricing power I think this out on a longer maybe a more gradual gestation period and that west and that.
This pricing power is a little different I mean, this is a supply demand equilibrium, that's and really good shape demand is strong supply is low and I think we continue to think that.
We continue to drive these leasing spreads.
And that's obviously indicative of good pricing power.
And it's kind of a stay tuned right depending on what happens over in the economy in general, but the best thing that I can say regarding that is.
Supply is going to remain very moderate it's going to be muted.
People will theres not a lot of people looking to build ground up it's a very complicated process.
Why I said development and something that it's great to have the opportunity to do it in a measured way.
Because you're not competing with a lot of people is just not a lot of competition there and that continue that allows us to continue to get those spreads. So look we're excited about what we see in front of US. We've never had this much opportunity in terms of lease up in front of us.
And I think this quarter kind of exemplifies what this team can do.
Yes, I think I mean, it appears to me that we have a potential set up for 2.5% plus from rent growth and supply and does take a while to come on and I guess, if you had to give me your best estimate how long it would take to entitle or project and then get it built would you say that is today.
Cheese, I mean, depending on where you are doing and what part of the country, if youre going out and buying and <unk> zone piece of raw land.
And its minimum 2 to 3 years minimum and then certain parts of the country. It's 7 years 8 years 10 years. It really depends it's that's the thing is it's not a light switch even if you buy a piece of ground that is in that zone. The entitlement process is a very slow process, let alone the zoning prop.
So I don't know and then then you jump and construction delivery and you run into all the issues of unforeseen conditions.
No as well as anyone and it takes.
And in today's world, the environmental processes tougher no matter, where you are.
So it's tough it's hard to do which is great I'm glad it's hard to do.
Yes.
Right I mean, there's just a lot of people got out of this business Westlake.
And we were doing this years and years ago, everybody every every doctor and Dennis was developing a strip center thats over and so it's only people like us that have deep deep capital deep relationships and deep knowledge that can do ground up development.
And then our current situation.
Talk to hedge the rural states from from some of the biggest national players.
And it gets tougher for them to find locations new supply is not coming the number of bankruptcies have slowed and so it's getting tight.
All works and RFA.
Rent growth.
And then I guess as a bigger company would you plan on having a small allocation to land banking.
Well I mean, yes, I mean, we're not looking to go out and buy raw land. So that's just.
And kind of setting for that that I can't say on the phone right now and it gets you to that 1.1 on 1 and I will give you that 1 it's a good on it but I will tell you that look we're well, we're well positioned to do whats on our balance sheet.
When I look forward to the combined company. After the merger, we are well positioned to handle that.
And it's just good incremental upside that's all that is.
Got you and last 1 just on the anchor lease and you are about a quarter of the way through the anchor acceleration and the capital per square foot is 40 Bucks there may be some outliers and there im not sure, but I guess, where is the media and 1 pennsylvania versus the $100 that you're projecting.
I mean, we continue to feel pretty good that the.
Projection that we made was pretty conservative.
And I think when the project is.
Over and done it won't be it won't be anywhere near 100, and my mind, but.
It's too early to say things can move around we could end up with some splits but as we as we pointed out when we laid out that $100 a foot that was just us being conservative.
And it was and the light and a lot of moving parts as it related to increasing cost out on the supply chain, which has moderated significantly.
Overall construction cost have held pretty firm, even though certain commodities have increased substantially others have dropped.
Margins actually have tightened.
And so I feel very good about just saying that 100 is very conservative.
Got it thanks, a lot guys.
Thank you.
Thank you again as a reminder to ask a question for as far and then the number 1 on your telephone keypad again, just press Star and then the number 1 on your telephone.
There are no questions on the queue I will now turn the call.
And over back to Mr. John Kite, Sir Please go ahead.
Okay, Great and just wanted to thank everybody for joining us have a great day enjoy the limited amount of summary, you have left thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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John.
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