Q2 2021 Retail Opportunity Investments Corp Earnings Call
[music].
Welcome to retail opportunity investments 2021 second quarter Conference call. All participants are currently in a listen only mode. Following the company's prepared comments the call will be opened up for questions.
Please note that certain matters discussed in this call today.
These forward looking statements within the meaning of federal Securities laws.
Although the company believes that the expectations reflected in such forward looking statements are based upon reasonable assumptions. The company can give no assurance that these expectations will be achieved.
Such forward.
And looking statements involve known and unknown risks uncertainties and other factors, which may cause actual results to differ materially from future results.
Expressed or implied by such forward looking statements and expectations.
Information regarding such risks and factors.
<unk> is described in the company's filings with the Securities and Exchange Commission, including its most recent annual report on form 10-K.
Participants are encouraged to refer to the company's filings with the SEC regarding such risks and factors and so for more information.
The company's financial and operational results. The company store links can be found on its website.
Now I would like to introduce Stuart <unk>, the company's Chief Executive Officer.
Thank you.
Good morning, everyone here with me today is Michael Haines, our chief.
And regarding still officer, and rich <unk>, our chief operating officer.
We are very pleased to report that we had a highly productive second quarter advancing each key aspects of our business we.
We leased over 338000 square feet of space, which is a new second quarter record.
Find Anthony.
We also achieved double digit rent growth on new leases signed during the quarter.
In terms of acquisitions. We are pleased to report that we are once again pursuing opportunities with.
We currently have lined up 2 terrific grocery anchored shopping centers 1 is located in northern California.
And yet the center is located at the entrance of and affluent Masterplan community that has an average household income of over $237000.
Shopping centers, the only grocery anchored centers, serving the community and features a very strong growing regional grocer akin to whole foods.
For the terms of market niche and is an excellent fit for the surrounding community.
The grocers and existing long time tenant of ours, So we know them well.
The second property that we have under contract is a well established shopping center located in southern California that is anchored by a national supermarket.
And as well as a national drugstore.
The 2 pending acquisitions together total about $61 million with a blended going in yield and the low 6% range and importantly, we are acquiring both properties debt free and without any tenant accounts receivable issues stemming from the pandemic.
And market going forward. There are number released and re merchandising opportunity such that we believe our team can increase the blended yield to potentially over 7%. During the next 12 to 24 months.
Along with pursuing acquisitions again, we were also making good progress with disposition.
Nations.
During the second quarter, we sold 1 property for $25.8 million. Additionally, we currently have our last 2 Sacramento properties lined up to sell and separate transactions that together will generate around 45 million sales proceeds and.
Once these 2 sales are completed and we will have fully exited the sacrum.
Our market.
Lastly in terms of enhancing our balance sheet. We recently raised approximately $46 million of common equity through our ATM program, where we are utilizing the proceeds together with proceeds from dispositions to pay down debt and to fund new acquisitions.
Now.
Now I'll turn the call over to Michael Haines, Our Chief Financial Officer to take you through the details Mike Thanks, Stuart with our leasing and investment activity, returning and strength our financial results are notably stepping up as well for the 3 months ended June 32021, GAAP net income attributable to common stockholders was $16.
$5 million or <unk> 14 per diluted share as compared to GAAP net income attributable to common stockholders of $4.6 million or 4 cents per diluted share for the 3 months ended June 32020.
Included in GAAP net income for the second quarter of 2021 was the $9.5 million gain on sale from our property disposition and April.
Funds from operations for the second quarter of 2021 was $31.7 million or 25 cents per diluted share as compared to $29.2 million and <unk> or <unk> 23 cents per diluted share for the second quarter of 2020.
Same center net operating income for the second quarter increased 9.6% as compared to a year ago and for the first 6 months of.
<unk> 2021 same center NOI increased by 1.5%.
As the second quarter progressed, our rent collection and steadily increased such that we ended the second quarter, having collected approximately 96% of our build base rent. Looking ahead. We are on track to fully return to our historical collection rate as we move through the third quarter.
In terms of bad debt.
Given that essentially all of our tenants have reopened and we now have much greater clarity and have reversed and number of prior bad debt reserves accordingly.
Such that for the second quarter bad debt on a net basis was actually a positive $103000.
Turning to our balance sheet as Stuart just touched on we recently utilized our ATM program raising approximately 40.
And $1 of equity specifically during the second quarter, we issued approximately 1.9 million shares of common stock and we also issued approximately 623000 shares early in the third quarter year to date between the ATM issuance and the property dispositions and April which was unencumbered we have raised approximately $72 million of equity proceeds.
And once we close the final 2 Sacramento property sales, which are both and unencumbered and we will have raised and totaled approximately $117 million of equity proceeds.
We utilized a portion of the proceeds to pay down and a $14 million that was outstanding and our credit line at the end of the first quarter with the pay down we currently have nothing outstanding and our $600 million unsecured credit.
Facility and $14 million pay down together with the debt pay down and 34 million and the first quarter brings our total debt reduction for the year to approximately $48 million looking.
Looking ahead at the second half of the year, we have no debt maturing and with the current cash and our balance sheet together with the pending dispositions and cash flow from operations, we expect our credit line balance will remain.
Minimal if not zero.
Taking into account, our capital raising and debt Paydown and initiatives the company's net debt to EBITDA ratio was lowered notably from 7.9 times a year ago at the height of the pandemic to now being below 7 specifically at 6.9 times for the second quarter.
In terms of <unk> guidance, taking into account our results for the second.
Together with our ongoing acquisition and disposition activity as well as the equity issuance. We now expect F. O for the full year 2021 to be between 98 and $1 tubes per deluded share alone or the range assumes that bad debt remains a bit elevated during the second half of the year, whereas the high end of the range assumes bad debt and the second half of the year is more.
And in line with our historical run rate. Furthermore, behind and the range assumes that we complete a total of $100 million of acquisitions and the second half of the year, including the $61 million currently under contract the funding of $100 million of acquisitions assumes that we utilize the equity proceeds that we have lined up to day. Additionally, our updated guidance assumes same center NOI increases between 2.
And 2 and 4% for the full year now I'll turn the call over to rich shovel, our COO and rich thanks, Mike with our tenant base fully open again and shopping activity back to pre pandemic levels demand for space accelerated sharply across our portfolio during the second quarter and continues to ramp up here and the third quarter.
While much of the demand is coming.
Coming from businesses that performed exceptionally well during the pandemic and are looking to capitalize on their success by expanding the demand is now also coming from many of the businesses that were largely shut down during the pandemic, who are now looking to relocate or expand into well located grocery anchored center.
And we're seeing this broad demand consistently and every.
Core markets from San Diego up to Seattle.
Capitalizing on the accelerating demand we achieved a new record for the company in terms of second quarter leasing activity.
Specifically, we signed 118 leases totaling 338000 square feet.
Breaking that down between new and renewed activity.
And we signed 59, new leases totaling 116000 square feet, all of which involve releasing in mind space to a broad range of local regional and national tenants.
Not only were we successful and bringing a number of new strong and diverse necessity and service based tenants to our portfolio. We also achieved a double digit increase.
1 of our <unk> and same space comparative cash base rent.
Specifically, we achieved a 15, 8% increase on average for the second quarter.
In terms of our renewal activity. We also had a busy and productive quarter renewing 59 leases and all totaling approximately 222000 square feet.
Kris renewal activity involve the mix of anchor and inline tenants with many of these tenants coming to us early to exercise their renewal options. Additionally.
Additionally for the second quarter renewal cash rents increased by 3.3%.
Our overall portfolio lease rate held firm during the second quarter at 96, 9%.
Or were there anchor space at 100% leased and our in line space at 93, 1% leased as of June 30.
With respect to the economic spread between leased and build space at the beginning of the second quarter the spread stood at 4.1% representing $9.6 million and additional incremental.
Your mental annual rent on a cash basis.
As we commented last quarter city officials have become more responsive and recent months expediting the permitting process for new tenants, which has helped to propel and getting new tenants open quicker.
Accordingly during the second quarter tenants, representing $1.9 million open their stores.
But paying rent, which is a notable increase as compared to our quarterly run rate over the past several years.
Taking the $1.9 million into account together with our record leasing activity during the second quarter, which totaled $2.8 million and new incremental rent.
As of June 30, the spread was up 4.5%.
Equating to $10.4 million of incremental cash rent.
Which once all the new tenants are open and will represent approximately 5% growth to our current total in place annual cash base rent.
Turning to our Densification initiatives, we continue to make good progress specifically.
At our Crossroads shopping center during the second quarter, we received final approval from the city and officially recorded the definitive agreed upon development plan.
The plan includes 220 apartments, as well as 15000 square feet of ground floor retail space with.
With the planned now recorded the construction, drawing and permitting phases getting up.
Yeah.
Importantly, notwithstanding the pandemic a growing number of companies led by Amazon continue to move forward with expanding their office holdings and workforce and Bellevue.
And the demand for housing continues to climb.
In terms of our Densification projects that are currently and the planning stages at 2 of our shopping centers and.
<unk> and Francisco market, we continued to make steady progress on both projects to.
And the local municipalities continue to be proactively engaged and highly interested and having our projects move forward expeditiously.
Similar to Bellevue demand for housing continues to accelerate which is driving city officials to seek out and support multi.
And assembly Densification projects like ours, now I will turn the call back over to Stuart Thanks Rich.
Building on our solid performance and the momentum created and the second quarter. Looking ahead. We are excited about the prospects of having a strong second half of 2021.
And as rich touched on demand for space is continuing to accelerate as more and more businesses are now moving forward again with expansion plans that essentially had been put on hold for the past year.
Additionally, with respect to businesses that had been restricted over the past year, most notably full service restaurants fitness.
And entertainment businesses, given that the customer activity has come back in force for these businesses since the west coast fully reopened last month. Many of these businesses are now looking to expand as well we think all of this bodes very well for our portfolio and leasing prospects going forward.
In terms of acquisitions. In addition to the 61 million that we currently have lined up we continue to seek out additional opportunities we.
We are finding that a growing number of private owners are becoming increasingly interested in selling after struggling through a long year of dealing with all of the rent collection and operational challenges.
By the pandemic, which in many cases has created significant cash flow and lender issues for smaller private owners.
To our advantage. These private owners are keenly interested in transacting with a seasoned operator that has the market presence knowledge and wherewithal to execute with certainty and.
And in a timely manner.
And while it's a bit early to know how this trend will play out ultimately we are optimistic and our ability to continue sourcing attractive acquisition opportunities and growing our portfolio.
Finally, reflecting back on this past year, having to confront quickly adapt and overcome.
<unk> challenges and the likes of which we had never experienced before through it all our portfolio performed consistently well, which we attribute to 3 important factors.
First and foremost b and our grocery anchored focus.
Second being our tenant base with our NAV.
Necessity and service based focus the vast majority of our tenants remained open and operating with many of them thriving during this past year.
Additionally, our longstanding core strategy of always maintaining a diverse tenant base and always being careful to limit our exposure to big box and discretionary goods retailers.
Proved instrumental during this past year.
And the third key factor is our team.
Over the past year under extraordinary circumstances, our team's unwavering commitment and dedication together with their ability to quickly adapt and collaborate on and new found ways truly kept our portfolio.
Folio operating seamlessly.
Going forward. These 3 distinctive factors will no doubt continue to be the fundamental driving force and our ability to consistently build value and the months ahead and years to come.
And now we'll open up the call for your questions.
Operator.
Okay.
Alright, so as a reminder to ask a question you will need to press star 1 on your telephone Stuart.
All your question press the pound key again that and star 1 on your telephone please stand by while we compile the Q&A roster.
And.
First question comes from the line of Michael Bilerman from Citi Your and all.
Our lives.
Good morning, and Keith Good morning, Hey, Good morning, Stuart and Hope you are doing well I just wanted to go a little bit deeper into sort of the acquisition pipeline and I was wondering if you can give just to give a little bit more color.
And sort of size of opportunity that you're tracking the 2 deals you announced today going and there are 6 and being able to drive that up to a 7 and in the next 12 to.
And I think you said 12 to 24 months and pretty attractive.
And so I'm just trying to get a sense of how many of those types of opportunities you think you can unlock.
And then within that you've always had a strategy for some of these private owners of being able to offer them units and and in many cases, you've offered those units at euro and a V which has typically been above where the market is trading. So can you just talk a little bit about the dynamics of those sellers willing to accept units.
And script today and also the size of your pipeline.
Sure and.
And thanks for asking the question Mike.
Starting now with size and.
Typically we are looking for centers that are pure grocery drug anchored.
And there's a third anchor we prefer that to be.
And low valued retailer either.
A T J maxx or Ross, but the primary focus is just drug and grocery as same inline and pads. So the approximate size and to be 100 to 125000 square feet and that's exactly what we have and Youre right.
And then.
Right I was thinking more so the size of the pipeline not necessarily that the assets that you are targeting I think you have a pretty darn mode of what of what you're after.
Yes, the pipeline.
Is very strong right now and it's building quite dramatically I think as you know, we've announced 61 million under contract.
<unk>.
While we have about another $50 million behind that.
And those are 1 off transactions in terms of portfolios. We're also focused back on that side of the business.
And we are aggressively pursuing a number of those with private owners.
Will those come to fruition and over.
And we past 12 months maybe.
And then in terms of O. P units, we continue to work that side of the business and a very big way as we always have and we do have a number of families that we continuing to deal with.
And what we really need right now as for our stock to settle in net where.
And so that these owners are comfortable taking doing these deals at or above where our stock has.
<unk> been trading so we're excited about what we see ahead of US we're excited to be back and the market.
And more importantly, we're excited to be buying assets, where we can.
Can build and we can build value over a pretty short period of time and to answer the last part of your question in terms of building that value. It's really done 3 ways. It's done through re merchandising the current tenant base.
It is done through lifting the efficiency or the operating margin at the property.
It's been given the profession and given the the organization and the professionalism that we bring as an organization and the last thing is really filling vacancy bringing.
Bringing the centers from 90% to 93% to 100% very quickly we're confident looking ahead with what.
And level of purchase that we can achieve those goals and those objectives.
And then just following up just on funding.
We have capital commitments on the Densification projects, but also some opportunities to sell off.
<unk> or part of the.
And excuse components.
And that could be a source of capital.
And equity, which you started tissue during the quarter and.
And then around consensus NAV and.
And then you can sell assets, which you also have done where are you in terms of now that you know this acquisition pipeline is building where are you and the process of being able to.
To pull the levers to fund it right. So what is your appetite to issue more common equity on the ATM, what's your appetite to bring more assets to market to sell where you've gotten some pretty attractive cap rates relative to what you are buying it and.
And what's your sort of desire to start to hopefully monetize some of the Densification to fund and not increase leverage.
Leverage from here.
Primary funding will be through dispositions and potentially looking at selling off some densification equity will be a really a function of the market in terms of where our stock is trading.
If our stock trades back over NAV.
And.
And then we'll look.
And more under the ATM or depending on the pipeline, we may even go out from the market.
But the primary funding will come through potentially joint venturing or selling off densification.
And continuing to sell off more assets assets that don't have much internal growth going forward.
Okay. Thanks for the color Stuart.
Thank you.
Next 1 on the Q is Juan Sanabria from BMO capital markets, you and our lives.
Hi, good morning, John.
Good morning.
Just wanted to follow up on Michael's question about the acquisition and the stuff you have lined up to 61 million.
And do that.
Q2, and expected, 6% going in yield could you just give a little bit more background as to it.
Why do you think that yield.
Pretty robust was there anything unusual with the circumstances either with a lender.
Provided that opportunity and and what are you.
And to do to get to that 7%.
Sure well I will articulate the answered the question in terms of sourcing the transaction and then I'll, let Richard jump in and talk about what we're doing in terms of the yield but.
And the circumstances were a bit unusual and that the owner of the.
And looking for the Northern California.
The state and moved to Florida and in doing that he certainly was under a lot of pressure in terms of the pandemic and felt the need given it was the only asset he owned and this part of the world that he would needed to get out quickly with <unk>.
Track the fastest.
At the beginning of the pandemic and the good news is we executed this deal before things got a lot better and Thats why we were able to get a much better pricing this asset probably before the pandemic would have gone.
In the 34% to $35 million range. So we're getting a very nice price and good discount.
Accounts.
The new asset and southern California.
It's something we're very familiar with actually its an asset that we owned at 1 time at.
And in all company named Pan Pacific.
So no 1 knows this asset I think better than Richard and I.
And the team here at the company.
And we're very excited to get and asset a pan Pacific asset back into the fold.
Rich do you want to comment in terms of the yields.
Sure I think both properties have a slightly different profile as Stuart just touched on.
I think the 1 that is.
More of a local.
Owner single asset type of property there has been a long history of ownership, where the owner has great relationships with the tenants, but probably hasnt pushed rents as much as they could have over the years.
And.
We will come in with a much more aggressive management style as it relates to.
Renewing.
And those leases and filling the vacancy out there and.
And then the property and southern California, and Stuart touched on again, we have intimate familiarity with the marketplace and and the specific property and we know through our leasing team and hands on management how.
And how we're going to be able to.
Net yield going forward.
Great and then just on.
On the actual results and guidance could you give us a sense of what any sort of.
Covid related 1 times may have been in terms of.
Prepayment and a previous period amounts due or.
Increased.
Or or.
Positives in terms of previous bad debt that was written off it does not being reversed.
And I think 1 Neil the 1 thing that did occur because as you know we didn't move in and when the cash basis. So it's purely a function of a bad debt.
Our associated to each quarter and and you know during.
During the second quarter based on a careful tenant by tenant analysis, we reversed approximately $1.5 million and previous bad debt reserves, but then we also booked about $1.4 million of new reserves based on new tenant by tenant analysis. So the net will resulted in about 103000, and so that was the 1 thing that.
Helped this quarter.
Net.
The results.
And is there anything else assumed in guidance for the remainder of the year future reserves or is it steady state from where you are at the end of the.
At June 30.
Well I think I mentioned in my prepared remarks about the high and the low end of the.
<unk>.
And if we get our bad debt reserve levels back to our historical norm, which is below 1% that's going to be towards the high and the range but.
There is still a little bit of uncertainty out there. So we're being cautious and the second half of the year, we could see some spillover to bad debt, we don't know yet.
Thank you.
Thanks Neil.
Next 1 on the line as Todd Thomas from Keybanc Capital markets, you are and our lives.
Hi, Todd Hey, Todd Hi.
And out there just first question just sticking with acquisitions, maybe asking about.
<unk> pipeline or your appetite a little bit differently here, you know as it's been a little while since the company has been active on the acquisition front you know there's been more discussion around asset sales and deleveraging in recent years, even leading up to the pandemic and I'm just wondering if you feel that the.
The company is at an inflection point of sorts where.
You know you.
Exit Sacramento later, this year, and and and whether we might start to sort of revisit or see investment volumes like Aro I see was accustomed to completing and prior years, you know sort of 2 to 300 million or more of acquisitions is that sort of what you're targeting and and looking out a bit.
Yes.
Okay.
And and and then the assets that you've lined up at these are the 6% initial yield you know again it seems like you know sort of higher yields and what we've been hearing.
For grocery anchored products and good locations.
What are the right cap rates to be thinking about for future investments.
Well, it's tough to predict obviously cap rates and where we're going to be buying obviously theres a lot that goes into buying an asset as it relates to the.
The NOI and more importantly, as you know talk our expertise over the years is really buying high quality assets in great markets and really driving those yields through our management style.
The current environment Theres not much product on the market in terms of high quality grocery.
Drug anchored assets the ones that have traded and has been in the sub 5 range.
But it's again, it's hard to predict right now where exactly those cap rates are going to roll some are going to be probably and the 5 area and the low fives to mid fives, some will maybe will be and the low sixes, but it's all about.
The characteristics of both the market and the asset as it relates to the yield that we're willing to pay going in and again. The key there is really driving that yield and thats. What this management team does so well.
Yeah.
Okay, and then and then with regard.
Regards to disposition. So you completed the San Diego asset sale earlier.
Earlier in the year and Youre looking to exit Sacramento is is that it in terms of asset sales and and culling the portfolio or do you do you see a little bit more work to do on that front.
No I mean, when I say no I mean, the answer is we will continue to look at those opportunities and potentially churn more capital and the disposition side. The key there is going to be internal growth as it relates to how much upside that the asset has left over the next several years.
And the good news is that the market out there.
It seems to be very active right now in terms of 10.31 buyers institutional capital that are willing to step in and pay pricing that we have not seen.
And the last several years and I think that's just a function of the marketplace and how tight the market is in terms of product.
Okay.
Alright Thats helpful. Thank you.
Thank you.
Next 1 on acute is Greg Smith from Bank of America, you were and our lives.
Thanks, and good morning correctly.
Good morning.
I'm wondering how long will demand continue to result, and.
And the elevated leasing volumes that youre experiencing how long can net run.
We think it returns to a more normalized level.
I mean, it's always hey, Craig it's Richard it's always hard to predict.
And what's coming but right now what we see and <unk>.
The leasing team is that this demand is going.
Is here for a while.
And that.
It's coming from as we talked on and the prepared remarks, a lot of people that want have saw how well the grocery anchored portfolio performed and are trying to and stake their claim and.
And that product type.
And then the other thing of course is supply the key here as well in terms of demand has been very the supply on the west coast and in fact virtually nothing has been built.
As it relates to the product type that we are that we buy so I think that's also driving demand because theres very.
Youll space available and the dominant high income areas.
Dense and high income areas on the West coast, So that's driving demand as well, but it's just nothing out there for tenants.
Go to and the last thing and that is the health of the tenant base I think the pandemic has really strengthened.
Very little from the tenants that have gone through the pandemic and I think that's also driving their balance sheets are in good shape and I think that's really driving also demand and a pretty big way Craig. So it's a combination of all of that that we believe we will continue to really drive demand and the next several years.
Okay.
And then I know.
You know you were just recently opened and California on June 15th.
Has that.
Has that already impacted demand or is that something that needs to lag.
As retailers see the greater activity and people.
And dining out and all and all the rest.
Well.
Well I think as we've talked on prior calls I think we're fortunate in terms of the market share we're at and most of the tenant base had already pivoted.
Being able to offer either curbside or dining outside or the rest so the demand.
Has been there leading up to the lifting of the restrictions and really.
<unk>.
And once those restrictions were lifted.
Was just sort of an overwhelming demand from the customers perspective.
Okay and then just.
How much do you think you might raise and the ATM and the second half of the year.
Well that.
It will depend on pricing more than anything else.
And we can't estimate right now what will raise through the ATM, but we'll going to.
To watch the market and continue to watch our stock price and if the opportunity arises we will raise.
More equity, but again, we're going to be.
And we're going to focus on.
And the stock price I think our guidance kind of indicate from Ohio, and if we do $100 million Thats already basically funded with asset sale proceeds and the ATM activity, we have already completed.
Okay. So fair enough. So I mean, what's the stock price. Okay. That's it from me up thank you.
Thanks, Craig and banks.
Next 1 on the line is Wes Golladay from Baird Your and all alive.
Good morning, good morning, and.
Good morning, everyone. That's a quick question on the commencement of the $10.4 million of ABR and it looks like you've got about 2 million. This quarter, how should we look about look at the second half of the year.
You know, it's it's always hard to predict because there's a lot of factors that go into that and we're obviously always adding to the number as well as commencing.
You know the as well so.
We think that.
It will probably stay in the our historic range.
And in terms of command.
Commencements, but as I say, you know, we're always putting more things into the bucket.
Yeah, no I get that okay. So also.
Also on the Sacramento asset disposition.
Did you guys give a cap rate on that.
Yeah.
No we didn't.
The.
And cap rate on the asset we sold the San Diego was and the low fives and the cap rate for the Sacramento assets are and the low 7 range.
And then I guess, maybe in the future dispositions it sounds like they may be more opportunistic where do you think you could transact at.
Probably more like the range that we got and San Diego because.
From Menno is just the weakest of all 5 markets that we're in or 7 markets that we're in so.
We all have nothing left there and as we turn to the primary markets in terms of sales.
Certainly going to get what you got here in San Diego.
Got it thanks, everyone.
Thank you.
Next 1 on the line and as Mike Mueller from Jpmorgan here and our lives.
Good morning, Michael P and good morning.
Just a quick 1 on acquisition disposition timing can you give us a rough sense as to when the.
The transaction.
And as you've talked about are expected to close.
We're expecting to close both transactions and August and were expecting to sell both assets and August as well so and the next 30 to 60 days that may take a touch longer because of our stockholders on the sales side.
But over the I would tell you at some.
Point and late August all of this should transact.
Got it all Q3.
That was it I appreciate it thanks sure.
Sure. Thanks, Michael.
Next 1 on the line is Chris Lucas from capital 1 Securities.
Our lives.
Good morning, Chris.
Good morning Stuart.
And maybe changing a little bit talk a little bit about the shop space demand can you maybe provide some color on sort of where youre seeing it relative to you know local shop.
Tenant demand versus the national chains, and then are there new or lines of business that maybe.
Good morning are not big parts of your portfolio pre pandemic that are gaining share as it relates to the share of ABR that youre leasing because of some.
Some of the changes that have occurred because of the pandemic.
Sure.
And in terms of you know the.
And the profile and it is coming from all sectors local.
Be worried at all and national.
I think probably the strongest demand is more from the regional and national operators a bit stronger than the local but.
Local guys are still out there looking for good opportunities for space.
In terms of the the uses it's still that same.
Local.
Broad category of uses that we were seeing heading into the pandemic.
Sales significant interest from restaurants for any second generation restaurant space, we're still a lot of demand.
And from boutique type of fitness and medical and.
And.
And veterinary and things like that so a lot of services.
But it is it's broad based and.
And.
I think our biggest challenges having space to lease to them, there's a lot of demand out there.
Okay. Thanks for that Richard and then I guess 1 of the more interesting.
And at least.
And pet issues that the landlords and tenants and municipalities are going to be facing as you know what do you do about the.
And.
Outdoor dining that's been sort of the permitting has been broadened or very loose and and <unk>.
Got restaurants that are on end caps that have been able to essentially expand their capacity beyond.
From me Theyre paying for and rent.
What are you guys seeing how do you think that plays out over the next.
Year or 2.
Well, it's certainly been a big asset to a lot of our operators and.
As you were touching on.
People have taken over sort of AD hoc type of space, but we are currently working with a lot.
And what restaurants, some to make that a more permanent and as part of that process getting more rent out of the out of the tenant.
And making these little less.
Little less construction barriers and a little bit more.
Tractive than than what you saw during the height of the pandemic.
And the municipality and going along with that.
And they are in fact, a number of the municipalities on the West coast have extended a year out now the ability to continue to use those that additional space for common area space.
I think it's going to be more permanent in nature.
Because.
Because I think what people realize and what cities realizes it attracts.
Our more tourist space and a more bigger customer base and and more importantly from an operator perspective, a lot more profitability because they get a lot more space.
And to deal with in terms of.
Volume and customers and and where we are at where it's sunny and most of the year.
Do enjoy having the outdoor space in terms of the environment.
Okay, great. Thank you Stuart and that's all I have today. Thank you.
Thanks, 1 on acuity.
And Michael Gorman from <unk> and our lives.
Good morning, Mike.
Good morning.
And I just wanted to follow up.
In terms of now as things are reopening.
And just saw come across that it looks like president button and Theres going to asked to extend the residential eviction.
And more time have you seen anything.
And your core markets, whether it's how the courts are behaving or from local governments about extending any of those eviction moratoriums.
The good news is that across the west coast most of those moratoriums have not been extended.
And so from that perspective that has helped accelerate collections.
And certainly has.
It certainly has put us in a very strong position in terms of resolving the last minor or small set of tenants that are still.
And in business doing well and has not paid us rent the only market on the west coast and it's still shut down as Los Angeles and they do.
Did extend their moratorium.
And a couple of other very small municipalities and northern California, but in general things have opened up now the bigger.
Or issue.
Mike is really the time as it relates to getting through the system because.
And the system was closed down for so long now that it's open there is a backlog of cases. So we certainly are getting <unk> processed as quick as we would like but thats changing quickly and more important.
Importantly, it's really getting the 10 to the table and getting this resolved very quickly at the end of the day, that's really the objective here is to <unk>.
Keep the tenant and business because they are good they're a good tenant and resolve the outstanding issues that go back to the.
The time, where the pandemic with that and its highest.
And the markets were closed down.
That's helpful and and.
And then.
The acquisition market I know, there's been a lot of discussion on this but.
I think 1 of your peers mentioned this morning that <unk>.
And fewer people are willing to sell vacancy just given the amount of bounce back we've seen and the markets and you mentioned how you.
You've got a much better deal on the Northern California asset can you just talk a minute about.
Not only the assets that youre seeing but how folks how buyers are underwriting them right now in terms of what kind of growth. They are willing to project, if there's vacancy and the and the asset what kind of timelines and theyre looking at for fulfilling and was up and basically just what kind of assumptions.
Functions are being baked into some of the acquisitions market right now.
Well I mean remember what we're buying is high quality grocery drug anchored assets. So from a vacancy perspective, you really aren't getting what you've seen and other segments of retail and so that's sort.
We're just starting in terms of answering your question, where there is some fractional vacancy due to the pandemic, but youre not seeing the higher vacancy that you would see and other segments of retail so that so so from a vacancy perspective, that's really when youre looking at buying today.
<unk>.
And there is additional vacancy, but it's just not that dramatic.
Rich do you want to comment on the growth side.
And I think just continuing on with the vacancy and when we're underwriting these properties and we're looking at in place rents and obviously, we're putting some value on that and our own our own minds about what we can do with the vacancy.
And see that is there.
We always wanted to be comfortable with what's in place the day, we close.
And.
As Stuart touched on these grocery anchored centers really don't have a significant amount of vacancy that we would have to put any value on.
And.
Okay great.
And just last 1 from me also on the acquisitions market.
You've been talking for a while now about a lot of the embedded value in the portfolio and in the markets.
About densification and and higher and best use, especially as some of the municipalities become more favorable to some of these developments has it gotten to the point where.
And then when you're out and the acquisitions market that youre starting to bump into more mixed use developers or people that are underwriting development potential.
When you are competing against them on assets, even if youre not necessarily underwriting about yourself.
Yes.
And then of course, the other thing as you there is a.
Ah well buyers out there that are looking at you know.
What I would call owned paths and the upside in terms of selling those off which we don't do I mean, the good news about our portfolio as we own most of the real estate.
So you are getting a slew of buyers that are looking at because of where.
A slow the triple net market is gone that theres, some nice embedded value and stripping out some of the outlying pads and our centers as it relates to pain.
Low cap rates, that's 1 way of.
Cushioning.
And the pain that type of pricing.
And that's really helpful. Thanks Stuart.
Yep.
We do have a follow up question from Wes Golladay from Baird Your and our lives.
Good morning again.
Good morning, and against or just a quick 1 for you on the crossroads residential development do you have a time when you would expect.
Air and ground and the do you know the size of the project at this moment.
The answer is yes, and yes.
Size of the project is 226 units 15000 square feet of retail and the breaking ground and of course subject to getting through the permitting process is probably going to be let's call. It first.
Quarter of 'twenty, 2 maybe the second quarter.
And that is conservative, but that's what we're expecting that project to break ground.
And maybe what about the cost and incremental yield on investments I know you had the land basis already for free but.
Cost is about $80 million unlevered yield is.
Net.
Even with the increase and construction cost is now trending about 6.5 to 7.
Great. Thanks, a lot.
Yes.
Next 1 on the line is Linda Tsai from Jefferies moving all lives.
Good morning, and Linda.
Good morning, I just had 1 question can you remind us what contractual rent increases look like and your portfolio and is this changing much in the leases you're signing today.
Yes, I mean, typically for shop tenants youre going to see around 3% annually and.
And anchor tenant it's probably more.
And you're probably getting 10% every 5 years from 2% annually.
That would be sort of the range and a blended basis, 2.5 to 3 and a half Linda.
Is this changing at all.
No.
And it really hasnt changed.
I think as we touched on last quarter there have been.
Good and renewals, where we've kept the rent flat from the expiring to the initial but we're still getting the increases going forward.
And we expect that to get better as we continue to move throughout the year and back to more of our historic getting a better lift out of the gate.
Great. Thank you.
Yes.
Okay.
And next along the lines and Tammy.
From Wells Fargo, your and our lives.
Good morning Tammy.
Hi, how are you. Good just wondering go ahead.
And you saw in the second quarter, some fall off and build occupancy.
And I know you still have some tenants that aren't paying range. So I guess I'm. Just wondering if you think there's additional fallout or and is there.
Net QQ kind of the bottom.
Ralph in terms of build occupancy.
And I think as Stuart touched on there is really a very small set of tenants that are.
Still.
Playing the moratorium game with us and and holding out on some ramp but those.
Those are very very few at this point and I think as you say, we see this getting better going forward.
And.
You know as these markets continue to open up and these tenants.
And I have to come to the table and and.
And resolve their open balances with us.
Okay, Great and then I'm, sorry, if I missed this but did you.
Discuss the breakdown and occupancy between small shop and anchor occupancy this quarter.
Sure Yes.
And our anchor space.
<unk> remained at 100% and.
Shop space was $93.1.
Great. Thank you and then.
Stuart You mentioned you know.
Potentially getting back to historical levels in terms of acquisitions at some point I guess is your plan as you think about doing that to pre fund those acquisitions with perfect.
From a capital.
Or do you intend to use the credit facility to fund that activity initially.
Our credit facility and cash on hand.
Okay, Great and then just maybe 1 last question on the leverage, but obviously took down and the quarter to 6.
9 times can you just remind us of what your like longer term objective is in terms of leverage and you know is.
Is there any intention to kind of continue to pay down some of that secured debt, which I know was limited that's coming due next year or maybe the term loan just to kind of get that down to and to a lower level.
Yeah.
Well the term loan.
Through August of next year, So that's kind of off the table and the near term.
2 property mortgages, 1 that we can pay off on March 1st and another 1 on April 1st and our plan is to take those out and pay them off.
And as far as the net debt to EBITDA very happy that it's below 7 and the goal is to have it.
Mid to low sixes.
Okay, great. Thank you so much.
Thank you.
There are no further questions at this time I will now turn the call over back to the presenters.
In closing I would like to thank all of you for joining us today as always we appreciate your interest and ROIC.
Oh I see if you have any additional questions. Please contact Mike Rich or me directly also you can find additional information and the Companys quarterly supplemental package, which is posted on our website as well as our 10-Q.
Thanks, again and have a great day everyone.
This concludes today's.
Today's conference call. Thank you for participating you may now disconnect.
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