Q2 2021 Urban Edge Properties Earnings Call
[music].
Greetings, ladies and gentlemen, and welcome to the urban edge properties second 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.
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As a reminder of this conference is being recorded it is now my pleasure to introduce your host Ms. Jennifer Holmes Chief Accounting officer. Thank you Ma'am. Please go ahead.
Good morning, and welcome to urban edge properties second quarter earnings Conference call. Joining me today are Jeff Olson, Chairman and Chief Executive Officer, Mark Langer, Chief Financial Officer, Chris Wall and Mr. Chief Operating Officer, Danielle Davita E V. P of development Herb of Isle Burke, Chief Investment Officer.
And <unk> and Rob Milton and General Counsel. Please note today's discussion may contain forward looking statements about the company's views of future events and financial performance, which are subject to numerous assumptions risks and uncertainties and which the company does not undertake to update our actual future results financial condition and business.
This may differ materially.
Please refer to our filings with the SEC, which are also available on our website for more information about the company.
And our discussion today, we will refer to certain non-GAAP financial measures reconciliation of these measures to GAAP results are available in our earnings release and supplemental disclosure package and the investors section of our website at this time. It is my pleasure to introduce our chairman and Chief Executive Officer, Jeff Olson great. Thank.
Jen and good morning, everyone.
We heard from many of our investors that they would like to hear more from us. So we plan to do these calls twice a year. In addition to scheduling more investor Roadshows.
I am going to provide and update on our business and then turn it over to Chris while Minster to talk about the operating environment and Mark Langer will cover our financial results.
We had a great quarter generating <unk> as adjusted of <unk> 28 cents, a share of 56% compared to prior year.
Same property NOI, including redevelopment grew by 24% compared to last year.
Our results benefited from 4 cents a share from collections of previously reserved tenant receivables.
The retail sector is strong.
During the quarter, we increased same property leased occupancy to 92%, a 90 basis point increase compared to <unk> 21.
Our leasing pipeline is the largest it has ever been with over 1 billion square feet of space under negotiation.
The most active categories include groceries, and discounters off price retailers and home furnishings health and beauty quick service restaurants and medical uses.
1 of my favorite data points is to look at how our top retailers are performing and the equity markets.
On the average the stock prices of our top 15 retailers, who are publicly traded had the increased by 55% since the pre COVID-19 and stock market peak on February 19th 2020.
1 of the best leading indicators of our NOI growth is the $12 million of future gross rent coming from executed leases that have not yet commenced rent.
Up from $10 million last quarter.
This amounts to approximately 5% of our current N O y.
We have another $19 million of rent under negotiation that should absorb existing vacancy representing approximately 8% of NOI.
Taken together, we had visibility to increase NOI by 13%, which would bring us back to pre Covid N O y.
We are now hopeful that we will reach pre COVID-19 and O Y and late 2022.
Anchored leasing is driving redevelopment activity.
The bulk of our redevelopment projects are relatively straightforward anchor repositioning investments, where we are taking a former kmart or toys R us and converting the vacancy and to a grocer like shop rate or a discounter like T J maxx or Burlington.
These projects are low risk high return investments as each project cost only around $10 million and anchor leases are executed prior to construction.
We have of $134 million of active redevelopment projects underway and expected to generate and 8% yield.
Cap rate compression, resulting from upgrading our tenant mix creates additional value.
We plan to increase the percentage of our grocery anchored assets from 60% to 70% of asset value based on redevelopments underway and leases in negotiation.
Our average grocery and generates about $900 a foot and sales the highest reported number and the industry.
We have another $150 million of redevelopment projects that we hope to activate and over the next year.
The largest projects include adding 4 high quality anchor retailers at Hudson mall to replace the toys R us and interior shop vacancies heading.
Adding 4 anchors of breath of our.
And to replace the toys and palace vacancies.
And leasing the century 21 vacancy at Berg and town Center.
As retail demand for new stores has increased and collections have normalized debt and equity investors have embraced open air centers.
Pricing for high quality shopping centers is and or even above pre COVID-19 levels due to an abundance of low cost capital and recognition that open air retail cash flows are durable even during a pandemic.
It's easy to see why investors are attracted to the sector.
And where 1 can generate over an 8% cash on cash return.
And the asset and a 5 to 5.5% cap rate and the obtaining a 3 to 3 and 5% 10 year mortgage leverage at 65%.
This is especially attractive for yield starved investors, considering the sub 4% cap rates, we are seeing and the industrial and multifamily sectors.
We are encouraged by the growing demand for assets as we look to sell selected non core properties.
We have sold or have under L. O Y approximately $40 million of non core assets year to date and.
The cap rate of approximately 6%.
We are redeploying these proceeds into 2 industrial properties that are located near our 1 million square foot Industrial Park, and East Hanover, New Jersey, which we are buying at a stabilized cap rate of approximately 5%.
Our strategy of upgrading our merchandize mix intensifying our properties with non retail uses is gaining momentum.
We intend to deliver our first retail to industrial conversion during 2022, and Lodi New Jersey.
Throughout many submarkets and the New York Metro area industrial rents have increased the levels that equal or even exceed big box retail rents, creating an opportunity for us to leverage our existing assets infrastructure and retailer relationships.
Our balance sheet remains strong and is well aligned to our growth strategy.
We have approximately $1 billion of liquidity, including almost $400 billion of cash and a $600 billion Undrawn line of credit.
Our balance sheet is positioned to fund our development and leasing program.
And allows us to be opportunistic on the acquisition front.
I am proud of our team and believe it is 1 of the most talented groups and the industry.
We have had a number of senior people join us this year.
Danielle Davita executive Vice President of development came from Simon where she developed over $3 billion of premium outlet centers.
John Phillippe Peano Senior Vice President of development also came from Simon to lead the execution on some of our significant redevelopment projects.
And Sandy <unk> senior Vice President of leasing brings more than 30 years of retail experience, including at American Dream Garden State Plaza and Cross County Center.
We are also excited to welcome our newest board member Susan Givens.
Susan brings valuable experience and real estate and has significant financial and capital markets expertise.
She currently serves as the CEO of New Senior investment Group and New York Stock Exchange listed senior housing REIT.
Overall, we feel very good about the current state of retail and the leasing and development progress that is underway.
We are entering the back half of the year and excellent shape.
I will now turn it over to Chris <unk>, our Chief operating Officer, Chris.
Thank you, Jeff and good morning, everyone first I would like to reiterate jeffs comment regarding the urban edge team.
So appreciative and proud of what we have accomplished through all of the challenges we faced over the past 16 months the heart.
Good work of our team put us on a solid foundation to take advantage of the leasing activity that has come to life over the past 6 months.
The team had an impressive quarter executing 15, new leases totaling 250000 square feet, the highest level and any 1 quarter at urban edge since 2015.
Overall, we increased same property occupancy 90 basis points to 92%, primarily driven by the 123000 square foot lease with sector 66 at Las Colinas and Puerto Rico.
Vector 66 is an immersive entertainment venue offer and K 1 racing following ropes courses gaming and lots of food and beverage.
This operator has a proven track record on the island and will draw of families from approximately 2 million people living within an hour of the property. This is an exciting use for of vacant Kmart box.
Our leasing spreads for the quarter do not include percentage rent, we expect to receive from sector of 66, which should increase our spreads on new deals 2 of positive 7% per the quarter.
And the breadth of retail demand across multiple categories is creating opportunities for us to upgrade our tenant base and.
In total we have over 1 million square feet of space under negotiation with expected rent spreads and the low to mid single digits.
It is exciting to see the positive momentum of the retail industry Covid accelerated the decline of the weakest retailers and creating new growth opportunities for well funded relevant concepts.
We have seen a huge uptick and retailer leasing activity throughout the New York Metropolitan area led by thriving retailers like target and Bj's TJ Maxx and its multiple brand concepts, Burlington, Dick's and Ulta Sephora 5 below.
Lots of medical uses such as north well into the MD and multiple grocers, including shop right. All of these stop and shop and uncle <unk>.
Another hot category, it's food and beverage primarily with the quick service and fast food operators, which have an insatiable appetite for growth.
Names include Shake Shack first watch Gregory's coffee, Mighty Quins, and pizza crumble cookies and chips the way.
We are of numerous discussions with traditional mall retailers looking for off mall locations, such as Sephora, Skechers Lenscrafters Express GAAP and Bath and body works. These retailers are seeking more convenient less expensive open air locations to better serve their customers.
Our retailing partners continue to reiterate the importance of physical stores as an essential ingredient to create a thriving retail ecosystem, where success is recognized when the customer journey as blended across the digital and physical space. Our open air centers help retailers accomplish this objective with visible parking.
Convenient to our customers desire destination.
1 aspect of my job that I really enjoy of partnering with Daniel Davita and her team as we re imagine our strategic redevelopment opportunities striving to bring the optimal tenant mix to the surrounding communities.
We have tremendous potential and our existing real estate to creatively densify our properties with other types of uses that will complement our retail mix of Bergen and town Center Hudson Mall, Yonkers Gateway broken the comments and many of our other assets.
We are thrilled to welcome Sandy deneke to our leasing team Sandy spent the past 8 and the half years, leading the merchandising and leasing strategy of American Dream.
Andy will be focusing our endless energy and attention on upgrading our retailers of urban town center as well as being an ambassador on behalf of urban edge to the traditional mall based tenants that are now looking for off mall locations.
The leasing teams focus and objective is crystal clear increase occupancy with the most relevant credit worthy retailers that will best serve the needs of our surrounding communities the.
The blocking and tackling required to accomplish the task is done and partnership and collaboration with every department at urban edge the rig.
<unk> is well underway and our team is focused on driving occupancy back to 96%.
Mark.
Thanks, Chris Good morning, I will focus my comments on 3 areas. This morning.
First the drivers of our second quarter results.
Data points related to future NOI and <unk> growth and I will then conclude with some comments on our balance sheet and ESG efforts.
First in terms of our second quarter results, we exceeded expected levels of earnings and the NOI due to the continued momentum and rent collections.
A few data points may help put this in perspective.
The second quarter of 2020 was the low point of collections and our high point for reserves established for uncollected rents given the significant uncertainty and mandated closure is affecting the vast majority of our portfolio.
When we close our books and the second quarter last year, our collection rate was approximately 66% and we reserve $12.5 million of rents, we deemed uncollectible and the quarter.
Fast forward to today, and our collection rate is 97% and new reserves for amounts deemed uncollectible and the quarter dropped to $3.1 million.
We continue to recover receivables once deemed uncollectible, we finalized the deferral agreements for several large tenants and received large lump sum payments and the second quarter from restaurant genes of furniture store, a few of apparel tenants and of fitness, operator, which collectively contributed to the 4.
The $6 million of collections on amounts previously deemed uncollectible.
The this $4.6 million exceeded the $3.1 million of new reserves, we added in the quarter that I just referenced so we ended up with the net credit balance of $1.5 million for Uncollectible reserve this quarter.
We have provided detailed disclosures about receivables and collection trends on pages 31, and 32 of our supplement where we note that approximately 13% of total portfolio ABR is currently out of cash basis.
Substantially all new reserves for amounts deemed uncollectible and the second quarter pertained to cash basis tenants.
Turning to the fundamentals of the same property leased occupancy increased 90 basis points to 92%.
As Jeff and Chris have noted we have made great progress of leasing anchor spaces and have seen increased activity on shop spaces low.
Looking forward, we expect that the $12 million of annual gross rents that pertained to executed leases that have not yet rent commenced we will have meaningful contributions to NOI starting in the first half of 2022.
Substantially all rents should commence by the fourth quarter of 2022 for.
For modeling purposes to assess how the $12 million will come online and we currently expect almost a half a million dollars to be generated later this year, which will grow to $9 million and 2022 before stabilizing at $12 million and 2023.
From an earnings perspective, we reported <unk> as adjusted of <unk> 28 of share during the quarter.
Which benefited from 4 cents a share of collections on previously reserve balances.
We expect such reversals and were moderate and the back half of the year, which should be factored into the expectation of future earnings estimates.
The remaining unpaid balance of deferred rents for modification agreements entered during COVID-19 currently amounts to about $6 million of which almost $5 million is reserved as the bulk of these agreements are with tenants on a cash basis.
Considering that we are currently collecting 91% of deferrals, we do expect additional reversals on the reserves going forward, but they will occur over time, given the respective deferral payback periods.
In terms of our balance sheet and liquidity, we ended the quarter with total cash of $380 million and have no amounts drawn on our 600 million dollar and line of credit.
We have no debt maturing this year and have 2 mortgages aggregating only $81 million coming due in 2022.
We intend to use our cash to fund our redevelopment pipeline and for acquisitions.
We are seeking to purchase value add properties, where we can put our capital and skill set to good use.
We were pleased to issue our first ESG report at the beginning of July while the reported is new the cornerstone principles outlined in the report are not and in as we have spent the past several years, reducing the environmental impact of our centers and.
Investing in the communities and which we operate and providing our employees with comprehensive benefits focused on their development and wellbeing.
The next phase of our ESG efforts include establishing formal targets and goals to reduce greenhouse gas emissions and water consumption and improve waste recycling. We are also developing new policies focused on expanding employee wellness programs.
And diversity.
We look forward to reporting on our progress and providing added transparency via our grasp filings and the future.
In closing, we look forward to meeting with many of our investors. This fall and will host another earnings call early next year. When we report our full year 2021 results.
I will now turn the call over to the operator for questions.
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First question is coming from Steve <unk> of Evercore ISI. Please go ahead.
Thanks, Good morning.
Jeff I was wondering if you could just quickly start I know you mentioned the industrial transaction that you did and it sounds like it was maybe more of a 10.31 driven deal but.
Is there anything a little bit more strategic about acquiring those industrial assets in the east and over the next to the <unk>.
Any park, the Joe and there is there something bigger there or was it really more of just the tax deferral situation I think it was tax deferral, but I view it more as a bolt on and then anything else and I think it just adds a lot more value owning more there and we are.
We're already the largest owner of industrial properties in that market. So this just solidifies anymore.
Okay and.
And then maybe just switching quickly to the Puerto Rico, we're starting to see some assets transact down there and.
And I know, Chris talked about getting the large box done.
Refilling, the Kmart box, just kind of what of your broader thoughts on kind of the Puerto Rico assets and.
How should we be thinking about possible exit of that market at some point down the road.
Yes.
I'm not sure of.
We're gearing that up for an exit we did just refinance both of those mortgages last year and remember and the middle of Covid to be able to get those 2 refinancings done I think was of miracle.
And due to the secured nature of that that we were able to get almost of $100 million of that debt forgiven.
Now the assets I think are very well positioned to grow.
And Mike behavior, and we have a vacant Kmart space that lease has a couple of years left on it we're working with a grocer, we're working with the medical office user and a discount or to fill that box when we get it back. So we feel good about that and then Chris mentioned the <unk>.
Kmart box at lots of Catalina as go into the sector 66, which we think will act as a catalyst to start leasing up some of the vacancy there. So my guess is and Puerto Rico over the next 18 to 24 months, you will see higher NOI growth from those assets. Then you will the balance of the portfolio.
So we'd like to continue.
Hi.
With that momentum.
Okay, Great and then maybe final 1 for Chris and.
And maybe sandy if she's on just just curious kind of what the discussions are like with some of the mall based retailers as they sort of look at your New York and fill a portfolio for.
Either additional sites or possible relocations out of some of the malls into open air formats.
Sure Good morning, Steve.
As it relates to what we're seeing there is certainly an outward migration from a lot of the service and F&B players that were in center city of Manhattan looking for suburban sites as the customer relocated out we certainly saw the benefit of that.
And at some of our larger assets and we're seeing that trend with our repositioning work at Berg and town Center Bergen being more of a soft goods based asset with Sandy's addition, here and she is not here to speak on or.
To answer this question, but the among.
And of interest that we're now hearing from soft goods retailers and now that the platform and are now that they see the light at the end of the tunnel, making it through Covid has been really impressive I think the retailers are looking at the sales performance and is that they've had either over time at Borger and town center and the trade area and looking at adding of <unk>.
Of the opposition of value opportunity concept to support the full line that they might have and the surrounding malls around our property is something that they're showing a lot of interest and so I think over the next 12 to 18 months, we're going to see a lot more progress made on improving the soft goods and Mexico out of the asset and clearly the F&B to bring in more of the low.
Mom and pop flavor, which is something that we are very focused on the OE program, but throughout our portfolio.
Alright, Chris just as a quick follow up so are you suggest and these are more additional sort of locations to enhance the existing network or do you think some of them actually physically leave the mall and come to you as the replacement site.
Think that it's a mixture of both I think that there are mall based retailers that are looking for better opportunities to lower their operating cost of fixed operating cost and I think that benefits us and then I think that there will also be additional net.
And it relates to as we're talking about Burger and keep in mind that Bergen as the value proposition, which puts it and very unique space within the middle of our.
Garden State Plaza of Riverside Paramus.
Paramus Park and even American during much of all full line. So we act as a really interesting opportunity for these brands to add their value proposition or the off price and to that market and provide as a gateway to the consumers getting opportunities of shop that brand and the more convenient place at a better price.
And Steve Theyre, probably at least half of dozen mall brands that have already and are advertised that they're leaving malls going into open air centers and.
And it includes retailers like Sephora Express American Eagle, GAAP, Bath and body Williams, Sonoma and I'm sure. The TVN Luxottica and all of the brands that are really looking so it's starting to pick up.
Got it thanks, that's it for me.
Thank you Steve.
Thank you. Our next question is coming from Rich Hill of Morgan Stanley. Please go ahead.
Hey, good morning.
And thanks for hosting this call.
Mark maybe want to start with you you have really of best in class bridge to rental revenue that we really appreciate and maybe it's because it's early in the morning or a deluge of earnings last night, but I just wanted to confirm a couple of numbers and that bridge let.
Let me start with 11.5 million of billed leases recognized on the cash basis could you could you help us remind remind us what.
And what percentage of that was recovered both in percentage point and then of dollar amount.
So overall Richard R.
Our collection excuse me sorry, our collection rate for the quarter of total billed revenues was 99% of our accrual base and 77% of cash based and as we disclosed about 13% of total ABR is on a cash basis. So that'll give you the breakdown of our collections.
Okay got it so the 13% and I should be focused on and that's helpful.
And then Jeff maybe I can just come back to you.
The bigger picture and I really appreciate the commentary about normalization by the end of 'twenty 2.
The 1 point of clarification and then 1 question. When you talk about normalization is that versus 2019 or is that versus <unk> of 22019.
And then as you think about that recovery can.
Can you maybe separate and divide it between what Youre seeing on the rental side versus the occupancy I mentioned that because we're hearing commentary that lease negotiations are back to pre COVID-19 levels.
And the key to the recovery to normal.
It's getting the occupancy loss back to where it was previously and I.
Of note that your occupancy is down year over year, which is not surprising. So can you maybe talk about that occupancy how much of the recovery is driven by occupancy at this point versus getting rents.
Rents back up to where they were previously.
The majority of it is coming from occupancy and in fact, and if you look at my prepared remarks.
And Youre looking at the rents that are.
And that are signed but not yet commenced.
Mounting to $12 million and then you take the other leases that are in negotiation, which gets you to another 19 million and all of that is driven by occupancy I mean.
We do think that rents will slightly increase when you look at spreads of what's in the pipeline but.
What's driving it the most is going from zero on a vacant space too.
20 Bucks.
On.
On the re lease of that.
Got it Thats helpful.
And so maybe we can just think of <unk>.
<unk> here for a second it seems like there's some pretty significant incremental improvement.
On a sequential basis for 4 of our open air centers, certainly <unk> feels a lot better than the <unk> and 1 Phil <unk> of a lot better than the <unk>. So as you think about this what are you. What are you looking for that would lead you to be more bullish where we're having this call and 6 months time and Youre talking about the recovery by the middle of 'twenty 2 versus the end of 'twenty 2.
<unk>.
Okay.
Think.
And then across the country and including in areas throughout New York. There is still a fair amount of vacancy and the marketplace and I think as that vacancy fills and we normalize sort of backing of 96% to 97% occupancy rate.
And then I think if retailers are still looking to grow which they likely will be then youll start to see rents move upward.
Particularly and in an inflationary environment, where it's going to be more difficult to build more product just because it's so expensive to find material.
Got it and then 1 final of bowl of schemes.
Yeah, and just 1 final question for me.
And your portfolio is positioned and.
Really dense.
And the area, which we.
We think has some pretty strong demographics can you maybe talk about what youre seeing and buy online and pick up and store and what tenants are telling you about last mile fulfillment and your properties.
And we're talking to so many of them about it, especially as we look to convert some of our properties and to industrial so those discussions are happening regularly.
I'd say target and best buy are probably doing the best job in that regard.
Chris I don't know if you want to make any more comments.
Yes, I agree with what Youre, saying and what we're also finding is that these retailers the home improvement retailers and the ones that Jeff mentioned and are actually looking to supplement.
Even the commercial real estate space, the average bricks and mortar and retail with with more of a fulfillment side. So think about home depot that doesn't have the room and their store to stock all of our white goods product. They have of supplemental warehouse. So you can buy it and that'll depot shortage delivered within hours, but it's not taking up space. So.
As Jeff talked about east and over and our bolt on acquisition of more industrial we see that as a real complement to actually offer more of a holistic opportunity for retailers to serve both the retail customer and the bricks and mortar stores that they would shop and then also have the convenience of serving the delivery component and a really.
The net way so.
And so rich as you probably can tell.
For my voice.
I am much more bullish on retail and ive been and a long time.
And I think part of it is due to the fact that Covid just accelerated the demise of so many retailers that were in trouble. So that could have been key marter toys are of seen her of JC, Penney or Lord and Taylor of Pier 1 of our modality.
And there are out of the system. So our percentage of at risk tenants is a lot less than it used to be and that goes for everybody and the factor and I think what COVID-19 did.
Is it made retailers and figure out ways to compete with Amazon.
And so let me ask you this question.
Prior to Covid call. It February 2020.
If you had the opportunity to invest and Amazon or the average public security within our top 25 retailers, who are of public which would you have chosen.
I think I think thats probably of a.
Pretty easy answer given given what Amazon stock has done so I'll take the format and not the ladder and that's what my Kids said too and my way and Amazon Ironically is up 55%, which is exactly the same amount that are top 15 retailers that are public are by the way <unk> is number 1 and like 1.1.
Hundred 61% and then targets up there 2 out of 128%. So my point is that is that retailers have figured out ways to compete with Amazon and number 2 is they have capital now to invest into their stores and to expand there.
The businesses, which is why we've hired more people on the leasing side, which is why we've hired more people on the development side to fill those needs.
Got it guys. That's really helpful. Thanks, Thanks again for hosting this call.
Okay. Thank you rod thanks rich.
Thank you. Our next question is coming from Floris Van <unk> of Compass point. Please go ahead.
Good morning, guys, Thanks and.
And again.
Congrats on your first call your inaugural call.
Delighted moving.
Yes, it's a rude awakening Unfortunately, probably for you.
The let me let me add at all not at all and the not at all.
No.
So.
I think sometimes people get.
And I forget to see the force through the trees.
You guys just outlined.
Mistaken, 13% NOI growth of.
Leases of either been agreed or in negotiation, which of that got to be.
1 of the strongest in the in the shopping center sector.
Could you just tell us if you get all of those over the line what's your occupancy would go.
I think that number's, probably about 94% and does that range about floor as it gets to about 95 of it gets a little over 95% and just for perspective, the anchors would obviously drive that the anchors we've come to about 98%, which ironically is the level they were at and the second quarter of 2000.
18, and our shops would revert closer to 88%, which is the level, we had and the first quarter of 2019. So that provides some perspective of the recovery that we're opening comes through that pipeline and.
And remember our occupancy peaked at 98, 6% before the bankruptcy started unfolding.
So that brings but of that 90.596 level is still below the all time peak.
Yeah. So.
What is the incremental so if you add.
That that potential to it as well and youre talking about plus 15% NOI growth, which which appears to be.
Pretty pretty impressive.
Sure.
Obviously.
The the leasing spreads were.
We're pretty flat, maybe can you give us a little bit more the.
Presumably of couple of deals that drove that.
And also maybe if you can touch upon the the century 21.
The box in Bergen and what your expectations are how negotiations are are trending on that.
Yes, so first of all and the leasing spreads would really brought it down was the.
Was the deal and loss Catalina and because we did not assume any percentage rent on that deal that we're expecting.
New lease spreads would have increased by 7%.
Had we included our expectation of the reasonable percentage rent amount.
As it relates to century 21, we are in active negotiations with a retailer today on the bulk of that space I really can't say anything more about it other than we're excited about it and and I think that the consumers.
We're really love, having this retailer as part of the project.
That's great and then maybe maybe the last if you can.
Just touch upon.
Some of the.
Has COVID-19 or as the recovery post COVID-19.
Made you more or less positive on some of the the larger redevelopment.
Projects in your and your in your portfolio, particularly.
And Bruckner and.
Hudson and what's.
And the mall properties.
I mean, let's just talk about those 2 individually because there.
I would view those 2 properties.
Out of all of our larger redevelopment as having the lowest hanging fruit that can be executed on sooner rather than later and thats because <unk>.
For the most part those assets are going to be anchor repositioning projects rather than larger mixed use developments. So I <unk> I think we of 4 anchors that we're working with now who effectively we will replace the vacant toys box and the vacant Fallas Bob.
Box.
And those deals are well underway. They are included and the numbers that we've talked about in terms of the pipeline.
And similar thing and Hudson, where we have a vacant toys box, where we're sort of at the we had hoped to have that lease signed for this conference call and imminent maybe at the happened later this week.
And then there are 3 other anchor retailers that we're working with there that effectively with the mall a portion of the interior space and make way for a much higher credit quality tenants coming in and so.
So that's the answer to those 2 projects.
On some of the others I would say there is a there is a blend of uses its primarily upgrading the retail that's there but we're also looking at adding other types of uses that might include a little bit of medical office might include residential.
Those of our over the long run and as you know.
Any of these will take probably.
A couple of years to get through the entitlement process.
Thanks, Jeff I appreciate it.
You bet, Florida. Thank you.
Thank you. Our next question is coming from Paulina Rojas of Green Street. Please go ahead.
Good morning.
And in Europe.
Yes.
And can you please remind us how we should think about your targeted exposure to retail component.
And also how and how long of an expected total return offering.
And the different uses of <unk>.
And is it possible and to generalize and based on and when do you could achieving your portfolio I think you can't generalize.
So look I think over the long run.
We have and ability to diversify about 30% of our assets primarily into industrial and residential.
And I think it's going to take probably 5 years to do that and thats using our existing assets as the base and just densify those properties.
Tom.
The important part now is that we're going through.
The planning process, and then and entitlement process.
Once the entitlements are received then we will have created value more value to the land and what's there today and at that moment and time will.
Have to make a decision on whether or not we build the project or we do it and a joint venture or we sell the land outright too for example of residential developer, but if we did it all on our own that's where you would get to the 30% and I think we would only do it on our own.
If we felt that we could earn at least 150 basis point cap rate differential between.
The yield that we are building it to versus the yield that we would expect to sell and App does that makes sense.
Yes.
And then another question.
Could you. Please provide an update on your position of our acquisition plan and going forward.
And your appetite for external growth.
The first of all and dispositions I would expect that we'll probably sell about $50 million of year, which were expected to do this year and I think thats fair over the next 2 to 3 years by the.
The way I think any portfolio of $4 billion portfolio people should probably look at selling 50, a year of plus.
To the extent it and then.
And what we're focused on dispositions as either non core assets and maybe the geography isn't squarely in line with our DC and the DC to Boston corridor.
Or maybe we've leased up of proper day and the cash flows are just much more stable than they were before and there might be of better home for it.
Lower growth stable cash flow flowing asset on the acquisition side, we are looking for value add opportunities really where we can find assets that are either in need of capital or creativity, where we might be able to do exactly what.
We are doing on our existing portfolio, which would be to upgrade the merchandise mix and or densify that asset with other types of users.
Yes.
And we'd love buying more within the New York Metro area, because we know the markets well, we know the tenants. So well we have critical mass where 1 of the largest operators of retail inside of this marketplace.
And through Covid, especially at the executive level, we have much more knowledge about these markets and the leaders that are there so.
Our preference is to find more here.
Thank you.
Great. Thank you.
Thank you once again the number 1 for any questions. At this time. Our next question is coming from Chris Lucas with capital 1 Securities. Please go ahead.
Hey, good morning, everybody just a couple of quick ones and again, thanks for hosting the call it's really helpful.
On the U S focused a lot on.
Anchor leasing and so I was kind of curious as to whether or not youre seeing the.
Reallocation of the space within the boss and that.
What if any impact of having either on rents or your returns on those anchor deals relative to sort of pre COVID-19.
We are.
And as far as the reallocation of boxes.
And I'm not sure I understand that specific question are you, saying of showing kind of versus fulfillment.
Showrooms versus fulfillment Chris.
Sorry, we are not really seeing that.
And unless it's from a specific retailer of target for share target is definitely taking space within their boxes and they're allocating fulfillment.
And.
Write off of the Chevron for our players like Nordstrom rack as we see them doing of per at Bergen and town center. They are actually taking staff and using them to shop fulfillment of orders and ship them all over the United States. So it varies with the retailer best buy I think as we as we all know they are doing tremendous business and purpose and our last mile distribution.
Out of their stores, but we're not really seeing many of the retailers taking physical space out of the stores. They are actually using the space of van and adjusted co mingling with consumers to pick merchandise.
Okay. Thanks for that and then just on your tenant fallout for the first half of the year.
Where does that sort of rate relative to 2019, and what's the source of that sort.
The non payment of brand because the options to move people just closing down.
It's been driving sort of the fallout of <unk> so far.
The 1.
What's been driving the tenant fallout.
Yes.
Well I think the biggest 1 was the bankruptcy our biggest hit.
Our biggest day, Chris with century, 21 of the Bergen, which was a pretty accelerated bankruptcy. So that's the most material and then I don't know that we have any other big noteworthy fallout.
The Kmart, Sears, where we're anticipating it there's retailers that we through the Covid actually got the benefit of getting control over the real estate. We may of restructured some of the deals of FEMSA that we've got termination rates as we work to find better uses to backfill the spaces with but I think mark market the nail on the head.
With regard to the century 21.
Okay, Let me maybe equal decline and the question and so when we look at the shop space quarter to quarter or lease rate was down I thought it might have been related to maybe the.
The mall you bought but its not so I'm just kind of curious as to what youre seeing in terms of the tenant.
Small shop tenant.
Paul out there.
Is it just sort of be clear Chris you are right I think now I get your question Youre looking sequentially. There was fallout and the particular shops at Sunrise mall on a total portfolio occupancy we referenced as you know again and the same property occupancy, which excludes sunrise. So that was the disconnect that was trying to.
The link so you are right about your premise.
Okay, but Chris you can comment.
Question on shop demand overall.
We're definitely seeing an uptick and small shop demand overall, our leasing team is incredibly active we've got over 170 active negotiations going on right now.
Merrily and the Shaw and the small shop.
And the small shop area. So as we mentioned earlier with where our occupancy rate is on small shop, we see a huge upside and and a very razor focused to make sure that we're taking advantage of the demand of our team's incredibly active with it and and I think that's we're going to see a lot of pick up over the coming quarters and Chris as I am looking at our pipeline it seems that food and beverage.
And clearly as the largest driver within shop to me and I think we have of 125000 square feet of <unk>.
Faces in the pipeline just for food and beverage and those are smaller deals, yes, it's representing almost 30% of where the active interest is right now and the categories such as home improvement HPA medical services that starts to fill out the rest of the of the opportunities that we're seeing and.
The medical field is a really interesting 1 where they used to just take the relocations that were not convenient to consumers and what we're seeing now and that category is that they realize the real estate of well located shopping centers is definitely a great spot for them to best serve the consumers. So there's a lot of activity.
And along both the medical field with the hospitals expanding as well as other services that are in those categories.
Chris Thanks for that and then I guess, Jeff where Chris last question for me just as it relates to the demand leasing environment.
It's sort of prior period and your.
Professional career.
Seen demand as good as this or is this as good as you've seen.
It's pretty darn good I mean.
And I would say this is probably the top for me and Chris Yeah, I agree with what Jeff said and I think what's really interesting is the.
And what happened with Covid as Jeff mentioned earlier, there was just the fallout of the weaker tenants and there's so much capital out there waiting to invest and great concepts, which I think is 1 of the F&B side, you're just seeing or hearing from us and all of our peers that that's a really active category just because theres a lot of money that is supporting that growth, we're not really seeing of.
Lot of new concepts coming out of.
The retailers that have great balance sheets, the soft goods retailers and the discounters, but what you see is them taking opportunities that were that were fallout from COVID-19 with the retailers that fail.
We're not seeing new development. So what we're seeing is strong demand for backfill of existing opportunities and and that's what we need if we have 1.2 or 3 of them. If we have 2 or 3 operators looking to negotiate for 1 space, that's where you're going to drive rate youre going to drive better terms and that's what's happening and we are in a very supply constrained market our portfolio isn't 1 of the best markets and the country with rigs.
Hard to supply constraints so.
It's a real unique opportunity it is very different and what I experienced coming through the great recession and it just it was just the different it was a very different thing because there was still of lot of new development that was coming out of the pipeline and then and right now there's just net new development. So it's really you're really taking advantage of pre existing real estate and driving driving value of that way.
Great. Thank you very much. Thank you. Thank you Chris.
Thank you this brings us to the end of our question and answer session. At this time I would like to turn the floor back over to management for any additional or closing comments.
Great. We appreciate everybody's time, we enjoyed talking to you this morning, and and we will look forward to doing this again.
At year and thank you all.
Okay.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at the time and have a wonderful day.
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Yes.
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Okay.