Q2 2021 Site Centers Corp Earnings Call
[music].
Good day and.
And welcome to the site centers second quarter 2021 operating result on.
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I would now like to turn the conference every day Brandon day of Investor Relations. Please go ahead.
Thank you operator, good morning, and welcome to sites on our second quarter 2021 earnings Conference call.
Joining me today is chief Executive Officer, David Lukes, and Chief Financial Officer of counterfeit or David In addition to the press release distributed this morning.
We have posted on our quarterly financial supplement and slide presentation onto our website at www dot sites on our Dot com, which is intended to support our prepared remarks during today's call.
Please be aware that certain of our statements today may contain forward looking statements within the meaning of the federal security law.
These forward looking.
These statements are subject to risks and uncertainties and actual results may differ materially from our forward looking statements additional information.
Information may be found in our earnings press release and in our filings with the U S. A fee, including our most recent reports on form 10-K and 10-Q.
In addition, we will be discussing non-GAAP financial measures.
On today's call, including <unk> operating <unk> and same store net operating income reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in todays quarterly financial supplement.
At this time it is my pleasure to introduce our Chief Executive Officer, David Lukes.
Good morning.
And thank you for joining our second quarter earnings call.
We had another very strong quarter with results well ahead of our expectations and the deployment of nearly $50 million of external investments leased.
Leasing activity remains robust and we're seeing the early signs of that velocity in our leased rate, which will flow through in future.
Periods.
I'll start this morning, with a summary of our second quarter events talk briefly about operations and then discuss our investments and our capital as we look to grow our portfolio of assets and wealthy suburban communities.
Our properties remain 100% open and customer traffic continues to grow.
<unk> and deferral repayments also continue to trend higher and as of the 21, we've collected 98% of second quarter rent.
We've also collected nearly 100% of the deferral payments due to date, which when applied to last year's rent means that we have now collected 95% of contract rent.
Collect for the calendar year 2020.
The durability of our portfolio cash flow and the elevated level of demand for space at our assets speaks to the quality of our team and our real estate.
Included in the 95% of 2020 base rent collected to date, our $5.4 million a.
Deferral of payments from cash basis tenants.
This is a positive 1 time benefit to us, including $3 million in the second quarter and speaks to 2 things first the success of our methodical tenant by tenant approach to resolving unpaid rent and second the strength of the credit profile of our national.
<unk>, which make up 90% of our base rent.
Moving to leasing we had another quarter of elevated activity with 873000 square feet of total volume.
167000 square feet of new leases, including 5 anchors.
We have 15 more anchors in lease negotiation.
Tenants, which we expect to be completed by year end.
To put all of this activity in context, we signed more deals in the first 6 months of this year as we did for almost all of last year.
And the first half deal count is up over 30% from 2018 and from 2019.
<unk> Needless to say I'm really excited about the level and the quality of activity and our pipeline continues to grow.
Conor will give some details on this leasing pipeline relative to the size of our company, but as I mentioned last quarter, our optimism on the operational side is giving us greater clarity on where we see opportunities.
Boy capital.
We closed on 2 new acquisitions in the second quarter totaling just under $50 million, which is good progress towards our capital allocation goal this year of $75 million of external investments.
Both properties are benefiting from what we believe is the beginning of a multiyear trend more money in.
As to the suburbs with more frequent customer visits due to our flexible work from home culture, and an increasing value and convenience both from tenants and from customers alike.
In the case of our recent acquisitions convenience is the anchor is neither has a traditional large format tenant on the site.
We know the scale.
Wealthiest depth of the trade area as mobile phone data tells us that these locations are dominant and well located and the rising rents are proof that the tenants agree and are performing well.
Our investment thesis for these properties is that is simply designed the role of shop tenants with a ubiquitous size and depth that fits many retail.
Concepts located along high traffic corridor will result in rising rents and low capex, and therefore match or exceed the durability and the growth of our core portfolio today.
We are seeing rent growth in many of our sub markets and we're continuing to target investments in those properties that have a heavy convenience.
<unk> Amendment and are set to benefit from these tailwind.
The foundation of our acquisition program is our access to growth capital.
As many of you know site centers has a $190 million preferred investment with no coupon in our spinoff company RBI.
The board of directors at RBI.
<unk> elite to decide when to repay this preferred investment as it has no defined maturity how's.
However, the preferred must be repaid to site centers before RV I can make special dividend payments to its common shareholders, which is why I wanted to briefly mention the RV I 8-K filed on July 15th.
RV.
<unk> has entered into an agreement to sell its remaining Puerto Rico assets for $550 million with an expected closing in the third quarter subject to various closing conditions.
The sale proceeds would be sufficient to fully repay our V is mortgage loans, which had an outstanding balance of $215 million as of June 30th.
<unk> 2021.
This transaction would also leave RV I with just 8 of the original 50 spinoff properties all of which are located in the continental United States.
Site centers is in a fantastic position to recoup its preferred investment in RBI because of the work of our entire team. So a sincere thank you to all.
Colleagues across the company for their creativity and their contributions and with that I'll turn it over to Conor. Thank you David.
Comment first on quarterly results discuss revisions to 2020, 1 guidance and second half earnings considerations and conclude with our balance sheet.
Second quarter results were primarily impacted by unclear.
I'll have Mike all revenue related to the pandemic total uncollectible revenue outside share included $7.6 million of income are almost 4 cents per share from payments and net reserve reversals related to prior periods, primarily from cash basis tenants.
Outside of this COVID-19 related impact there were no other material.
1 time items that impacted the quarter.
In terms of operating metrics the lease rate for the portfolio was up 40 basis points sequentially, which is consistent with our commentary since the start of year that we believe that portfolio occupancy has bottomed.
Based on minimal bankruptcy activity that we're tracking today and the leasing pipeline that David outlined we believe the lease.
<unk> will continue to grind higher over the course of the year.
We provided an updated schedule on the expected ramp of our $11 million signed but not open pipeline on page 9 of our earnings slides.
299000 square feet or $7 million of annualized base rent commencements in the second quarter and you also know pipeline now represents about 3% of annualized.
Quarter base rent.
If you also include the unsigned anchors in various stages of negotiation that David referenced and all other leases. The total leasing pipeline remains about 5% of our base rent as new activity remains strong.
Moving onto guidance, we are revising 2021, <unk> guidance to a range of $1.$6.2.10 per share to.
To incorporate first half results, including recent acquisitions with outperformance driven by prior period reversals earlier rent commencements and higher retention the.
The bottom end of the range assumes stable collections in occupancy and no additional investment activity.
The top end of the range assumes continued improvement in collections and a return.
Turn to a more normalized pre COVID-19 operating backdrop, along with $25 million of additional acquisitions.
For RV Ics, the new guidance range reflects asset sales completed to date and we now expect third and fourth quarter 2021, RV ice's to be about $3.5 million per quarter as asset management.
Agent fees are based on the assets owned as of June 30th.
We've also reinstated same store NOI guidance with a range of 10, 5% to 13% the.
The updated range reflects first half results and excludes any future prior period adjustments the significant increase from our earlier guidepost of at least 4% is due to the same factors.
What drove you off of flow increase and implies at 2020..1 same store NOI is effectively running down about 3% from 2019 levels after adjusting for prior period reversals.
Lastly, there are a number of moving pieces to consider in the third quarter versus the second quarter as outlined on page 12 of our earnings slides first as a previous.
<unk> mentioned, we had $7.6 million of nonrecurring uncollectible revenue in the second quarter and RBI on JV fees will decline sequentially due to asset sales.
Second I would expect lease term fees to be lower in the back half of the year as we had several COVID-19 related deals positively impact the first from second quarter.
And third G&A will increase from the first half of the year.
<unk> expenses pick up these factors will all act as headwinds versus the first half year, partially offset by rent commencements and investment activity.
Turning to our balance sheet included in the receivables line item at quarter end is approximately $4 million of net COVID-19 related deferrals, we expect to collect from future details on the timing and composition of the balance are.
Outlined on pages, 7 and 8 of our earnings slide deck.
As of last week, we have collected 72% of our total gross deferral balance with as David mentioned effectively 100% of all deferrals do pay to date. We've been encouraged by these trends that are national tenants highlight their access to capital and balance sheet strength and our commitment to a high quality.
Suburban opening our real estate.
In terms of remaining repayments, we have just $7 million of growth base rent deferrals, including $3 million from cash basis tenants to collect as of last week, which will limit the impact on earnings in future periods.
Lastly in terms of the balance sheet liquidity the company remains on a great position with minimal 2021maturities no.
No unsecured maturities until 2023 and minimal future redevelopment commitments.
Additionally, we have full availability under our $970 million lines of credit $58 million of cash on hand, and we raised $40 million of common equity on a forward sale basis during the second quarter under our ATM program, which is available for future drawdown this liquidity along.
Along with the expected future repayment of the $190 million of RBI preferred will allow us to take advantage of investment opportunities as they arise and to drive sustainable of low growth and create stakeholder value with that I'll turn it back to David.
Thank you Connor operator, we are now ready to take questions.
Thank you and we will now begin the question and answer session.
To ask a question you May Press Star then 1 on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys.
To withdraw your question. Please press Star then 2 and at this time, we will pause momentarily to assemble the roster.
Yes.
And our first question today will come from Rich Hill.
Morgan Stanley. Please go ahead.
Hey, Good morning, guys first of all congrats on a really nice quarter and doing exactly what you said you were going to do.
I wanted to maybe just unpack some moving parts as it relates to RBI wind down and the buying of new assets.
The first.
Conor maybe you can just refresh us how long do your RV on management fees remain in place once RBI has wound down I thought it was like a quarter or maybe 6 months. After the right wind down but can you just refresh us on that yes.
Yes, rich so if you recall that the fees are reset effectively every 6 months. So there are.
Some nuances when the last asset is sold but I would just tell you that.
Effectively June 30th on December 31st if we on an asset that will kind of impact. The next 6 months of fees. So to my comments I think I said, we have we expect $3.5 million per quarter in the third and the fourth quarter. This year that would obviously be lower.
If and when Puerto Rico sold so on implies a lower run rate for the first half of next year.
Yes.
To your point the big factor is going be the reinvestment of proceeds that will be the ultimate driver I think of kind of the <unk> impact from from RV is asset sales.
That's helpful and just thinking about the acquisitions.
For for a second.
Where do you see acquisition cap rates going right now I mean, you guys. Obviously have a lot of insight given what's happening with with RBI and what Youre doing in the acquisition market specifically with site centers, but it is it can you can you buy at 5 and a half as a tighter is it wider what are you thinking about here now.
Rich it's David.
It feels like.
Been pretty active in underwriting.
For the last 6 months.
And it feels like.
Whereas cap rate 6 months ago were kind of low sixes high fives for the type of assets that we would like to buy it feels like they're kind of low.
<unk> at this point.
I think what's really driving that is the <unk>.
Underwriting.
Is allowing more rent growth and so when buyers are looking at the Unlevered IRR, they're able to pay more today for the asset because the growth is higher than people thought it was 6 months ago and so I think that's really what's impacting the cap rate.
<unk> Unlevered IRR is appear to be staying about the same for really great quality core assets that we want but because there is growth going in cap rates seem to be going down.
Okay helpful and then Conor.
Just 1 more question you've done a really nice job of moving your leverage down.
2.2 are really conservative.
So I think Paul.
Where would you be comfortable taking that too as you think about becoming more on the offensive over the next several quarters several years in buying assets, yes, Richard its a good question, we haven't talked about on a while because to your point moving so focused on getting leverage back to where it was pre COVID-19 levels, we're running effectively on the low 5.
On blood today on a range, we talked about pre Covid was a 5 to 6 times debt to EBITDA range.
If we if we saw the right opportunity would we move to the top end of the range share, but I would just tell you. We are as focused on leverage as we are on duration. So if we've got the right runway in terms of debt maturities I think we'd feel comfortable at the high end of the range.
Range, but otherwise.
I think you'd expect us to stay kind of in that mid point to the low end of the range.
But again, it's just dependent on them on opportunities. The nice part is I mean, our access to capital or the amount of capital. We have on hand is substantial right with the cash.
Net proceeds the RBI preferred I mean, it's it's a pretty dramatic amount of liquidity relative to our enterprise value.
Yes.
Just on just 1 more question from me and that's really helpful. Connor.
David you've been pretty I don't want to say vocal those are my words, not yours, but you've been talking about a recovery to normal by the end of 'twenty.
22, hopefully I'm not putting words in your mouth.
This was a really strong quarter it feels like.
It's getting better from here.
Is there any chance that's pulled up or do you feel still very confident that that's 22 and not not mid 'twenty 2 early 'twenty 2.
You mean in terms of of same store NOI being back to 19 levels that we mean.
Our total NOI. However, you think about a normalization in prior to pre.
Things renewables, we look at it in terms of total NOI, but however, you would frame that yeah, I think a lot has changed rich.
I own mind and this is my own memory I think 2 quarters ago I said, it really feels like 2022 is the year, where things are kind of moving back to.
Covid a lot to get to 19, I think last quarter. I said there is a there is an emerging bull case, where if we don't have that many bankruptcies.
And we have a higher percentage of tenants hitting their options.
And we have a lot of leasing momentum going forward. It feels like the bull cases that the kind of back to 19 levels happens faster.
And then what we previously thought and I would say all 3 of those things are true as of today, we've had a much higher percentage of tenants hitting their option. So therefore.
Our downtime is less we've had a lot more leasing than I would've expected.
And it really does feel like I mean, I think if you look at our introduction of same store guidance.
Guidance for this year, what we're effectively saying is that this year, we're going to claw back to 19 levels.
Which means 22 is likely to be higher.
All very helpful. Thanks, guys. That's it from me congrats on the great quarter again, thanks rich.
And our next question will come from Todd Thomas.
With Keybanc capital markets. Please go ahead.
Hi, Thanks, good morning.
First question, just going back to investments it.
It seems like activity is picking up a little bit you're not far from the $75 million goal for the year and you talked about the outlook around the repayment of the $190 million.
<unk>.
Kraft, which you know has improved considerably and it gives you some capital to deploy them can you just talk a little bit more about the investment pipeline today and how we should think about the timing of redeploying those proceeds and and and the expected returns day that you might generate.
It's a it's a really great question, Todd I wish I had the.
I think the answer on the timing I mean, the fact the matter is.
We are in a position now where we have capital to invest.
And as you well know there's a long history of that's when management teams get into trouble because you've got capital burning a hole in your pocket. So I think you'll see us be very careful to try and buy the properties that we feel have long term stable growth.
<unk>.
I would say at this point in the cycle to me that means core assets that have rents that are below market.
Or core assets that have near term maturities, where you can have a mark to market. So an example of the del Rey property. We just bought we're signing leases now at our Miami properties shop leases that are.
70, or 80 Bucks a foot.
And then all of the asset leases in Addison place in Delray are kind of in the 30%, 40%. So we feel like Theres no near term maturities Theres, a great mark to market.
And therefore, the growth is going to be there. So the more assets like that we can find.
Our pipeline will pick up but.
I will tell you we're going to be very picky going forward on acquisitions.
And so I guess, when we think about future investments for site centers here. It sounds like we should is it fair to assume that we should expect almost exclusively to see the company targeting these convenience oriented assets that youre describing or are.
Nor thing other opportunities to generate the rent growth and returns that you're targeting and more traditional anchored or multi anchored centers I think we're very intrigued by a lot of the an anchored convenience type properties that we've been looking at and we have been pretty active in that sub sector I would not say it's exclusively there.
If we can find larger centers to buy that we believe the rent roll has some durability and some growth to it and that's great.
They've been a little bit harder to find those properties part of the reason I do think is that if you're a seller today.
Today is not a time, where you're going to sell vacancy. There's just there's too much tenant activity theres too much tenant demand I mean, everybody.
Body has a ton of leasing activity.
And so if you're a seller youre not going to sell a vacancy enter that market youre going to try and get it leased up and that's why I think the inventory so far of larger properties has been a little bit less.
And we're going to be very careful in those larger rent rolls to make sure that we don't have any negative mark to market spreads and it's a lot easier.
To figure that out on these smaller properties.
Okay and then just last question I guess you know the.
The company.
<unk> completed a few during the quarter the company completed a few.
On consolidated dispositions in Rbis.
Winding down on liquidating.
And so the JV or.
Our asset management platforms continued to decline in size.
I'm curious what the appetite is to form a new partnership for growth new investment vehicle.
Whether there's appetite like that today.
You know on on your end and also within the institutional or sovereign wealth market share well, let's take RN.
And as you can imagine relative to 4 years ago. This company has a very simple story right now I mean, our our supplemental is getting easier to read because there is fewer redevelopment there is fewer jv's.
There is fewer JV fees.
On the spin it seems to be winding down so I liked.
Like the simplicity right now we have capital we have access to capital we've got leasing to do it feels like just blocking and tackling.
Is a nice way to just generate some internal growth.
If we do in other joint venture, which I'm not opposed to it all I think it just has to serve a purpose and that purpose is probably.
First capital out of assets that we've kind of leased up to a slower growth. So they become durable, but less growth than we can recycle capital that was effectively the strategy with our dividend trust portfolio with some Chinese investors a few years ago.
I think that's a high hurdle that we would hit by doing that type of deal again.
So now let's switch gears to your second half of your question, which is on the institutional side. There's no question that there's been more money moving into the sector in the last 6 months I mean, John sitting here with me. He has been dealing with lots of sellers over the last couple of months and we are starting to see more.
Insurance money pension money.
More institutional capital.
Looking into the sector and making acquisitions.
But we haven't really found a partner that we think would be right for a recap and so I think we're just going to continue on the strategy. We have right now which is to use our on capital and lease on our own spaces.
Okay alright, thank you.
Thanks Rich.
And our next question will come from Katy Mcconnell with Citi. Please go ahead.
Great. Thank you.
Following the point or weaker sales from RBI.
The assets on the left.
And also how this day all COVID-19 impact.
Sure.
On kind of neighborhood.
Katy I am sorry, I can barely hear you did you say, what's the JV of the remaining RV I assets post.
On the Puerto Rico sales that you said.
Yeah, that's right and then also just how this could impact your overall G&A line.
Okay.
I can answer the second half.
Which is.
The way I think you'd look for G&A. This year is by the time. This deal closes if everything happens according to plan.
You're already down to the last couple of months a year and so when you take into effect severance and other wind down costs of our office there.
I don't see any real material change to our G&A budget for calendar year 'twenty 1 for.
For 'twenty 2 there could be some some G&A changes, but I think when we give guidance for 'twenty 2 that's when we'll incorporate that into our G&A load.
But I don't think its significant I think the bigger issue.
There is what happens to the fees that we're getting.
Less about the G&A.
As far as the <unk> of the remaining 8 assets in the RV I the company doesn't.
It doesn't give values.
For their properties and again, they're managed by us, but theyre not owned by US. So I can't really comment on the value of the remaining properties.
Issue if he got it thanks, and then assuming cap rates on net.
Acquisitions remain low and then you're comfortable with how are you thinking about other priorities for deploying that preferred price needs in the near term.
I guess I wouldn't say that they're lower than I'm comfortable with because of the growth is there I think the going in cap rate is a little bit less relevant.
And we have been seeing properties I mean, we've been buying assets that.
Have a 3% to 4% CAGR for the next 5 years and so I think that does merit, having a lower going in cap rate I think that's really the reason why youre seeing cap rates compressed for many other things we're looking at because the rent growth is there. So it's not that I'm on.
Comparable with other.
Other uses of capital we do have JV is that sometimes the JV partners want to sell and sometimes theres assets, we want to buy in that can be a good source of inventory for us.
We have a remaining preferred.
That's still out there. So I think there's other things that we can do with our capital I.
I think we have enough choices to make some good decisions over the next year.
Okay. Thanks, Thanks Katy.
And our next question will come from Sameer <unk> with Evercore. Please go ahead.
Conor Thanks for taking my question.
I am conscious just curious on what youre seeing on the shop space on it.
Inker space leasing is healthy, but kind of how does the recurrent shop space look for you guys.
For sure.
We're both excited to answer it so we're fighting over and get to but yes.
Yes.
Now, what's really interesting Sameer is that we've been talking.
I think the box demand for the last 6 months, but when will you know when you look at our production this quarter half of our leasing activity with shops.
And it is kind of exciting because if you look at the total deals done half were anchors have half of our shops.
It's a little unique I mean that really does mean that shop leasing has picked up materially.
<unk> in the last quarter or 2.
The second thing Thats interesting is about 83% of those deals are national credit.
And so to me it means that there's a theme that's kind of emerging right now, which I think is debt the local tenants that struggled during the pandemic may.
May have provided an opportunity for.
Thinking about capitalize on national tenants to get into the better assets and Theyre doing it quickly.
Look at the number of deals we're doing with national credit shop tenants. It does seem to be growing Sameer. We highlighted this a little bit on Mary in June about the opportunity we have on the shop side and to David's point, we're starting to see kind of on the fruits of our efforts. So it definitely is.
I would say a significant source of upside for us and the exciting part is less capital and quicker usually rent commencement date as well so.
Hey, David points, a big part of our volume something we're excited about and a number of national credits a few of which are first a portfolio for us which is even more exciting.
And then I guess just on the on the demand side I mean, it's clearly.
<unk> been very robust here and I mean are you seeing differences in maybe from a geographic standpoint, I mean, when retailers are coming to you to open stores I mean for the targeting certain areas like first ring suburbs formats. I mean, what are you sort of seeing on on that side what are the trends.
Well, we really we really only.
2 or 3 urban assets and there is no question that those have been slower.
And I think that.
Whether it's south eastern northeastern West coast on.
Honestly it feels like the box on the shop leasing has more to do with getting into the right ZIP code. The wealthier ZIP code on the right intersection and less to do about about region.
So I don't think we've really seen any themes, where 1 region is doing any better than the other I mean, we've hit we've hit all time property level highs in shop leasing in Boston, Miami Cleveland in Portland.
And that just means if the high watermark for a shop rent was $40 a foot we've.
Only have 50 or 55 Bucks a foot in Cleveland we've hit.
80 in Boston, we've hit 80 in Miami.
I think shop rents really seem to be growing in the right wealthy submarkets in a lot of the portfolio markets. We're in.
Got it. Thank you thanks, so much.
And our next question will come from Alex Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, Good morning, how are you good morning.
So 2 questions here first.
You know David you've laid out clearly a case to be patient in redeploying capital so presumed.
Presumably that centers around $190 million.
Preferred debt, presumably you guys go debt towards the end of this year once RBI completes their transaction, Puerto Rico. So the question about that $190 million is should we expect your cash balance to just go up by $190 million are you going to try to prepaid.
It's from debt or if you are going to redeploy this capital.
Is it going to be mostly equity based or should we think about the 190 billion, maybe being more like $300 million. If you assume issuance of incremental unsecured debt to lever this capital.
It's kind of it's a great question.
Prepaying as David mentioned, a minute ago, we got on a kind of a multitude of options.
The easiest way to think about it as kind of tying this back to Richard's question, our general debt to EBITDA range. We target is 5 to 6 times. So if you factor in EBITDA growth. The disposition proceeds we have received year to day, plus the cash on hand, plus $190 million.
And you probably have in excess of well in excess of $190 million of buying power.
To David's point, it will take time to deploy that capital and we'll be we'll be judicious on how we deploy it but it's in excess of $190 million. Once you factor in the EBITDA growth and kind of our leverage targets.
But again it will take time, so I just wanted to just want to be kind of cost.
Cautious on that approach.
Okay and then.
To that point, its not like Youre going to go out and do stock buybacks with that that money, we should expect to just sit on the balance sheet low.
We always as you know we wait.
Every dollar that goes out the door. We're looking at every every option every use at this point in time I would tell you we're pretty excited about the investment.
We're seeing I think it's the best use of our capital but that could change.
To your point, we're in a really good spot leverage wise it doesn't feel like we want to go lowered leverage wise. It really is about deploying capital externally growing enterprise, where we feel like we can create stakeholder value, but but you're right. We always look at everything okay.
Okay.
The question is you guys did about.
Opportunity a million on your ATM I've, just sort of true without just to make sure that your ATM card worked and you remember that.
I mean or you had some bank are desperate to to show something to his or her manager that you guys are printing a ticket.
It has more to do with blackout periods that would say, yes volte.
Volume.
Fifth periods of David's point look at it.
A facility we have not utilized in the floor last 4 years. We've been here. We're really excited to have another source of capital and I think it speaks to just the investment opportunities we're seeing in our excitement about accretively growing enterprise, where we think is possible. So if the cost of capitals. There Alex you should assume we.
I'll hit it 1 really exciting part about that that feature which I know you are familiar with is we've got a year to draw those proceeds so if.
If we find more opportunities to to hit the ATM and buildup that kind of liquidity.
Reserved and then we will take advantage of it. So we're really excited about it I know 14 million doesn't sound like a lot but.
On.
On a range of asset sizes, and maybe it fits nicely for an asset we're looking on so that's how I kind of think about it right.
Right.
Said to your previous answer on the $190 million. It seems odd that you guys would be looking at ATM issuance, if you're being very picky on the acquisition and you see time taken to put the 100.
$90 million, so they seem to be conflicting.
Yeah, just just remember Alex that the Puerto Rico sale wasn't announced until a few weeks ago.
The other thing Alex we could I mean, I guess to a point, we've got a year to deploy that capital.
Organic proceeds potentially could come back this year, so I mean, you're talking about a little.
Longer timeline I would just say if we think we our cost of capital we can accretively invest around it will take advantage, we will build the liquidity reserve and again to my point on the ATM Theres no dilution until we draw that down so.
It's a great feature that we really like and we can match fund are appropriately or expect to match fund I would expect that.
If we if we like the cost of capital and we like what we're seeing in investment opportunity our investment opportunity set will continue to utilize that.
Okay. Thank you. Thank you Conor you are very welcome thanks Alan.
And our next question will come from Linda Tsai with Jefferies. Please go ahead.
Hi, I think a couple of quarters.
So you talked about leasing T is remaining elevated for the foreseeable future given a return to normalcy soon or do you expect to spend less on tea ice on lease leasing capex going forward.
Yeah.
I was going to say the short answer is no Linda we Ben if you think about our leasing Capex should increase 2020 was depressed for a host of reasons 1 for.
For activity and second leasing volume, but as we get more tenants open you know David referenced 15 more anchors that were in negotiation as we get them signed and then open you should expect our leasing on Capex to start to go up the other.
On the new launches to.
Clarify I don't expect cost per foot to go up but just total capex dollars going out the door.
Will increase in the back half of this year and into 'twenty to 'twenty, 2 especially versus 'twenty and probably more comparable to 19 and 18 levels as a percentage of NOI.
Thanks, that's helpful. And then in terms of the of the 11 million signed but not opened what's the cadence of that coming on line as we've gone.
We've got a chart in our earnings slides, Linda I think it's on page 9 and in the bottom right corner that's fine.
It's pretty back half weighted or excuse me a backend weighted right. So typically tenants want to open in the spring or the fall and obviously, we're through the spring for this year or so so it's really a fourth quarter event for us This year and then for 'twenty.
2 and 'twenty 3 same thing what's interesting is if you look at this chart. We've got deals out until 'twenty 3 'twenty 4 and I think that speaks to David's point, if a retailer sees an opportunity on some of our markets to get into it they're signing leases, even though the rents might not commenced till 'twenty 3 'twenty 4 so I think that kind of speaks to the demand we're seeing and why we're so excited operationally.
Yeah.
Final 1 in terms of tenants on cash basis. It sounds like it was 3 million that got paid back this quarter could you remind us what percentage is on cash basis, and whats considered a normal amount of ABR.
When you to be on cash basis, when you're on a steady state yeah. So it's 12% as of the end of the quarter. It was 13% at the end of the first.
Quarters are modestly down we took a few tenants off of cash basis, I would say kind of normal pre COVID-19 steady state levels of zero or close to it. So we've got a long way to go I would just tell you. We're really excited about the operating environment. We're really excited about our outlook on next couple of years, but we're gonna be really cautious on the on a cash basis, Brian We've got a kind of a fact pattern that we that we need to see.
We take a turn it off and you know for some tenants like I said about a percent of our ABR, we saw that in the second quarter, but for others, we need to see a little bit more so I think it's something you'll gradually.
See wind down over the next call. It 12 months, but I would tell you. We're in no hurry and we need to make sure. Our kind of fact pattern has met before we make any changes.
Great. Thanks Youre welcome.
And our next question will come from Floris Van <unk> with Compass point. Please go ahead.
For taking my question.
Again, you know.
What what pretty good I'm trying to.
I understand 1 other things, obviously, the balance sheet and much much better shape.
Now than it was last year or a couple of years prior corner congrats on on.
Reducing leverage I guess.
1 other thing, which you alluded to.
But maybe.
If you can expand on the term of the debt seems to be pretty short around 4 years.
Some of your peers are closer to the 10.
10 years.
How do you see <unk>.
Hugh how are you planning on extending some of that cash or obviously some of these bonds don't come due for.
For 2 or 3 years anything you can do in the meantime.
Yes for us it's a good question and as you remember in 2017, when he first started kind of making some changes on the balance sheet. We are hyper focused on duration and thats, where we focused initially and it remains kind of intense focus of ours I would.
Not to sound like the middle child, but I would say our lack.
Lack of issuance on a 30 year front definitely impacts us on the relative comparisons to the peer group.
Look we don't have an unsecured maturity until 2023 Youre absolutely right. We do have some kind of straggler bonds in 2023 and 24. So maybe there is an opportunity for us to clean up some of those I would just tell you that with the amount of liquidity, we have we're leverages today.
We feel extremely comfortable with our duration and.
And our debt maturity stack.
Stack, but you're right there are some opportunities for us in the next couple of years to even further improve upon that so again, if you look at kind of a big unsecured maturities. They really don't start until 2025 from 4 plus years, but there are some opportunities to further extend that the only other thing I would add.
It's important to look at kind of the unencumbered pools and to me that's probably most important we talk to our bond investors that they are extremely focused on that unencumbered debt yield is close to 20%. So I mean, there's incredible security around our bonds today, and it's something I felt really good about our positioning and our conversations with the with the <unk> community.
Thanks, Scott So maybe.
On the acquisition side I noticed also that didn't get much pressed but you bought on asset in Charlottesville.
I think its right next to the federal asset there, maybe if you could talk about the thought process behind buying.
A relatively small asset.
It has been in a new market.
Your thoughts on on on that market and also on from a growth from that asset.
Yeah, sure well Floris I mean, given the size of it you are right it doesn't.
It doesn't warrant a whole lot of conversation, we've got about 1 million square feet in Virginia.
We got a lot of leasing presence there I think we.
We've always targeted.
Charlottesville is an interesting area the corner of Emmett and Barrick is a.
Very very high traffic intersections, probably 1 of the highest traffic intersections in the whole Submarket you are right around the corner from the law School.
Right there is a kroger and Harris teeter right across the Street I mean, this particular asset.
And it really high credit as a corporate Verizon store in a couple of shops.
I would say, it's an indicator that we're willing to aggregate smaller properties that have kind of some durability and some growth on some good credit.
And this is 1 market that we would love to do that so we're looking at more properties along this corridor.
And then last maybe in terms of other opportunities within your would you.
Consider buying out some of your JV Stakes in some of your properties as cap rates for other assets have gotten really.
Lower end and obviously.
You know these assets low or these things less growth fee and you bring.
More interested in pursuing things such as the the Charlottesville or the or the debt.
The Florida transaction you did recently.
I think 1 of the benefits of the JV program is that you've always got inventory that you are very familiar with alright. So it does make it.
Natural for us to always be looking at potential JV dispositions.
And again I think we'll be very careful some of them might be good assets, but a little flat some of them might be great assets with some growth.
Youre right, we would see that as an opportunity, but it really depends on when our partner wants to sell a horse coming on.
Hi, net into Tom's question, I mean, 1.1 kind of material change in our JV pipeline as these assets are generally consistent with what we own today. So.
There are more consistent with what we own today that to David's point, there is a variety of growth profiles, but but you're right. It could be opportunity. The only thing I would just clarify as our partners are extremely sophisticated and we're really excited to have them as partners. There is no discount.
Discount per se from buying from a JV partner Youre buying at market. So that's the only clarification I would make on that.
Do you typically have a right of first offer a rate in the first.
Bid on those assets.
You typically have some.
Some way to access their real estate, if you want it to be perfectly.
I guess my experience.
Whatever the legal contract say, if a partner wants to sell your operating partners. The most natural and logical buyer, especially 1 that doesn't need mortgage debt to make it happen you don't have to hire broker I mean, theres a lot of benefits, but again to counterpoint on our partners are sophisticated investors. They know when they want to sell they have a view.
On a saying.
So to a certain extent, we wait for them to make a decision and then we can start some dialogue and we've done in the past we bought some assets as you know from Blackstone last year.
We bought assets from JV partners in the past, it's a pretty common theme and it is nice to have inventory that you are familiar with.
Thanks, guys.
You're welcome.
And our next question will come from Mike Mueller with Jpmorgan. Please go ahead.
Yes, Hi, just a quick 1 on I'm curious for the 2021 episode guidance are there any other prior period when collections are anticipated in the second quarter.
Baked into guidance.
Theyre not Mike.
Okay.
But the only the only the only comment I'd make there I mentioned in my prepared remarks, we're not running out of reversals per se, but there is definitely a smaller amount rice are our cash basis deferral pipeline is down to $3 million and you can see from our slides or deferrals really.
<unk> are spread out a little bit more now between 'twenty, 1 and 'twenty 2 just because the 'twenty 1 deferrals on won't entirely been repaid so that kind of impacts from reversals youll see in the third and fourth quarter in theory should reverse if we kind of see it should mitigate excuse me.
Versus the second quarter, and it's simply just because we're running out of.
Cash interest deferrals to impact numbers.
Got it okay that makes sense I appreciate it thanks, Jeff.
And our next question will come from Chris Lucas with capital 1 Securities. Please go ahead.
Hey, Good morning, guys, Hey, Conor just maybe following up on Mike's question.
Questions as it relates to some of the future potential upside in the second quarter. What was the impact of you remove from cash basis to accrual basis on on the second quarter results. It was a couple of hundred thousand dollars of straight line rent Christmas So I would call it immaterial.
Okay, and then as it relates to your.
Updated guidance is there.
Any additional.
Sort of accrual cash to accrual upside.
<unk> included in that guidance no theres not theres no no assumption per se that will put more people on our take more people off cash basis.
Okay and then my last question for you as it relates to your sort of your thoughts.
Talks about debt duration I think your predecessor thought about preferred being sort of a very long duration debt instrument. How do you think about preferred stock in your calculation on duration.
I would say we are.
Think about it quite a bit or talk about it quite a bit for us it really depends on our cost of capital on right and you remember <unk>.
And we used.
I'm, sorry, 19, excuse me, we used equity to take out profit in 'twenty 1.
We used equity to take out price. So I would say there was a point in time in those periods of time, where preferred makes sense on your capital structure and it depends almost entirely on your cost of equity and your cost of debt. So if our cost of equity is attractive maybe maybe we use.
And H attunity to take out perhaps the nice part is Chris as you know we've got until June of next year to make that decision or to think about it but I think theres a point in every place and every capital structure for preferred as just a question of how big you want it relative to the enterprise and what other your other kind of cost of debt and equity. So I would just say we're in no hurry to make that trade again.
But if the prices there then we'd consider it.
So I would say that that's kind of our way to think about it but I do think it's consistent with what you know as you said my predecessors and thought about it and how we think about it going forward.
Okay. Thanks, and then David for you.
When I think about sort of the whole leasing.
Cycle from the retailer's perspective to the competition for leasing to getting leases signed.
With your conversations that Youre, having with your national retail.
Clients.
What are you seeing in terms of their demand right now for open to buys which would be essentially for.
Rent commencements that would be.
In 'twenty, 3 and 'twenty 4 how does that compare to sort of 18 to 19 in terms of the demand level.
Well I mean I.
It's it's uncomfortable to say that they're higher and.
I know that debt somewhat shocking given where we are in COVID-19 and what happened last year, but there is.
Probably the biggest change we've seen is that there's new concepts.
I mean, we.
We can name 100000 square feet that we're going to sign in the next quarter that is tenants that didn't exist a year ago and the credit tenants.
I think what you're really seeing is a lot of the high credit brands have come up with sub brands.
There.
And they are starting to roll out those sub brands with the parent guarantee.
And when they when they have kind of on open to buy they're picking the wealthiest zip codes in the country and they wanted to portfolio reviews and they wanted to multiple brands in the same site that debt that's new for US I mean that has not been the case for a while if you remember 3 or 4 years ago, there was a cycle where a.
I would line retailers, we're filing are liquidating and now it seems to be the opposite where the survivors are coming up with new brands and they are starting to rollout new concepts.
That has been a big piece of it.
Other theme I think it's interesting as you know the shop leasing is significantly better than 3 years ago, even 2 years ago.
Theres just more national credits.
Credit demand for shop space too.
2 years ago, Chris we may be had.
1 or 2 tenants that we're right sized to backfill a pier 1.
Now, there's a half a dozen to a dozen tenants that are strategically sized to fit that type of unit.
So it just feels like there's a lot of examples.
The retailers that are growing right now and it does feel like the open to buy as much better than it was 2 years ago.
Great. Thank you.
And our next question will come from Tammy <unk> with Wells Fargo Securities. Please go ahead.
Thank you good morning.
Hi, I'm, just wondering I'm, sorry, if I missed this but in the presentation. You mentioned that 13 of 20 anchor deals are with investment grade or a net cash entities and I guess I'm just curious what the credit looks like on debt remaining anchor deals that you are doing.
I think Tammy that Dave.
David comment there is that.
More depth on demand interesting today than ever before so you should assume if we're not doing a AIG or a net cash entity. It doesn't mean, they're materially worse balance sheet position, they might just not be AG or they might not be public or they might have some debt, but to David's point, there is a real depth on demand and so we.
I would say even sure if we're investing capital on an anchor today, which is significant we're doing it with the right anchor that we believe in their business plan on the balance sheet over over a long term period well on access just our initial 10 year term. So it is not to criticize the other 7 it's more just to speak to the quality I mean, you've heard us talk about multiple times 37 of our top 50 Republic 60.
We are making a top 100 on public I mean that that matters to us and you've seen that in our in our collections and our reversals this quarter.
And it's a huge focus of ours as we invest capital on the tenant.
Okay, great. Thanks, and then maybe just 1 more.
It's been a busy time in the sector in terms of on and I think you've talked pretty extensively about.
Accretively growing the enterprise, but I guess I'm just wondering.
1 net acquisitions are part of the long term from first site centers on if that is in any way driven by.
No benefit from.
On the sector.
That's another way just you think bigger is better on those days.
Well lets take that in 2 parts.
Tammy.
There's no question that when we're in the position we are which is.
A good amount of retained earnings we've got some asset sales here and there we've got the preferred coming back.
We do want to be in an acquisitive stance, we will be focusing a lot on external growth.
And.
We grow it is true that it does leverage your G&A and so it is beneficial to be growing the company.
But I don't necessarily think that needs to result in M&A activity.
A lot of times, it's easier to grow a synced portfolio that you know all the pieces.
And so from that perspective.
And the more thing, having 80 wholly owned assets and kind of being very careful about deploying and growing that core portfolio along with operating the assets that we know it feels like we're at a pretty good size right now to grow methodically and I don't think we have to worry about super sales sizing or super scaling.
Okay, great. Thanks for your thoughts thanks.
Thanks Amy.
And this will conclude our question and answer session I would like to turn the conference back over to David Lukes for any closing remarks.
Thank you all for joining our call and we'll talk to you next quarter.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this.
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