Q3 2021 Phillips Edison & Co Inc Earnings Call

Good morning, and welcome to Phillips Edison <unk> company's third quarter 2021 results presentation.

My name is <unk> and I'll be your conference operator today.

Before we begin I would like to remind all listeners that today's presentation is being recorded.

Listen as live webcast.

The Companys earnings release quarterly financial supplement.

10-Q issued yesterday November 4th after market close.

These documents and a replay of today's presentation can be accessed on the investor section of the Phillips Edison and company website at Phillips Edison Dot com.

I would now like to turn the call over to Michael Keller with Phillips Edison and company. Sir. Please proceed.

Thank you operator, good morning, everyone and thank you for joining us I am Michael Keeler, Vice President of Investor Relations with Phillips Edison Company joining.

Joining me on today's call are our chairman and Chief Executive Officer, Jeff Edison <unk>.

Devon Murphy, and our Chief Financial Officer, John Caulfield during.

<unk> presentation, Jeff will provide a brief overview of Phillips Edison and company.

Our differentiated strategy and touch on the highlights for the quarter.

Kevin will discuss our third quarter operational results and John will review, our third quarter financial results. Our recent capital markets activity and discuss our guidance Lastly, Jeff will provide an update on our investment activity and provide closing comments.

Following our prepared remarks, we will answer questions from the institutional analyst community.

Before we begin I would like to remind our audience that statements made during today's call maybe considered forward looking which are subject to various risks and uncertainties as described in our SEC filings. In addition, we will also refer to certain non-GAAP financial measures information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our earnings release.

In supplemental disclosure issued yesterday, which are on our website.

With that it is my pleasure to turn the call over to Jeff Edison, Our Chief Executive Officer, Jeff.

Thank you Michael and good.

Everyone.

Before we get into our results for the quarter I'd like to provide a brief overview of builds Edison and speak to our differentiated strategy.

<unk> was founded 1991, when we bought our first grocery anchored shopping center in Danville, Virginia.

Over 30 years in multiple cycles later, we now operate a national platform of 289 properties. Our strategy has been focused and consistent for 30 years, we create great omnichannel grocery anchored shopping experiences and we improve our communities one center at a time where grocery centered.

And community focused.

We are one of the nation's largest owners and operators of neighborhood grocery anchored shopping centers.

As we speak today, you'll notice that we call our tenants our neighbors. We do this because we work hard to create community at our centers and we treat our retailers as neighbors in that community. We believe in customer service and think this nomenclature reminds our team to treat our tenants like we would our neighbors.

Our strategy is simple we focus on owning shopping centers with a number one or two grocer in the market.

Our centers have an omnichannel neighbor base, where the grocer has delivery and buying online and picking up in the store are focused capabilities.

Our centers have high exposure to nabors, selling necessity based goods and services and we focus on owning centers in trade areas with favorable demographics for our neighbors to be successful.

Each of these components are critical to our strategy.

When it comes to our centers, we believe the format drives results it provides attractive internal growth.

Our average center is 114000 square feet, which is the smallest in the REIT shopping center universe and gives us a competitive advantage.

Our smaller centers allow for better growth, because we enjoy higher retention rates higher leasing spreads and overall positive leasing dynamics.

Higher retention rates result, in less downtime and lower Ti costs. This leads to steady and consistent cash flow.

We see retailer demand concentrated in smaller spaces as approximately 70% of leasing activity in U S. Strip centers has been in space was 2500 square feet or less during 2021.

The average size of our in line neighbor is 'twenty 200 square feet. We believe our centers are best positioned to meet retailer demand.

Our smaller format centers with less exposure to secondary anchors require less capex than other retail real estate lower capex leads to higher <unk>.

Importantly, our portfolio has performed well in up cycles and proven to be resilient in down cycles. This delivers more alpha and less data to our stockholders.

We target trade areas with demographics, where our grocers in small stores can be successful our.

Our average population density and median household incomes mirror that of Kroger and Publix are top two neighbors.

We make money, where our top neighbors make money.

Our shopping centers provide necessity based goods and services to the average American consumer.

Our portfolio has been built one asset at a time, we purchased 280 centers for over $4 7 billion.

2012 to 2018, we selectively acquired assets that fit our focused strategy and we continue this focus today.

With our improved balance sheet, resulting from the capital we raised during our IPO in July our plan is to execute $1 billion of acquisitions net of dispositions.

So over the next three years our goal is to achieve this by June 'twenty 'twenty four this marks three years from our IPO.

Our targeted acquisition strategy allows us to purchase properties at initial yields 50 to 100 basis points higher than in coastal markets.

This external growth will complement our internal growth.

Key drivers of our internal growth include growing rents through new and renewal leasing spreads.

Executing leases with annual fixed rent increases leasing vacant space to neighbors and executing redevelopment opportunities, which are primarily out parcel development.

We bring in experienced in house operating platform for the centers, we acquire our team creates a better experience for both nabors and their customers.

This creates income growth and value.

We believe our strategy has and will continue to generate superior risk adjusted returns.

Higher initial yield plus higher NOI growth plus lower capex leads to superior returns.

Now turning to the results.

The third quarter of 2021 reflected the strong execution of our differentiated strategy. The key components of our results for the third quarter are as follows.

Portfolio has fully recovered from COVID-19 as rent collections and leased occupancy at both return to pre COVID-19 levels.

Our results for the quarter were robust.

We enjoy high naval retention strong leasing spreads and continued high demand for retail space in our well located small format centers.

These dynamics drove strong financial results for the quarter.

And third we are capitalizing on investment opportunities that meet our external growth requirements, which is 8% Unlevered IRR.

Our acquisition activity is trending ahead of our initial guidance.

Our.

<unk> results for the year to date and the successful execution of our growth strategy have allowed us to raise our core <unk> same center NOI and acquisitions guidance for 2021, which John will speak about shortly.

Now.

I would like to turn the call over to Devin who will speak in more detail about our operating results for the quarter Kevin.

Thanks, Jeff and good morning, everyone.

The positive operating results that we enjoyed during the third quarter were the product of our differentiated strategy.

Our strong operating platform.

And the positive overall leasing environment.

At the end of the third quarter lease portfolio occupancy totaled 95, 6%.

Compared to 95, 3% at September 32020.

Occupancy has returned to its highest level in four years.

Anchor leased occupancy increased to 97, 6%.

And in line leased occupancy also increased to 91, 9%.

Our leased occupancy economic occupancy spread expanded to 90 basis points for the quarter on strong leasing momentum.

Our inline occupancy is now 100 basis points above where we thought it would be at year end 2021.

We believe we can continue to increase our inline occupancy and increased it to 93% to 94% over time.

An additional 200 basis points of occupancy from where we currently stand.

During the quarter, we were able to execute a 140, new leases and 128 renewal leases.

This activity totaled one 4 million square feet of leasing activity.

Comparable new lease spreads were 14, 1%.

Comparable renewal rent spreads were eight 9%.

Our in house leasing team has been busy executing new leases with neighbors, including the UPN store Pearle vision, AT&T, Panera Humana, Sherwin Williams and Starbucks.

Demand for our retail space is coming from both national neighbors looking to expand their footprint in our suburban markets as.

As well as local neighbors, bringing their unique offerings to our centers.

Additionally, our dedicated renewals team has been actively working with existing nabors to keep them in our centers.

And we enjoyed.

A retention rate of 91, 2% for the quarter.

This compares favorably to our year to date retention rate of 88, 3% as well as our 2017 to 2020 average retention rate of 87%.

We believe that our tenant retention rate is market leading.

These solid retention rates are evidence that our retail space is a great place for our neighbors to successfully operate their businesses.

I will now turn the call over to John for a discussion of our financial results, our recent capital markets activity and guidance John.

Thank you Devin and good morning, everyone.

Collections for the third quarter totaled 99% of our monthly billings. Our portfolio has returned to pre Covid collection levels, which historically were between 99 and 100%.

Collections for the first and second quarter of 2021 increased to 98% 99% respectively.

As of October 22021 are outstanding balance of Misspellings was approximately $8 million and of this figure approximately half is to be collected under executed payment plans and we're pursuing the remainder. We believe we are appropriately reserved against these uncollected amounts and sure there is minimal impact to our results if any.

<unk> remained uncollected.

Third quarter 2021, NAREIT <unk> decreased 90 basis points to $56 9 million or <unk> 46 cents per diluted share.

The decrease was primarily driven by a $5 million increase in our earn out liability. This liability will continue to fluctuate based on the value of our common stock and will be settled entirely in equity during the first quarter of 2022.

The current estimate is a minimum of approximately $1 4 million units to be opened in January with up to an additional 300000 units, which would increase our total shares outstanding by approximately 1%.

Our third quarter core <unk> increased 11, 3% to 60.

$6 4 million.

The increase in core <unk> for the third quarter of 2021 was driven by improved collections and revenue at our properties and lower interest expense.

On a per share basis core <unk> was unchanged at 54 cents per diluted share during the third quarter of 2021.

Compared to 2020, our core <unk> per share results were negatively impacted by a 10% increase in our weighted average share count as a result of our IPO in July of this year.

Our third quarter 2021 same center NOI increased.

Increased to $89 1 million up eight 7% from a year ago.

This improvement was primarily driven by stronger collections compared to 2020, and a four 2% increase in average base rent per square foot.

We had out of period collections and reserve reversals of $1 $8 million for the period, which were offset by our Q3 reserves.

When comparing our third quarter results for the quarter ended September 32019, our same center NOI increased four 3% illustrating growth.

For COVID-19.

Notably during the quarter, we closed our underwritten initial public offering we issued $19 five 5 million shares of stock at $28 per square to the public including the full exercise of the over allotment option.

The gross proceeds from the IPO were $547 million.

Also during the quarter, we closed a new $980 million senior unsecured credit facility comprised of a $500 million revolving credit facility and two separate $240 million unsecured variable rate term loans. This new facility lowered our interest rate and extended our maturity profile.

The IPO and new credit facility greatly improved the strength of our balance sheet. So that now we have one of the strongest balance sheets in our sector.

As of September 32021, our net debt to adjusted EBITDA was five four times compared to seven three times at December 31 2020.

At September 32021, our debt had a weighted average interest rate of three 3% and a weighted average maturity of four two years approximately 90% of our debt was fixed rate.

As of September 30, we had approximately $604 million of total liquidity.

Priced at $114 million of cash equivalents and restricted cash plus $489 million of borrowing capacity available on our credit facility.

Subsequent to the quarter end, we utilized our investment grade rating to complete our debut public debt offering we upsized, our offering of 10 year notes at $350 million with a coupon of 265%.

These 10 year note significantly extend our debt maturity profile beyond what was previously available to us prior to becoming a publicly traded company while also diversifying our capital sources.

Proceeds from the IPO and the public debt offering were used to pay down our 2022 and 2023 unsecured term loans as a result, we have no significant debt maturities due until 2024.

As Jeff mentioned, our strong results for the year and our optimism regarding the current environment have led us to raise our guidance, we're increasing our full year 2021 core <unk> guidance to a range of $2 14 to $2 18, and our same center NOI guidance to a range of.

Six 5% to 7%.

The implied guidance for core <unk> per share for the fourth quarter reflects the increase in weighted average share count for the fourth quarter, which is different than it was for the third quarter and year to date due to the shares issued in our IPO.

Additionally, we anticipate our fourth quarter, while of approximately $2 million of higher costs related to timing variances in the year and higher incentive compensation and approximately $1 5 million in higher interest cost from our bond issuance.

We are also raising our acquisition and disposition guidance as we are expanding ahead of our previous guidance. We are guiding to second half 2021 acquisitions of between $200 million to $270 million in second half 2021 disposition of between $95 million and 105.

Yeah.

With that I would like to turn the call back over to Jeff to expand our investment activity outlook for the remainder of 2021 and recap our long term growth strategy Jeff.

Thanks, John.

From July one 2021 through today, we've acquired four properties totaling $139 $4 million.

Position included Fox Ridge Plaza in Centennial, Colorado, Denver suburb of the centers anchored by King Super which is a Kroger banner.

We bought El Rico comments about Rico, Florida, which is a Tampa sober. This center is anchored by Publix.

We purchase paths farms in economy, Lac, Wisconsin, Milwaukee suburb. This center is anchored by Metro market, a Kroger banner and fourth we bought arapahoe marketplace in Greenwood village, Colorado, which is a Denver suburb. This is anchored by sprouts.

Each of these centers is anchored by the number one or two grocer in the market. We believe these acquisitions will meet or exceed our internal unlevered IRR targets of 8%.

Our acquisition pipeline remains deep for the fourth quarter of 2021 and into 2022. We currently have three grocery anchored centers under contract for approximately $130 million. We believe we can close between $61 million and $131 million of acquisitions between now and the end of the year.

Year.

As we discussed on last quarters call. We have identified 5800 grocery anchored shopping centers in the U S that fit our strategy. These centers are all anchored by the number one or two grocery or in their respective markets and they meet our demographic of requirements.

We are focused on the three mile trade area around each center. We believe this strategy presents a wider and deeper pool of assets to choose from versus strategy that is strictly focused on a limited number of coastal gateway markets.

To meet our stated goal of $1 billion of net acquisitions by June of 2024, we need to acquire approximately 15 assets per year, which.

Which is approximately 2% of the market. This assumes that 10% of the total market trades each year.

We are well on our way to meeting our $1 billion goal.

To optimize our internal growth, we will continue to recycle assets. These proceeds will be deployed in higher quality higher growth assets.

From July one 2021 through November three 2021, we sold seven properties totaling $63 million before the end of the year, we expect to sell between 32% and $42 million worth of assets.

Before we get to the Q&A section I would like to quickly recap our quarter.

Our differentiated strategy produced strong operating results for the quarter, which exceeded our expectations. As a result, we have increased our guidance to align with our increased expectations.

Collections in occupancy have both returned to pre COVID-19 levels.

Continued high demand for our retail space drove strong internal growth for the quarter.

And our acquisition pipeline presents meaningful external growth opportunities, we have the balance sheet to execute $1 billion of net acquisition by June of 2024.

With that we will begin the Q&A portion of our call operator.

Thank you to maintain an efficient Kenny session. You may ask a question with an additional follow up.

Do you have an additional questions you're more than welcome to rejoin the queue.

To ask a question you will need to press. The Star then the one key on your Touchtone telephone.

Please standby, while we compile the Q&A roster.

My first question coming from the line of Rich Hill with Morgan Stanley. Your line is open.

Mentioned.

Hey, guys. Good morning, Congrats on another good quarter.

Click company, that's two in a row keep it going.

Once it is tough topic quickly talk about your acquisitions.

It looks like Youre buying a lot and selling a lot can you maybe talk about that optimization and what the right level is as you look forward and as you think about that and maybe any updates on cap rates and I won't have any follow ups to that but if you can just walk us through that that would be helpful.

Great.

Thanks, Rich this is Jeff.

Yes.

It's been up.

A pretty interesting acquisition market.

But what we found I think at this point is that our strategy a bank.

Being concentrated in.

Six markets that we can we can buy in has given us a bigger.

Platform to look at and what we're finding is I think where we're able to find inefficiencies in the market where we can.

Buy properties at that 50 to 100 basis point, better starting point and you know that that Unlevered IRR of eight.

In this market. It is it has gotten more competitive.

And we are.

Continuing to try and be very disciplined about what we're buying and making sure that we can get to those.

Types of returns, but we have a real strong track record of buying properties over a long period of time and we.

We were a little bit out of the market from a volume standpoint for three years prior to the IPO and we're back in that market with the relationships. We've had for a long time and I think that's helped us to be.

Be able to get back into realizing our goals.

And hopefully being able to to meet our $1 billion of acquisitions over over three years, which at this point, we're very optimistic about.

On the disposition side.

I think as we talked about in the IPO.

Our strategy is always to be looking at your portfolio and analyzing both the risk and the returns that you're getting on every property and to selectively.

We own those assets, where you think you can get a better you can use that capital to buy other assets that are.

Have lower risk and higher return, it's really that simple it's a lot on the ground. It's a really difficult analysis to be doing on a constant basis, but.

It is part of our process and as I think we said in the IPO will do somewhere between 75, and 125 million of dispositions and our $1 billion is a net number that's what we so we anticipate when I say that we.

We will buy 1 billion plus whatever we.

Disposal.

In that process, but it is a it's an important part of our business and something that we think is a place where we can.

And our portfolio management.

Truly add a lot of value and hopefully be able to continue to have outperformance in the market by being able to put the right properties.

To continuously reduce our risk and increase our returns.

Got it and just a quick comment on cap rates are you seeing any cap rate compression in your markets. Some of your some of your peers have and I'm just wondering if youre a differentiated approach.

Lead you to maybe not face as many competitive pressures.

Well I would say that theres definitely cap rate compression or cap rate compression is probably from.

Six and a half down to six versus <unk>.

Five and a half down to four and a half.

And.

We are.

I would say that in our market today the stuff that we have purchased as you know it's going to be in that.

Five and three quarters to six and a quarter cap rate, but as we've talked about it probably bore you to tears.

But that's not really our focus our focus is on making sure. We can get an 8% unlevered IRR in every property, we buy and hopefully well above that so that I mean, but that usually translates into that range and I would anticipate going forward.

We're not seeing incremental pressure and we are seeing more product coming out in the market.

But it is that you know.

It is a competitive market today.

Thanks, guys Congrats again.

Yes. Thank you.

And our next question coming from the line of Caitlin Burrows with Goldman Sachs. Your line is open.

Hi, good morning, everyone.

I've heard some peers mentioned that move outs. This year has been lower than normally and you also reported the tenant retention of 91% in the quarter. So I was wondering if you could go through what you think high retention means for pricing power and rent growth. It seems like high retention would be a positive.

Renewal spreads.

Spreads tend to be less so just wondering how youre thinking of high retention and the impact of it.

Thanks, Caitlin Doug do you want to take that one sure good morning Caitlin.

Caitlin the way we view.

The high retention is first of all you have to look at the macro retail environment, which as you know retail sales in the third quarter up 15%.

So retailers are doing extremely well and retail vacancy across the U S. Today is now at a 10 year low at less than 6% and new development is that a 10 year low as well. So the macro overlay is extremely positive and that's what's driving these high retention rates.

Our existing tenants are staying longer at attractive spreads now as we noted our inline occupancy right now almost 92%. We think we can take that up another 200 basis points.

Over the moderate time frame and what we believe that will allow us to do is to push harder on rents because we clearly have the demand coming from tenants to stay in our centers and therefore, we think we're going to be able to continue to push releasing spreads are.

Our re leasing spread at almost 9% is actually a pretty solid number relative to historical levels, but we believe that in the short term here given the current environment that we'll be able to see.

Very attractive re leasing spreads and given given the fact that our occupancy is where it's at.

Got it Okay, and then maybe following up on a point that Jeff made earlier, we've heard before that net effective rent growth in shopping centers may be limited to the capex needs, but Jeff you mentioned, how your portfolio has less exposure to the secondary anchors. So I was wondering following up on the previous question also what the view is on net effective.

Thanks, Chris for the Phillips Edison portfolio.

Well.

The.

One of our thesis and things that we have believed in for a long time is that our smaller format stores take less capital to be able to renew the leases and bringing in.

New neighbors into our into our centers and that has been one of our core thesis John do you want to go through sort of the economics of sort of what we've seen there.

Hey, Jeff before John.

<unk> into the detail there yeah. Caitlin. This is one place where high retention is an obvious strength because with high retention you have less downtime and meaningfully less capex and as you know from the IPO and as Jeff just mentioned our strategy on average.

Overtime has required meaningfully less capex than others in our industry, because we have less exposure to that E box tenant so that high retention rate is a real positive in terms of driving net effective rents.

Because of the fact that we enjoy putting less capital back into the center.

So hey, Caitlin this is John actually Devin that was the part I was going to to add which is absolutely high retention rates mean, lower cash flow lower capital and better cash flow as we look at our leasing both this quarter, what we've seen this year and kind of as we look forward.

The capital is really pretty consistent with what we spend on a historical basis and to the extent it is a little higher maybe it's because of inflation or what have you, but we're pushing the rents as well as youre seeing so we're not seeing that diminishment in the net effective. The one thing is that as we are as Devin has spoken to in the past as we attract the larger national.

Neighbors that are much more.

Paying higher rents and thinks that capital might move a little bit with that but those are much longer leases that help us on that on a net effective basis.

Great Thanks for that detail.

Okay.

And our next question coming from the line of Greg Smith with Bank of America. Your line is open.

Thank you.

I was wondering are you guys seeing.

A similar increase in leasing volumes on the essential retailers as compared to let's say the more discretionary retailers.

Yeah.

Okay, Craig I'll take that and then John I'll go ahead Deb.

Craig as you know.

Our business model is focused on essential retail and almost 75% of our.

Tenants today are what we categorize as necessity retail.

And as we look at our leasing pipeline Craig the percentage of leases that are coming from necessity retailers is increasing so we believe over time the percentage of our tenancy our neighbors that is coming from necessity retail will continue to increase.

That's that's very positive.

And then just on the acquisition market.

I know you cited it is more competitive more competitive because there are more people entering the market or are those people in the market.

Just.

So any greater appetite.

That's a great great question.

I think it's a couple of things Greg from my perspective.

I don't think we have like an outsized demand today.

We're just I think.

Experiencing the gradual increase in.

The volume of things for sale I think there is.

We are we know during the pandemic that there was really very little.

<unk> volume in the in the grocery anchored shopping center business.

And that is coming back and what I think the buyers came back before the sellers and we're in that transition, where we're seeing more sellers.

Come to market, but that as you know.

It takes time.

The sellers are the buyers are there and the sellers are are slowly getting there and obviously the more aggressive pricing is attracting more sellers to come into the.

Into the market.

I mean over a long history of I don't think Theres a.

Like an excess demand.

Outsized demand, it's just outsized for the amount of supply that's on the market today, and I think thats whats, making the cap rates more.

More aggressive and obviously, we are getting some buyer.

Buyers that are transferring out of the apartment business and.

And industrial where they just can't get yields anymore, and so some of them have.

Instantly become a grocery anchored shopping center experts, but that is we are seeing some some transformation there that would be sort of the excess demand side. If there is any of it it's the.

Traditionally apartment and industrial guys coming into the grocery anchored shopping center side.

Great. Thank you.

Thanks, Craig.

Okay.

Our next question coming from the line up Todd Thomas with Keybanc Capital. Your line is open.

Okay.

Hi, Thanks, good morning.

Jeff or Devin, maybe you indicated that cap rates in the portfolio have decreased or in your markets.

For acquisitions, a decrease maybe 50 or 75 basis points is that 8% Unlevered IRR target moving around at all has that changed at all and have you changed your NOI growth forecast for new acquisitions at your underwriting and then I'd also be curious how's the NOI growth profile of what you are buying relative to the NOI growth potential.

For the balance of the portfolio.

Great great.

Question.

In terms of.

The change in the.

Uh huh.

The Unlevered IRR.

We do not understand some of the pricing that's gone on in.

The extreme side in the business, where there where we believe that that.

Our underwriting would be well below our a I mean, it would be could be in the six to six 5% range. So that that part of the market, where there has been some really aggressive pricing.

Yes.

That's something we can't we can't buy because it does not meet our 8% requirement.

But there are some transactions that we believe have priced in that range and some that probably will on a go forward basis with people who have a.

So I guess, the lower cost of capital than what we believe we do so.

I would say that.

That's the.

That.

That pricing is a little surprising to us.

And but but for our underwriting we're still finding the properties that we like and that meet our criteria that are meeting that that 8%, but we have not we have not had to deviate from that nor have we had to make any kind of underwriting assumptions that would be a lot more aggressive than what we have had.

Historically.

Now that the the CAGR that is the way we look at it.

For the properties, we are still buying three to.

4%.

Growth properties.

To get to the kind of numbers that we.

To get to that 8% Unlevered IRR. So that's sort of how we're thinking about it I don't know Devin if you have any additional thoughts on that yes, Todd the only thing I would add to what Jeff. Just said is that we are not moving off the eight unlevered and as we look at what we've closed year to date.

And.

Whats in our pipeline, we are underwriting yields in that in that range and historically as we back tested our results, we typically outperformed our underwriting in actuality.

And.

So we are confident we can continue to.

Hit that eight Unlevered and as Jeff mentioned, we are underwriting same store NOI growth, that's being comparable to what we've been able to achieve historically, which is circa 4% so and in the short term. We believe we're going to see higher same store NOI growth.

Because as we mentioned earlier in this call the leasing environment is such that in the short term on near term rollover youre able to get much better same store NOI growth in the short term than that 4% then over a seven year period. It begins to regress to the mean.

Yeah.

Okay. That's great that's helpful.

<unk>.

$75 million to $125 million of disposition does that is that an annual number or is that what you expect to sell during the three year period through June 24 pair against acquisitions.

Well, we haven't really looked out way beyond the three year. We as you know we're getting we're getting started in the listed market business. So but we are.

I would I would assume for the three year period of time, but that's a pretty good.

That's a solid estimate and again the $1 billion is a net number so we're gonna bought it if we sell $100 million a year, we're going to we're going to buy a $1 3 billion of assets over that timeframe. So that is our.

And if that disposition goes up we will.

Increase R R.

A billion three number to whatever that increase if it goes down we would probably we would reduce that so well.

Again.

We as you know I mean, we we're very strong believers in portfolio management, and making sure that youre looking at your properties.

On a.

Return basis over a over timeframe and your and you really are trying to manage the risk and the return over over time with the.

On your disposition strategy in it.

When you have 300 properties as we do you've got you've got a lot of properties to to make sure that you're you're consistently managing those to the best return and I believe that that's.

That's a big challenge, but you've got to have if you're if you're in our business you got to have a disposition strategy.

Allows you to do that.

You'll find that you use.

Youre staying in properties that are very flat without.

Much growth and that that will certainly dampened the long term growth of the of the company.

Okay.

And then on the guidance John I appreciate the.

The color on the bridge to the implied guidance for the fourth quarter.

I was just wondering maybe a little more detail it looks like the additional costs or G&A that you mentioned the higher interest cost the $1 8 million of reserve reversals.

Sort of I guess about four to five cents can you just sort of walk through some of the other drivers in that 11.

Sequential decrease from 54 to <unk>.

I guess 43 at the at the midpoint.

That would be helpful.

Sure. So I think a big piece that as we look at both the third quarter fourth quarter and going forward is the impact of the share.

From the IPO that was that was issued and so our estimate is that approximately.

Approximately five sense when you look at just rolling from Q3 to Q4.

And so I mentioned, but that will be so we have approximately 126 million share.

Shares outstanding So that's a that's a portion of it and then I think in the prepared remarks I talked about we do have the kind of out of period impact on the third quarter that we.

We're certainly collecting and there may be something but we're not expecting it to that volume for the fourth quarter six 2 million there. The G&A piece, we talked about in our IPO. The biggest cost change for US is actually the D&O insurance that was going to go up and because of other pieces that we moved we actually had sequential decrease in G&A. So.

The $2 million of costs that were highlighted at fourth quarter is not something that I would say its annualized its more kind of timing as I as I had remarked and then the interest.

From the from our bond issuance is impactful as well and very important to US we were super pleased with that execution and look forward to.

Going into that market again in the future, but that is pushing out our debt term, but at a slightly higher cost than what we paid off.

Okay, Great Alright, that's helpful. Thank you.

Okay. Thanks, Tom.

Our next question coming from the line of Jimmy <unk> with Wells Fargo. Your line is open.

Thank you good morning.

I'm just curious on the new leasing demand is that still largely local time. So are you seeing an increased number of regional and national tenants in New York.

And mindful.

Yes, Tammy good morning, it's <unk>.

Kevin So we're seeing strong demand coming from nationals and.

Locals.

If you look at our Nationals, I mean D. Our national accounts team is in meaningful dialogue with national tenants across the board names like Starbucks Chipotle, you break fix great clips you Pee at Humana et cetera, and to show you the increased demand coming.

From national tenants in.

In 2020, we signed 87 deals with national tenants year to date 2021, we've signed over 100 102 to be exact and if we extrapolate for the full year, we think will actually sign a 125.

So that's a 40% increase in terms of deals if you translate that into square footage.

In 19 and 20.

<unk> signed APA.

Approximately 300000 square feet of Nationals. This year year to date, we're already over 400000, and we think that that number will get to a half a million square feet. So again, a meaningful increase.

In the demand coming from the nationals.

So it's a combination of both Youll note that.

In the supplemental the breakdown between the categories, but.

The nationals are looking to take advantage of some of these macro trends in the environment.

Which is suburbanization southeast work from home et cetera, all of those macro trends our portfolio benefits from and Youre seeing the result in the kind of demand that we're getting both from the nationals and the locals.

Okay. Thanks, and then maybe as a follow up discussion on on a follow up on the recent on the rent discussion I apologize what are you getting today in terms of rent bumps for new leases.

Right, Youre, saying youre, saying built in CAGR Tammy is that question okay.

So we are targeting <unk>.

CAGR, it's between two and 3%.

In the third quarter.

CAGR was two 6%.

Which was two 3% on new leases and 3% on renewals and we're able to affect that on 90% of the leases. So we're getting built in.

The average CAGR on the leases signed in the quarter was two 6%.

Okay, Great. Thank you and then maybe last question for John where do you see your cash balance on our credit facility balance at year end.

Sure. Thanks Tammy.

We will have.

My estimate is well over $100 million of cash still based on.

Puts and takes as to where our forecast is so with the acquisition plans that we have.

That could swing depending on the guidance numbers that we're providing so from acquisition standpoint, if we find the right opportunities we've got that plus.

Completely unused revolver that that'll give us the capacity to execute those plans.

Great. Thank you.

Our next question coming from the lineup and dosing just with Mizuho Securities. Your line is open.

Hey, guys good morning.

Okay.

Yes.

So first question how much ABR is tied to the 90 bps of the spread to lease and occupancy leased and physical occupancy.

Is that going to hit is that more of a 2022 event and how should we think about that spread overall the near term.

Al you want maybe.

Sure I'll take that so in our.

We actually added a new page to our supplement this quarter.

And so if we look at that we actually have now an ABR from leases signed but not yet rent paying.

As of September 30th is about $1 $1 million and so that my estimate would be you might get a little bit in the fourth quarter here, but I think that's really going to come online.

Ratably.

Be more impactful relative to 'twenty two.

Got it and the spread overall near term that 90 bps.

Sorry about that.

Sure.

I think that it's the it's the strength of what we've seen from a velocity standpoint, I would think that with our neighbours coming online I would think that that might get back to 60, but the leasing velocity continues and we continue to raise occupancy so.

We view that as opportunity, but I would expect that as we get into next year that would probably compress back to to the sticky that we've had on a historical basis.

Got it thanks. Thanks.

So I guess a question on just your cost of capital funding.

You guys have had a nice run since your IPO I'm wondering if you're right.

And I guess you've laid out.

Our acquisition outlook for the next several years dispositions funding a good portion of that but I'm wondering if your improved cost of capital.

Causing maybe.

Not a rethink but maybe.

That's the evolution on how youre thinking about sourcing and some of that growth of equity.

Now.

Perhaps more on the forefront of your mind given the.

Crude cost capital yet.

Yeah, It's a great. It's a great question.

<unk>.

I will tell you we are laser focused on meeting our growth.

Plans, both internal and external we've got a balance sheet right now that I think is market, leading if not certainly in the top top percentile.

<unk>.

So we will when the time comes we certainly will be looking at that but for right. Now we are really laser focused on making sure that we get we meet our acquisition goals, we meet our leasing and occupancy goals in the rent spreads that we think we can get in this market. So we are not.

I can't say, we don't look at it but.

But beyond that we're really we're really focused on executing this strategy and getting it.

Getting it worked and hopefully at the time, where we get to <unk>.

Got $1 billion more assets, whether Thats, you know, maybe it'll be a shorter time than three years.

But.

Right now that's our plan is to stay focused on that.

Okay.

Despite the strong <unk>.

Performance that the stock had since IPO, we still believe the stock is trading below NAV.

And our balance sheet allows us to make the acquisition targets that we've articulated because in addition to the balance sheet, we do generate a fair amount of free cash flow on annual basis between our balance sheet capacity the free cash flow, we're generating and are.

And our sales proceeds we can acquire the $1 billion of assets without having to tap the equity market.

In addition to being disciplined on all our other metrics were also going to be disciplined on when we issue equity.

And.

Until our shares are trading.

More in line with <unk>.

We will be very disciplined in terms of issuing equity.

Got it I appreciate those comments Devon so.

One more if I could I think Jeff you mentioned, they're 50 centers that you guys have underwritten that your investment criteria for Mic from me I guess on market selection closer positioning perspective I'm curious.

All 58 still meeting your 8% IRR hurdles.

And how that list I don't know if you mentioned if that's changed at all over the last three to six months, but maybe the composition of a number of that listen if that's changed at all thanks.

Yes.

Yeah, Great Great question. Unfortunately, we don't have information on the 50 808 until they come to market or we have a conversation with them. So we don't have underwritten models on them in terms of the 8% so.

Once they come onto the market they fit into our into our plant and they fit into our plan. That's what we're able to actually get the information to be able to fully underwrite them and to see if they can if they can meet it and obviously.

At a price that they always made it but.

That also is obviously going to be a big driver in terms of how we how many of those 58 are actually being traded it at prices that allow you to get your 8%.

Unlevered IRR.

Got it got it okay. Thank you guys. Okay. Thanks.

Thanks, Ed.

Our next question coming from the line of Hong Zhang with Jpmorgan. Your line is open.

Yeah, Hey, guys, I guess, you've talked about potentially growing small shop occupancy about another 200 basis points.

Over what timeframe do you think you can achieve that and what kind of an earnings impact would that be.

So.

But the time frame in which we believe we can accomplish that is over the next two to three years.

In my remarks, we're already a 100 basis points ahead of where we thought we would be so we continue to outperform our expectations. So as of today, we're saying two to three years.

In terms of.

Timing and then the impact would be we will be able to pick up.

Another another 2% of occupancy.

We would believe would take the revenue coming from our in line tenants up from where it is today.

In north of 2% because those leases will be signed at higher levels than the portfolio average today.

Got it and I guess, you've touched on cap rate compression a lot on this call, but as Youre looking at new deals have you found yourself for a lack of better words, having a throw out more deals than he has in the past because of this.

Yes.

I would say that more deals do not meet our 8% return.

8% IRR.

Hurdle today than before.

We're not in.

So.

Answer is absolutely yes.

It's obviously harder for us to.