Q4 2021 Brixmor Property Group Inc Earnings Call
Greetings and welcome to the bricks more property group's fourth quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the call over to Stacy Slater. Thank you you may begin. Thank you operator, and thank you all for joining Brent Smarts fourth quarter Conference call with me on the call today are Jim Taylor, Chief Executive Officer, and President and Angela Aman Executive Vice President and Chief Financial Officer.
As well as Mark Horgan, Executive Vice President and Chief Investment Officer, and Brian Finnegan Executive Vice President and Chief revenue Officer, who will be available for Q&A before we begin let me remind everyone that some of our comments today may contain forward looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties.
As described in our SEC filings and actual future results may differ materially we assume no obligation to update any forward looking statements also.
So we will refer today to certain non-GAAP financial measures further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor relations portion of our website.
Given the number of participants on the call. We kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter. Please re queue.
At this time, it's my pleasure to introduce Jim Taylor, Thanks, Stacy and good morning, everyone I'll be brief in my opening remarks as I believe our results this quarter and this year truly speak for themselves.
As you review them. Please day again and consider how across every metric. These results demonstrate our accelerating outperformance as we execute our value add plan, how they set us up for and provide visibility on continued outperformance in 'twenty, two and beyond and importantly, how they underscore the portfolio transformation.
And that has occurred it breaks more as always our outperformance begins with leasing where for the year, we signed $3 1 million feet of new leases at average cash spreads of over 20% 27%.
That volume included nearly a million feet of new leases in the fourth quarter signed it a record a b R of over $20, a foot and an average spread of 42% and.
In addition for the full year, we achieved an all time record new lease ABR of $18.66 a foot as we leveraged strong demand from growing retailers to be in our centers, we remain disciplined with capital achieving another all time record net effective rent of $17.82 a foot.
We also achieved an all time high for small shop occupancy at 86, 7%, but if left more room to run as we benefit from the improvements we've made at our centers and we drove our average in place ABR to $15.42. Another all time record for the company that also underscores the.
No mark to market, we have yet to harvest as we capitalize on our attractive rent basis.
Looking ahead, our visibility on growth remains as strong as ever as demonstrated by the record $13 million in AVR, we commenced during the fourth quarter.
Over 15 $50 million of signed but not commenced rent that will commence over the coming quarters and the additional $45 million of ABR in our forward leasing pipeline under Brian David and the regional leasing teams, we continue to grow market share with our core tenants, while also bringing new concepts to the portfolio, including <unk>.
Several mall native retailers seeking the competitive traffic of our well located open air centers. We also were successful in signing 14 grocer leases that will catalyze accretive reinvestment activity at the center is impacted and which grows our pro forma mix of grocery anchored centers to nearly 80% of our portfolio.
Speaking of Reinvestments, we delivered another $68 million of projects in the fourth quarter, bringing our total for the year at $168 million at an average incremental return of 11% as we often highlight that is the equivalent value creation of nearly $840 million of ground development delivered this year.
Air, but at much much lower risk and that reinvestment has a flywheel effect both in terms of follow on leasing, which we've demonstrated amply throughout the year, but also compression and applied cap rate as we improve the centers at the end of the year, we have an additional $374 million of reinvestment underway at an expected.
Incremental return of 9% and we continue to grow our forward pipeline, which now stands at over 900 million, including some very exciting opportunities. Our recent acquisitions that I'll cover in a moment.
Under <unk> leadership, our operations team continue to ramp our service levels at the properties, while minimizing leakage. We were also able to compress time frames between lease execution and rent commencement by nearly 20%. Despite the headwinds of supply chain disruption as our construction and tenant coordination teams worked with.
Tenants define practical solutions to get stores Open center.
Perhaps most importantly, I'm very pleased with how the improved operations in appearance at our centers is driving great follow on leasing activity.
Looking forward, our execution and leasing reinvestments in operations drives the topline outlook for 'twenty, two a 4% to 5%, which I believe will lead the sector that expected outperformance is particularly impressive when you stack it with our historical outperformance both through an emerging from the pandemic as well as.
When you look at our prospects beyond this year as we execute our plan.
In addition to delivering robust internal growth under Mark's leadership, we are executing upon exciting external growth opportunities through acquisitions of assets like Bonita Springs in Granada shops in southwest, Florida, Brad Gateway in Orange County, California, Arboretum in Dallas, Texas and Kings market in connection both.
In Atlanta, Georgia since the beginning of last year through today, we've closed on over $390 million of acquisitions that further cluster our investments in markets, where we perform well and in centers that provide further upside through leasing reinvestment and operations.
Stay tuned in the coming quarters as we announce additional opportunities and also as we launch accretive Reinvestments at recently acquired centers.
In fact, we're already at lease on two new anchor Repositions at rents well above the underwritten rents for the acquisitions, our tenants and communities are very excited about the changes will be bringing to these centers.
Before turning the call over to Angela for a more detailed discussion of our results and outlook I'd like to close by observing how pleased I am with how this team continues to deliver under the plan we laid out several years ago, how that performance is accelerating as we've transformed the portfolio and importantly, how we continue to advance towards our per.
Of creating and owning centers that are truly the center of the communities we serve Angela.
Thanks, Jim and good morning, I'm pleased to report another strong quarter of execution by our team as we continue to deliver on our value added strategy and capitalize on the strength of the current retail environment.
NAREIT <unk> was 46 cents per share in the fourth quarter and $1 75 per share for the full year while same.
Same property NOI growth was nine 7% in the fourth quarter or eight 9% for the full year.
Same property NOI growth was driven most significantly by revenues deemed uncollectible during the fourth quarter, we collected $8 million previously reserved base rent and expense reimbursement income representing approximately 440 basis points of same property NOI growth during the period importantly base rent ancillary and other.
And percentage rents were also positive contributors to gross this corner.
The contribution from base rent meaningfully accelerated in Q4, that's the weighted average occupancy grew on a year over year basis, and the portfolio continued to benefit from the impact of positive re leasing spreads recognized over the last two years.
Net expense reimbursements were detracted from growth this quarter and were impacted by an increase in operating costs and service levels have continued to normalize across the portfolio. Following proactive temporary cost reductions during 2020 and as we work to improve the look and feel of our centers to drive traffic and follow on leasing activity.
Well, we have experienced continued improvements in operational metrics throughout the course of 2021 momentum clearly accelerated during the fourth quarter with a 50 basis point sequential improvement in both built and leased occupancy driven in large part by significant small shop activity.
Notably the small shop lease rate was up 100 basis points quarter over quarter. Following a 90 basis point sequential improvement in Q3.
Jim highlighted newly spreads accelerated to 41, 7% and net effective rents climbed to $18 59 per square foot for the quarter, 20% above the prior four quarter average on a pool of more heavily weighted towards anchor space.
The signed but not commenced pool increased to $53 million of annualized base rent up from $43 $5 million last quarter, driven by an additional 170000 square feet of leases in the pool.
And an 8% improvement in average rate across the entire pool.
Approximately 80% of the signed but not commenced ABR is expected to come online during 2022 weighted to the first half of the year.
These metrics taken together underscore the strength of <unk> platform the significant benefits of the portfolio transformation that has occurred over the last five years and the degree to which this company is uniquely positioned to capitalize on the strength of the current environment.
As a result, we have introduced 2022 same property NOI growth guidance with a range of 2% to 4% driven by a 400 to 500 basis point contribution from base rent and a 50 basis point contribution from net reimbursement income percentage rents and ancillary and other revenues.
Revenues deemed uncollectible, however is expected to be a headwind in 2020 two due to the significant amount of revenue recognized during 2021 related to the prior period.
This $26 million of incremental 2021 revenue by itself creates a 340 basis point headwind to same property NOI growth in 2022.
That said our guidance call spreads attraction from revenues deemed uncollectible of only 150 to 250 basis points.
Reflecting changes in the composition of the tenant base the improvement in cash basis collections rates experienced throughout 2021.
Additional improvements expected during 2022 and at the high end up the range some modest collections of amounts previously reserved.
Our assumptions for revenues deemed uncollectible translate into a net reserve of 160 basis points of total revenue at the low end of the range or 90 basis points at the high end up the range versus our historical run rate of 75 to 100 basis point.
I would also note that revenues seemed uncollectible will result in higher than usual volatility in reported same property NOI growth as we move through the year.
We have introduced NAREIT <unk> guidance for 2022 with a range of $1 86 to $1 94 per share.
Consistent with our prior methodology, our <unk> guidance reflects our assumptions for capital recycling activity during 2022, but does not contemplate the conversion of any tenants to or from cash basis accounting, which could result in significant volatility in GAAP straight line rental income and with that I'll turn the call over to the operator for Q&A.
Yeah.
Yeah.
Thank you we will now be conducting a question and answer session.
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Our first questions come from the line of Craig Schmidt with Bank of America. Please proceed with your questions.
Thank you.
I was wondering if you could tell us.
How are rising construction costs and rising.
Labor costs are impacting your redevelopment efforts.
Yeah, It's a great question, Craig as I alluded to in my remarks, we really are aligned with our tenants in terms of getting new store openings are on time.
And as such we've been working with them to accept current conditions, except current HVAC equipment, and other measures, which not only reduce the cost but accelerate the time of getting the store open and in that way you know we've managed to hold our returns and are the other thing.
I'd comment on is I think tenants are aware of those increased costs and where we're driving higher rent of course through generating more competition for space. So we feel pretty good about our you know not only what we have underway, which is largely pre bid, but also what's in that 900 million of future.
Pipeline in terms of incremental returns.
Yeah.
Great and then you know looking at the progress in the small shop occupancy where do you think you can take this to a couple of years' time.
It's perhaps one of the best indicators of the execution of the strategy that I talked about and that we fully expect as we continue to reinvest in the portfolio to drive follow on leasing in the small shops, which is what we've been doing you know coming out of the pandemic in a really strong way, we're a little below 87%.
And as I've mentioned on other calls you know, we expect that to go into the high Eighty's, even the low ninety's over time as we continue to execute this plan and you know, it's it's not just occupancy Craig its rate and that's the other thing you should really take note of and our resolve is how we're continuing to.
Sad consecutive records in terms of rate that we're realizing on new leasing again.
Great reflection of the strategy that we're executing because you know we we actually believe that the best way to make money in this business is not building new shopping centers, but rather making existing shopping centers better.
Thank you.
You bet.
Thank you. Our next question is coming from the line of Todd Thomas with Keybanc. Please proceed with your questions.
Okay.
Hi, Thanks, good morning.
Jim just a question on on on rents.
You you know you highlighted the net effective rents on new leasing and just talked a little bit about small shop leasing and discussed the future leasing pipeline, which continues to grow can you can you speak to the current mark to market opportunity today across the portfolio and whether you feel that mark to market opportunity is greater today.
Than you did before the pandemic and then based on the future leasing pipeline and visibility that you have do you see leasing spreads are increasing further from here.
These are strong spreads and I'd hate to promise even higher spreads.
As we continue to realize the benefit of our plan, but we feel really good about the rents that we're what we're seeing in fact, we were at a record grant and that forward pipeline of over 53 million that Angela referred to.
So we're really utilizing this moment in time to drive competition amongst tenants to drive rate and you know not just rate, but the other terms of the leases yeah, Todd and I would just add I mean, the team has done a fantastic job capitalizing on the operational improvements that we've made at our shopping centers the investments that we continue to make.
At our centers and you add that to the environment and look out at our portfolio. We've got rents expiring on anchors. The next three years at 950, we signed those leases last year at over 14 Bucks. So we've got good visibility on the mark to market opportunity in the portfolio and as Jim mentioned, you may see some fluctuations here or there, but long term we feel.
Really confident about our ability to harness that upside.
Okay, Angela the four to 500 basis point increase in base rent growth that's forecasted in 'twenty. Two you know you ended 21 the contribution in the fourth quarter. It was about 200 basis points. It was 10 basis points on average throughout the year can you just talk about the sort of expected cadence of that growth.
Throughout 'twenty, two and and how we should think about that carrying into 'twenty three.
Yeah no. Thanks, Todd it's a good question as I mentioned in my prepared remarks, and you did see sort of a really healthy inflection point.
In the fourth quarter and the contribution from base rent because she started to see you know weighted average occupancy on a year over year basis crowd, when you're seeing you're finally seeing sort of the full flow through effect of the positive spreads we signed over the last several years I do think you'll kind of continue to see that grow them in terms of the contribution over the course of the year I did also mention that you know that.
Signed but not commenced pool them is is first half weighted which is definitely good news you also tend to see more move outs in the first half of the year than the second half of the year. So on balance I would expect that you'll continue to see that grow kind of you know programmatically over the course of the year.
Okay Alright. Thank you. Thank you.
Thank you our next questions come from the line of Juan Sanabria with BMO capital markets. Please proceed with your questions.
Good morning, Thank you for the time.
I was just wondering if you could help us frame.
How you think market rent growth should improve or.
Our trend over the course of.
That's 22 I think previously you noted that rents were kind of 14% higher than pre COVID-19 levels. If you have any.
Market to market, there and maybe think about how rent growth is trending relative to inflation or cost growth to two craig's previous question about redevelopments.
Yeah, you know, we're very encouraged by the breadth and depth of demand that we're seeing from tenants. So I really need to outer underscore that and that is driving a significant amount of the ABR performance that we're realizing in the portfolio and so we feel good you know to Craig's question about reinvestment returns we have.
Seen inflation in costs, but importantly, we've been seeing nice inflation in rents.
When you laid out over our strategy, which in a market neutral environment still outperformed because of our low average rent basis and the improvements in reinvestments that we're making in our centers you know that that inflation in rents is just really an additional tailwind to our plan, but Brian really highlighted it.
Look at what's expiring over the next couple of years, and then look at where we're signing rents today I highlighted it as well in my remarks, and you can see a very healthy spread that gives us visibility why not just on 'twenty, two but 'twenty three and beyond is a lot of the activity that we're working on today.
Is 18 months out plots.
Okay, and maybe a question for Angela can you help us frame how much.
It has not been collected that could present upside to guidance and.
And remind us what's assumed in guidance and apologies if I missed it in my prepared remarks.
Sorry, I missed the last part of that question.
Can you repeat that.
Yeah, how much is it potentially sitting out there that hasn't been collected yeah. I know, there's some is it still in your.
And your tenant base and kind of what's assumed in guidance sure Yep.
So we do and in the supplemental package and our sort of additional COVID-19 disclosure to try to really frame up the total amount over the course of the pandemic that has been accrued for but not collected and of that amount how much it's been reserved and that's really that amount. That's been reserved that has the ability to be good news gulfport rent.
And to the extent, it's collected that amount again the amount that has been reserved is about just a little over $44 million mm about $18 million of that relates to tenants who have exited the portfolio. At this point are we will continue to aggressively pursue those amounts, but I you know admittedly.
They're lower likelihood than they might take us longer to the extent we are successful in our covering them.
About $16 million of the total so 35% to 40% of the total relates to tenants that are active in the portfolio and then we're not in dispute with them. There's another $11 million of tenants who are active in the portfolio, but we are in litigation.
Otherwise actively working to get those amounts repaid so that kind of frames up the different buckets within the number. It's about 16 million that you know has acted from active tenants in the portfolio, that's probably the highest likelihood to be received over some time period.
Some of that May be received in 2022, some of that might extend into 'twenty 'twenty, three or even 2024 and so the timing of that you know remains remains to be seen them. You know as I talked about revenues deemed uncollectible, it's really fair to say that at the low end of our same property NOI range, we're not forecasting a significant improvement.
Men and ongoing collections from cash basis tenants and we're not really forecasting any significant amount of a prior period collections.
As you move into the higher end of the range.
You know you you may see some modest amount of out of period collections. The range on bad debt in terms of total dollars between the low end or the high end of the range is about $8 million, but it could come from again, both an improvement any ongoing collections rate and some out of period collection amount.
That's great. Thanks, Angela sure. Thank.
Thank you.
Thank you. Our next question is coming from the line of Floris Van Dijk them with Compass point. Please proceed with your questions.
Thanks for taking my question guys.
You know, just Jim and and Angela and Brian maybe I'd love to get your comments you know, obviously, you're you're you're delivering solid underlying our NOI growth.
Lease spreads continued to stay strong you're reinvesting capital allocation. One on one you know selling assets are deploying it into redeveloped and making your current portfolio are higher.
Our higher growth are you know very few things you can floor. One thing is the share price. While your stock has been the best performing strips are this year, you're still trading at arguably a very significant discount to our two N. A Z now we might be slightly out of a can.
Census, and in or any you know our cap rate is a little bit lower but I would argue that our cap rate is too high because theoretically the higher your underlying NOI growth lower cap rate because total return is a combination as you as everybody knows between your underlying growth N D and the the the warranted cap rate.
Maybe what.
What can you guys give the markets to make people feel more comfortable that cap rates for your portfolio has in fact come down you mentioned a little bit you alluded to it's Jim in your opening comments, but maybe the other thing to talk about it as maybe seeing trans talking about transactions in your markets and I know you.
Have a lot of different markets. So it's harder for people to come.
Captured this but what can you provide the markets and the investment community too to get them more comfortable that the asset values in your portfolio have gone up.
Well I appreciate the question florets in your underlying point is correct that cap rates continue to compress actually across all of our markets and really have been doing that for the last 18 months there've been some notable transactions that I'll have Marc comment on.
But that's clearly a trend and the reason is reflected in the performance of platforms like ours, where you see open air centers driving rate you see great leasing demand Ah and really a great breadth of demand to be in our centers and you think about the relative returns in this area.
Asset class relative to industrial data centers multifamily and it's clearly becoming a very attractive asset class for institutional investors, which is bringing a lot of capital into this space and driving cap rates Mark.
Yeah, I think that's right Jim you know in terms of what we've seen across markets, we've seen asset price well into the fours in real time in markets in Texas, and California, and Florida, We've seen strong pricing around the New York City region, we've seen strong pricing in the mid Atlantic with strong upfront pricing has been pretty broad based.
That rate perspective, real time, we're actually seeing very very strong demand and pricing for both of them are consider tertiary assets and that's where we've been able to exit some of those assets at pricing well above what we could have three or four years ago. So we're we're seeing a very strong market in terms of cap rates out there and I think Jim is right and part of it is being driven by.
The the demand from institutional investors, who are really seeing the resolve Brian and team are driving and they want to be a part of it.
And and if if I were to do you see that as your growth. It sounds like your topline growth is actually accelerating this year shouldn't that have the effect of.
Reducing the cap rates, even more going forward as well.
Yeah, It's math as you point out and you know again, it's a pretty visible stream of growth that we think is driving that performance. So the answer is yes, both generally and then more specifically with what we're doing with our assets, Florida, particularly as we in.
<unk> did high single low double digit incremental returns in these assets you know, we're not only driving great ROI, which you're seeing in our top line.
But we're also creating a great follow on effect in terms of the cap rate that would be applied to those assets market neutral.
And when you layer on top of that sort of the improving trends that we see in the market, we're creating even more value. So we're we're very pleased with what we're seeing.
Okay.
Thanks, guys. Thank you and go who's.
Thank you our next questions come from the line of Katy Mcconnell with Citi. Please proceed with your questions.
Hey, Thanks, good morning, everyone.
Giving you saw an increase in leasing volumes again this quarter can you discuss what this could mean for turtle commenced occupancy upside. This year and then do you think you've reached a peak at this point in terms of quarterly new leasing volume or demand starts to tolerate them.
Yeah in terms of where sort of we think occupancy might trend over the course of the year you know I think.
Likely by the end of next year will be up from a build occupancy perspective, you know somewhere in the neighborhood of 100 to 200 basis points. The weighted average impact of that over the course of the year. Its obviously going to be lower than that but I do think we'll see some pretty healthy build occupancy crowd them as we can into as we get into 2020 , two and continued to see that ramp up over the course of the year.
Yeah, and then from a volume perspective. This is Brian its robust now and if you look at last year, we sign more leases last year than we have in any year since 2016 at the highest rents we've ever signed as a company fourth quarter in particular was more G. L. A than we signed in the last two and a half years and despite all of that activity the pipelines.
<unk> is up 20% versus what it was at the end of 2020, So we see great leasing demand from our core tenants from as Jim mentioned in his opening remarks small native tenants that are accelerating their open air a store open to buys and we're also seeing new concepts as well both in the small shop and anchor space. So we've.
Been really encouraged by the depth of demand and as we continue to reinvest in our centers. We continue to make the operational improvements we expect to continue to attract a good deal of that demand that's out there, but these volumes are great and you know I think really show, how we're driving the business and leveraging the platform and I you know I think from an X.
Vacation standpoint, we expect it to continue to be robust liquidity as we move forward, but these are incredible levels and you know we we are just real pleased with what we're able to execute yeah. I just underscore the point you know sort of Bryan Bryan mentioned, which as you know given where we are signing new leases today relative to the portfolio average.
Every 100 basis points of occupancy growth is having a disproportionate impact on an NOI growth just given how significant that improvement in rate really is across the signed but not commenced pool, but across the forward pipeline as well.
Okay, great. Thanks.
And then maybe on the flip side can you just provide some color on what that sorry closure environment has been like so far this year and any notable closures or watch list tenants to be a lag.
Sure.
It's actually been a very healthy environment, we really haven't seen significant store closures or move outs in the portfolio. We're encouraged by that.
And I think it's reflective of again, the environment, where the retailers continue to invest in their stores and seek to grow their pipeline and Katie is to continue a continuation sorry, the trend that we saw in 2021.
Move outs were down 30% versus 2020, they were down 20% from 2019 and as Angelus talked about our tenant base is stronger today than it was during the pandemic. We continue to see great performance from our core retailers. So that's obviously leading to less.
Move outs. In addition to all the improvements that we've made across the portfolio and as we look out we really don't see a tremendous a big number of troubled tenants are really much out there from a troubled tenancy perspective into the year. So it's been a pretty muted bankruptcy environment and it's something that we've been really encouraged by.
Okay, great. Thanks, everyone.
Yeah.
Thank you. Our next question is coming from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning.
So Jim you've mentioned the benefit of getting tenants of the spaces.
Are you seeing a measurable decrease in the time for tenants take overstate and start paying rent or is this more about maintaining the status quo in a period with supply chain and labor headwinds, it's always an opportunity right. It's a day that the tenant isn't in this space as the day of lost rent so as I highlighted in my commentary.
We are really focused on compressing timeframes between execution of the lease and rent commencement and part of the way we've been doing that is working with tenants on existing condition scope ladders et cetera, and we found that they are very much aligned with us because a day that they're not open as a day of lost sales.
So you know we continue to work to compress that timeframe in an environment as you allude to that it does have supply chain disruptions and you know, but we're fighting that and doing all that we can to continue to execute and deliver and as I mentioned I'm real pleased with what the team has done.
And in particular compressing that time frame.
You mentioned in your remarks also about getting tenants to accept as he said conditions or I guess, each vac equipment. So does that mean that they'll take it to the whole polices that mean that there is additional work to do while the tenants in place.
Hey, this is Brian what's been really encouraging to us is because each spaces different tenants have recognized that they've got to work with with it within some of the existing confines of the space as Jim mentioned, so we have tenants as you mentioned and take on existing HVAC units work with existing facades that are there today partner.
With us in terms of delivery, where we may be in there doing work at the same time because at the end of the day, there's a big appetite to get stores open. This year. So they're recognizing some of the challenges that are in the environment and our team's just done a really good job both from a leasing operating legal perspective across the board in terms of partnering with tenants getting getting ahead of things once we.
Get leases approved before their science that we're ready to start work right away and it's really helping to the point that Jim made condense. Some of those time frames. While there are challenges that are picking up so I'd say, it's across the board in terms of how they're working with us, but they're certainly being receptive to how they can get in there and get stores open shop.
Mhm, Okay. Thank you and then just looking at that final block tenant categories.
Slightly weaker and collections have been very strong overall, but you know entertainment fitness, maybe some restaurants services, just curious, what's driving and ability to collect rent at this point and at what point do you think about taking back that space from the parent.
Craig I would say just from an entertainment perspective again, it's a very low percentage of our a b our overall, it's less than 2% but.
But we have worked with some tenants within that space I would say also that we have been more proactive in terms of taking space back when in certain places, where just lifting eviction moratoriums like we saw recently in New York and as we saw throughout the pandemic when many of those many of those are moratoriums were lifted.
We had tenants come to the table and we certainly saw that in the fourth quarter and some of these have just been lifted recently, so we expect that to continue to happen relative to some of the other categories that you mentioned, we've been really encouraged by what we're seeing from a fitness perspective, particularly on the low cost provider side, we've seen more demand in terms of coming back to our boutique fitness.
Operations as well so I would say overall, we feel better about those categories are still some tenants within them that we're having a few challenges with but net net I think we're in a much better position as we head into 'twenty two and it is a tenant by tenant process and we're making those judgments tenant by tenant you know given the health of their business given the length of time there.
Were forced to close given traffic levels et cetera, and you know tenant by tenant we're making the best business decision we can.
Great. Thank you you bet.
Thank you. Our next question is coming from the line of Anthony Powell with Barclays. Please proceed with your questions.
Hi, Good morning, maybe a follow up on that question in terms of revenues deemed uncollectible, what's the cadence we should expect throughout the year should we expect that to be higher in the first quarter and maybe.
<unk> got a bit lower as we get through the year and as you worked out these tenant issues or is it kind of a more I guess even spread throughout the year.
Yeah. It's a it's a really good question as I mentioned in the prepared remarks, it's it's likely to be volatile over the course of the year because of potential collections of prior period amount putting that aside because that is difficult for us to predict and again, even at the high end of the range Theres only a modest amount of that activity in the forecast for the full year I would say the risk.
We expect her current period billings I would expect to continue to improve as we move through the year. So it would be higher in the first quarter end and as Brian mentioned, we continue to attract some of the tenants who have had the benefit of eviction moratoriums or other kind of structural support we continue to move that that that reserve number lower.
As we move through the year right. So should we be modeling I guess closer to your historical norm by fourth quarter, and 2023 years of that too optimistic.
You know, obviously, it's a range right and even at the high end of the range for the full year, it's still sort of just in line with where we've been from a historical standpoint. If you look at page 11 of the supplemental that really gives you some additional detail on what we reserved specifically for for fourth quarter Billings, you know its higher than 960 basis.
Point number that's embedded in the low end of the range. So I would assume certainly we start the first quarter at a higher level and again continue to improve as we move through the year, where we end up between that 160 basis point reserve. Our total revenue in the 90 basis point will depend on the.
The cadence of that improvement in current period collections over the course of the year as well as those prior period collections, which might be lumpy and create some volatility.
Got it and then maybe on the cap rates you know you mentioned that used to be.
Compress how do you view rising rates, that's kind of a driver of that do you see I guess cap rate for your for your segment, maybe being impacted as rates go up or given the higher yield you present them relative to other asset classes can right rates actually drive your cap rate compression, even further this year and beyond.
I do think the biggest drivers that relative spread between this asset class, which has proven its durability and resilience and other asset classes like multifamily industrial data centers et cetera.
I think that's going to be the biggest driver in the market of course interest rates matter, whereas that risk free return rate is going to impact where.
Where cap rates go, but you know just given the sheer weight of capital that we see getting invested in this space, particularly assets that are core assets that don't have reinvestment potential lease up vacancy the types of things that we focus on you know that's where we're seeing the cap rates get most agra.
As Mark alluded to and we're seeing cap rates well into the fours.
So that's that's that that would be our best view of how this continues to play out.
Alright, Thank you you bet.
Okay.
Thank you. Our next question is coming from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your questions.
Hey, good morning. Good morning, So two questions first Jim on the small shop. You know you spoke of you being eighty-seven now trying to get to the operate these may be low ninety's is there something structural about small shop and maybe it's just you know when you do all the leasing and all the little spaces just.
Structurally you can never be north of I don't know 90, 293 or is there something else at work I would think given no new supply and probably over 15 years.
And all the you know credit challenged tenants flushed out of the system I would think that you'd have you'd be able to push that number yeah. I went to the 90, 394% range. So again, just trying to see if there's something structural at work where 91 may be the peak.
You know, it's it's it's a great question and I think we are going into a different environment, where you don't have you have increasing tenant demand without a lot of new supply, but there is an element of turnover that happens with small shop tenants, that's greater than what you see at the anchor level and that's sort of consistent.
Turnover generally results in occupancy levels for small shop that trail, where your anchor occupancy is it's just part of the business, but where we settle out well you know, we'll see but we're really encouraged Alex to your underlying point.
By the health of the tenancy the strength of their demand.
And also importantly, the visibility that we have on continuing to improve that as we reinvest in our centers as we bring in more vibrant anchors as we bring in grocery uses as I talked about in our remarks for many of those reinvestment projects, we're actually holding onto additional vacancy as the anchors deliver and then.
We we have follow on leasing on the backs of that so I like where we're going and I think as Angela highlighted the other thing to really look at is not just where that occupancy level is but what are we doing with rate and you know there were really encouraged by what we're seeing.
And the second question is I.
I guess, it's for Brian , but I'm sure whoever will jump in a given all the you know the headlines and obviously the raft of theft and crime and you've seen the drug stores. For example, closing down certain markets. What are you guys seen across the portfolio as far as you know fallout are you seeing any changes in leasing dining.
Mick could be favorable you could be getting more tenants interested in your properties or are you seeing any markets, where its suddenly tougher to do leasing I'm just sort of curious what the impact has been from a practical standpoint on the portfolio.
I always say, it's fine it's certainly something that we've discussed at length with our tenants and our operating teams have done a fantastic job across the portfolio of making our properties safe and so whether that's additional facility managers that we've put in place at a number of our redevelopment assets, whether that's security measures like self monitoring that we've done.
At certain places, but I would say generally we haven't seen an uptick in terms of crime at our properties, but we have been working with tenants in terms of what security measures. We may put in place at a center that they're reimbursing are reimbursing us for that if it comes up and leases. So I'd say across the board. It's certainly been a concern from some 10.
But our operating teams have done a fantastic job being able to manage through it in places where we may have somewhat of an uptick and we had very little of that even during the social unrest that we saw in kind of early 2020.
You haven't seen any lease any leasing benefit or negative.
Well I think there is an underlying.
The benefit in terms of.
An increased focus by a number of these tenants are more suburban locations and you know we're certainly you know Fortunately not seeing some of the security issues that you're seeing in more urban locations that tenants are focused on but as Brian Brian mentioned, we've been.
Partnering well with our tenants to ensure that our centers are safe and well operated.
Okay. Thank you you bet.
Yeah.
Thank you our next questions come from the line of Samir Khanal with Evercore. Please proceed with your questions.
Hey, good morning, everybody. So so Angela when I look at your I guess the bridge from 'twenty, one to 'twenty, two you're baking in some dilution from transactions.
Is that the thought to just a thought to take advantage of some of the pricing out there because I know you talked about the strong sort of 4% cap rates.
Or generally how should we think about your portfolio strategy.
Sort of portfolio recycling plans over the next 12 to 24 months here.
Yeah, I mean, I think we arent really excited by its mark sort of highlighted earlier, what we're seeing on on both sides of the equation. So you know I think the transaction activity that.
We executed on in the fourth quarter and early in the first quarter really speaks to the continued the ability to continue our strategy of kind of value add investing them at at returns that really worked for for US and then you know as Mark highlighted the compression we're seeing in cap rates on some more secondary and tertiary markets is also a great opportunity for us to take advantage.
As well so I do think youre going to continue to see us active on both sides of the equation and you know.
Continued to underwrite I think really thoughtfully and tried to drive the overall portfolio growth rate higher over that course of time, but yeah, you'll see us continue to execute on both sides as we move through 2022.
And I guess my second question is around the net effective rents I mean, it was up quite a bit from the prior period, but you also signed it.
More acres, right, which usually requires more sort of leasing capex. So I guess were there.
Any anchor tenants that drove this net effective rent.
I'm, just trying to get a little bit more color. There, we're actually quite a few anchor tenants that drove that result, higher it certainly wasn't one or two deals but across the pool. There was some really really fantastic transactions that's corner, Brian Yeah. If you look.
It was our best anchor quarter that we've had since before the pandemic and particular, we signed some great grocery leases with two leases with sprouts that are kicking off redevelopment in Philadelphia, and Los Angeles, our new lease with whole foods, that's going to kick off a redevelopment outside of Philadelphia and then you look at the rest of the anchor tenants, it's a who's who of who's active in the open aerospace.
In terms of Burlington, Ross T J X, so, but those stronger grocer leases, where certain certainly impacted the number during the quarter and I would just say back to Jim's earlier point, we're seeing a lot of competition for box space, there's not much being built and so when we're getting space back. We're certainly we have one tool we have multiple.
Players that are competing for that space. So we were really encouraged with the anchor acceleration in the fourth quarter and also encouraged by the rate for sure.
Thanks very much.
Yeah.
Thank you our next questions come from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your questions.
Hi, Good morning, first I just had a quick follow up I'm not really a question. Angela you mentioned that occupancy could be up 100 to 200 basis points by the end of next year I. Just wanted to clarify did you mean 20 penalty for that.
Oh, no I meant by the end of 2020 tail weighted.
Wait it out by talking about it would be up by a much lower number you know call. It 50 to 100 basis points something like that that would be closer to the impact on an NOI, but I think you know 12 31 to 12 31, you could be up.
Build occupancy by 100 to 200 basis points.
I think that it makes sense and then just bigger picture of Jim you talked at the beginning about the great growth prospects. It brings more has gone through a lot of them, but when we look at that growth rate in 'twenty two excluding the items that impact comparability. It is still low single digits. So just wondering the 'twenty two how about the COVID-19 impacts or are there et cetera.
Eliminating earnings growth, making it somewhat of a transition year or they're just so many moving pieces that growing occupancy and higher rents and that's getting regularly offset by something else and I know you mentioned the revenue seemed uncollectible. Apart. We just went through some of that transaction impacts, but can you guys just give us some more detail on maybe achieving that growth rate that you have.
Yeah, I mean, I would just say you know you're right that I think revenues seem to uncollectible is the biggest thing sort of detracting optically in the growth rate on <unk> between 2020 , one and 2022 I had mentioned, it's $26 million of 'twenty 'twenty rent that effectively came through in 2020 . One it's about nine cents a share so that's having a material impact on housing.
Growth rate looks between 'twenty, one and 'twenty two despite that very strong improvement our contribution from base rent growth and sort of what's really going on with the portfolio. You know within same property. So that's one of the largest factors I would point to you know I think on the transaction side I'd just keep in mind you know, we've got two years of activity and that isn't that number.
And you're looking at maybe a penny of dilution at the midpoint of the range. So it's really not a significant detractor from growth. During this time period, the biggest detractor from growth as soon as the out of period collections in 2021.
Okay.
Got it okay. Thanks.
Thank you our next questions come from the line of Mike Mueller with Jpmorgan. Please proceed with your questions.
Thanks, Hi.
First was the sequential pickup of G&A, just because of the equity comp and what sort of G&A run rate should we be thinking about.
Yeah. That's a good question Mike there was some true ups at year end as you pointed out you know.
To some extent tied to.
Stock based compensation based on performance during during 2021 so that certainly the fourth quarter does not represent a run rate going forward. If you look at just our recurring G&A number which is adjusted for litigation and non routine legal I would expect growth in kind of that 3% range as we get into 2022 really reflecting mostly a norm.
Illustration of activity you know in terms of teeny and conferences and returned to office those sorts of things.
Got it and then can.
Can we get a.
A range of cap rates for your fourth quarter and year to date acquisitions, and how should we be thinking about disposition volumes. This year as the base case.
Sure Yeah in terms of the cap rates are at.
As it relates to what was executed during the quarter on the acquisition side I would say it was very consistent with what we had had described to you in terms of our expectations last quarter I was sort of in the low to mid 5% range and again I just underscore that that's low to mid 5% kind of in place with some really great near term value add.
And it is within that portfolio that as Jim mentioned in his remarks, we're already in the process of taking advantage of it a number of those centers.
On the disposition side, you know I would say the full year disposition cap rate was kind of in the mid 7% range. The fourth quarter was a little bit higher than that as we exited some pretty secondary and tertiary markets.
But I would expect that as we move into 2020 , two and the quality of the disposition pool importantly, continuous to improve you know I think you'll see us do better than that that full year level of kind of mid 7%.
Got it okay. Thank you.
Thank you Mike.
Thank you our next questions come from the line of keeping Kim with Truest. Please proceed with your questions.
Thanks, just to clarify on your capital deployment in 2022, how should we think about the dollar value in acquisitions dispositions and development.
You know keep in it's a great question and we've always been reluctant to provide volume guidance as it relates importantly, the acquisitions, because we want to make sure that we always remain disciplined we're excited by what we're seeing from an opportunity standpoint. So I do expect those volume levels to continue to increase as <unk>.
Seen us do in the second half of 'twenty, one and again, it's going to be focused ski then on acquisitions that we find have upside that are also located in markets, where we already own assets. So we're not guessing as to what the upside is or what the rate is we know it because we're competing in that market as we speak.
Peak and so you know expect us to execute on additional opportunities very similar to what we've announced and you know if if they remain attractive.
We'll continue to execute upon them if if not you know we will remain disciplined and the nice thing about it Kevin is that.
It's an additional lever for growth beyond the great internal growth that we have as you mentioned through Reinvestments, which is largely.
Funded with our free cash flow to leasing spreads, which you know allow us to capitalize on the real significant mark to market that's embedded in our existing leases. So that's kind of how we think about it and how we prioritize it reluctant again to give specific levels of acquisitions guidance I don't think.
You'd want us to I think instead, we'll we'll remain disciplined but we are excited by the pipeline of what we see yeah I would just add in terms of the value enhancing reinvestment pipeline overall I would expect levels of.
<unk> and 2022 to be a little bit about the long term average of 150 to 200 million, which start up for flex.
The delays you know, we proactively set in 2020 and kind of bringing those projects.
Back online and accelerating the activity there and some of the other exciting opportunities that are coming forward in this environment, just given the strength of leasing environment. So I'd expect us to be kind of 200 225 million in the total value enhancing bucket in 2022.
Okay great.
Obviously, it had a great year and quarter on leasing volume.
So when you look at the total addressable grew up new leases that you're negotiating today and how does that volume look like to you know a couple of quarters ago.
The quality of the tenants look like for a couple quarters ago, and you know given some of the larger macro factors and maybe pull forward of retail spending like how does that or how does that all that calculus workout in terms of what the forward looks like as Brian mentioned importantly, we're seeing growth in that forward pipeline and not just in terms.
<unk> volume, but also raid and quality of tenancy.
So we're really encouraged by what we not only have signed but not commenced but also what we're in legal negotiating today and you know again some of that activity is activity that triggers additional accretive reinvestments in the properties themselves.
So we're excited about that and you know as I highlighted in my remarks.
We're seeing it already and recent acquisitions <unk> got a couple of anchor repositions already lined up for centers that we've closed within the last couple of months. So just really great execution by Brian and the leasing team and Mark and the investments team coordinating and making sure that we integrate those assets as well as we acquire.
Okay. Thank you you bet.
Thank you our next questions come from the line up Linda Tsai with Jefferies. Please proceed with your question.
Hi, Thanks for taking my question in terms of the expected 100 basis points increase in year over year occupancy what would the lease retention rate translate to at year end 'twenty two I realize it was understated this year around 72%.
Yeah, I don't have a specific retention rate, but as Brian mentioned earlier, you know our move outs have been a very low throughout 2021 and that trend has continued into the early part of 2022, we've had an exceptionally light bankruptcy season.
And the overall health of the watch list and sort of the tenancy within the portfolio.
It's a very very strong right now so I would expect without giving a specific number in terms of what that'll look like at year end I would expect it to be you know again, an improvement over where we've been over the last several years.
Yeah, I would just add Linda where we are were at year end from a GLA perspective at over 82% was ahead of where we were at the end of 2019 as Angela mentioned the trends that we're seeing from a move out perspective, we continue to be encouraged by it and I think it goes back to which Jim has talked about throughout the call. The improvements that we continue to make.
At our centers, both from an operational standpoint, as well as the reinvestment better tenants are staying there at higher rents. So we've been able to not just attract better tenants to our properties, but keep the ones in place that we want to grow with long term.
Thanks for the color and then in terms of the rents that were previously deemed uncollectible and they're paying now can you just give some color on the tenant type should we assume they're just mostly local and experiential.
Yeah, I mean, I think the collections page in the supplemental it gave some good color in terms of where we continue to see improvement in collections. Most categories have returned to pre pandemic levels. There are really four categories that that still lag somewhat the historical experience and that entertainment and most significantly a restaurant.
A little bit on fitness and then other services.
You know one thing I would know.
You know when you look at that page in the supplemental and this came up in someone's someone's previous question. It looks as though there's been a step down in some of those categories relative to Q3, I don't think that's really what's going on within those categories. I think the third quarter number you are seeing now is a dramatic improvement in those categories relative to third quarter, when we reported it and.
Some of those categories are now paying but that it's just taking a little bit longer.
And so I do think we're seeing and continue to see even through the fourth quarter and into January and here in February continued improvement in those categories and to what looks like an optical stepped down between Q3 and Q4. It really isn't it's just the passage of time. So we're encouraged by the trends overall in the portfolio. Those are the categories. We continue to work most.
Closely with them and continue to watch most closely but I would say the trends over the last couple of months have been continued to be encouraging.
Thanks.
Thank you.
Thank you. Our next question is coming from the line of Paulino Rojas with Green Street. Please proceed with your questions.
Hello, Hi.
Hi.
Haven't seen it.
The modest decrease.
Entrusted to strip centers since the last January .
And which is nicely driven by the improving from cases so.
What is the retained its reaction.
Please proceed.
In a way or are they still express worry.
You know it's interesting the the traffic levels are down roughly 3% so very modest.
Year over year end and on a two year basis, they're actually up a 11% so.
You know, we're we're we're obviously monitoring that closely but we're encouraged by really honestly the lack of impact of omicron and how it's done very little to disrupt the consumer patterns that we see at the shopping centers and you know again that's.
Afflicted in not only the modest move year over year, but the more significant increase over the last two years.
Thank you.
On the expenses side, what are you modeling for expenses net of reimbursements.
He called should this line item to be a tailwind for same property NOI growth to 2022, given the higher occupancy and reimbursements were a drag due to higher overall costs.
Yeah. So that the same property detail we gave in the press release suggests that not reimbursement income percentage rents and ancillary together would be a 50 basis point contribution to same property NOI growth in 2022, I would say the bulk of that 50 basis points likely comes from net reimbursement income because as you point out we're in an.
What do we believe we're going to continue to improve occupancy over the course of the year.
Great. Thank you.
Thank you.
Thank you. Our next question is coming from the line of handheld St. Juste with Mizuho. Please proceed with your questions.
Hey, Thanks for taking my question.
Good morning.
A couple of questions I guess first one on leasing I guess I'm curious.
Are you at a point now or maybe willing doing are willing to take back from.
From her department.
And maybe one person vehicles in order to really be back at higher rates.
Pardon me.
We're doing it all the time I mean, it's really it's a great question handle and it's part of that reinvestment pipeline. So when you look at that $380 million or so that we have underway today a lot of that has been set up by recapturing space either at the end of the term when we can get it back or in some instances.
There's even earlier than that.
And in some of those cases, we've been actually are well be able to collect some termination revenue. In addition to you know we think improving the merchandising of the center. So we continue to be really focused on driving long term growth and value at the centre and not simply driving.
FNC. So we've talked a lot about occupancy we've talked a lot about right, but you know the value creation engine in the core principles of how we execute remain the same.
I appreciate that color Jim.
I know you've been adding grocer to the portfolio.
For him, but I guess I'm curious on what your interests could they could be in more big box.
Oriented asset.
Improved demand is pointing out.
Better yield even better I guess, the breath of psychology and in particular, if there is a big box portfolio, let's say a northern California.
From your your level of interest there.
You know, we are saying I'm going to let mark comment on this we are seeing improved pricing for big box portfolios I think.
In part, reflecting many of the things that you'd point to but as we look at acquisitions, it's really about what we see as the opportunity at that center to bring in better tenants at better rents and do so in a way that's accretive from a capital perspective.
And typically our assets that we're looking at our mix of.
Anchors junior anchors and small shops, you're probably not going to see us execute a strategy of going after pure.
Big box type of centers, because oftentimes the upside is just not there.
Yeah, John I think you've hit on it I mean, we're certainly seeing a compression in cap rates from.
From a big box perspective, and we'll certainly try to take advantage of that for assets, where we can maximize value.
And on the acquisition side, Jim I think you've hit it right. It's really looking at the center that we might be acquiring and is there a big rent mark to market. That's available is there a big incremental return we can do from a redevelopment perspective, that's really driving our ability to look at those assets can we add a grocer will have compressed the cap rate, that's how we think about it but.
I think you hit it I don't think we're in a strategy of going in and simply acquiring at market power center boxes today.
Got it got it no. That's helpful guys I appreciate that if I could ask one more.
Quick question Angela the 250 million of notes maturing I think it's the second quarter of this year I don't know if it's been brought up.
Don't think you've you've addressed it yet, but just curious what the plan there could be and maybe a sense of where you could issue unsecured debt today.
Yeah, the 250 actually matured here at the beginning of February so those have been repaid them really with cash on hand, and liquidity available to us today, yeah, we evaluate the fixed income market all the time and continue to watch it closely in this environment. It's obviously been a little more volatile lately our next real.
Use of proceeds from an unsecured issuance perspective would probably be in a liability management on our 2024 that there's really no other need.
To be active in the capital markets outside of that so we'll continue to evaluate it closely.
And watching particularly watch for for an improvement in kind of the volatility in the market and see how some of these other deals going whether or not it makes sense for us to execute on something like that.
I haven't got it well wonderful. Thank you all thank you hand off.
Thank you there are no further questions at this time I would now like to turn the call back over to Stacy Slater for any closing comments. Thanks, everyone. We look forward to speaking to many of you over the next few weeks. Thank you.
This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.