Q1 2022 Brixmor Property Group Inc Earnings Call
Greetings and welcome to the bricks more property group first quarter 2022 earnings conference call. At this time all participants are in a listen only mode. A brief 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 it is now.
Now my pleasure to introduce your host Stacy Slater.
Thank you Sir you may begin thank you operator, and thank you all for joining <unk> first 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.
Rice, President 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.
Nation to update any forward looking statements.
Also 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.
Stacy and good morning, everyone I am pleased to report yet another strong quarter for brakes more it's a quarter that not only reflects the positive trends, we're seeing in the open air retail industry with record levels of tenant demand, increasing customer traffic and limited new supply, but another quarter of performance for bricks more in particular.
That demonstrates a unique durability and momentum of our value added plan ours is a business plan that outperformed through the last three years, and which continues to produce fundamental growth beyond pre pandemic levels and importantly, it's a business plan that positions us to continue that outperformance into future <unk>.
Said differently our value added plan benefit immensely from the strong industry fundamentals, we're seeing today, yet it's also durable enough to outperform and lots of favorable conditions.
This quarter, we delivered 11.4% year over year after a thorough growth driven primarily by same store NOI growth of eight 4%.
Those are strong headline number certainly, but I think what truly stands out in the quarter is the strong growth before the impact of bad debt. We expect this fundamental growth to continue and accelerate well beyond the transitory benefits of bad debt recoveries, which do reflect well on the performance of our underlying tendency, but which are finite and <unk>.
Correct.
Importantly, our performance metrics this quarter bring again into sharp relief the growth in transformative impacts delivered through the continued execution.
Of our value added plant.
Consider for example, the nearly 1.4 million square feet of new and renewal leases signed during the quarter at a cash spread of 18, 1%, including 780000 square feet of new leases at a comparable spread of 35, 9%.
That's a record level of Q1 productivity of incremental new rent on a portfolio that is 20% smaller in G. L. A than when we began our plan.
Or consider the all time record small shop occupancy at 87%, which includes a drag of 120 basis points from in process and future redevelopment.
Or consider the year over year growth in overall leased occupancy of 130 basis points or the continued growth in average in place ABR to a record of $15 64 per square foot or the significant growth in traffic levels over a pre pandemic peak for this portfolio.
In addition to underscoring the momentum of our value added transformation has driven our metrics. This quarter provide great visibility on continued growth, including $52 million of signed but not commenced ABR at an average rate of $18 92 sense of fun that we expect to commence over the next several quarters. It's Angela.
I'll detail shortly and an additional $50 million of ABR from new leases and our forward leasing pipeline at an average rent of over $18 a foot.
This forward leasing activity provides us confidence in our outlook for base rent to contribute 4% to 5% growth not only this year, but into 'twenty three and beyond.
We are excited about our ability to continue to capitalize on our proven locations, our attractive rent basis, and our transformative value added reinvestments to drive outperformance in the future speak.
Speaking of reinvestment. So I'm pleased to report that we delivered another $28 million of accretive reinvestment this quarter at an incremental return of 10% delivering the same value creation is over $110 million of ground up development before considering the additional value of cap rate compression on the centers impacted as we brought in.
Tenants at better rents simply put our value creation engine continues to fire on all cylinders not only delivering highly accretive returns, but also enhancing and transforming the assets impacted to date, we've delivered over $720 million of accretive reinvestment impacting over 30% of RP.
Portfolio and our pipeline remains strong with an additional $419 million of active reinvestment projects leased and underway at an average incremental return of 9% as well as a shadow pipeline of nearly $1 billion of opportunities at compelling returns that will continue to convert to active over the next several years.
Yes.
We invite you to tour our assets with our regional teams in markets like Southern California, Texas, Chicago, South, Florida, Philadelphia, and New York to not only see the transformation that has occurred but the value to come as we continue to execute upon our disciplined strategy of capitalizing on attractive rent basis.
You can also check out our progress we are at the center of videos posted on our website and on Linkedin.
From an external growth perspective, we continued to find and execute upon attractive opportunities from our target list that further cluster our investments in our core markets. Importantly, these assets presents significant value add opportunities to leverage our leasing and reinvestment platform and to deliver significant growth and ROI.
Why from re leasing and re merchandising lease up of in place vacancy mark to market of in place rents on rollover densification, including out parcel development and accretive redevelopment and recent.
Recent examples closed subsequent to quarter end include what's your marketplace in Houston are highly productive whole foods anchored center across from our braids Heights asset that presents near term upside through re merchandising and marketing the shops to rents equivalent to what we're achieving right across the street and Elmhurst crossing in North Riverside.
Both grocery anchored centers in highly dense affluent suburbs of Chicago just minutes from our regional office, both assets have highly productive anchors at below market rents with near term upside through the lease up of vacancy the tenants pre identified by our national accounts team, who desire to be at these highly.
Fix centers as well as the addition of pad sites and other accretive reinvestment.
I'm pleased to report that our regional and National accounts teams have already driven new lease in LOI activity on our recently closed acquisitions at rents well in excess of what we originally underwrote demonstrating the strength of our team the conservatism of our underwriting and the compelling nature of the value added opportunities we've executed them.
Bob.
In summary, I'm grateful for how this breaks more team continues to execute delivering outperformance and tremendous value for our stakeholders as we advance our purpose of creating and owning centers. They truly are the center of the communities we serve.
Now I'll turn the call over to Angela to provide further color on our results our updated guidance and balance sheet Angela. Thanks.
Thanks, Tim and good morning, I'm pleased to report another strong quarter of execution by our team as we continue to deliver on our portfolio transformation, while capitalizing on the strength of the current leasing environment married.
NAREIT <unk> was 49 cents per share in the first quarter and same property NOI growth was eight 4%, reflecting approximately $8 million of cash collected on previously reserved base rent and expense reimbursement income.
Base rent growth meaningfully accelerated in the first quarter contributing 410 basis points to same property NOI growth on a percentage rents and ancillary and other revenues contributed 130 basis points on a combined basis.
That expense reimbursements to attract at 30 basis points from the same property NOI growth in Q1 due to the quarterly volatility of operating expenses experienced in 2020 one.
I would note however that we do expect that expense reimbursements to be a positive contributor to growth for the full year due to prudent expense management and anticipated occupancy gains across the portfolio.
The impact of our value added strategy continues to be evident across all of our operational metrics build occupancy was down only 10 basis points. This quarter defined normal seasonal trend well leased occupancy was up 10 basis points driven by a 30 basis point improvement in our small shop lease rate to 87% of portfolio of record.
The spread between leased and build occupancy for the entire portfolio expanded to 350 basis points and the total signed but not commenced pool, which includes an additional 60 basis points of leases signed on space that will soon be vacated by existing tenants.
The $52 million at a blended rate of nearly $19 per square foot more than 20% above our portfolio average.
And as our new disclosure on page 30 of the supplemental package highlights we expect that over 70% up to find the documents pool or $38 million well commence throughout the balance of this year.
As Jim highlighted leasing results in the first quarter were exceptionally strong with new lease spreads totaling 35, 9% and renewal spreads accelerating to 12, 1%, increasing our blended new and renewal spread by 360 basis points to 18, 1%.
Importantly, new leaf productivity in the first quarter was 780000 square feet, representing the highest first quarter total since 2018.
In terms of the balance sheet during the first quarter, we utilized existing cash on hand to repay $250 million of floating rate notes upon maturity and subsequent to quarter end, we amended our unsecured credit facility improving pricing, adding a sustainability linked feature and extending the maturities of our revolver and $300 million term loan.
In addition, our amended term loan has $200 million of additional capacity, which may be utilized by the company at any point in the coming year and.
As of March 31st Pro forma for the amendment, we have approximately $1 4 billion of available liquidity and no debt maturities until 'twenty, 'twenty, four, allowing us ample time and flexibility to opportunistically access the capital markets.
Since last quarter's call our credit rating has been upgraded to triple B flat by fetch and it's been placed on positive outlook by S&P. We are very pleased to see such recognition for the improvements that have been made to the balance sheet portfolio and the platform over the last six years.
Turning to guidance, we have revised our 2022 same property NOI growth expectations from 2% to 4% to three to four 5% due to the significant out of period collection of previously reserved amount in the first quarter and an improvement in our outlook for revenues deemed uncollectible through the balance of the year.
We now expect that for the full year revenues deemed uncollectible will total approximately 60 to 100 basis points of total revenue, resulting in a detraction from 'twenty to 'twenty two same property NOI growth of approximately 100 to 150 basis points.
NAREIT <unk> guidance has been revised to a range of $1 88 to $1 95 per share from the previous range of $1 86 to $1 95 per share and with that I'll turn the call over to the operator for Q&A.
Thank you we will now be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.
Start to if he would like to remove your question from the queue for participants using speaker equipment. It maybe that's the third or pick up your handset before pressing the star one.
One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Craig Schmidt with Bank of America. Please proceed with your question.
Thank you.
Just wondering I know good small shops had just reached a new high but how much further can you push it.
You seemed to mention a drag it sounded like you were still working on additional lease up of smoke shops.
Thank you for the question and highlighting the drag that I did mention.
It is a drag of about 120 basis points for projects that are in active or soon to be active redevelopment projects, where from a strategy standpoint, we're holding some small shop. They can see the benefit upon the redevelopment of the center to drive both rate and occupancy, but more importantly, when you think about what's been happening.
With this portfolio overall, we really clearly expect us to continue to set new records in terms of that small shop occupancy and see it increase.
Several hundred basis points above where it is today and it's part of the value added nature of what we're doing oftentimes, we're not including the follow on lease up that we see in these reinvestment projects as we as we talk about the returns, but its something we fully expect as we continue to improve the portfolio.
Great and then just as a fee.
Follow up are there any changes to the structure of back office space.
To better accommodate the the last mile fulfillment needs.
Craig Hey, this is Brian .
Tenants are certainly looking at how they're utilizing their store not just to connect with the customer at the shopping center, but to your point to be able to fulfill our goods from the stores that are target. Just report earlier this year that 95% of their sales are fulfilled from the stores. What's been interesting about it is that tenants have been able to integrate this within their current prototypes.
And as we're working with tenants in terms of their build outs and getting them open for stores. Both for this year and in 2023, there's certainly focus on how to integrate that into the store and it's been interesting to see with the likes of Ulta and other tenants who are relying on the omnichannel platform to do it and it's also part of our our curbside program we've talked.
About on prior calls how we have been very accommodating with large format retailers and some of our junior boxes are doing more curbside really across the portfolio as well and all that goes into making the store really the focal point of what they do to connect with the customer and if you think about it Craig. It's also the most profitable logistics space.
For these tenants.
Transfer a lot of the last mile cost to the consumer.
Great. Thank you you bet.
Thank you. Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Thanks. Good morning first question I, just wanted to ask about the investment activity in the quarter. It was a relatively.
Big quarter and sort of year to date.
Net investment activity for the company can you talk a little bit about the pipeline and what might be on tap for both buys and sells in the near term and throughout the balance of the year and maybe comment on whether your appetite has changed at all.
For new investments in light of the current macro backdrop.
Discipline and focus thank you for the question Todd has always been on those opportunities within our target list that we think present value added return opportunities what do I mean by that.
Investment opportunities, where we have significant visibility on near term growth and I highlighted some of the areas, where we're realizing that on some of these recent acquisitions, including lease up of vacancy that our national accounts team is pretty identified to rolling rents to market et cetera, So our appetite for value added.
Opportunities in this environment remains strong we're pleased with what we've executed to date in terms of dispositions. We do have some more in the pipeline and expect that to pick up a bit over what we've done year to date and you know, we'll always remain opportunistic that's all.
It's really our discipline, we're not trying to go into new markets. We're looking at opportunities on our target list, where we think even in a low cap rate environment, which interestingly given the volatility in rates has remained pretty persistent.
Where we can get to returns that we can justify from a use of capital standpoint. So that's really been our focus and expect this to remain a disciplined and you know continue to capitalize on what we think is a competitive advantage in terms of our leasing and redevelopment platforms, particularly.
Kelly are tied in a in a universe, it's still almost entirely held by private owners. So some of this interest rate volatility may shake loose some opportunities that we haven't seen in the past. It may even you know drive cap rates higher it remains to be seen but I I think we're in a good.
<unk> positioned to continue to be opportunistic.
Okay, and just I guess following up on that.
Are you changing your return hurdles at all as you evaluate new investment opportunities and do you have a sense whether.
Pricing is changing at all for new deals that that might be coming to market.
Certainly where rates are and spreads impact are our hurdle rates no no doubt about it which just puts more emphasis on finding those opportunities again, where we can clear those hurdle rates with highly visible growth.
You know in terms of what we're seeing in the market as I alluded to it its been pretty stubborn and Mark are you might comment on it but cap rates remain pretty tight perhaps in part due to that risk free spread.
Yeah.
I agree with you Jim that ultimately rates.
The rate environment will impact the cap rate environment, but we've continued to see very strong pricing real time in the market today, we've seen very strong movement of institutional investment interest in our space because they've really seen that strong tenant demand was strong in consumer traffic.
Yes, I think really showing them that open aircastle are quite durable you mentioned earlier.
We continue to trade at a pretty large youll premium relative to other major asset classes, I think that wave of capital coming into the space.
It is making cap rates somewhat sticky I think the best example of that he had been pricing on recent portfolios, where it appears to us at least.
That we've seen portfolio premiums and it shows you that institutional investors are paying off to get into the space and the strong demand to continue to access open air retail cashless.
Okay, great. Thank you. Thank you Todd.
Thank you. Our next question comes from Michael <unk> with Citi. Please proceed with your question.
Hey, it's Chris Mccrary on with Michael actually just a quick follow up on the external growth conversation on return hurdles.
Any commentary you could give us for appetites on entering new markets or maybe your appetite for larger portfolio acquisitions, and just any insights to the pricing you're seeing on some larger portfolios.
Hey, Chris its Jim Great question, you know in terms of new markets, we see ample opportunity in the markets. We're in and you know our strategy from the start has been to exit a single asset markets are markets that we don't see as long term core and cluster our investments as we've been doing.
And sat in Florida, Texas, Chicago in the Submarkets, where we see great retailer demand, where we're not having to guess what the rents are we have properties. There and we've also really understand through our national and regional accounts teams. What the tenant demand is to be there I think those are what present, the best risk of jobs.
The returns for us versus going into new markets and I'm, sorry, I forgot the second part of your question.
Yeah, just you know commentary around appetite for larger portfolio acquisitions, and just pricing insights youre seeing into some of the larger portfolios on the market Mark.
As I mentioned before where there's been a variety of portfolios that have traded and we do think they've traded at a premium relative to the underlying asset by asset cap rate and showing that real strong demand to be in the space.
While we've looked at those portfolios. We have remained disciplined with respect to our return hurdles and we think we've gotten better values and the one off market recently. Good example from from a recent deal we just announced with Virginia. If you look at that asset we purchased that at 81% occupied as Jim mentioned that the local team and our national accounts really saw strong 10.
The man to be at that asset first couple of weeks, we brought in a large lease that's going to increase the yield there by about 110 basis points and drive occupancy by about 10%, which we think is a really great return of that asset and we'll see more growth beyond it when we've seen those assets and portfolio. When we've seen the opposite coming portfolios. We've seen a lot less growth. So we've been really pleased the analyst.
One of execution and the pricing we think we can get there on their turnkey was eating achieve overtime. Yeah. When you. When you couple that a portfolio naturally isn't gonna be consistently value added with the fact that portfolios are attracting a premium right now it just makes it difficult for us to be competitive.
Yeah. It makes sense and then could you just walk us through some of your capital plans following the Fitch and S&P announcement.
Any appetite for tapping the debt capital markets. This year or could you just give us an outline of some of your capital plans.
Yeah, you know with the the amendment of the credit facility, what you see in the supplemental for 2020 three maturity has now been pushed out to 2020 six. So we don't have any remaining debt maturities until 'twenty 'twenty, four which gives us a lot of time to monitor the debt capital markets in particular and pick a point that makes sense and feels opportunistic for issuance and so I'm glad we have a lot.
The flexibility and runway really reflects all of the capital raising we did throughout the pandemic I'm, putting us in a position to.
To be a little patient and pick the best window.
Thank you thank you Chris.
Thank you. Our next question comes from plants in Alberta with BMO capital markets. Please proceed with your question.
Hi, good morning.
You referenced.
We are kind of record small shop space occupancy I'm, just curious on how you think that could evolve or what you're forecasting in your model for the balance of the year and ultimately.
Targeting confidence level to get there.
Yeah. So Angela will kill me, if I give guidance as to where we think the small shop occupancy is going to be over the next few quarters, but it is a significant growth lever for us and it's a growth lever in part because of the value add strategy that we've been executing upon so as I mentioned earlier, we do expect that level of small shop occupancy to.
Continue to create not just from an absolute occupancy standpoint, but importantly also from a rate standpoint, and you know we're not we're not driving just to get occupancy, we're driving to get to both rate and occupancy and so you know as I mentioned in time won't give specific guidance, we do expect to be several.
Basis points above where we are today kind of market neutral given the execution of our plan you know when you bring in a vibrant new specialty grocery into a center that didn't have such a tenant before as you can imagine the follow on leasing and what happens to the small shops as part of that.
<unk> is highly accretive and as I alluded to in my remarks, you know, we're now a little over five years into the execution of our plan, we've invested over $720 million into our portfolio of close to a 10% incremental return and importantly, we've impacted you know about 30% of our centers when you consider.
The 420 million of active and leased reinvestment that we have underway and importantly, the pipeline behind it.
We really have I think unparalleled visibility in terms of how are we going to drive that.
And it's a key component of I think what differentiates our plan from others and that this isn't a recovery play. This is a value added play and it's part of what drove our outperformance in the three years that just passed but it's also what gets US excited about how we're going to perform.
Going forward.
And great market, which gives us a tailwind and a neutral or even a more challenging market.
We like how we're positioned from a visibility on growth standpoint.
And then just following up on the right side of the equation could.
Could you give us any sense of how a like for like space that maybe hasn't had the benefit of.
Redevelopments how rents are trending.
For leases, you're signing today versus 2019 benchmark just to get a sense of the two.
True pricing power yeah. Another another great question I mean, we're seeing the benefit of the the low rent basis, we have across the entire portfolio not just the assets that were accretively reinvesting in that that upside in rate oftentimes opens up the opportunity for additional reinvestment.
But it's not always required and you know you can see that in the consistency of our quarterly spread numbers that Brian and team continue to generate and you can also see it in terms of the rates in which we're able to find small shops. This quarter, we signed small shops at the highest rates than we ever have across the portfolio, which is indicative of everything that Jim had talked about the.
<unk> that we're making in our centers the improved operations the capitalizing on the anchors that we've been putting in and then just a really strong environment in terms of the depth of demand for space, whether that's in the health and wellness category or the Q I saw a restaurant category. We're just seeing some really great tenants. So we've been able to attract to our centers and again at the highest rents we've ever signed so we've been.
Really encouraged by it and to Jim's point, we see a long runway for growth.
Thank you very much thank you.
Thank you. Our next question comes from keeping Kim with Truth. Please proceed with your question.
Thank you good morning, good morning, good morning.
If you think about the macro concerns and even if even the retailer equity prices.
First is the kind of strong commentary that you have on leasing volume.
Yeah. There was a disconnect and when you think about that can you.
Help us bridge that gap and.
What point do you think retailers confidence because park away.
I think it's gonna be driven ultimately by the consumer right and the consumer continues to shop at these retailers the consumer continues to buy groceries.
And you know with the inflation that we're seeing today the retailers have largely been able to pass that on to the consumer perhaps in no small measure because of wage inflation and the other thing to think about that's going on and maybe a broader background theme is how the retailers themselves in an <unk>.
Place scenario environment or are more.
It's sort of discipline, and and and and strict about assessing the profitability of different channels and the store remains the most profitable channel for them to get to the customer so I and Brian Please comment, but what we're seeing real time continues to underscore the strength of that leasing it.
<unk> that we're seeing where tenants really do want to get stores open sooner. They they want to fill their pipelines not just for 'twenty, two 'twenty three and beyond.
You said keep in to Jim's point, we still do have retailers that are looking for 2022 openings. This year, we've talked about the record start that we had to this year. The best start we've had since 2018, but our forward leasing pipeline has also grown 15% since last quarter. So we're seeing more deals come to community, we're seeing the strength of our core.
Tenants new tenants to the portfolio like the mall native brands, we continue to attract to our centers. So from that standpoint, we're encouraged by it and as we continue to make these investments we're seeing more competition for space in Turks and then some type of pullback. So overall again.
Again, we've been really encouraged by what we're seeing today, but you know keep and maybe more broadly to your point and it was something that I tried to highlight at the opening of my remarks ours is a business plan because of our attractive rent basis that can outperform and in a less robust demand environment, particularly as tenants are increased.
Really focused on the profitability of their various channels that that attractive rent basis is a huge huge advantage.
Got it and you guys had pretty good operating result, this quarter, good leasing volume because spreads and more active in the capital deployment.
I Wonder just start high level your <unk> growth guidance would have been Oh.
Little bit higher than just one penny.
Also I was curious if there were other line items that might be weighing on kind of full year <unk> guidance.
Yeah, and keeping us Angela I'd say I'd say, a few things I think it's important to step back and think about the context of our original guidance and this is part of the reason for us, giving so many components of the same store property guide last quarter as well so when we initiated our guidance.
On our previous call.
With our NOI guide at 2% to 4% that embedded topline guidance. So the contribution from base rent of 400 to 500 basis points, which.
Which would be a materially in excess of any number that the portfolio has ever produced and really reflect that I think the strength of the current environment.
Certainly we have had this quarter wins on on bad debt and that certainly was reflected in the improved same property NOI guidance and the improved guidance, particularly at the low end of the range, but I would just say you know we came out with guidance that was pretty strong to begin with and certainly reflected the strength that we're seeing in the environment last quarter and that we delivered on this quarter.
You know as we look across other line items, you know certainly where we're cognizant of the environment as it relates to inflation across and and interest rates across the number of line items, but again I would say that didn't really affect the guide.
It was really you know a reflection of the strength and in top line that we believed we would see last quarter and that we continue to see this quarter.
Yeah.
Okay. Thank you.
Thank you.
Thank you. Our next question comes from Greg Mcginniss with Scotia Bank.
Question.
Hey, good morning.
I just wanted to go back to the lease spreads and rent growth how much rent growth have your different geographies experienced since 2019 and separately what is the current mark to market of the portfolio.
You know when you. Thank you for the question and I I loved that Youre looking backwards, because I think that's important to understand the full scope of the outperformance. If you look at you know what kind of growth. We've produced over the last three years, where we're at the top of the sector, while still delivering growth this quarter.
At the upper end.
And you know, our our spreads and our growth had been pretty consistent, albeit over the last few quarters, we've seen it accelerate a little bit which has been some nice additional tailwind Brian Yeah, I'd just add on that Greg I mean, we're now three consecutive quarters of new lease growth over 25% were re.
Really encouraged by the renewal growth you saw that continue to increase over the course of the last year and again for a number of the reasons that we've continuously mentioned during this call the improved operations the demand to be in our centers and the team's doing a great job capitalizing on that demand to really continue to.
Drive right. So you may see some fluctuations in a given quarter, but overall, it's been pretty consistent and we're confident in our ability long term to continue to bring rents to market.
Okay, and then just any sense for what maybe what the current mark to market would be for the in place portfolio.
Yeah, I mean look where we're at 15 15.
<unk> 15, and change today, and we've been signing those leases between 17 and $20 a foot.
Across the board. So we feel that there is continued upside I mean, then if you look at our anchor space over the next three years, we've got anchors expiring at less than $9 a foot we've been signing those over the last year at 14th So again, we have visibility into that growth and with the supply demand dynamics the overall.
Appetite for new stores for tenants are we're pretty confident about our ability to capture that.
Okay, and I guess, just one more follow up on on the those are kind of below rent Oh, sorry below market rents on the anchor spaces.
Are those generally being re signed by the in place tenant at the at the higher rates or are you having to backfill it with a different tenant it.
It's been a mix in terms of in terms of those rates I mean, we just had the benefit of this older well located portfolio with some of these leases or are starting to roll and we're able to bring those red significantly to market, but also the fact that we've been reducing options across the portfolio. So that we do have the opportunity either to bring a tenant.
Two market that we want as part of the merchandising mix or to be able to re merchandise that with a specialty grocer with a strong value apparel operator, so it really gives us that flexibility that we've kind of seen across the board and that's why you're seeing this both in our renewal rates as well as our new lease rates and importantly, you know and it's reflected in our returns.
We report on an incremental basis, those low rents allow us to replace a tenant profitably.
We think that is the right out outcome and direction for a center.
If we were sitting at higher rents that would be a tougher economic decision.
Right.
Sorry, just one more if I could given inflation and the improving portfolio quality.
Have you been able to push escalators at all.
Just curious where you have to be signing a new lease escalators that yeah. We've been that's something we've been very very focused on our last year, 97% of our leases are with five years or more are long term leases had rent growth throughout those often times now, we're seeing particularly with a local and read.
Retailers, we've been able to push those three and into 4% across the portfolio across the entire portfolio. It's around 2% that we've been able to achieve so we continue to see that and again the competition for space is really leading to some good economic results. So we can start to achieve more of those metrics across the board in our leases.
And you know the biggest impact is always going to be what you achieve a part of new lease or a renewal, that's where you're going to get your largest growth and its Brian .
Highlighting we've been focused on intrinsic growth for the last six years you know every capital decision. We made has always been with the backdrop of rising rates and.
A different cost of capital than what it what persists today. So you know, making sure that we get good intrinsic growth.
Got it.
It's widely distributed across the portfolio, it's been a real focus of ours not just the last 12 months, but the last five years.
Great. Thank you you bet.
Thank you.
I'm from Mike Mueller with Jpmorgan. Please proceed with your question.
Yeah, Hi, I'm curious what are the characteristics of the assets, where you've seen cap rates actually back up over the past couple of months compared to say that.
<unk> picks up the ones where they remained.
Steady and haven't backed up.
I think it's really clear I mean, it's all about growth.
The assets have strong inherent growth, that's where you're seeing stickiness.
<unk>.
And the cap rate, but even you know it's interesting Michael even with assets with less growth than we passed on hundreds of millions of dollars of more core like assets some of them in portfolios, where the cap rates have been incredibly strong and I think part of what you're seeing right now.
And our sector as Mark alluded to before is this wall of institutional capital looking at acceptable asset classes and judging the durability and resilience of retail and frankly, the spread to the risk free rate is highly attractive rather relative to some other asset types and you know where the cap rates have gone across.
The board or assets that might be struggling more from a fundamental standpoint. So we you know it just forces us again to be disciplined and focus on those opportunities where you know our national accounts team knows the tenant that's going to backfill. The vacancy you know, we we know where the rents are because we're already in.
The market, we understand how we can add density to the site, that's really where we're able to underwrite and be competitive but we haven't.
Seen cap rates back up much yet that's not to say that it won't happen. It just we haven't seen it.
Got it.
Thank you. Thank you.
Thank you. Our next question comes from Handel St Juste with Mizuho. Please proceed with your question.
Hey, good morning, good morning.
So a question for Jim I guess on the retention.
It looks like it was 71% by number count in the quarter, 81% by GLA, which seems a bit below peers is that because you're strategically I think not to retain certain tenants give me opportunity to raise rents or maybe some other explanation and maybe what's your expectation for tenant retention that your occupancy picks up here as we move forward. Thanks.
Yeah, I mean, we're certainly leveraging this moment in time from a demand and fundamental standpoint to drive the best terms and rate.
We're not trying to drive retention as much as we're trying to drive growth in ROI. So if we can't get to an appropriate renewal right we will take.
Take the vacancy we will suffer the retention dimunition and drive to a higher return and you can see it particularly in not only our spreads, but and that and that growing spread between build and leased up.
And we are encouraged in this environment by what we see is generally higher renewal and retention rates, but we do want to make sure we're getting a good value.
Yeah, Hey, this is Brian I would just add that close to 82% on the GLA were almost 300 basis points of where we were ahead of where we were at this point last year and 100 basis points ahead of where we were in <unk> 19.
Number in terms of the actual count that includes some short term deals that we did kind of first quarter second quarter of last year I would say overall, though you look at the move out trends or close to historic lows I mean, our billed occupancy dip historically from the end of the year through the first quarter was 50 basis points, you always saw that down.
10 basis points, our move outs are down considerably from where they were in 2019 and 2020 I'd also down from where they were last year. So those trends have been exciting, but what's also exciting is that we've been able to renew the tenants that we want to renew at the Hyatt at very high rates, which continues to get better.
As we continue to invest in our portfolio. So overall, we've been pretty pleased with the trends and we expect them to continue to improve.
Got it. Thank you for that one follow up I guess overall, Jim appreciate your comments on the <unk>.
<unk> and increasing the focus of the portfolio I guess I'm curious maybe some updated thoughts on how you think about the sizing of the portfolio here today 300 atheist assets down from over 500, plus just four or five years ago. Oh, you have thought that you totally happy with or should we generally expect dispositions.
To maybe play a role.
Lending a redevelopment.
Going forward.
We're always going to be lots of question handheld, we're always going to be disciplined from a hold IRR perspective, so for certain of the assets, particularly in our noncore assets, which there are a few that remain.
You know, where we may be releasing a repositioning earning some nice accretive returns, we do look to ultimate dispositions in and some of those markets from a scale perspective, I think we're at a great size I think we're at a great scale and we leverage that competitive advantage.
In terms of the market share that we capture from our core tenants that are growing and each year.
Our national and regional accounts team I think do a phenomenal job.
If X Y Z retailer is opening 80 stores, we weigh out index our share of what those new store openings are given the scale of our portfolio, but also the relationships that that scale has allowed us to build with tenants. So as we look forward.
Having the advantage of scale, we're going to continue to look at opportunities to cluster in our core markets, which likely will have is trending higher from a count perspective.
But you know I don't think we feel tremendous pressure to do that because I really like what our intrinsic growth profile is so as we assess external growth opportunities. We really are going to remain disciplined and make sure that you know, we're seeing the growth and the upside opportunity again in March.
That's where we already on assets. So we're not we're not excuse my language, having to pay a dumb tax for moving into a new market.
Great color guys. Thank you and see you at ICSC and NAREIT look forward to it thanks Sandell.
Thank you. Our next question is from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, maybe a follow up how do you think about your acquisition capacity you know you seem to be the net acquired year to date I know you have some assets and you're selling but what's kind of the most you could do in any given year do you target any specific number and I don't get funding bills.
Use the ATM this quarter curious how you look at Atms versus.
Pet versus distance.
I'll, let Angela comment on this a little bit but more from the opportunity side.
It's going to be opportunity driven.
And so you know if if we're not seeing assets that meet our return requirements, where we believe we can accrete, both ROI and N V.
We're gonna be less active if we see opportunities and you can't.
Control of the timing of external growth.
Well that didn't meet our requirements in an environment, where our hurdles have gone up you know, you'll see us do more but what I like about our position is that we're not in.
We're not in a place where we have to make acquisitions to continue to outperform from a growth perspective. So that allows us to remain disciplined and then we're always going to look from a funding perspective.
This first free cash flow, then dispositions and then as appropriate and warranted by the opportunity potential ATM issuance.
Alright, Thank you you bet.
Thank you. Our next question comes from Pollino Robot Schmidt with Green Street. Please proceed with your question.
Good morning, good morning.
No question.
Paul quick T or the comparable pool for your re leasing spreads.
Okay.
Oh, sorry in the quarter, only about 35% at constant or comparable.
And that subset.
That's called the 46% of rent spread.
Brett it's closed during the quarter.
So my question is what role.
Considered comparable so small.
Total.
And I'm sure they'll figure out on the wire at all relative to peers.
True because of development or is it more because they are being baked in over a year.
Where are the laden I'd welcome Alex.
Is that a hard and longer vacancy in the yard.
What we're seeing for the comparable pool.
Yeah. Thanks, Glenn it's a it's Angela what I would say is that I think it was 37% of the new lease activity in the quarter was considered comparable that's you know pretty close to what it was in Q4 and really over the last the last several quarters. It really does reflect.
Sort of the one year look back period for the most part and I think you know the classroom, we happened to stop get us lots of detail on on sort of what the comparable definition really but that's the biggest reason.
Reason for deals that were reporting from a productivity standpoint, not being in the comparable pool from an economic standpoint, I would say generally when we look at those deals it's very comparable in terms of activity and given the.
The weight of new leases and overall kind of blended number. If you were to include a longer look back period are now look back period at all the total blended spreads would move materially higher.
Okay. Thank you and then I know you said in your guidance that you expect.
Mr <unk>.
Great.
Total revenues.
But when thinking about prior period connections.
Just remind us how much that was during the quarter affecting the same property pool.
How much you're contemplating at the high end of your same property NOI growth guidance.
Sure.
In terms of a prior period collections in the first quarter.
It was about $8 million and that's detailed on page 11 of our supplemental there at the top of the page we try to get good visibility on prior period collections of base rent and expense reimbursements. So its about $8 million during the quarter. The width of the same property range and the width of that the revenues deemed uncollectible guidance that you mentioned that 40 basis points.
Translates into about a $4 million of Delta and the total amount of revenues deemed uncollectible at the low end up the range versus the high end of the range for.
From a guidance perspective, our methodology continues to be at the low end up the range really does not assume any additional out of period collection.
On the top end of the range as a result would not include anything more than at the most $4 million of out of period collection, so that startup that the total amount.
A variability in the range. The high end you certainly can get there without $4 million out of period collections and just continued improvements in our collection rate from cash basis tenants as we progressed through the year, but I think given the components. We've given here you can see sort of that total the total variability in that line that's about $4 million.
Yes. Thank you very much thank you great questions.
Thank you. Our next question comes from Samir Khanal with Evercore. Please proceed with your question.
Hey, Angela maybe just going back to the previous question.
On page 11, there's that $42 million of rent, that's uncollected, which we've talked about before.
Maybe walk us through how those conversations are going with the tenants.
We sort of model out our own sort of view on Collectability here.
Sure.
Make a couple of points about those numbers. So as you mentioned on page 11 of the supplemental.
You know, we really detailed the total amount throughout the pandemic that's been accrued for but uncollected that total amount is about $48 million of that about 42, and a half million dollars has been reserved for so that's really the amount of prior rent that's available to be a positive or added up to the income statement going forward should it.
Be collected.
That breaks down into two pieces, that's about $29 million.
Related to amounts that are not subject to an existing deferral agreement.
So they they were uncollected, we continue to talk with the tenants and worked through those balances, but they're not subject to a payment plan right now and about $13 6 million almost $14 million that is subject to a payment plan, where we have some bigger visibility at least in terms of expectations of when that might be collected.
To go back to the the total 42 and a half million I think you know one other way to break it down it's just to note that about.
$23 million up about 42 relates to tenants that are still active in the portfolio I'm still occupying their spaces.
Whereas the remainder or about $20 million relates to tenants that are vacated the portfolio.
You know, we still see prior period collections, even even from tenants that have vacated the portfolio, but certainly if you're a probability weighting. It I wouldn't put a lower probability on that $20 million and I would acknowledge that it usually takes us longer to collect those amounts.
Overall, our conversations from a collection standpoint continue to be to be very strong I think you know as noted by the fact that we're on our.
Fifth or sixth quarter of pretty significant out of period collections team continues to work very hard on collecting those those prior balances I'm you know things like eviction moratoriums burning off in certain jurisdictions like New York, and California continue to help as well so.
So we feel good about continuing to collect some degree of additional amount just very difficult to predict how much and more importantly, when we might see those collections come in which is why we've taken a relatively conservative posture on guidance.
That's great. Thank you Angela sure. Thanks Amir.
Okay.
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Our next question is from Tammy <unk> with Wells Fargo. Please proceed with your question.
Thank you Hey, good morning, Hi.
Hi.
I guess this question is for Angela and just wondering you know it's.
It is six five times leverage level today, I guess is that in line with our long term target for the company and you know as the current environment is having an impact on how you were thinking about that going forward.
Yeah, Thanks, Jamie where we're at six four times on a current quarter annualized basis, that's down a touch from where we were in the fourth quarter.
Our long term target continues to be six times and we believe as we continue to execute on our strategy and continue to harvest the mark to market will naturally work, our way our way down to that level.
Over the sort of near to medium term and feel good about that continuing to be at the right level. As we've always said six times to us for this portfolio. It feels like the right number given that significant mark to market embedded in the portfolio on a look through basis, you're at six times now. If you include kind of that mark to market them.
And certainly once realized G&A could even be even people out of that level and so that's kind of how we think about the six times and that's the timeframe over which we see getting there.
Okay, great. Thanks, and then understanding you don't really need to access capital today, but that you may remain opportunistic with acquisitions, you know where do you think you could issue unsecured debt in the market today.
Yeah, I mean, it's certainly been a bit of a moving target of late and you know I am I am glad that we've executed as much as we did over the last couple of years to put us in a professional or we don't necessarily need to be active in.
In the market you know spreads have been relatively volatile.
Based on our read of the market I think you'd be in.
Hi, 100 range I'm kind of approaching 200, depending on where the base rate is I'm talking about 10 year issuance here.
So that puts you kind of all in the high fours almost 5% range in terms of new issuance and you know as I mentioned I think we're in a very good position.
To watch the market closely to.
It would be opportunistic if if you know something presents itself and it makes sense to move forward with probably some liability management and continuing to extend duration across the balance sheet, but certainly.
Certainly no need for us to do anything right now given that we've got several years before before maturity.
Okay. Thanks, and then maybe one more.
You mentioned that fallout is lower versus historical level.
But I'm wondering where you are seeing fall out today I mean is it in more of the mom and pop shops, or how would you characterize the tenants that are falling out or leaving the portfolio today.
Tell me Hey, this is Brian I wouldn't point to one thing in particular, I mean over the course of the pandemic the the portfolio certainly.
From a credit quality perspective has stabilized we did see a lot of a riskier tenants move out in 2020. So so now really what you're seeing is just kind of that normal course of of seasonal move outs, but at a much lower rate than what we have seen historically and I think judging by the fact that.
We've now raised small shop occupancy two years in a row coming off those seasonal.
Move out that seasonal move out periods, you can see that our teams really getting ahead of a lot of those move outs and oftentimes we have a lease kind of ready to go or in place. So I wouldn't point to anything kind of in particular from a category perspective, but more just the seasonal nature of what you're seeing on Tammy one of the interesting things that no one really considered.
Going into the pandemic, but which certainly revealed itself to be true is that the credit profile of our tenancy actually improved.
You know the major tenants were able to access liquidity they were able to fortify their balance sheet.
And so we saw several tenants that were historically on the watch list move off.
You know, we we also interestingly in the small shops, particularly for second generation space.
<unk> some of the turnover to bring in better capitalized local operators and so it's interesting and not exactly intuitive that through the disruption of the pandemic, we actually saw the average credit quality of our tenancy improve.
And we're quite pleased with that.
Great. Thanks, that's really helpful. You bet.
Thank you there are no further questions at this time I'd like to turn the floor back over to Stacy Slater for any closing comments. Thanks, everyone and we'll see many of you at ICSC and NAREIT over the next few weeks.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yeah.