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spk05: Good morning and welcome to Phillips Edison and Company's second quarter 2021 results presentation. My name is Josh and I will be your conference call operator today. Before we begin, I would like to remind our listeners that today's presentation is being recorded and simultaneously webcast. A replay of today's presentation will be available this afternoon on the investor section of the Phillips Edison and Company website at phillipsedison.com backslash investors. The company's earnings release, quarterly financial supplement, and 10Q were issued yesterday, August 5th, after market closed. These documents are available for download on the investor section of the Phillips Edison & Company website at phillipsedison.com backslash investors. I would now like to turn the call over to Michael Kaler with Phillips Edison & Company. Sir, please proceed.
spk01: Thank you, Operator. Good morning, everyone, and thank you for joining us. I am Michael Kaler, Vice President of Investor Relations with Phillips Edison and Company. Joining me on today's call are our Chairman and Chief Executive Officer, Jeff Edison, our President, Devin Murphy, and our Chief Financial Officer, John Caulfield. Because this is our first earnings call as a publicly traded company, during today's presentation, Jeff will provide some background on Phillips Edison's 30-year history and our unique and differentiated strategy. Jeff will also discuss our transformative underwritten initial public offering that closed on July 19th, 2021. John will then review our second quarter operational and financial results, our recent capital markets activity, and discuss our guidance. Jeff will then return to provide an update on acquisitions and recap our long-term growth strategy. Following our prepared remarks, we will answer questions from the institutional analyst community. Before we begin, I would like to remind our audience that statements made during today's call may be considered forward-looking, which are subject to various risks and uncertainties as described in our SEC filings. In addition, we will also refer to certain non-GAAP financial measures. Information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in our earnings release and supplemental disclosure issued yesterday, which are available for download on our website. With that, it's my pleasure to turn the call over to Jeff Edison, our Chief Executive Officer. Jeff?
spk07: Thank you, Michael, and good morning, everyone. Before we get into our results for the quarter, I would like to provide a brief overview of Phillips Edison, speak to our differentiated strategy, highlight our portfolio, and review our growth plans. We are one of the nation's largest owners and operators of neighborhood grocery-anchored omni-channel shopping centers. We've built our fully integrated operating platform for 30 years. Our team of 300 associates is experienced, engaged, and competitive. Our senior management team has an average of over 27 years experience and 14 years with PICO. Our bench is broad and deep. This team has successfully navigated numerous business cycles. We brought our first center in Danville, Virginia in 1991, which had a net operating income of $260,000. Today, we have 294 properties and an annualized net operating income of over $350 million. Importantly, this team is also aligned with shareholders. Every associate who's been with PICO over one year owns stock in the company. They think like owners. I personally have never sold a share of PICO, and PICO leadership owns approximately 7% of the company. It's hard to find better alignment than having meaningful skin in the game. Our mission is clear and has been consistent for 30 years. We create great omnichannel grocery anchored shopping experiences, and we improve our communities one center at a time. We are grocery centered and community focused. One thing that you may hear during this presentation today is that we call our tenants our neighbors. Why do we call our tenants our neighbors? because we work hard to create community at our centers and we treat our retailers as neighbors in that community. We believe in customer service and think it helps to remind the organization to treat our tenants like we would our neighbors. Our strategy is simple. We own and operate Grocer Anchored Neighborhood Centers. Our centers are typically an open-air center that's three miles from your home. It sits at the corner of Main and Main. not exit 15 on Interstate 80. It has a 45,000 square foot grocery store and is open 24 hours a day. You shop there twice a week, more than any other retailer you visit. This is the center you run to when you forget ketchup and you're grilling burgers for dinner. In addition to groceries, you can also get a lot of your necessity-based goods and services from the 65,000 square feet of small store shops at our centers. Think haircuts, dry cleaning, fast food, fitness, and medical. Think Starbucks, Chipotle, Orange Theory, Walgreens, and Wells Fargo. Our centers are not where you go to get your electronics or home improvement goods, discount clothing, sporting goods, or office supplies. Those are power centers. They're usually twice the size of our centers. As you'd expect, these two types of centers are in very different businesses and have very different economics. We get 35 percent of our rent from our grocers. On average, our customers come to our centers nearly two times a week. We have limited exposure to big box retailers. We have pricing power in leasing. Historically, leasing demand has been consistently high for 2,100 square foot average inline spaces. Our capital requirements are significantly lower for keeping our centers fully occupied as well. We focus on owning centers with the number one or two grocer within the market, a neighbor base with omni-channel strategy, where the grocer has both buy online and pick up in store, or BOPUS, and home delivery capabilities. It has high exposure to neighbors selling necessity-based goods and services, and a trade area with favorable demographics for our neighbors to be successful. Each of these components are critical to our success. When it comes to our centers, we believe that format drives results. Our average center is 113,000 square feet, which is the smallest in the REIT shopping center universe. We own smaller centers in targeted neighborhood locations. Our centers create a positive leasing dynamic and align well with retailer demand. We see retailer demand is concentrated in smaller footprint stores. Considering the average size of our in-line neighbor is 2,100 square feet, we believe our centers are best positioned to meet retailer demand. Our smaller centers allow for better growth because of our high retention rates and high releasing spreads. Our retention rates averaged 87% between 2017 and 2020. High retention rates result in less downtime and lower TI costs. This leads to higher NOI growth. From 2017 to 2020, our average cash releasing spreads were 8.8%, providing a meaningful avenue for NOI growth. Over the past three calendar years, our total CapEx, including development and redevelopment spend, as a percentage of our NOI, has averaged just 20%. Our smaller format centers and lower exposure to secondary anchors require less CapEx than other retail real estate. Lower CapEx leads to higher AFFO. Seventy-three percent of our ABR comes from neighbors that offer necessity-based goods and services. This means that we have limited exposure to high-risk retail categories like apparel, department stores, and home furnishings. The top markets in our portfolio are Atlanta, Chicago, Dallas, Minneapolis, St. Paul, and Denver. But we don't think about markets this way. We don't compete in MSAs. We compete at the neighborhood level. On the corner of Indian School Road and North 28th Street in Phoenix, and the corner of Bearling Drive and Marshall Road in Minneapolis. We target trade areas where our grocers and our small stores can be successful. Our average population density and median household incomes mirror that of Publix and Kroger, our top two neighbors. We make money where our top neighbors make money. Our three-mile demographics, as you'd expect, are typically of the average American suburb. We have 61,000 people with a median household income of $68,000 in our average three-mile trade area. Our shopping centers provide necessity-based goods and services to the average American. Our portfolio was built one asset at a time. We purchased 280 centers for over $4.7 billion between 2012 and 2018. On average, we bought over $670 million of properties per year during this timeframe. More recently, we were the largest acquirer of neighborhood centers among our peers between 2018 and 2020. Acquisitions are an important part of our growth story. The following are PICO's key drivers of growth. Growing rents is the base of our internal growth strategy. Over the last four years, we have had sector-leading leasing spreads. We lease up vacant space to new neighbors. At June 30, 2021, we were at 90.6% inline occupancy. We believe we can continue to increase this over time. We have built in rent bumps from inline neighbors. We've been able to build at least 2% rent bumps into approximately 80% of the new leases we have written this year. in addition to our strong releasing spreads. We execute redevelopment opportunities. These are primarily made up of out parcel development opportunities where we can build single tenant or multi-tenant space on the existing or acquired land. These are on average $2 million per project. Our redevelopment opportunities also include teardown and rebuild opportunities with our grocers. We're targeting an average of 9 to 11 percent incremental underwritten yields on these projects. Our current projects are expected to deliver an average underwritten yield between 9.5 percent and 10.5 percent. As I noted, we have a strong track record of growing through acquisitions. We selectively acquire new assets that fit our focus strategy. Our plan is to purchase over a billion dollars of assets over the next three years. PICO has grown consistently for 30 years, and we've built a platform scaled for growth. We also have a best-in-class balance sheet that positions us for growth. We believe that there are also macro, demographic, and economic tailwinds in our markets, which will augment the growth. These include the shift to work from home, the population shift to the suburbs and to the Sun Belt, where approximately 50 percent of our properties are located, and the consumers buying locally. We believe our strategy generates superior risk-adjusted returns. Our targeted acquisition strategy in lower-profile trade areas allows us to purchase properties at initial yields 50 to 100 basis points higher than in coastal markets. We upgrade and re-merchandise centers we acquire. This lowers the risk of our properties and creates income growth and value. Better going in yields plus better growth plus lower CapEx leads to superior returns. Importantly, our portfolio has performed well in up cycles and proven to be resilient in down cycles. This delivers more alpha and less beta to our shareholders. Throughout our 30-year history, having access to low cost of capital has been a key driver to our success. On July 19, 2021, we completed our underwritten initial public offering. issuing 19.5 million shares of stock at $28 per share, generating $547 million of gross proceeds. This capital gives us the strongest balance sheet in the strip center REIT space, with a debt to adjusted EBITDA ratio of 5.5 times. With this balance sheet capacity, we can add external growth to the internal growth we've generated year after year. The IPO is a major milestone for our company, but it is a beginning, and we remain focused, motivated, and committed to successfully executing our strategy. With that, I will now turn the call over to our CFO, John Caulfield. John?
spk10: Thank you, Jeff, and good morning, everyone. Our results continue to benefit from the reopening of the economy as 100% of our leased ABR is open for business for the second consecutive quarter. Leased portfolio occupancy totaled 94.7%, compared to 95.6% at June 30, 2020. Anchor leased occupancy totaled 96.8%, and inline occupancy totaled 90.6%. The leased occupancy to economic occupancy spread was 60 basis points for the quarter. During the quarter, we executed 124 new leases and 174 renewal leases and auctions, totaling 1.4 million square feet. Comparable new lease rent spreads were 18.5%, and comparable renewal rent spreads were 8%. Combined rent spreads were 10.4%. Our in-house leasing team has been busy executing new in-line leases with neighbors like the UPS Store, Jersey Mike's Wingstop, Popeyes, and Starbucks. Demand from retailers to be in our well-located grocery-anchored centers continues to be high, illustrated by our strong leasing metrics and our 85.5% retention rate for the quarter. We continue to be optimistic about our long-term growth prospects. Collections during the second quarter of 2021 were 98% of our monthly billings, and we're on the cusp of reaching our pre-COVID collection levels, which were typically between 99% and 100%. COVID validated our thesis that our necessity-based portfolio performs well in the good times and outperforms in the challenging times. Our first quarter 2021 collections increased to 98%, up from our originally announced figure of 95%, and fourth quarter 2020 collections increased to 97%, up from 95%. As of June 30, 2021, our outstanding balance of missed billing was approximately $12 million. Of this figure, approximately $5 million is to be collected under executed payment plans we continue to work with our neighbors in order to collect unpaid billings. The 12 million of missed billings represents less than 3% of our total billings since April 1st, 2020. Our second quarter core FFO increased 24.3% to $64.3 million. On a per share basis, core FFO increased by 13 cents per share to 60 cents per diluted share during the second quarter of 2021. The increase in core FFO for the second quarter was driven by improved collections and lower interest expense. Core FFO per share also benefited from fewer shares outstanding as a result of our tender offer, which closed in December 2020. Our second quarter 2021 same-center net operating income, or NOI, increased to $87.7 million, up 10.5% from a year ago. This improvement was primarily driven by stronger collections compared to 2020. Further driving the increase was a $0.57 or 4.5% increase in average base rent per square foot. Partially offsetting these improvements was an 80 basis point decrease in average same center occupancy and reductions in recovery income, primarily related to a lower recovery rate in the aforementioned occupancy decrease. Please note that our same center NOI includes 268 properties that we have owned and operated since January 2020. As of June 30, 2021, our net debt to adjusted EBITDA was 7.1 times compared to 7.3 times at December 31, 2020. Adjusting for the IPO proceeds, including the full allotment of the green shoe we received this week, our net debt to adjusted EBITDA was 5.5 times. At June 30, 2021, Our debt had a weighted average interest rate of 2.9% and a weighted average maturity of 3.7 years. Approximately 69% of our debt was fixed rate. This compares to December 31, 2020, when we had a weighted average interest rate of 3.1%, a weighted average maturity of 4.1 years, and approximately 75% fixed rate debt. Subsequent to the quarter end, we closed a new $980 million senior unsecured credit facility comprised of a $500 million revolving credit facility and two separate $240 million unsecured variable rate term loans, extending maturity to 2025 and 2026. A portion of our IPO proceeds was used to pay off our $375 million term loan that was set to mature in 2022. We have been preparing for our investment grade profile by creating a highly unsecured debt structure with 73% of our NOI unencumbered with well-laddered maturities. Post-IPO, we have over $600 million of liquidity. We will use this liquidity to fund our robust acquisition strategy, which we will touch on momentarily. Importantly, we have been assigned investment grade ratings for Moody's and S&P of BAA3 and BBB- respectively. We now have the ability to access the public debt market, and we plan to extend our maturity profile and diversify our sources of debt capital. Moving to guidance. Now that we have covered our financial results for the past quarter, we'd like to provide initial guidance today relating to core FFO per share, same-center NOI growth, and our acquisition and dispositions. These figures assume no substantial economic impact from future COVID variants. For the 2021 full year, we expect to report core FFO per share between $2.10 and $2.16 per share. This range is impacted by the potential timing of our acquisition and disposition activity for the second half of the year. This also includes the estimated same-center NOI growth between 5.6% and 6.8% for the full year. We expect to acquire between $160 million and $200 million of assets over the remainder of the year. And lastly, we expect to sell between $45 and $75 million of assets over the remainder of the year, completing our quality improvement disposition program. With that, I would like to turn the call back over to Jeff to expand on our acquisition outlook for the remainder of 2021 and recap our long-term growth strategy. Jeff?
spk07: Thank you, John. When we think about growing our portfolio through acquisitions, we've identified over 5,800 grocery-anchored shopping centers in the U.S. that fit our portfolio strategy. These centers are all anchored by the number one or two grocer in the respective markets and meet our demographic targets. We have a very disciplined acquisition process. Together, our long-term relationships with our grocers, our proprietary algorithms, and and our experienced and dedicated acquisition team drive our ability to buy the right properties at the right price. Year to date, we have closed on $40 million of assets and have an additional $70 million under contract. We believe we can hit our unlevered IRR target of over 8% on these assets. As John mentioned, we believe we can acquire an additional $160 to $200 million of assets during the second half of 2021. Our track record, the market opportunity, and current market conditions all give us confidence we can meet our targeted acquisition goals. So in conclusion, PICO has a focused, differentiated strategy of owning and operating small format neighborhood centers anchored by the number one or two grocer in the market. Our nearly 300 grocery anchored shopping centers are located where America's top grocers make money, in the neighborhood, at the corner of Main and Main. Pico has an experienced, cycle-tested team and has outperformed the sector over time. Our line management team has meaningful skin in the game, owning 7% of the company, the highest among our peers. We're a growth company positioned to expand our portfolio. Our investment-grade balance sheet and strong cash flow support that growth. Our brick-and-mortar real estate plays a key role in our neighbors' omni-channel strategy and is complementary to e-commerce, including BOPIS and last-mile delivery. And lastly, we believe there are economic tailwinds that will support our strong growth plans over the long term. Thank you for your time today. With that, we will begin the Q&A portion of our call. Operator?
spk05: Thank you. To maintain an efficient Q&A session, you may ask a question with an additional follow-up. If you have additional questions, you're more than welcome to rejoin the queue. To ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Rich Hill with Morgan Stanley. You may proceed with your question.
spk02: Hey, good morning, guys. I wanted to just follow up on the acquisitions. I appreciate the guidance as to where you're going over the next several years, but noted that you didn't buy anything of note in 2Q. So I was hoping you could maybe provide a little bit of detail around why there wasn't any acquisition in 2Q. Was there anything specific? And as you think about the acquisitions for the remainder of the year, what's your cadence between 3Q and 4Q?
spk06: Hey, Rich, it's Jeff. Thank you for the question. And so it's important to note that in Q2, we were actually deleveraging the company at that point in time without a real forward growth plan in place. And so the rationale there was, you know, we at that point were selling and buying assets, sort of balancing that that process as we go, as we're going. So that's the reason that Q2 was not, we didn't have any acquisitions. We did start the process at that point, and as you can see, we've got $70 million of projects that are in the pipeline at this point and sort of moving towards a close. And we do think that that will accelerate both through as we're getting through the third quarter and in the fourth quarter as well. And, you know, we do anticipate being able to meet our plan to basically buy about $35 million more property than we sell during that process and then to get to the $300-plus million acquisition pace next year, particularly as the market gets more open. We all know that it was a very sort of choppy year last year and into the first half of this year as we dealt with the virus. And as we look forward, we do see there is some there has not been a ton of product on the market and we do anticipate that thawing a little bit and we'll see some more activity as we move forward. In regards to whether it's third quarter or fourth quarter, I think I would look at the product we have under contract now as being most of our third quarter. And as we move to the fourth quarter, you'll see more of the things that we put in under contract between now and the end of the third quarter.
spk02: Great. Thank you. Does that answer your question? That's exactly what I was looking for, Jeff. Thank you very much. And, John, this may be a question for you, but you're plus 10% same-store NOI growth in 2Q. Could you remind us or clarify what portion was driven by previously deemed uncollectible rents from tax tenants?
spk09: Sure, absolutely. So the net impact on the quarter, and I'll break it down, but the net impact was about $2 million of NOI related to out-of-period collections and kind of recoveries of reserved amounts. And that's about $3 million on the collection side And then we had about a million dollar reduction in our recoveries that related to reconciliations were also COVID impacted. So, but to be more specific, in the second quarter, we had approximately $4.7 million of income from collections and reserve reversals from prior periods, which was offset by about $1.8 million of new reserves. So that gets to the about $3 million net that I was talking about as positive income And then they made about $1 million of impact to our recoveries related to reconciliations and things we were doing with those neighbors.
spk02: Got it. So do you know what that is on a basis point? I only ask that because we don't have a lot of clarity into what it looked like in 2Q21 to do the apples to apples comparison. So do you have that on a basis point?
spk09: Let me answer it a little differently. I want to make sure I get your question right. So when I think about the new reserves, if I took out the out of period portion and I look at the reserves that we recorded this quarter, it was about 1.4% again. And when we look at our, you know, I mentioned in the recorded remarks that, you know, our collections are at 98% plus. So, I mean, we are open and operating and our neighbors are moving forward. And on a stabilized basis, our bad debt has historically been between 80 and 100 basis points. So At 1.4%, it is still impacted. I mean, 98% is not quite there yet, and the largest portion of that are non-creditworthy or cash basis neighbors. So it's about 1.4% if you do not account for any of the higher pieces, but we would expect to get back to the stabilized level here in Q3, Q4 at the current rate that we're going.
spk02: That's helpful, guys. I will jump back in the queue with any further questions.
spk06: Thanks, Rachel.
spk05: Thank you. Our next question comes from Todd Thomas with QBank Capital Markets. He may proceed with your question.
spk08: Hi, thanks. Good morning. First, I just wanted to ask about leasing spreads and leasing activity a little bit. Spreads were solid again this quarter. Can you just talk a little bit more about the pricing power that you see with both Anchor and in-line shops, your neighbors, and just discuss how you expect rents to trend moving further throughout the year?
spk06: Todd, thanks. This is Jeff. Thanks for the question. And, yeah, we're very excited about where we are on the leasing side. And, Deb, you want to go through some of the results we have and how we're looking going forward? Sure.
spk03: Good morning, Todd and everyone. Thank you for being on the call this morning. I mean, Todd, we see a number of factors driving leasing demand. First, there are a number of macro factors that Jeff mentioned in his remarks that we're benefiting from, which is, number one, the continued growth in population in Sunbelt markets. As you know, 49% of our portfolio by ADR is in the Sunbelt, and so we're getting that tailwind. In addition, the continued migration of population from urban to suburban communities we're benefiting from as ours is a virtually 100% suburban portfolio. And then the increase in the work from home dynamic also benefits our suburban portfolio. And then lastly, the importance of last mile delivery continues to be a retailer focus. And our centers provide retailers an attractive economic alternative for last mile delivery. So the retailers are aware of these macro trends and they are therefore looking to locate stores to take advantage of these trends and we're the beneficiary of that. And we're seeing this in increased level of leasing demand coming from the national retailers. So for example, Starbucks, we had 25 Starbucks at the end of last year. We'll have 35 by the end of this year. We had one Humana location. We'll have four by the end of this year. And those are large footprint stores, 6,000 to 8,000 square feet, with rents in the high 20s to low 30s. And then another example is ATI Physical Therapy. We had six at the end of last year. We'll have 10 by the end of this year. So we're seeing these national retailers dramatically increase their presence in our portfolio and our centers are anchored by top grocers that drive foot traffic and the tenants want to be in centers that are anchored by these top grocers because they become the beneficiaries of this foot traffic and and our centers are smaller as jeff indicated our average tenant size is 2100 square feet and leasing demand is is from tenants in this smaller footprint 65 percent of the leasing activity in the U.S. is in stores less than 2,500 square feet. So, these factors lead to the high level of retention that we continue to enjoy. We have market-leading retention. Our retention for this year, year to date, was over 87 percent. And so, you know, we see no slowdown in leasing activity. In July, we signed more leases in July of this year than we had in July of 19 or July of 20. And so with an occupancy rate of 94.7% and this continued strong leasing demand that we're seeing based on these factors, we believe that the leasing spreads that we have seen will hold for the foreseeable future. And as we've indicated, you know, we believe we can continue to increase occupancy from current levels We think we can get our inline occupancy up several hundred basis points to 93% to 94%, and we believe we can continue to drive spreads at the levels that we've been able to do over the last several years.
spk08: Okay, great. That's helpful. And then just one, my second question following up on the acquisitions a little bit, you talked about the portfolio sunbelt exposure being about 50% today for the portfolio. As you think about the investment landscape and we think about the acquisition targets and goals that you've discussed, where are you seeing opportunity to add new product? Is geography important going forward or is it more about the local sub-market and neighborhood?
spk06: As you know, we are very focused on the market directly around each shopping center that we buy, and that is our focus on the acquisition side. We have a proprietary algorithm that actually helps us to evaluate how we see the risk of each one of these markets that we look at on the acquisition side. I can tell you that we won't, you won't hear us say, look, we want to have a lot more center. You know, we're going to just focus on Sunbelt or we're just going to focus on West Coast or that's not how we sort of look at the business. But on the other hand, the algorithm that we have is driving results. And, you know, there are more centers that can drive those results in a market that has population growth like the Southeast and Southwest. So the Sunbelt, will continue. I mean, it has been a growing part of our portfolio and we believe it will continue to be, but not out of choice to be in Atlanta or Miami, but out of the fact that we think that our, our grocers can do really well there and the small stores can do really well as well. So it will be that, that I think that will drive it. But I would, you know, we do anticipate that we will have a higher concentration of Sunbelt properties in five years from now than what we have based upon how our algorithm looks at growth both in terms of population and in incomes, but also in terms of the success of the grocers and the small stores.
spk08: Okay, great. Thank you. Thanks, Todd.
spk05: Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. You may proceed with your question.
spk00: Hi, good morning. Maybe just another follow-up on the acquisitions, Jeff. You mentioned how the market was choppy over the past year and a half or so and that now it'll hopefully saw and that'll support acquisitions picking up. Just wondering if you can talk about what you're seeing now that makes you confident about the second half acquisition volume targets and even over the next three years, as you mentioned, a goal of a billion dollars of acquisitions.
spk06: Yeah, thanks, Caitlin, for the question. I think what we are seeing is we are seeing some compression in cap rates. We continue to think that our sort of target of somewhere between a five and three quarters and a six and a quarter going in yield with our focus on the 8% plus unlevered IRR continues to be achievable in the market today. And, you know, we're seeing it with the first 70 million that we bought. What has historically happened, and we're just starting to see it, and I think we'll see a lot more of it in September of this year, is as cap rates have gotten a little bit more aggressive, we are seeing more people looking at selling properties. We also believe that there's going to be some selling because of the potential 1031 exchange issues, the capital gains issues on taxes. We think there are a number of tailwinds for people to look very seriously at selling shopping centers over the next certainly six to I mean, there's sort of an urgency, a year-end urgency part of it. And then I think there's a value issue that will push more volume into, you know, the first half of next year as well. So we're optimistic that there will be more product on the market and that we, you know, as you know, we've targeted, you know, 5,800 centers that we want to own. And, you know, if they sell every 10 years, that's 580 centers. We're nowhere near that pace right now, but that is a more normalized pace. And when we get to that, as we've said, you know, our $350 million target is, you know, 2.4% of that overall size. So we think that there's, you know, the market's certainly there. It is a little – it's muted right now, but even, you know, now we're starting – you know, if you look at our acquisition committee meetings, we're seeing more product today than we were certainly three to four months ago. And we do anticipate that continuing to increase.
spk00: Got it. Okay. And then maybe just back to a question on rent collections and on collectible rent reserve reversals. In the quarter, there was some Could you just go through kind of what caused it in the quarter and then going forward where your general reserve level lands stands today and your outlook on the ability to kind of receive those and then expect additional potential rent reserve reversals going forward?
spk06: Okay, absolutely. Thanks, Caitlin. John, do you want to cover that?
spk09: Sure, Caitlin. Thanks for the question. So really what is happening is we're collecting. Our neighbors are paying. So we're at 98% in the second quarter. We first reported the first quarter at 95%, and that's at 98% now. And so part of it is just that they're doing very well. Our path of making sure that they were open, making sure that they could start paying us current rent, and then working to collect their back balances from there has proven to work very well. And so really what's happening is that both from a cash basis, so our cash basis neighbors are about 8% of our outstanding rent roll, and we received 89% of their collections in the quarter. Now, why are they still cash basis? Because there's actually protocols around how long they need to be current on their balance, and that's about three to six months, or if they're going through bankruptcy or things like that. So I would expect that number to come down But really, we look at it and we're still appropriately reserved at the end of the quarter. But as we look to the remainder of the year, we do anticipate some additional collections. If I had to estimate based on the midpoint of our guidance, it's about another $2 million of kind of 2020 or past period collections in the balance of the year. In short, what we're seeing is the leasing strength and what have you is giving us the power to collect.
spk00: Great. Thank you.
spk05: Thanks, Kalen. Thank you. Our next question comes from Handel Singh. Just with Mizuho, you may proceed with your question.
spk11: Hey, guys. So I wanted to talk about the dispositions for a second. You outlined 45 to 75 million for this year. Maybe you could spend a moment or two on what about those assets makes them more disposition candidates and what your sense is of the cap rate given the growing demand and cap rate compression here. And then longer term, what's your sense of the portfolio of the 300-ish, I think, assets at IPO? What do you think of that pool might be long-term candidates for disposition as you fine-tune the portfolio? Thanks.
spk06: Great. Thank you, Nadal. The Dispositions is a little bit, you know, obviously the counter side of the acquisitions and the disposition pricing right now is aggressive. So we have, you know, gotten what we think is relatively strong pricing on the things that we have sold and that we, you know, we sort of plan on going, selling going forward. And, you know, our... Acquisition strategy is really pretty simple relative to our acquisition strategy, which is we assign a power score to every property in the portfolio, which is our sort of risk analysis of the property. And then we have a five and a seven year model that predicts its IRR. And when something becomes a negative drag on the growth of the company, It is brought onto our disposition list as a potential thing to sell. If we can get the kind of pricing that, that would actually, you know, be part, you know, be consistent with the IRR that we're generating from each property. So you, you, we, we will always have some properties that we are selling and some will be, I mean, most of those at this point will be more opportunistic than they are sort of portfolio based. transition because as you know, we've been working on that for the last three years and we have 40 properties less today than we did three and a half years ago. So we've done the major sort of portfolio surgery. Now it's really trying to make sure that we have a portfolio that's constantly being worked on for growth and getting the returns that we expect to be able to achieve. And that, again, is above an unlevered 8% return. That's where our targets are. And you'll see that across the board in terms of how we look at our dispositions and you know, the balance with the acquisitions, obviously, is always a challenge because, you know, in the markets where you can sell stuff really well, you know, it's more difficult to buy. And so we're always in that sort of balancing act. But that's been our, you know, sort of where we are today. In terms of the 70 million, John, do you have the The cap rate on that, I don't have it right here.
spk03: Yeah, Jeff, it's a 6.1 cap rate handle on the $7 million of acquisitions that are under contract. And then on the dispos, you'll see higher cap rates than the 6.1 because, as Jeff mentioned, the assets that we are in the market disposing now are lower quality assets, and we're upgrading the portfolio by selling those assets. The reason I say they're lower quality is based on several factors. Number one, a number of them are shadow anchored centers, and several of them have anchors that are not the one or two grocer in their market. They're anchored by grocers such as a Winn-Dixie, names like that. And so the cap rate on those dispos is higher than what you're seeing on our acquisitions. But again, as Jeff mentioned, once we get through The DISPO volume that we've articulated, we believe that the portfolio upgrade is behind us. And then our DISPO strategy on a go forward will be purely opportunistic, where if the market's willing to pay an unlevered six and a half IRR for an asset, and we think we can redeploy that capital at an eight or better unlevered IRR, we will do that.
spk11: Got it. Got it. Thank you for that, Conor. And then if I could, a follow-up on the missed billing. I think you mentioned the balance of $12 million, $5 million under a payment plan of some form. I'm curious what the timeline for that repayment of that $5 million is. And then the other $7 million, maybe you could talk about the industry, the expectations there. Thanks.
spk06: Great. Thanks. John, you want to cover that?
spk09: Yeah, I'll take that. Sure. So that's right. We have about $12 million of outstanding, a good chunk of that includes the cash basis neighbors. So what we would expect is the weighted average over that is basically over the next four quarters, about half of it this year, half of it next year, on that five. Sorry, that's the $5 million of payment plans that we have. So we'll get a portion of that, about half of it. With regards to the remaining $7 million, you know, we've actually looked at it and we continue to collect it. So we do see positive movement. At the rate that it's going, I would expect it to be of a similar timeframe on that. And I think we're right now trying to make the best decisions based on, you know, opportunities for the space, the leasing at the center. And I know our portfolio management and operations teams are looking at it and saying, is this the best and highest use And if so, then they're a bit more patient, especially if we're making progress there. But if we've got leasing opportunities, then we're a bit tougher. Got it.
spk11: Got it. All right. Thank you, guys.
spk09: Thanks, Hendo.
spk05: Thank you. Our next question comes from Paulina Rojas-Smith with Green Street. You may proceed with your question.
spk04: Good morning. You recently, of course, completed your IPO. I'm curious, what did you learn in the process of talking to investors and analysts? What is, in your opinion, the most underappreciated aspect of your portfolio? And on the opposite side, what aspects do you think the investor community looks with more skepticism?
spk06: Thanks, Paulina. You know, it's an incredible process. You know, we were just finishing our board meeting, and we talked at length about the fact that, you know, the company in preparation for this process was at the top of the game that we'll probably ever be in terms of knowing exactly what you know, every piece of the company to a, you know, to a degree, because we were, you know, we were fully engaged in the conversation. And we got, you know, tremendous questions from the investment community about their concerns and the things that they liked, the things they didn't like. So I would say in terms of the things we learned, it was that you had to be really well prepared and you really had to understand how each investor was kind of looking at your company. And how do you, you know, how do you explain to them what, you know, what you're doing and how you think about it and that approach. So I would say that we were, my biggest takeaway is that we, You really have to examine every piece of your business when you get under the eye of the investor because each one of them has a little bit different view of what they like and what they don't like. In the end, we found that the investors who believed that there was a strategy of providing necessity-based goods and groceries to the average American... were the guys who invested. They truly believe that that is a segment that is very relevant. It's a very big segment, but it's also one that is underrepresented in the public markets. And the ones who bought into the SOC, I think, believe, you know, we're big believers in that. And obviously we're big believers in that. And, you know, we're telling a story that we've done for 30 years, not one that we're, you know, kind of making up to get ready to be public. Maybe that did make it a lot easier for us because, you know, we've been doing it for a long time. But that was, I would say those were my biggest takeaways. I don't know, Devin or John, if you had any other comments.
spk03: Yeah, Jeff, what I would just add to that, Paulina, is that our strategy is differentiated, and it has a number of factors that are counter to certain perspectives that are well established in the investor community. And those are, you know, ABR is a very important metric. Demos is a very important metric. As you know, our ABR is the lowest of any of our peers, and our demos are at the low end of the range. And the perspective that we had to successfully communicate to investors was that, look, we are in the necessity retail business, and we're providing necessity goods and services to the average American consumer, and we don't need $40 rent. because we're not selling high-end shoes and handbags, et cetera, where you need those kind of rents to be successful. And so, you know, we had to educate investors on the fact that if you look at our historical track record and the components that matter, which is same-store NOI growth and FFO per share growth, we have market-leading results in those two metrics, even though our ABRs and our demos are at the low end of the range. And so I think we made a lot of progress, and the investors that participated in the IPO, I think, understand our strategy and recognize our strategy. There are still investors that, you know, we have to convince, and, you know, we will continue to work hard to convince them that, you know, you need to focus on same-store NOI growth and FFO per share growth and focus less on some of these other metrics that have, you know, taken a priority over time. And I would say that that was, you know, something that we learned.
spk04: Thank you. Very good, Collar. And then the other question is about your capital projects. You have a list of ground-up developments, which are mostly small-scale, multi-tenant, and out-parcel developments. At what pace do you think you could deliver these projects? I'm trying to understand the impact that they could have on same property NOI growth going forward.
spk06: Yeah, so we have targeted about $50 million of those projects a year. We would love to do a lot more of them because they're very profitable and are incremental projects. uh, cash flow from these properties is between nine, 11%. Um, and we've actually outperformed that in, in the, in the price we've delivered so far. It's, you know, it's just, they're very difficult. They take time and it takes a lot of work to deliver them. Um, so, you know, we, we think that that's the range that we can, uh, um, deliver on. Um, it, it includes two things. It includes what you were talking about, which is these, uh, individual, either single-tenant or multi-tenant buildings that we build on the peripheral of the shopping center, usually out on the main street, but that are incremental to the existing properties. That's the main one. The second piece is the teardown rebuilds that we do for Publix, and that is another category where we do invest money, and that's part of the $50 million.
spk09: Hey, Paulina, I'll jump in here. So in our supplement, we do provide kind of target stabilizations for the projects that are currently underway, and many of which are delivering here in the third and fourth quarter. of 21 as well as in the first quarter of 22. So we have an additional pipeline of projects that, you know, we're getting ready to, we'll begin then from there. And a lot of those have, I would say, generally like 12-month timelines, especially including the teardown rebuilds for publics is basically from start to finish. A lot of these projects, by the time you get through design, permits, and what have you, it takes about a year. So it is pretty evenly distributed. over the quarters, but that might give you help on the timing.
spk04: Thank you.
spk05: Thank you. This concludes our question and answer session. I would like to turn it back to Mr. Edison for some closing comments.
spk06: Great. Well, thank you, everybody, for being on the call today. We really appreciate it. As you know, we've been jamming on the IPO. We're really very excited to have that accomplished. The team that performed on this has been incredible. If you look at every associate at PICO, they were touched by this process, and they all contributed. And we couldn't have gotten it done without a full team effort. And, you know, obviously we were able to accomplish it. And, you know, we owe that to a team that is focused but also, you know, delivered. And so this is, you know, mainly a testament to everyone in the company who's really put their, you know, their shoulder into it and gotten us over the edge there. But at the same time, while we've, you know, produced really well on the operating side and it's that, you know, Doing all that at one time is difficult, but, you know, the team really pulled it together. So, you know, this is a testament to them. And, you know, we appreciate all of you spending the time with us today. And obviously, if there are additional questions, please call us. So have a great day, everybody, and thanks for being on the call.
spk05: Thank you. You may now disconnect.
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