Federal Realty Investment Trust

Greetings. Welcome to the Federal Realty Investment Trust second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Leah Brady. Thank you. You may begin.

Good afternoon. Thank you for joining us today for Federal Realty's second quarter 2021 earnings conference call. Joining me on the call are Don Wood, Dan Gee, Jeff Berkus, Wendy Seer, Dawn Becker, and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks. A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Security Litigation Reform Act of 1995. Forward-looking statements include any annualized or rejected information as well as statements referring to expected or anticipated events or results including guidance. Although federal realty believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, federal realty's future operations and its actual performance may differ materially from the information in our forward-looking statements and we can give no assurance that these expectations can be attained. The earnings release and supplemental reporting package that we issued Tonight, our annual report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operation. We kindly ask that you limit your questions to one question and a follow-up during the Q&A portion of our call. If you have additional questions, please feel free to jump back in the queue. And with that, I'll turn the call over to Don Wood to begin the discussion of our second quarter results.

Well, thank you, Leah, and good afternoon, everybody. You know, to quote Seinfeld's Frank Costanza, we're back, baby, and it seems to me we're the real estate of choice. Let me just cut to the chase here and summarize where we are in five easy points. We killed it in the second quarter at $1.41. We raised our 2021 total year guidance by over 10% at the midpoint. We raised our 22 guidance. the only retail real estate company to get 22 guidance, by the way, by 5% at the midpoint. We covered our dividend on a cash basis in the second quarter and raised it again for the 54th consecutive year. We had record leasing volume, more than we've ever done in any quarter in our 60-year history. So we'll put more meat on the bone for each of those points and others, but that's where this company is as we sit here in the first week of August of 2021, and we're feeling great about our market position. At $1.41 a share, we exceeded even our most optimistic internal forecast by 20 cents a share, and we're up 83% over last year's worst COVID-impacted quarter, which of course was the second quarter. In a nutshell, we didn't anticipate the bounce back in nearly all facets of our business to be so fast and so strong, and we didn't anticipate some of the one-time deals that we were working on to be executed so quickly. We talked about the pent-up demand on the last call in the form of strong traffic, and leasing demand, and that has continued unabated ever since, no pun intended. The quarterly financial impact of that optimistic consumer meant that we, one, collected more rent in the second quarter from prior periods than we thought. Two, we had significantly less unpaid rent in the quarter than we thought. Three, we had fewer tenant failures than we thought. And four, we have far higher percentage rent from COVID-modified deals than we thought. And as I said, we covered our dividend on an operating cash basis in the second quarter, way ahead of our expectations. Of course, all that means that we'll significantly raise 2021 earnings guidance and raise 2022 earnings guidance as well. As we've said all along, visibility toward 2022 earnings was ironically better than 2021. That has proven to be the case, and Dan will talk you through guidance details in a few minutes. While this quarter's earnings were as strong as they were in large part because of the collection of big rent dollars both past and present, the real story here is the unprecedented amount of leasing that was done and what it means for the value of our real estate into the future. Our properties are in demand across the board. We did 124 comparable deals in the quarter. more than we've ever done in any quarter in our 60-year history, for 558,000 square feet at an average rent of $37.34 per foot, 8% more rent than the deals they replaced. We signed another nine non-comparable deals, mostly in our new developments, at an average rent of $44.71 per foot. That's 570,000 square feet of space leased in one quarter alone 25% more than our pre-COVID quarterly average. You might remember that we did almost as much last quarter too. So when you put the two quarters together, the production in the first half of 2021 is both staggering and unprecedented for us. Big kudos here to our leasing, our legal, our support teams. Nearly 1.1 million square feet at an average rent of $37 a foot, 8% more than the previous leases, growing through annual rent bumps over the next eight plus years. That's really just the tip of the iceberg here. Another really interesting consideration is the breakdown of all that leasing between deals to renew tenants and deals with new tenants. Traditionally, two-thirds of the deals we do in any one period covers around two-thirds renewals and one-third new tenants, but not in these post-COVID six months. It's actually nearly flipped. roughly 40% renewals and 60% new tenants. So what does that mean and why is that important? Well, first it means that we lost a heck of a lot of tenants during COVID and since it costs more to put a new tenant in the space rather than renew an existing tenant, our current tenant capital is higher. On the face of it, that seems like bad news, but you got to dig deeper because what it also means is that our properties are in high demand from today's relevant and well-capitalized restaurants and retailers that are all trying to improve their sales productivity post-COVID through better real estate locations. We've always been pickier than most in terms of the tenants we choose to merchandise our centers. When you couple that with the execution of the broad post-COVID property improvement plans that we've talked about over the last several quarters, that higher capital outlay will result in significantly higher asset value tomorrow. I mean, think about it in a post-COVID world. Major market, first-tier, high-quality suburban shopping centers with more than a smattering of new post-COVID relevant tenants doing business in revitalized shopping centers and mixed-use properties focused more on outdoor seating, on a curbside pickup, on covered walkways, and improved placemaking than ever before. Places that are more fresh, more dominant, more relevant in a myriad of ways in the communities they serve for years and years to come. The value of our real estate net of capital is going up, and the prospects appear to be better than they were before COVID. Also, consider that at quarter end, our portfolio was 92.7% leased, yet only 89.6% occupied. That 310 basis point spread or nearly 780,000 square feet of space representing roughly $30 million in rent, is the largest spread we've had since 2005. You might remember how 2006 and 2007 turned out, which obviously bodes well for the future, assuming inevitable tenant fallout occurs at historical levels. And by the way, just three years ago, we were 95%. Okay, Congress. I hope you all saw the major acquisition announcements that we made in a press release on June 7th that laid out the four deals that we closed during the quarter. Overall, we have an 80% interest in the combined income stream of Grossmont Shopping Center in Greater San Diego, Camelback Colonnade and Hilton Village in Greater Phoenix, and Chesterbrook Shopping Center in McLean, Virginia. Gross asset value of $407 million for 1.7 million square feet on 125 acres of land in prime locations in these markets, and we strongly believe that pricing today would far exceed what we negotiated in the middle of COVID. A presentation that we put out ahead of NAREID and our NAREID investor meetings in June focused on these acquisitions in depth, including the very unique potential redevelopment opportunity at Grossmont, since we control virtually the entire 63-acre parcel from a tenant perspective, and less than five years from now. Separately, we have another deal under contract currently that we hope to close on in the quarter, this quarter. On the development side, residential and office leasing activity is also picking up on both coasts. It's really gratifying to see Pike and Rose quickly maturing, coming into its own, and becoming the go-to place for lots of things in the region. In Montgomery County, Maryland, a county that's not doing a lot of office leasing these days, our phase three office building, 909 Rose, is 77% leased with another 11% under executed LOIs. So nearly 90% committed at the point at rents in line with pro forma. That's strong in this office environment with mostly 2022 rent starts there. Big quarter up at assembly row. and now we received our certificate of occupancy for the retail portion and half of the units in Masella, the 500-unit residential building that's part of the Phase 3 development. Tenants began moving in in July, and initial leasing pace is exceeding our expectations. 145 units are already currently leased at rates that approximate our lease-up underwriting, and that seems to be getting stronger with each week that passes. You know, Assembly Row is the mixed-use project in our portfolio that got hurt the most during COVID and took the longest to begin to bounce back, but now feels like it's recovering as fast as the others. Office leasing of the Puma Anchored Building is also picking up, with serious negotiations underway for the first time in over a year for a large portion of the remaining space. Nothing tangible yet, but a good sign nonetheless. Similar situation in San Jose with our 375,000 square foot spec office building under construction and nearing completion. Remains unleased, time being. And at Cocoa Walk in Miami, it's all about getting tenants open as we're fully leased on the retail side, mostly leased on the office side. Tenant openings will continue through the remainder of this year. We look forward to hosting an investor tour in Coconut Grove early next March. More to come on that. In Darien, Connecticut, construction and leasing are moving forward on time and on budget, with a newly built Walgreens opening during the second quarter ahead of schedule. That's important because it makes way for the remainder of the demolition of the old shopping center and started the residential over retail component of the project. Good stuff happening up there, too. Let me pause there, stop. That's about all I have for the prepared comments. I'll turn it over to Dan, and we'll be happy to entertain your questions after that. Thank you, Don, and good afternoon, everyone. The unexpectedly strong results, $1.41 per share in the quarter, not only blew away 2020's year-over-year comparison, but was a 20-plus percent sequential gain over first quarter and more than 20 percent above our forecast and consensus. Given the big beat of the quarter, let me take a little time to put some color around the broad categories of outperformance that Don outlined. 13 cents of outperformance was driven by collection-related items. Six cents of upside was from improved operations, with five cents from one-timers that were above our forecast, which collectively totaled the 24-cent beat versus our previous quarterly guidance. First, some detail on the 13 cents of upside from collection. Rent collection for the quarter, net of percentage rent, was almost 200 basis points ahead of expectation. Prior period rent collection was $7 million versus $4 million in our forecast. Our percentage rent for the quarter was almost $3 million above forecast, highlighting the strength in consumer traffic across the portfolio. Second, the sixth sense of operational outperformance was driven by our occupancy essentially staying flat. which was roughly 50 to 100 basis points better than we had expected. And improved hotel, parking, and specialty leasing revenues all exceeded forecasts. The third category of $0.05 of one-time items above forecast were attributable to term fees, bankruptcy payments, loan reserve reversals, and other miscellaneous payments all collectively exceeding our expectations. Please note that we do not expect the 141 to be the run rate for the ballot. Given 9 cents of the results are not expected to be recurring, and as Don mentioned, we are in the midst of delivering 500 units of residential and assembly row, which will be dilutable over the next few quarters, amongst other items, but we'll address that later when we get to guidance. Let's take some time and revisit collections. Our collectability impact was more than cut in half million versus the 14.8 million we had in the first quarter on the strength of prior and current period collections net of abatements. Rent collection in the quarter surged to 94% of 4% from the 90% level as reported on our first quarter call. With abatements and deferral agreements totaling 4% of billed rent, our unresolved rent now stands at just 2%. Of the $39 million of deferral agreements negotiated to date, $17 million have been repaid, representing about 90% of the scheduled deferral payments. The remaining repayments of $22 million are set to be paid back over the next few years. Elections for cash basis tenants improved substantially to roughly 80% for the quarter, up from 66% in the first quarter, a very strong signal. For occupancy, the continued pressure that we expected during the second quarter never really materialized as our tenants remained resilient. With the record-breaking leasing volumes across the portfolio, economic occupancy should steadily climb higher from this point, driven by 310 basis points of spread between leased and occupied that is embedded within the portfolio. Other strong leasing metrics to note include our small shop lease occupancy grew almost 200 basis points to 85.7% from 83.8, a huge movement for that metric in a single quarter. And with respect to our lifestyle-oriented retail assets, whose performance was hardest hit during COVID, the spread between leased and occupied has grown to 440 basis points, driven by strong tenant demand and signaling a sustainable, in this segment's recovery. Comparable property growth rebounded in a big way for the quarter, up 39%, an unprecedented result and obviously a record for federal. But also no better evidence of the lack of relevance for this metric in the current environment, whether it's positive or negative. Now let me move to guidance. We increased our guidance for both 2021 2022, taking 2021 up over 10% from a prior range of $4.54 to $4.70 up to a new range of $5.05 to $5.15 per share. This implies 13% year-over-year growth versus 2020 at the midpoint. And we are taking 2022 of 5% from a prior range of $5.05 to $5.25 to a new range of $5.30 Let's review some of the assumptions behind the improved outlook. For 2021, as I mentioned, the 141 per share result of the second quarter will not be a run rate for the balance of the year. As I mentioned, $0.09 of that 2Q result is one time in nature. Term fees and bankruptcy-related income will not recur at the same level. And note that we have very few term fees in the pipeline currently. While current period collections should continue to climb modestly higher, prior period collections are forecasted to trail off for the remainder of the year. Also consider the previously mentioned dilution of roughly $0.03 per quarter from the residential and assembly and other developments that we'll be delivering in the second half. We also expect increased G&A and property level expenses of $0.02 per quarter as the cost of doing business has increased post-COVID. However, we do expect accretion from the second quarter acquisitions of roughly two cents per quarter. So this revised guidance implies an increase in our FFO forecast for the second half of the year of 21 of almost 10%. For 2022, the improvement in outlook is driven by one, a faster return to pre-COVID collection levels, Two, a stronger occupancy due to the record leasing activity we've seen. Three, a full year contribution for Grossmont, Chesterbrook, and Phoenix. And then continued improvements and contributions from our development pipeline. Although we continue to await tangible leasing at Santana West, it feels like that will not contribute to FFO until 2023. Also note, that there is a level of pragmatism in these numbers. By all reports, the COVID variants are keeping the virus with us longer than we would like. And we are still anticipating some level of tenant fallout as PPP money and other government subsidies fall away and impact selected tenants' ability to operate profitably. And lastly, getting rent started on our record levels of new leasing activity will be a paramount focus for the operating teams here at Federal. Please note there is no benefit assumed in our guidance in either year from switching tenants back from cash basis to accrual basis account. Finally, let's move to the balance sheet and an update on liquidity and leverage. On the heels of deploying over $325 million on acquisitions and over $100 million on in-process development during the quarter, we continue to have ample total available liquidity of $1.3 billion, comprised of $300 million of cash, and an undrawn $1 million revolver. With $125 million of mortgage debt scheduled to be paid over the next 90 days, we will then have no maturing debt until 2023. And lastly, we continue to be opportunistic, selling tactical amounts of common equity through our ATM program. We sold $140 million at a blended share price of about $117.50 per quarter under forward sales agreement in order to manage of liquidity over the next year. Our remaining spend on our $1.2 billion in process development pipeline is down to $270 million, with an additional $60 million remaining on our product improvement initiatives across the portfolio. Given the surge in our EBITDA, our leverage metrics return to significantly stronger levels as well. Pro forma for our TrueQ acquisitions and $175 million of forward equity under contract, our run rate net debt to EBITDA is down to 6.2 times our fixed charge coverage is back up to 3.7 times and our total liquidity climbs pro forma to 1.5 billion our targeted leverage ratios remain in the mid five times for net debt to EBITDA and above four times for fixed charge coverage now before we get to Q&A let me quickly mention in the wake of covering the dividend this quarter from AFFO Yesterday, our board declared an increased quarterly dividend per share of $1.07. Given the surge in traffic across the asset base, the resilience and quality of our sector-leading real estate portfolio, the strength of our balance sheet, and the sound, forward-looking decision-making and management, maintaining the dividend through another challenging economic cycle now looks likely. This should provide federal shareholders with further peace of mind that with an investment in FRT comes a reliable, uninterrupted, steady, stable stream of current income as part of their total return. And with that, operator, please open up the line for questions.

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As a reminder, due to time constraints, we ask that everyone please limit themselves to one question and one follow-up per person. One moment, please, while we poll for questions. Our first question is from Craig Schmidt of Bank of America. Please state your question.

Thank you. I guess what I want to focus in on is the small shops. The 190 biff seems really strong. Most of your peers are showing just the reverse. They're showing an increased leasing by the anchors, reasoning being they're national and they can move faster than the small shops. And two, sometimes you need these anchors in place to push the small shops. Maybe you could tell me what you did differently to drive the small shops or... you know, what is it indicative of from the small shop side?

Thanks, Craig. Let's just turn it over to Wendy. Let's see what Wendy thinks about that.

Hi, Craig. Yeah, I think that we continue to see kind of that really strong, steady, demand from our anchors, whether it's Target and HomeSense and REN, which was new to market. We continue to make those deals as we always have historically, so really strong strength there. Just as you pointed out, what I'm really excited about is the fact that our small shop leasing has been terrific. A lot of demand for our properties, very broad base between all of our property levels, and we continue to do deals with those best-in-class partners who have always been on our small shop side, whether it's Nike or Athleta, Starbucks, Ulta, to name a few. What I'm really kind of intrigued about and really speaks to the strength of the real estate is the kind of retailers who maybe have a little bit more of a conservative expansion program and they're selectively choosing best-in-class locations across the country doing very small increments of growth that really differentiate your property types. And those names like Levain Bakery and Blue Bottle Coffee and Boreana and Room and Board and Simon Pierce, and I could continue on and on, are really what I'm excited about are the kinds of tenants that are selecting our properties in the neighborhoods and areas that we're in.

So I know Don gave a breakout of 60% new, 40% renewed. Have you seen a similar ratio, or was it even higher, new tenants in the small shop?

Well, I'm not sure, Craig. We can go back and look at it. I would expect that to be commensurate either way, but – I'd have to go back and look at it. I'll tell you, the new deals on the small shop side have been spectacular. And so, you know, that's going to be a good, that's going to be a big number. I just don't know if it's bigger or smaller than the anchors.

Yeah. Hey, Craig, it's Jeff. And just to put a pin in it, and really this is what Wendy's saying, but, you know, a differentiator, obviously, between us and our peer group is the lifestyle and mixed-use properties of was said in the prepared remarks, the leasing in those properties has been exceptionally strong, and the bulk of the leasing in those properties are, by definition, small shop tenants. So we're just very pleased with the level of activity there and the quality of the deals that our leasing teams have been able to get done in that portion of our portfolio.

Okay, thanks. I mean, I was really surprised to see the list in small shops. Thanks.

Our next question is from Mike Mueller of JP Morgan. Please state your question.

Yeah, I just have a quick question in terms of cash on hand. I mean, things have obviously improved quite a bit. It still seems like you're running with about $300 million in cash on hand. I mean, how should we be thinking about what's, I don't know, like a normalized level for the current environment of cash? Should we expect that to drop off to something more pre-COVID-like, or do you anticipate running with something more elevated over the longer term?

It's a good question, Mike. You know, we've run through COVID with higher levels of cash. I think we're still above kind of the stabilized level of cash that we expect to need and expect to run with. I think over time we'll run that down, and my expectation is that maybe it's 100, maybe 150 million. of cash on hand versus kind of what we used to run, which was kind of more in the $25 million plus minus.

Got it. And one clarification. When you were talking about before the upside in the quarter, I think you said 5 cents of one-timers above what you assumed. What was the total amount of what you would consider to be the one-timers in the quarter?

Roughly about $8 million of one-timers. Eight cents, Dan. Oh, eight cents. Sorry. Misspoke. Eight cents worth of one-timers in the quarter, and we had forecasted something obviously lower than that. We did expect, obviously, the Splunk term fee net of the straight line, and we did expect a repayment of our Maniunk loan, but we were surprised by a lot of other activity that... came through in the quarter that we don't expect to recur going forward.

Got it. Okay, that was it. Thank you.

Our next question is from Katie McConnell of Citigroup. Please state your question.

Hi, good afternoon, everyone. I'm wondering if you could comment on, you know, based on your current fundamental outlook, how you're thinking about the opportunity to start additional phases of development in the near term, or even potentially new ground-up sites as opposed to pursuing more acquisitions, and just how you're thinking about the yield differential there.

I love the question, Katie. I'm not sure if you've been in our senior executive meetings over the past few weeks, if you're spying, because those conversations are front and center. And look, the... You know, it depends, right? When you look at, you know, a place like Pike and Rose, for example, this is a property that we're really, really happy with the office leasing that's been done in the first building, the building we're standing in, in 909 Rose. Could there be enough demand here to effectively start another building in time? It's possible. So we're talking about that, looking at that. Could we find a big enough tenant that, you know, could Anchor, I don't know. All that stuff is the kind of thought process that we go through in each of the big projects. Do we want to start a brand new ground up in the next year or so? No, we don't. We frankly have plenty to do in the existing ones that we have. And when you look, you know, at the acquisition tradeoff, if you will, versus development, I think there was a window. And I think we jumped through that window. during COVID where that difference was really attractive and pointed you toward acquisitions. That's changed a little bit now. You know, it's still early in the recovery, so we'll have to see how that plays out. But, you know, with us, it's not about turning one spigot on and the other one off. It's about adjusting based on what it is that we find. I hope that's helpful in terms of where we'll be going forward. And obviously, anytime we have a deal to announce, we'll certainly announce it on either the acquisition or the development side.

And I know you mentioned you had one additional acquisition in the pipeline as of now. Any other comments you can share as far as what's in the pipeline beyond that or what you've seen as far as pricing movement since you've closed the last four? No, not at this time, Kate. Okay, thanks.

Our next question is from Steve Sakwa of Evercore ISI. Please state your question.

Thanks. Good afternoon. Don, you talked about the widespread between the least and the occupied. I'm wondering, A, how quickly can that close? And maybe if you or Dan could just talk about what is implicit in your 2022 guidance for either an average occupancy or perhaps a year-end occupancy by 2022? Sure, Steve.

You know, I'll take the first piece, and, Danny, if you can take the numbers on the second, that'd be great. But, you know, when you see all the leasing that we've done, and it goes back a little bit to Craig's point, a lot of it has been small shop. And the small shop stuff tends to happen quicker effectively than the anchors. So that stuff should be starting to help us later in 2021 and a lot in 2022. The anchors have a longer tail. And so there you should see more benefit coming in 2022 and even a few more. as far out as 23 there. But they are more focused or more weighted toward those small shop deals that do go faster. Now, look, the difference between obviously new deals versus renewals. Renewals are there right now and keep that income stream going. The new stuff that's coming in is in a lot of places, too, part and parcel of kind of our property improvement plans and our redevelopment plans. So as a result, you'll really see a really upgraded portfolio over the next few years as a result of this. And with regard to guidance, what's embedded there is I think some modest continued improvement through the end of the year. You should get back up above 90% occupied by year end. And then probably over the course of 92 to get into – Probably somewhere above 92%. You know, will we get to kind of that full spread of 310 basis points? We'll see. But the guidance is roughly kind of 92% to 93% by the end of 22.

Okay. And maybe just as a follow-on for you or for Don, you know, when you think about you guys obviously took a lot of pain in the downturn and are starting to see the snapback, you know, when would you – sort of guesstimate that your NOI would be back to pre-COVID levels? Is that a 23 number? Is that a kind of by the end of 22? How do we sort of think about that pace of recovery?

I don't know what to tell you about that, Steve. It's certainly something that we've talked about a lot. I would hope to be there in 23. But let me throw something else out at you that maybe is a little bit thought-provoking. You know, if you took our portfolio today and you said, all right, historically, this company has certainly been a 95% leased portfolio, and you took all of the capital that we've spent in development projects to date and acquisitions that have been made, et cetera, and other capital that's not yet producing income, and you simply said, all right, finish up, let's get this thing leased back up to 95. Whenever that happens, let's get all that development with tenants full, would be over seven bucks a share. So this really comes down to a notion of we're not sitting here trying to focus on getting back to 2019 levels. We're sitting here saying, look, we're putting money out in places we think that are smart, We've certainly been hit by COVID, obviously, delayed in terms of, and certainly in the markets and the assets types that we have all the way through, even more so. But getting back to, you know, something that was just okay back in 2019 hardly seems like it should be the goal. So, you know, I don't know when we get to what I just said, but that's where we are aiming, man. And we're trying hard.

Great, thanks. That's it for me.

Our next question is from Alexander Goldfarb of Piper Sandler. Please state your question.

Hey, good evening. First, congrats on being a dividend king. I wasn't even aware of that. I knew about it. I was a dividend aristocrat, so dividend king is pretty cool. Don, following up from Steve's question, last quarter when I asked you about 22 and said, You wouldn't put out 22 unless you thought that you could beat it, which is what you've now done. And listening to Dan talk about what's not in the number, meaning like your tenants who are cash basis now, you're not assuming any of those people go back to being straight line, which means that's a boost. That's an upward bias to earnings. Plus, you killed it on this quarter. There's no reason to think that you won't outperform on further quarters. Again, why should we... stay within your guidance range for 22, why wouldn't we do, you know, be above it? Because what you do is you run the team to always outperform. You don't put something out there unless you think that you can achieve beyond that. If you're telling Steve that you don't think you'll be back to peak NOI to 23 and you just covered your dividend basically a full year earlier than you thought, again, sounds like there's some good upside to 22.

How in the world, my friend, could I possibly answer you the same way I did last time? When I have to sit here and say from last time, Alex was right. I mean, that's hard for me to do, Alex.

Can you say that? Don, Don, Don, slow down. Say that louder and slower.

Well, now you're getting greedy, Alex, okay? So I said it one time, and do I believe what we were doing with sandbagging? I do not believe. I believe what we were doing is assessing the situation as best we could at that time. And I believe that things could have gotten better a whole lot faster in our markets. But at the end of the day, Alex, you were right, dude. And there's dude again. And you didn't use dude back on me, which I thought you should have in that particular spot. But nonetheless. So with respect to where we are now, I'm going to say the same thing to you. We've done the best we can to kind of lay out where we are. lay out the probabilities of hitting our numbers. I don't know what Delta does. I don't know where the situation goes in the country, the way we move things through. But I do know when you sit and you look at our forecasting and what it is that we see happening, we are clearly improving faster than we thought we were before. Will that happen again? I don't know. Maybe I got to get you in here to do the forecast for the company. But that's, I don't have a good answer beyond that for you.

No, I mean, to that point, I mean, one, the straight lining is positive. Two, you have your experiential tenants who are coming back. Three, you know, there's the improvement in oxygen. I mean, it just seems like there's a lot of stuff in there that's upward bias. And each quarter, you know, everyone exceeds. So, I mean, that's the point is, I think I've answered my own question, but you've answered it. So the next question is, as far as the new, you said that 60% of the people coming in to your portfolio are new tenants. Are those simply relocations from other centers? Are they new to market? Are they tenants looking to expand? Like just a little bit more color on what that new demand is.

Yeah, the new demand is very broad-based. It's all of the things that you said and more. And frankly, you know, Wendy kind of touched it when she was talking about some of these tenants for well-capitalized tenants that are not volume guys. They're not trying to do, you know, 250, 300 stores, 500 stores, et cetera. They are selectively picking locations to have brick-and-mortar, you know, outfits that supplement that. their online businesses etc we're getting our fair more than our fair share of those type of tenants that's a real positive thing they're new to market in a lot of cases they're effective they're newly capitalized in a lot of cases one of the things that is most important here to think through is that you know obviously covid cleaned out weaker tenants and they did that earlier right that's the april and may and june July of 2020, and you know that list by heart. The notion, though, of what happened over the next year and who you want to have in your centers, particularly if you're spending $10 and $12 and $8 million on a center for a property improvement plan, you want new blood in the retails because you can't just have a nice place to sit outside the same old tenants that were pre-COVID and average. or are average now because of their sales. So you're seeing, you know, we've said it from the beginning that the demand is broad-based and the demand is largely tenants trying to improve the real estate locations that they're in. Why? Because they're trying to improve the sales that it is that they do, which is why they can pay the rents that we charge. It's all about that relationship.

Okay. Thank you, Don. Thanks, Alex.

You were right. Our next question is from Michael Goldsmith of UBS. Please state your question.

Good afternoon. Thanks a lot for taking my question. Just on the guidance, again, what are the assumptions that you have built into the 2021 guidance that would get you to the low end of the range versus what it would take to get you to the high end?

You know, for the most part, I think it's just, you know, the range of a lot of the things that we talked about. in the numbers, whether it be continued upward surge in collections, how much additional prior period rent we are assuming that rent trails off. We've had pretty steady prior period rent collection of $7 million, $8 million, and $7 million over the last three quarters. We expect it to trail off in the second half of the year. about $3 million and $2 million respectively. There could be some upside there from that perspective. We are likely to increase if we are successful with an acquisition. We'll bump guidance slightly from that perspective. But it's all the outperformance we had. We're expecting term fees. We had $3.4 million net in the quarter versus $1.8 million net last year. We're not expecting – we're expecting maybe a million this quarter. That's an area of some upside. Now we're higher than that. That's up towards the upper end of the range. So, you know, that's some of the pieces that get us from the top and the bottom.

That's helpful. And, you know, it's really admirable that you put out, you know, 2022 guidance. You know, as we think about the – You know, your prior guidance to the current one, the gap between your 21 and 22 guidance kind of shrank this quarter. And, you know, some of that's explained, I think, by some of the one-time charges. But what are the other changes and assumptions next year that are reflected in that?

Well, no, Michael, all I was going to say, and may I add to this, what you're basically seeing is a faster recovery. So all of the things that were assumed are simply happening faster. And so when you look at kind of what we had put out in 22 initially, obviously there was a run rate in 21 that rolled into 22. To the extent that run rate is better in 21, it inures or some of it accrues to 22 also. And that's basically all it is. We stay with the methodology that we use. in our multiple year forecast, and we make that consistent, you know, each quarter that we update those assumptions. That single biggest change is what I'm saying, and that is simply a faster recovery than what was there.

Thank you very much.

Our next question is from Juan Sanabria of BMO Capital Markets. Please state your question.

Hi, good afternoon. I was just hoping to spend a little time on the lease spreads. I guess based on current demand and your lease expiration schedule, how do you think spreads will trend into and maybe through 22? There's a slight dip sequentially in the spread in the second quarter despite the strong momentum. So I don't know if that was mixed related and your expirations kind of jump up next year in terms of the dollar per square foot. So just curious if you have any context on how those spreads may evolve into and through 22?

I guess what I'd say to you is a couple of things. First of all, you know, we're a relatively small company. And so in any particular quarter, there's always going to be rather significant variation. I laughed a little bit when you said there was a decrease in second quarter to first quarter. I think one was nine and one was eight. To me, that's exactly the same, just so you know. In terms of the – and in both of those quarters, there were still deals, obviously, that were rolled down. There were other deals that were rolled up in a more significant way. That's basically what happens in most quarters. There is a mixture of those two things. The probability that it will stay in those single-digit numbers is highest. That's where we're at. you know, most comfortable effectively in kind of running, you know, pushing rents and seeing what we can do in any one period. And again, that definitely, definitely depends on the mix of any particular quarter, which, you know, you don't get in a bigger company. If you've got a much bigger company with more of a commodity product and kind of do the same type of deals over and over again, that's a great thing for, you know, for consistency. but we are trying to bring you more value here.

Great. Sorry, I should have been more clear. I was focused on the new lease rate spreads, but point taken. Got it. And then just on the acquisition side, any thought or color you could provide about potentially further expanding into new markets, whether it's the Sunbelt or maybe Texas about how you're thinking about that, and conversely, what could be used as a source in terms of potential calling or dispositions, or that's not really the focal point for funding. It'd be more just match funding with equity at this point.

Hey, JB, you want to take that and get started?

Yeah, sure. I mean, we are, and I think we've talked about this in prior quarters and at NAERI, we are looking at some new and different markets. To expand, I think, as we put it, the number of ponds that we can fish in. And, you know, you saw us going to Phoenix, and we're looking at other markets as well right now. We don't really have anything to talk about. When we do, we will. Like Don said earlier, we're really happy we got the deals done, that we did get done when we got them done. The market's tightened up quite a bit. So, you know, as always, we'll be – careful and conservative and hopefully get some deals done. Every time we do a deal and we do a deal on a cash basis, that always causes us to look at the existing portfolio and think about disposing of an asset or two that maybe doesn't keep up with the rest of the portfolio in terms of its property level NOI growth. And when we have cash acquisitions to that will allow us to do that and make those dispositions on a tax-neutral basis, we will. But really, not a lot to talk about in that regard right now.

With regards to funding, as we always are, we're very balanced and opportunistic in how we'll look at it. And to the extent that the investment sales market offers us an opportunity to sell some assets at really attractive pricing, we'll take advantage of it and And we'll let you know when we do it. Thank you.

Our next question is from Derek Johnson of Deutsche Bank. Please state your question.

Hi, everyone. Good evening. How has office interest materialized, especially for Santana West? And thanks for the color on your HQ and also the traction that you're seeing at PUMA. And I do know that Santana is still a bit away from delivering, but I also believe it was almost fully leased with an LOI prior to the pandemic. Has that potential tenant or other anchors like them perhaps reengaged? Are you seeing any traction there?

Oh, Jeff, this one's all you, buddy.

Well, to answer the last part of your question directly, the potential tenant that we were close with pre-pandemic, no, they have not materialized, and we don't expect them to now that we're starting to come out of the pandemic. Activity out here in Silicon Valley from the office leasing perspective has definitely picked up. In the last 60, 90, 120 days, tours have started again. You probably all heard about the deal that Apple did a few weeks ago for 700,000 square feet, which is a great sign for the market. There are several other large users that have requirements and are conducting tours, including tours of one Santana West in coming days and weeks. We don't have anything to talk about. Again, we won't until we will, but I can tell you that activity has picked up quite a bit. What's great and what we're really happy about as it relates to One Santana West is there's very, very little supply in Silicon Valley right now, and particularly new supply that's amenitized. That makes us feel good about our prospects for getting the building leased. There's not a lot that we're competing against right now.

No, it seems like a great asset. Thank you. And work with me here. So all high-quality retail assets seem to be generating a ton of demand. All right, so this strong of leasing in a post-pandemic environment, I mean, I don't know who could have fully seen this. So, okay, federal, strong leasing. you know, solid spreads on the highest ABRs. You know, what's going on here, Don? Like, what dynamics or shifts can, you know, you share, you know, that you're seeing? Because really, I just want to stop talking and listen for another minute, if you would let me. Thanks.

Yeah, Derek, let me go through at least what I think is happening. And, you know, Wendy, please feel free to add, or Jeff, anybody that wants to add. I mean, look, there is, there is, if you're just be a retailer for a minute, be a restaurant for a minute and have gone through what just happened in this country over the last 18 months. And, and frankly, what was happening, the pressures that were on you for the three and four or five years before that. And so, so here you are now, uh, in, in many cases, recapitalize in many cases, uh, with a different level of competition than you had before. And you're in a position where you can reset. And effectively, that's what's happening. If you've got the chance, I mean, Wendy can tell you, man, if you sit on Rockville Pike in one of the four or five shopping centers that all aim for different parts of the consumer on Rockville Pike that we own, There have been tenants that have been trying to get on the pike for years and years in the right type of centers. We've been over 95% leased for Rockville Pike for much, if not all, of that time, except for the last 15 months. There is an opportunity that has not been here. So there's an opportunity to improve your real estate. very, very well-located first-tier suburbs of major cities, and you've got a landlord who is openly and anxiously improving those shopping centers for a post-COVID environment, why would you not choose to go there? Where would you choose to go instead? Because at the end of the day, it's not about the rent. It's about the profit they earn. And effectively, higher sales, better margins, a more affluent customer in better real estate with a landlord that's investing side by side with you, and you're in there with a new balance sheet, seems to be a pretty smart choice for a lot of tenants, including and especially those small shop tenants that Craig Schmidt was referring to before and that Wendy went through in detail. So I hope that's helpful. That's what we see happening in, you know, the markets that we're in at the properties that we're in. It's why the investment in the properties to be post COVID investments are so important to a retailer. They've got to be partners with their landlord.

The only thing Don, I would add to that is that, that, that is, You sum that up so well in terms of how the retailers are thinking. And now think on the flip side of how we're thinking. It gives us the equal opportunity to strengthen our assets and our merchandising with forward thinking of who is well-capitalized, who's relevant, who's going to meet that post-COVID world, and how should we make our investments in our properties. So it's really a benefit to both sides.

Thank you so much. Thank you.

Our next question is from Chris Lucas of Capital One Securities. Please state your question.

Hey, good evening, everybody. Thanks for taking my questions. I'm Don, and this kind of follows up on Derek's question, but I appreciate the comments you've made about sort of the demand being pulled forward. But I was curious as to the conversations you're having with your, you know, the tenants you want to have in your shopping centers. Are they expressing interest in, you know, thinking about not just this year, next year deals, but the future out years?

Are you seeing the sustainability of this demand with those kinds of tenants?

That's a good question, man, because, you know, Chris, as you look, I mean, one of the things you'll notice is with the volume that we're doing, there's still average term of what? 8.4 years. 8.4 years, which is about a year more. than you kind of used to see from us. And I think what they're trying to do is plant flags that effectively get them, you know, to the next decade. Now, certainly as a portfolio goes from 89% lease to 92% to 94%, et cetera, it gets harder and harder and harder. to be able to do that. So in some respects, in a lot of respects, it's constrained by the supply that's available to them. And that's kind of why when everything is great in the industry and everything else, a rising tide lifts all boats because you've got to find the best spot. But that's also, especially at a time like this, when those tenants are trying to take advantage of an opportunity that they have not had. for, you know, for years. So that's kind of what I'm seeing. I don't know, Wendy, if you want to add anything to that.

I think the only thing I can add is when I, I don't know how long you're thinking, but when I look at the pipeline, it is still very robust. So I don't see that we've done a lot first and second quarter and when we're just, you know, it's robust. So right now, I'm confident.

Yeah, I think my comment really relates to anecdotal conversations I've had with tenant rep brokers who have talked about their clients not really thinking about 21 and 22 openings, but thinking about 23 and 24 openings and that their volume of activity is ramped considerably. And that was really what I was thinking about it.

Yeah, well, Chris, but that is what happens to it. I mean, this stuff takes time. I mean, I was thinking before when somebody asked the question, the difference between the high and the low end of the guidance, you know, one of the things that we didn't say was, are we going to be able to get with all this leasing, are tenants open faster than assumed or slower than assumed? And that's not totally in our control. There's, you know, cities with permits, there's retailers that have different plans of their timetable, et cetera. So, you know, the lag in our business, obviously, between Signing a lease. Signing a lease is not the end of the process. Getting that rent started is the end of the process. And that is a complex thing to do in a lot of ways. And it takes some time. So that's part of what you're hearing from those tenants also is the lead time to be able to lock up space for a true post-COVID environment.

Great. Thank you for that. And then, Dan, I just wanted to follow up on the collection side. The abatements were down sequentially from $10 to $7 million.

I'm just curious as to whether that fallout was driven by, you know, driven by tenant fallout or was that driven by them moving towards paying you rent?

And then kind of alongside that is also your ABR under cash basis looks like it went up, call it $10 million quarter to quarter.

Is that predominantly new deals or are those legacy leases moved to cash? Just give me a handle on that.

I'm going to ask you to repeat the question, Chris, and do it one at a time. Okay. Sorry about that, Dan. So on abatements, you went from $10 to $7 million. Was most of the drop related to just tenant fallout, or was it related to tenants primarily moving to paying you rent, so the abatements sort of went away?

Moving towards paying us rent.

Okay. And then the second question is related to the drop ABR that's under cash basis. The percentage of your commercial leases under cash basis remain the same quarter to quarter, but the volume of ABR was up considerably from first quarter to second quarter. It generated about a $10 million delta on gross ABR that's under cash basis. I wanted to understand whether that was predominantly based on new deals that you had signed or whether there were some legacy leases that contributed to that increase in the ADR under cash basis. Yeah, that distortion was driven by the acquisitions. Obviously, we acquired $325 million or $400 million worth of assets that had 1.75 million square feet. Obviously, that's going to skew some of the data there.

Okay, perfect. Thank you.

Our next question is from Greg McGinnis of Scotiabank. Please state your question.

Hey, good evening. So, Don, on development, I believe I saw an entitlement request at Pike and Rose to potentially add lab or R&D space there. Can you provide some color on how potential construction costs and investment yields compare between traditional office and lab space?

your major developments and whether that's an asset type you may pursue at other locations as well uh greg i first of all i love that you're uh i love that you're looking at that stuff and seeing what's going on around here what we're doing is trying to make sure that we uncover we're real estate guys so we're trying to uncover the highest and best use for the the real estate that's uh that's here at pike and rose and certainly up at assembly bro and and you know in other places and Certainly, when you look at life sciences and you think about Montgomery County, Maryland, it's an important business that's here that, with a little bit of luck, expands. And, by the way, expands to places where the tenants value the amenity base that other office-type tenants value in these locations. And the same applies to Assembly Row. Now, at Pike and Rose, are we anywhere near being able to answer questions your specific questions in terms of the economics on it, whether it's viable. Does it make any sense? No, we're not. We're in that early exploratory phase, but we're in the early exploratory phase because we believe there's something potentially there. I've got nothing more to say about that at this point other than, you know, the entitlements on this 27 acres could certainly be used for that use. And, you know, similarly at Assembly Row. So an Assembly Row could be closer because that business is, you know, that business in terms of Boston and Cambridge and Somerville is, you know, it's even closer to fruition than it is here. But in neither case am I really ready to talk to you about the economics because we're not sure what we got yet.

All right, that's fair. And then you also mentioned that lifestyle centers are having a bit of a resurgence in tenant demand. Could you also discuss the level and type of demand you're seeing among the other asset types? And if there's any noteworthy trends by geography, that color would be appreciated as well.

Yeah, I wouldn't do it necessarily, but I can't really do it between you know, power centers or grocery anchored centers or regional centers, because it really does depend on the geography. There is no question that even in the second quarter, you know, we were operating in markets which were still, I wouldn't say locked down like they were in January and February, but only coming back and coming up and building in terms of their uh you know uh resurgence but that that it was so strong in all of them um that that you know we had to we just feel really good about talking about it the only thing i would say is during that period of time the second quarter weather had a lot to do with it so Boston felt like it was a few weeks behind New York, which felt like it was a few weeks behind Washington, D.C., et cetera. As that weather changed and as those restrictions came off, holy cow, was there pent-up demand. And that's continued. You know, it's interesting. We're talking a little bit and going off on a little bit of tangent, but you gave me an opportunity, so I'll do it. You know, when you think about the Delta variant itself and what's going to happen with respect to it, obviously, we don't know. But we do know a few things. The open-air format's fantastic. And in the markets where we're at, which have been a big disadvantage as they all closed down, you know, in 2020, these are markets where the vaccine rates are among the highest in the country. There are also the markets, and this is important, where mask wearing It's accepted. There's not a stigma to it otherwise. So the notion, like, we see a lot of people wearing masks at our shopping centers and at our properties, but they're shopping just fine because they're comfortable with that. So I don't know how it's going to play out, but I do like the fact that really in these markets, both East and West Coast, that the vaccine rates are, you know, among the highest in the country, because I think that's an important thing for the long term of this mess we're in.

Okay. And just a quick follow-up, because you mentioned pent-up demand. And I'm curious on guidance, you know, how are you guys thinking about, you know, this level of leasing activity and how much of that might be pent-up demand versus more continued and sustainable tenant demand?

Yeah, there's certainly some. But as Wendy has said a couple of times here, the pipeline's full. We've got a bunch of deals to do here. You know, will it be as robust as that second quarter or the first quarter? I doubt it. I mean, it's hard to maintain that level of activity. Plus, I think half the people would quit. They've been working their asses off. But nonetheless... uh the the you know the ability to to see elevated levels on based on historical levels for the foreseeable future is real all right thanks don our next question is from flores van dijkum of compass point please state your question

Thanks for taking my question, guys. I know it's a long evening here for everyone. Just, you know, making sure I understand the signed not open pipeline, the 320 basis points, you said it's around 30 million of ABR. Is that correct? Correct. So it's about 5% of the POI? Of total rent. Total rent, yeah. So is that about 5% of your POI ballpark figure?

Yeah, that's about right.

Yeah, yeah.

That's right.

So look, it's a solid number, but it looks like you've pulled forward a lot of your NOI pickup already in this past quarter, so you've got another 5% to go. Just making sure – You've also indicated, Don, I think you've said you hope to get back to 94%, 95% occupancy. That suggests another 3% or 300 basis points pick up from the current levels. So is that another 5% potential NOI impact going forward?

Yeah, of course, Flores. I mean, at the end of the day, if this is a 95% lease portfolio, as I said earlier, with the development filled and the capital that we've spent fully performing, I don't know when that would be. You're talking about over $7 a share in earnings for the place. So, yeah, you betcha. Now, ask me the day we get to 95% occupancy. I'm not sure I can get it to you. you know, or when we're fully leased up on the development that's happening, obviously. But, yes, your model makes sense as to the way you're looking at it.

So let me ask you the follow-on on that. So obviously your NOI goes up. Your NAV should be going up as well. Does that make you think, wait a second, maybe I should, you know, hold off on tapping the ATM until my stock price gets up a little bit more, or would you still be comfortable raising more capital at 117 levels with these results behind you?

You know the answer, what it's going to be for me. This is a balanced plan, man. The ability to effectively raise a little bit of capital in most markets along the way is something that doesn't surprise investors. It keeps everybody, it matches beautifully the money that's spent out. The idea of letting leverage get way up because there may be that day that you can do it and then you do a big overnight, that's not our model. And so, you know, I mean, we need those investors and I think we have them, but we need more of them. who basically appreciate that steady balanced approach toward equity raising, debt raising, dividend payment, what you get when you get the high-quality assets .

Thanks, Don.

Our next question is from Linda Tsai of Jefferies. Please state your question.

Hi. I just had one question. In terms of the tenants that have a payback plan beyond 2021, what percentage of your ABR is that, and then when do the plans finally conclude?

Well, at least you guys, Lendy, you've got people moving papers around all over the place around here. Just give us a second. Beyond what we have outstanding, roughly half of that should be paid back by the end of the year. And beyond that, it's, you know, another chunk in 22 with the balance in 23 and 24. So you're probably looking at about a half in the balance of the year, a quarter in 22, and then the balance beyond that.

But what percentage of your ABR is on that kind of plan?

I don't have that at my fingertips. We can provide that to you online.

Okay, thanks.

Our next question is from Paulina Rojas Schmidt of Green Street. Please state your question.

Hello. There is clearly a lot of interest, investor interest, in the open-air center these days. How do you think investors are looking at lifestyle centers? How has the level of comfort with the category changed in recent months, in your opinion?

I don't know. You know, when you look at retail real estate, the big investors that we talk to are very... interested, obviously, in the cash flow prospects of that particular asset, the particular real estate. When you look at lifestyle, I think what has become very clear during this process, during these last six or eight months, is that those type of assets, and I don't know what we really mean by lifestyle. In my mind, that we are talking about largely our mixed-use properties and larger assets that also include a residential or office component associated with it. I know that demand that we're seeing from tenants and therefore the understanding of that from investors is very strong. The notion that we all know that grocery anchored centers are very popular right now. to effectively look at based on how they worked out through COVID. But in terms of, you know, when you sit and you say, where is your growth over the next five years or six years or seven years, I know how we feel, and I believe the investors in this company appreciate the higher growth potential of those type of centers.

Yes. And your portfolio, of course, has a mix of subproperty types. But if you could break up your portfolio, how far from pre-COVID is the NOI from the 30% of your portfolio comprised by lifestyle centers?

Oh, it's still 15, 18% off. Okay.

Thank you very much.

Our final question is from Katie McConnell of Citi Group. Please state your question.

Hey, it's Michael Dillerman here with Katie. Don, you know, I guess as you listen to all your peer calls and review their leasing stats, pretty much every public company has been reporting pretty record leasing, strong pipelines. And I wanted to know whether you and your team have noticed any shift in the marketplace between public and private landlords in their share of sort of leasing that's going on if there is a market share shift that is occurring to the better quality assets that the REITs own and the better capitalization that the REITs are, and whether that shift is real or it's just sort of on the margin, and if it's real, you know, does that alter the landscape at all and then provide, you know, I don't know what happens to all those centers that are not getting the leasing, that, you know, those become acquisition opportunities or redevelopment opportunities. I don't know whether this is a thing that's happening or not.

Boy, Michael, that's a great question. And I wish I had more than anecdotal evidence by it, but let me give you the anecdotal stuff that I see. I mean, it kind of ties back to what I was saying before in terms of, you know, retailers making longer-term investments. They're trying to set themselves up for the next decade post-COVID, and they want to be with landlords who are with them. And what that means with them is care about who they're merchandising next to, care about whether they're investing in the properties to effectively attract customers with a placemaking perspective, a curbside pickup. I mean, curbside pickup, I cannot tell you how many tenants ask about it. Whether they use it or not, that's another question. But it's a critical thing to figure out whether the landlord is in it with them. in trying to make them successful as businesses. If you're a private company that is undercapitalized, and I've got to make that distinction because a well-capitalized private company, and there's a bunch of them that you and I know that are not disadvantaged at all and darn good at what they do. But if you are a private company who is undercapitalized and trying to kind of milk the cash flow, from the existing shopping center, I think you're in a serious disadvantage post-COVID. And so that, you know, depending upon the marketplace, who's in the marketplace, who's willing to invest or not, I do think that is a sustainable trend that will widen the gap, if you will, between better real estate and less invested real estate.

Do you think that there's a shift? Your example on the Pike example, are tenants just signing leases because it's available now and they know they want to get into the better space with better quality landlords, but they haven't let their other lease expire? And so macro retail statistics are going to start eventually showing this depressed level of overall occupancy just because it's more of a tenant moving around with maybe a slight uptick. you know, given some of the new tenants coming into the marketplace.

I don't have an opinion on that either, you guys. Because when they're signing leases, it is for a move generally. It's not to, you know, milk the old store that they had in the market and add another one. So it is, you know. Now, I will say that we'll try to incentivize them to leave early. and effectively use this period of time to create, you know, an economic deal that makes sense for them to leave early or something. But it's not – no, I don't see it being, you know, extra deals, if you will, that are going to wind up with closeouts in the old places down the road in any significant way. At least I don't see it that way. I don't know. Wendy's shaking her head too soon.

I agree. I agree. It's more strategic. It's more timing. But I don't see tenants just leaving their other stores and having two years left on their lease. It needs to match up most of the time with the quality of tenants that we're dealing with.

Now, historically, Publix was a good example of a company in Florida that would do that. Publix would, you know. leave a store, go darken a store and open one on, you know, open one across the street if it was better, if it was better real estate, better landlord, et cetera. So, I mean, there's always, there's always exception, I guess. There's always one office, but I do not see that or we don't see that as a trend.

I mean, like it's just such an unusual market to go through, right? Sorry, Jeff, you were saying?

Yeah, to answer kind of the second part of your question, Michael, you know, if you look at the, acquisitions we got done in second quarter, you know, one of the common threads across those deals was, you know, the owner, for whatever reason, was unwilling or unable to invest capital in the property going forward. And those are perfect, you know, well-located shopping centers where that's the owner's mentality. Those are perfect acquisitions for us. We like those because we will come in and put in the capital in a great location and, you know, show virtually immediate results in leasing or, you know, very strong results in the short term in leasing. So, yeah, to the extent the pandemic causes more of that to happen, that'll put more properties on our radar screen for sure.

Great. Well, I appreciate the color, even if it's anecdotal. I know we're not going to have perfect answers as of yet as we transition to the next phase of this pandemic.

Thanks, Michael.

All right. Thanks, guys.

Our next question is from Tammy Feek of Wells Fargo Securities. Please state your question.

Great. Thank you so much. Given all the leasing activity that you did in the quarter, I guess I'm curious what annual contractual rent bumps look like on the new leases signed relative to what you were negotiating pre-COVID, and then maybe as a follow-up to that, I'm wondering if you are seeing any retailers backing away from openings or closing stores due to an inability to find labor today?

I guess the first part of your question, Tam, you know, on average, you'll still see plenty of deals at 3% bumps, 2.5% bumps. The anchors will still be flat for five and then up 10. And, you know, I don't see a difference in the deals we're doing compared to pre-COVID, I guess, is the big point there. And then the second part of your question was what?

I'm just curious, I guess, given, you know, we've heard there are some challenges in some of the smaller retailers in particular finding labor. And I'm curious if you're seeing any retailers backing away from openings or closing stores as a result of that.

I don't think so. I mean, there's no question that is a current issue, especially when you're talking about the service businesses and, you know, the restaurants and other service businesses like that. But in terms of not doing deals because of that, no, I don't see that today. Don't see that actually happening now. You know, ask me that again every quarter and figure out what's going on with that labor situation because I do think that has to give a little bit. And I think it will just by the natural, in the natural course as we go. But no, not backing off yet today.

Okay, thanks. And then maybe just one more, as you think about future development opportunities, and just as we sort of sit here and reflect on, you know, the approaching stabilizations and the current underway pipeline, I guess I'm curious what projects, either in the big three or in the shadow pipeline, you view as most compelling today? And, you know, are higher construction costs, you know, having any impact on how you're, you know, thinking about future development?

Yeah, well, you know, costs always do. I mean, what we do. And, you know, in the big three, what we want to make sure we do as best we can, because these are planned for 15 years and 20 years in terms of their execution on those things, is to have a good mix of both retail, which brings people to the asset, residential, which we do love to do in terms of that distribution. nights and weekend traffic, and a component of office, which adds that daytime. So we still want to be able to do all of those on our big projects. We're working those numbers all the time. Construction costs seem to have stabilized a little bit at this point in time. I think that's a general good sign. We do need to get comfortable with where rents are and whether we're able to make some money. I think I said earlier in the remarks that there are a number of opportunities, potentially at Pike and Rose or Assembly, that we see now. I can't wait to be telling you that there's other opportunities at Santana Row once we get that big building lease, which I would love to be able to tell you, but are not ready to do that yet. And, you know, the existing projects that, you know, are still being built, like Darianne, and income yet to start, like Cocoa Walk, in full measure, will also be providing growth over the next couple of years.

Great. Thank you.

We have reached the end of the question and answer session. I will now turn the call back over to Leah Brady for closing remarks. Thanks, everyone, for joining us. Have a great night. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation