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spk01: Greetings and welcome to the Federal Realty Investment Trust 4th Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during today's conference, please press star zero on your telephone keypad as a reminder this conference is being recorded. I would now like to turn this conference over to your host, Ms. Leah Brady. Thank you, ma'am. You may begin.
spk09: Good afternoon. Thank you for joining us today for Federal Realty's fourth quarter 2021 earnings conference call. Joining me on the call are Don Wood, Dan Jeeb, 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 Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or as well as statements referring to expected or anticipated events or results including guidance. Although federal realty believes that 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 issue 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 operations. Our conference call tonight will be limited to 75 minutes. We kindly ask that you limit yourself to one question during the Q&A portion of our call. If you have additional questions, please re-queue. And with that, I will turn the call over to John Wood to begin the discussion of our fourth quarter results. John?
spk06: Thank you, Leah, and congratulations to you on your promotion to Vice President of Investor Relations this month. Really well deserved, and we're sure lucky to have you. Well, good afternoon, everybody. What makes Federal's business plan so different is our multifaceted approach to capitalize on these best-located, best-tenanted retail properties with a laser focus on bottom-line earnings growth. 104 individual assets with a proverbial toolbox filled with numerous ways of achieving that goal, for years to come. Took a global pandemic to knock us off our horse for a time, but we're back up and we're riding high. 2021 was the first step, where each quarter throughout the year exceeded our constantly upwardly revised expectations. That trend continued in the fourth quarter, with FFO per share of $1.47, handily beating our forecasts, and of course, last year. The shining star of the business continues to be leasing. As it's been all year, but it was taken to new levels in the fourth quarter. I need to put this into context, so bear with me for a minute. First, on a company-wide basis in the fourth quarter, we signed 149 commercial leases, that is retail and office, but not including residential leases, which itself was really strong, for nearly 900,000 square feet of space. That includes renewals of existing tenants, along with space that either sits vacant today is expected to be vacant in the coming months, whereas for new buildings currently under construction or just completed. That's an annual base rent commitment of nearly $35 million. Consider that over the last 10 years, an average quarter's output produced about 110 commercial leases and 500,000 square feet. That means that in this quarter, we did 35% more deals for 80% more GLA than average. This is very strong quarterly volume, even in a year where each previous quarter seemed to set some sort of record. And while I don't think that those fourth quarter levels are regularly repeatable, our leasing pipeline suggests that they will remain above historical averages for the foreseeable future. For the full year 2021, we did 573 commercial leases for $2.9 million square feet, and an annual rent commitment of $116 million. These activity levels are unprecedented over the very long history of this company. But this leasing volume is particularly important because it provides strong validation that the very diversified product type that we own and are creating is very highly sought after. And the leasing is broad-based. It's the single biggest reason that I believe Federal Realty is better positioned post-COVID than we were before. Let me break down the quarter numbers a little bit more, and I think you'll see what I mean. Of the 149 commercial leases signed, 116 of them, or nearly 600,000 square feet, were for comparable space, one where a tenant previously operated from. Those leases were written at an average rent of $34.34, 6% higher than the tenants they replaced. Another nine leases, or 22,000 square feet, were written for non-comparable space at an average rent per foot of $43.53 at places like Assembly Road Phase 3, Cocoa Walk, and Candleback Colonnade in Phoenix. But it's the remaining 24 leases for 277,000 square feet at net rent of $48.52 that really is a strong positive differentiator to our business. It's the office leasing at our long-established mixed-use communities. In this quarter, primarily at Assembly Row and Pike and Rhodes. Now, look, I certainly realize that general office leasing is not in vogue right now for good reason, given the macro levels of uncertainty surrounding back-to-work policies. But not all office space is created equal. And it has become clearer and clearer with each quarter, heck, each month that passes. that the new Class A office product that we own or are building at five of our amenity-rich mixed-use communities is in extremely high demand and commanding rents that are clearly additive to both earnings and value. Each of those five are well-established retail locations already, and the office component is an expansion, building on the success of the retail. They are Assembly Row, Pike and Rose, Bethesda Row, Santana Row, and Cocoa Walk. That's it. Deals with a myriad of companies and lots of different industries, headlined by our leads with Choice Hotels for their new world headquarters at Pike and Rose, are just the latest examples of companies choosing our building as the product of choice, open intended for the future. Those companies are joining others, like Puma, Avalon Bay, NetApp, Bank of America, and Splunk, in helping to create long-term sustainable communities in our portfolios in Somerville, Massachusetts, Montgomery County, Maryland, Silicon Valley, and Miami. And check this out. While 197,000 feet of the 277,000 feet done in the quarter was primarily in newly constructed buildings at Assembly and Pike and Rose, the remaining 80,000 was for comparable space at a positive 23% rollover. That strong rollover was largely driven by our first renewal and expansion at 450 Artisan Way at Assembly Row, the 100,000-square-foot office building built as part of Phase 1. That rent went from a blended sub-$30 triple net rent to the mid-40s triple net. Pretty good data point of the longer-term office upside that exists at well-executed, well-amortized, mixed-use communities in first-tier suburbs. As I said and firmly believe, all office opportunities are not created equal. And while we don't have anything to announce on this call, Santana West, there is serious interest from a number of substantial tenants where we're making some very good progress. And by the way, take a look at the occupancy gains we're making on the retail portfolio portfolio-wide, which are equally impressive. At year-end, we're 93.6% leased. and 91.1% occupied. That's an 80 basis point leased and a 90 basis point occupied pickup in just three months. Impressive for sure, but still a ways to go to get to our 95% plus historical bogey. Okay, so what about the Omicron impact? Well, as you would expect, there's little impact in the fourth quarter as the variant spread didn't take hold until late December and January. And what the impact will be on 2022 has yet to play out. But thus far in 2022, it feels like across the board, shoppers, tenants, and other constituents seem to be viewing Omicron as temporary, and while wearing masks and being more careful in most of our markets, are marching forward with typical winter shopping patterns. Requests for rent accommodations from tenants have been few, and we've not agreed to anything significant at all at this time. Now, from a capital allocation standpoint, which after all is really what we as management teams in this industry do to add the most value, we're actively using all three levers, asset sales, acquisitions, and the continued expansion in our established properties, all in the name of bottom line earnings growth. You'll notice from our 8K that we closed on the sale of two shopping centers where we saw a limited upside in the future. The combined proceeds of $113 million because Leesburg Plaza and Saugus Shopping Center sold at a blended high 5% cap rate were used to reduce debt before year-end. On the acquisitions front, we'd like to invest several hundred million dollars in 2022 based on our identification from our hit list of targeted properties that feel like they may trade this year. Progress early in the year has been encouraging and soliciting serious conversations. Stay tuned. And certainly on the development front, We expect to be substantially done constructing our residential over retail neighborhood in Darien, Connecticut this year. We're underway at our $190 million office tower for choice hotels at Pike and Rose. And we have more than a dozen property improvement redevelopments underway throughout the portfolio. By the way, Citi will be hosting a tour of our newly completed Cocoa mixed use project during their conference in South Florida next month. It's pretty spectacular. It's created over $60 million in value on our $200 million investment, and we'd love to see a wide variety of investments there. It's going to be an active year on all fronts of federal. I've got to believe the visibility of this multiple-year bottom-line earnings growth plan is the most transparent in the sector.
spk02: That's all about all I have for prepared comments.
spk06: Let me turn it over to Dan, and we'll be happy to entertain your questions after that. Thank you, Don, and hello, everyone. Our reported FFO per share, $1.47, was up 29% from the fourth quarter of last year, and roughly 6 cents above the top of our guidance range. For the year, we reported FFO per share of $5.57, a 23% increase over 2020's results. Both of those reported increases exclude the one-time debt prepayment charge from 4Q2020. in order to show a meaningful apples-to-apples comparison. Primary drivers of that outperformance versus expectations were higher percentage rent from COVID-amended leases bolstering better collection rates, a faster acceleration in occupancy than expected, stronger leasing at our residential assets, including the Phase 3 residential at assembly, lower real estate taxes than we had forecasted, plus financing activity, which occurred later in the quarter than expected. This was offset by higher GNA, higher property-level operating expenses, primarily one-timers, and lower term fees than we forecast. For those analysts that keep track, we had $1.7 million of term fees for the quarter against a 4Q 2020 level of $3.6 million. Collections continue to improve. with 97% of monthly billed rent being collected for the quarter, up from 96% reported on our third quarter call. Including abatements and deferrals, we are 99% resolved. Prior period collections were down to $5 million versus $8 million in 3Q. And as a result, our collectability adjustment was up modestly to $2 million, primarily driven by this prior period fallout. Collection of deferrals continue to outperform our expectations. Of the $46 million of total rent we deferred since the start of COVID, $27 million has been collected, which represents roughly 90% of the amounts that were scheduled to be repaid by year-end. Don already highlighted our record-breaking quarter and year of leasing, but let me add some additional color. As he mentioned, we were 91.1% occupied as of quarter-end, a 90 basis point increase over both the third quarter and year over year. Our lease rate stood at 93.6%, an 80 basis point increase over the third quarter, and 140 basis point increase year over year. And the 250 basis point spread between leased and occupied should set us up for strong growth over the course of 2022. These significant gains were primarily driven by small shop leases. Our small shop lease percentage is up to 87.4%. A 130 basis point sequential increase in the quarter and a 280 basis point increase year over year. Solid progress in getting back to our targeted bogey of around 90% for small shop.
spk05: Highlighting some of this small shop activity or deals were some of the most sought after tenants of today.
spk02: Warby Parker with three new deals. Madewell with two new leases. Bombette with two. Foxtrot. Page Denim. Oath Pizza. Another Nike Live.
spk06: Another Gloss Lab. Just to name a few. Anchor leasing was solidly up 50 basis points to 96.8%. Given broad-based activity with 12 deals totaling 320,000 square feet of the almost 600,000 for the quarter. Categories for new deals include grocers, discount apparel, sporting goods, home furnishings, and health care. On the residential side, we saw a surge in lease occupancy of 240 basis points year-over-year to 97.2% and saw strong high single-digit year-over-year new lease rent growth. We feel well-positioned to drive incremental POI growth in 2022 given forecasted strength, particularly in our Boston and Silicon Valley markets. Evidence of this plan, evidence of this can also be seen where after just seven months, our 500-unit Micella residential tower at Assembly is already 60% leased and rents which are 15% higher than the pre-COVID lease-up rental rates of Montauk. It's Sister Resi Tower next to it at Assembly Road. In terms of redevelopment, we now have roughly $400 million of remaining spend on our $1.5 billion investment pipeline. Much of that pipeline has recently been placed into service. These projects will be a source of significant earnings growth in 2022 through 2025 as they continue to ramp up in POI contributions. In our 8K, we have reinserted disclosure relating to the ramp up of POI at our large in-process projects and also provided some detail in a footnote on the 99% leased Cocoa Mall.
spk02: Now to the balance sheet and an update on our liquidity position. The fourth quarter was an active one in the capital markets.
spk06: We raised another $85 million in common equity for our ATM on a forward basis at a blended gross price of $130.50. We repaid mortgages totaling $117 million that encumbered the avenue at White Marsh and Montrose Crossing. getting another 18 million of POI to our unencumbered pool. And during the quarter, we sold $121 million in assets, including the Leesburg, Virginia, and Saugus, Massachusetts assets Don mentioned, bringing our total for the year to $142 million at a blended yield in the mid-fines.
spk02: As a result, we ended the year with $162 million of cash available, an undrawn $1 billion credit facility,
spk06: at $264 million of forward equity to be taken down in 22, leaving us with total liquidity of over 1.4 billion.
spk02: Our leverage metrics continue to improve.
spk06: Net debt to EBITDA is now down into the high five times level for the fourth quarter annualized net of the forward equity. And that metric is forecast to improve over the course of 2022 as development POI comes online and occupancy drives higher from leases that are already executed. Again, our targeted level is in the low five times range. Fixed charge coverage is back up to just under four times.
spk02: We have no debt maturities until mid 2023. Now on to guidance.
spk06: For 2022, we are increasing our guidance range to $5.75 and $5.95 per share, a 10 cent increase over our previous range. This represents 5% growth of the midpoint, 7% at the high end. And this is driven by occupancy levels expecting to increase from 91% at year end up into the mid to upper 92% range by the end of 2022. An increased forecast for current period collections up from an average of 95% in 21 to an average 98% over the course of the 22. Greater contribution from a redevelopment and expansion pipeline. Again, for those modeling, let me direct you to our 8K, where we're providing our forecast of stabilized POI ramp-up by year, as well as accretion from our 2021 acquisitions being online for the whole year. Additionally, of the $440 million of 2021 acquisitions, they are really outperforming our original underwriting and are expected to yield a blended 6% in 2022 versus an initial 5.5% expectation. Please note that these deals would clearly sell at a blended sub-five cap rate in today's environment. Now, this will be offset by lower prior period collections where the net 2021 level is $22 million. And for 22, it is expected in the range of $5 to $8 million. We are expecting lower net term fees We had 8.4 million in 2021 and forecast 4 to 6 million in 2022, more in line with historical averages.
spk05: Despite over 300 basis points of headwinds from prior period collections and lower net term fees, our comparable growth forecast is 3 to 5% for 2022. Other assumptions include 3 to 400 million of redevelopment and expansions that are existing properties,
spk06: $300 to $400 million of equity to be issued inclusive of the forward equity already sold. G&A is estimated in the $50 to $54 million range for the year. We've set a credit reserve of roughly 2% plus or minus 50 basis points. Dispositions made in 2021 contributed $8 million of POI to 2021. That obviously won't be there in 2022. And we will have lower interest income given the repayment in mid-2021 of a $30 million mortgage loan that yielded 10%. As is our custom, this guidance does not reflect any acquisitions or dispositions in 2022. We will adjust for those as we go, given our opportunistic approach to both. It also does not assume any tenants moving from cash basis to accrual basis.
spk05: And please note the expanded disclosure in our 8K relating to guidance.
spk06: With respect to our goalposts for 2023 and 2024, we continue to believe that 5% to 10% compounded growth from our upwardly revised 2022 FFO range is achievable. Timing in terms of the lease-up at 1 Santana West will have a big influence on where we end up within that range. Now, while we are not providing color on specific timing, $7 per share of FFO is a realistic target in the coming years.
spk02: And with that, operator, please open the line for questions.
spk01: At this time, we'll 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 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. One moment while we pull for questions. Our first question comes from the line of Alexander Goldfarb with Piper Sandler. You may proceed with your question.
spk03: Hey, good afternoon. So two questions here. The first question is, you know, obviously on the apartment side, what we've seen all around is, you know, the rent rebounds and rent growth is tremendous. On the retail side, the sales recovery is, has been just off the charts. I mean, the mall companies have been saying, you know, it's well exceeded 2019. You guys are talking similar. It's hard to believe that this is all just a catch up of people staying in their homes, you know, during 2020 and early 2021. So do you think there's something else at work or is this just like a one hit wonder? We all rebounded, you know, this year or 2021 and then sales are leveling out. Or do you think that people have sort of and retailers themselves, have rediscovered retail, and therefore this accelerated sales pace is sustainable the next several years.
spk06: Yeah, Alex, I mean, that's the question of the day. Everything we see, we seem to see. And again, it's looking at it through our view, which is not a national view. It's really primarily a coastal view, suggests that retailers that the recovery of sales, et cetera, are here to stay. I do think there was something very interesting that happened through COVID in terms of people's realization of how important social was. It's real important into how going out to eat and to play and to shop is. So I think a lot of that stays. The other thing, and you kind of touched on it early, And the first part of the question I want to address is the residential side. You know, there is no doubt that places, and again, our residential outlook is only on a few places, but it got hurt, you know, as you think about it going into COVID. The way it's recovering is pretty interesting to me. And we have a really interesting barometer. If you remember at Assembly, Pre-COVID, we were opening up a big 500-unit building that we called Montage. And in that building, in the fourth quarter of 18, October, November, December of 18, before any COVID, that building, we had average rents of $3.35. Ironically, we're now opening... The second building, which is also 500 units, and it's right next door, it's called Micella. It's leasing up faster than we thought, and it's leasing up at $3.85 in that fourth quarter, 15% more than pre-COVID at Assembly Row. It's really interesting, and if you look at the deals that are happening in January and February, it's not a big deal. a sample size because it's January and February in Boston, but those are well over $4 a foot. So there's something that's happening here with respect to lifestyle, with respect to shopping, with respect to certainly the office piece in terms of what's to come there. That really feels to me like an energized pre-COVID time that to some level is here to stay.
spk03: Okay. And then the second question is, You know, with the recent, the crime waves that have happened and, you know, stores that have been targeted, I mean, your portfolio has been hit. You know, on the public earnings calls, all the companies that I've asked so far, everyone said there's a little bit more security costs, but no tenant has changed their leasing plans or is moving stores. And yet, when we speak to people and some of the companies privately or, you know, speak to others that are involved in retail in urban settings, it's a different story. So my question is, is it just that in general there's really been no fallout, there's increased security costs, but in general there's been no leasing fallout, tenants really aren't shifting their portfolios, or is it that, yes, in certain markets they're seeing a change, but it's not a change that is appearing nationally as retailers look at their fleets?
spk06: I can really only respond to our properties and our markets, and I can tell you there has not been a change in any of the retailers' plans for moving forward because of crime.
spk02: Okay. Okay. Thank you, Don.
spk01: Our next question comes from the line of Craig Schmidt with Bank of America. You may proceed with your question.
spk10: Yes, thank you. You guys have come out of COVID being rather aggressive, impressively so, on your external growth. You've really taken up your acquisitions, and you continue to push on your redevelopment. I'm just wondering, though, with the continued pressure on cap rates, may you start to favor redevelopments over acquisitions just because it's tougher to buy and adding value when cap rates are so attractive? is a compelling proposition.
spk06: Great question, Greg. And let Jeff jump on that first, particularly from the acquisition side. Yeah.
spk14: Hey, Craig. Good evening. I mean, I think you're right on point. We were really happy with what we got done in 2021, as Dan mentioned in his prepared remarks. We got those deals done in the first half of the year, generally speaking, which was great. All the properties we bought in 21 have great redevelopment and value add opportunities going forward, which, as you know, we think is very important when you're buying something. The second half of the year, the market has tightened up. Yields now, whether you're talking about cap rate or IRR, are lower than they were pre-pandemic. and you know where where public equity trades you know in the in the teens on average it's a real head scratcher as to how you make the numbers work for you know your normal grocery anchored neighborhood or a community center that the numbers just don't work especially when you look out a few years uh and what the growth of the property level needs to be to support the implied growth in the equity that's issued by the assets I think you're spot on. And, you know, as you know, we're careful about that kind of stuff. We've always been really disciplined because we've never felt pressured to buy anything because we have, as Don said, so many tools in the tool bag. So we'll continue doing what we've done for the last two decades. Most of us have been here and we'll be careful about what we buy and make sure it's got good go forward growth prospects. densification opportunities, lease up, releasing, all that kind of stuff. But certainly, if you don't have the ability to source that stuff, if you don't have the ability to take advantage of those opportunities, just growing by buying something in today's market is not a very good idea, in my view.
spk02: Thank you.
spk01: Our next question comes from the line of Katie McConnell with Citi. You may proceed with your question.
spk00: Hi, everyone. Thanks. Just wondering if you could walk us through some of the key swing factors that could get you to the higher, the low end of your updated FFO guidance range, since it's still a fairly wide range for this year, and what would need to happen for you to narrow that more throughout the year?
spk02: This is Jeff. Hey, Katie. How are you?
spk06: Look, I think that, you know, we've given a range of 3% to 5% for comparable property. I think that kind of what goes in that is just collections both prior and prior period as well as kind of going forward current. Also kind of what we do with regards to term fees, which we've kind of reduced. Our prior period rents have also been reduced. We've given a range. I think you'll see on page 33 In our guidance, we give kind of a little bit of a range with regards to, you know, G&A expense, $50 to $54 million. I think it's a little bit of a sense of the range of development, redevelopment capital that we can put to use, and then also, you know, how much equity we raise. You know, we've also... how quickly some of the rents can come online at our developments, as well as the rest of the year, how we can get things rent started. So I think there's a whole host of those. I think we've given a range of a credit reserve at around 2% plus or minus 50 basis points. That's another one, obviously, that shows up, will be reflected in the 3% to 5% comparable to an extent. But those really, I think, kind of are the levers that get us there with regards to that stated, you know, range of guidance. Again, it does not include dispositions, does not include acquisitions, does not include any changes in our revenue recognition with regards to cash versus accrual.
spk12: It's Michael Bellarmine here with Katie. Don, I was wondering if you can maybe just step back and just think about capital sources and uses. You have $300 million to $400 million of development and redevelopment plan that you have targeted for this year. And in your opening comments, it sounded like there was a number of transactions on the acquisition front that you have underway. You list here about three to $400 million of equity, which is effectively, I don't know if that equity is all common equity. I don't know if you're deeming that to be equity selling assets, but talk a little bit about how you think about funding that growth and how significant it could be.
spk06: You bet, Michael. So the first thing you've got to remember is that we've got forward equity contracts of $260 million that has already been sold that will be taken down in 2022 at some point. That's important. Incremental equity in our budget is another $140 million or so on top of that. We're also looking at selling a couple of assets that probably you should think about another $100 million or so there. So what we're really certainly trying to do is be very balanced with respect to the capital that we would use. And again, have raised a lot of it already. That's important. We're not going to lever up the company. We're going the other way. And so the notion of new deals and how those deals would be financed, they'll stand on their own. And we'll figure out the best way to finance those depending on what type of asset they are, you know, where we're going. But with respect to the stuff that's committed, we're in really good shape because of the refunded equity so far and the couple of dispositions that we would do.
spk12: I guess from a volume perspective, how do you think about you added all the yields back to the supplemental. Thank you for that. some pretty attractive yields relative to where the acquisition market's being priced and certainly relative to where you got those deals off, you know, last year. So I guess why not activate more of the stuff that's in your wheelhouse versus going out and paying lower cap rates for acquisitions and issuing equity at a discount to where your NAV is, right? I mean, you'd be diluting shelves or something.
spk06: First of all, fully agree with you, Michael. Fully agree with you. What you have to first really make sure you get is all the capital that has been spent to date that is not yet produced. And that is automatic FFO growth, automatic property level growth, and it is the single biggest source of growth in the next couple of years after plain old lease-up of a portfolio that is still under lease in terms of where it goes. Those two things are huge. The other thing with respect to acquisitions, and this is where I could not agree with you more, they've got to make a lot of sense. Now, I will tell you that there is one that we're looking at specifically in order to handle a 1033 acquisition. transaction that we had a couple of years back. So there are, you know, we will step up to be able to do a deal that makes sense overall on a overall tax perspective. But beyond that, your point is 110% right. I couldn't agree with you more.
spk02: Okay. Thanks. See you at COCO in a few weeks.
spk01: Our next question comes from the line of Greg McInnis with Scotiabank. You may proceed with your question.
spk04: Hey, good evening. So just looking at leasing, so leasing volumes are obviously quite strong. Rent spreads are slightly less exciting. Could you just talk about market rent growth that you're seeing relative to 2019 and then in what regions you're either seeing more strength or recovery in rent growth?
spk06: Yeah, I could start on that. Wendy jumped in wherever I screw this up. But when we sit and we look at, you know, 6%, 8%, 9%, something like that, which is where we expect to be overall, you know, that is – that's about where we are overall overall. compared to not only 19, but what is in place all the way through. When you look specifically to 19, and I just did this to get comfortable with it, we are 3, 4, 5 or so percent higher than 2019 overall. That doesn't mean, and I've said this 100 times, and it will always be the case, that there aren't specific deals that will either drag that down or drag that way up. In this particular quarter, I got a good example of that. We had a CVS in line at Barracks Road, one of our best shopping centers, that we could not accommodate a drive-thru. They left the shopping center to go across the street for a drive-thru. Those things happened. That was a big rent payer that wouldn't be able to be replaced without that deal. Those rollovers would have been eight for the company. So there's always a couple of things like that. They go both ways. throughout the company. But overall, you are talking about a level of demand that's in excess of the supply of our particular product. So overall, you should expect that continued growth in rents. The other thing is, though, you've got to translate that down to the bottom line. And when you hear big numbers of rollovers but no growth at the bottom line, you've got to sit there and say, what? Because from my perspective, being able to expand at properties that are fully settled as great retail destinations, like a Pike and Rosa, like an Assembly, like a Santana Row, to be able to add buildings, to expand what you have, my gosh, that's great risk-adjusted growth. that really needs to be thought through and considered in terms of it. So both the leasing and the expansion and the PIPs, the property improvement plans, all of that, when that happens, winds up, I think, would show you bottom line growth that is consistent and sustainable for a number of years. That's the name of the game.
spk04: All right. Well, thank you. And then just regarding those potential acquisitions that you and Michael were referencing, what are you seeing in the market from a cap rate perspective, and how do you think that impacts the value of your portfolio? I know Dan, a few years ago, gave us his NAV estimate, which I believe you weren't too pleased about him giving in the first place, but he convinced you otherwise, which we all appreciated. So I'm just curious how you think that stands now.
spk06: First of all, Greg, that's just good cup, bad cup between Dan and I. We're on the same page in terms of that. Look, I don't know. It's so well publicized. It's so well clear that really strong shopping centers today are in the markets that we want to be in or supply generally. I mean, that's where they are. When you take a look at the big projects that we have, when you look at, you know, what the value of Cocoa Walk is going to be when you come and see it, when you take a look at what's being added at Pike and Rose and Assembly, et cetera, I think you're going to – I think it's pretty obvious that you're talking about sub-five across the board in this company, not at every shopping center, but across the board in tour. And so when you look at that, you can do the math as to where you think the NAV should be. But to me, that NAV is critically important. The most important thing about that, and it ties obviously into the cap rate, where's the growth, man? How are you going to grow it? And what's that thing going to be like in a few years? Because that's what a buyer is paying for.
spk04: Okay. And then just to follow up on that, with the new structure in place, should we expect to see some use of that structure in terms of OP units to help on the acquisition side?
spk06: You know, maybe yes, maybe no. That was an administrative change that was, frankly, we found a relatively simple way, an inexpensive way to do it, or Dawn found it, actually, to be able to do that so that we weren't at any disadvantage should the opportunities come up. So I know it's not a bad thing. uh in any way you look at it and to the extent you know some of the deals where we're talking about are looking at and utilize that and give the the particular seller more comfort great but i couldn't handicap it with you is that oh yeah that you know that means we'll do four deals instead of one deal or that kind of thing but it's generally a good thing all right thanks don you bet our next question comes from the line of juan sanabria with the b
spk01: BMO Capital, you may proceed with your question.
spk11: Hi, thanks for the time. I think you mentioned about 150 basis points of occupancy growth in the prepared remarks from year end to year end, but just curious if you can give us any sense of the cadence throughout the year, typically season hour in the first quarter, but that seems to have gone out the window with COVID here and the recovery today. So just curious if you have any wisdom to share on how we should think about occupancy for 22?
spk06: Yeah, I think that growth, and it's a range, you know, where we're trying to get up into that 92.5, you know, high 90s range. I think you should just model it pro rata by quarter. I don't think there's a particular cadence in terms of how that increase will occur on the occupied metric.
spk11: Okay, great. And then just on Santana West, I'm hoping you can give us a little color on how those leasing discussions are progressing. Any expectation for signing a lease here in the near term to give us more confidence in maybe adding that incremental NOI to like a 23 property NOIs as that development comes on? Or how should we think of the timing of that potentially?
spk06: You know, on this particular issue, I have never been so torn in my life about talking more than I should or less than I should on this. I know what I'm very comfortable with is that the conversations that are happening are a bit of a horse race right now. And the notion of kind of helping one versus the other, I don't want to signal anything on that more than to tell you that we're making some good progress. I'm not going to put a time on it and I can't give a little bit more given the nature of the negotiations at this point.
spk02: All right.
spk11: Understood. Thank you very much.
spk01: Our next question comes from the line of Handelstein Just with Mizuho. You may proceed with your question.
spk15: Hey, Don. Hope you guys are well. I wanted to ask you about the cash basis tenants. Still pretty elevated here. I don't think there was a change versus last quarter. I guess I'm curious why we aren't seeing more progress on that given the backdrop. You're doing tons of leases. Rents are going up. How do we square that versus the optimism that's fairly obvious in your voice and your outlook?
spk05: What are you referring to with regards to your question regarding the cash basis tenants?
spk15: The percentage, I'm looking here at 26%. Let's see.
spk06: There's no plans for us to switch them back from a cash basis to an accrual basis. You know, there's likely to be some fairly high hurdles for us to do that. And, yeah, look, even pre-COVID, we had a big chunk. Most of our restaurants were on a cash basis to begin with already. Yeah, I wouldn't anticipate, you know, it's not as though there's any progress. We need to see kind of repayment of deferrals. We need to see other progress with regards to consistency of payments, and then we'll make those decisions. But I wouldn't anticipate anything, and that's why we have nothing in our guidance with regards to making that change from cash to accrual.
spk15: Got it, got it. And comparative, what was that pre-COVID? What was the range relative?
spk06: Probably around, you know, kind of the mid-teens as a percentage of ABR. Just a big chunk of that was restaurants, and then our normal cash basis tenants, lower-quality tenants at any one point in time.
spk15: Got it. Okay, thanks for that. And a question on rent commencements. Last year, certainly the focus was on rent collections. This year, more so on rent commencements. And I just guess I'm curious. to a question of supply chain and labor constraints, any risk of perhaps not meeting some of the rent commencement timelines and risks of assigned but not yet opened rents, and any sense of anything you're able to do to perhaps compress some of those timelines or work with tenants in any way? Thanks.
spk06: Yeah, the answer is yes to all the questions you just asked about the handel. I mean, look, supply chain's a big deal. And are we able to do stuff about it? You bet we are from the standpoint of... certain of the components of it, whether you're talking about HVAC equipment, whether you're talking about some of the provisions in the lease where that tenant will work with us, there are things that we have done and continue to do. And as Wendy loves to say, and boy, you can't argue with this, is great relationships with tenants means that there's a partnership there in trying to get a store open. And that partnership means there is more likely to have a give and take in the build-out process of where you can find the right equipment to be able to get stuff in. And we've had some real good success getting started with that. Does that mean there's no risk on the supply chain side, the store opening? Of course not. Anybody that tells you differently is, you know, look them square in the eye because that's what's going on in the country right now. But we're all over it and, frankly, have been all over it for quite some time, including staffing up. They are including helping as best we can with relationships in the cities on the permitting side, which is always the least predictable part of this. So all hands on making sure that the 3 million square feet of leasing that has been done at this company in the past is able to have its best chance for starting before or on the dates that we've got forecast.
spk15: Did you guys give an updated number for the assignment yet rent? I think last quarter that figure was like $25 million. We expected 90% to hit this year. Can you give us a little bit of update?
spk06: Yeah, so with sign not occupied, what's identified in a difference between our leased and occupied is about $23 million. We've also got a big chunk that is effectively about $17 million. That is in our non-comparable pool or basically currently in our redevelopment pipeline, as well as what's in our current pipeline of kind of 2022 deals that have been signed so far and going forward. Gets you up into the $50-plus million of total rent starts potentially. So we feel good about where we stand, and we see that as a big driver of some upside in over 22 and into 23.
spk02: Wonderful. Thank you, guys.
spk01: Our next question comes from the line of Flores Van Dijkum with CompassPoint. You may proceed with your question.
spk13: Thanks, guys, for taking my question. Actually, following up on what Hendel asked about as well, I mean, if I do the math, I see, you know, excluding the NOI coming online from the development pipeline, which, you know, could be, you know, up to 75 million, you're, you know, you've got more than 10 million of NOI growth sort of identified here if I add up all of these pieces. So if we start, you know, factoring this out, and obviously not all of it's going to come online in 22, but, you know, significant amount, you know, will be probably back ended at 22 into 23. But we're looking here at, You know, double-digit NOI growth, you know, going into, you know, by the end of 23, comfortably double digits. That seems pretty attractive. Are we missing something here?
spk06: Well, keep in mind, I mean, look, we'll have strong growth as the developments come online. And I think you can look at our additional disclosure on the big projects to kind of get a sense of that. Keep in mind, though, also there's the offset of capitalized interest. going away as we deliver those buildings. We assign leases there as we deliver those spaces to the tenants. Obviously, we shut off the capitalized interest. So that's a bit of an offset. So obviously, that's what flows down to the bottom line. It's just not kind of how quickly we grow the NOI up top. Obviously, there's capital associated with some of the redevelopment and expansions that we've got.
spk13: And then as You know, Don sort of alluded to in some of your residential leasing, presumably having a building that's signing rent 15% higher than next door, that suggests that the existing rents have some significant potential upside here as well. How long will it take, you know, do you think in your view to harvest some of that residential rental upside as well?
spk06: yeah that's a great question handel and that should be a source of positivity uh for uh 2022 uh particularly you know through the spring season into later in the year a little bit of luck we'll have uh that big building up in uh up at assembly uh all eased up by the end of the year which would be great which would be good stuff for uh for uh you know 2023 And really, based on what's going on in Boston right now, that is a real bright spot from a life sciences perspective and a back-to-work perspective and a job creation perspective. That is one of our, if not our, you know, strongest markets, which is interesting because it was the market that was hurt the most during COVID.
spk02: Gotcha. That's it for me.
spk01: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. One moment while we poll for questions. Our next question comes from the line of Linda Sy with Jefferies. You may proceed with your question.
spk08: Hi. Can you discuss expectations embedded in your POI growth of 3 to 5 percent? What's the balance between growth and revenues and expenses?
spk02: You know, I think that the, you know, we would expect expenses.
spk06: We've had a good year with regards to real estate taxes and keeping them low this year. So they should, they should have be grow from this level. I would expect that, you know, there should be kind of modest kind of, you know, bigger 3% rent expense growth, kind of ordinary course from that perspective. And then obviously, you know, just occupancy growing, you know, with collections growing, with the offset of some prior period and lower term fees, so forth, all factor in. And obviously some, you know, some of the credit reserve is embedded in there beyond just the collection impact. So all of those, but with regards to expenses, I would forecast kind of a traditional kind of 3% increase of both OpEx and real estate. taxes um and maybe a little bit higher on the outbacks just kind of given inflationary pressure um but that's all embedded in that three to five and then what are you forecasting for bad debt in 2022 it's it's yeah like i said our credit reserve is is the you know call it two percent plus or minus 50 basis points i think there's a bunch of know traditionally we're kind of in the 50 basis points of bad debt as a component of that credit reserve it's going to be elevated i would expect you know it's probably going to be uh you know at least north of one percent uh and that's what's you know and there's a range that's reflected in that three to five but you know it'll be elevated in 22 uh you know even above god of the uh the collection thanks and then in the
spk08: Earlier comments, you mentioned that lease up at Masella is getting 15% higher rents. Is there anything in particular driving that, maybe in terms of the demographics that are moving in?
spk06: No, it's job growth. It's job growth in Boston. I mean, life science is absolutely on fire. It's a return to work. It's just a powerful job creating market. A lot of relocations into the market from other parts of the country.
spk02: Yeah. Very impressive. Thanks.
spk01: Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Ms. Leah Brady for closing remarks.
spk09: Thanks for joining us today. We look forward to seeing everybody at the city conference in a couple of weeks.
spk01: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.
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