Site Centers Corp (SITC) 2020 Q4 法說會逐字稿

Good day, and welcome to the SITE Centers Fourth Quarter and Year-end 2020 Earnings Results Conference Call. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Brandon Day with Investor Relations. Please go ahead.

Good morning, and thank you for joining our us. On today's call, you will hear from Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty.

Please be aware that certain of our statements today may constitute forward-looking statements within the meaning of the securities -- federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information about these risks and uncertainties may be found in our earnings press release issued today and in the documents that we file with the SEC, including our most recent reports on 10-K and 10-Q.

In addition, we will be discussing non-GAAP financial measures on today's call, including FFO, operating FFO and same-store net operating income. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today's press release. This release, our quarterly financial supplement and accompanying slides may be found on the Investor Relations section of our website at sitecenters.com.

At this time, it is my pleasure to introduce our Chief Executive Officer, David Lukes.

Good morning, and thank you for joining our fourth quarter earnings call. We had a strong finish to the year with record leasing activity and continued improvement on the collection front. These results are a product of the work of everyone at SITE Centers, and I want to thank all of my colleagues for their continued dedication.

2020 was a challenging year on many fronts. And because of our tireless efforts, the company is in a fantastic position for the future. I'll start this morning with a summary of fourth quarter events and then discuss some emerging macro tailwinds, which are providing support and growth to our portfolio of assets in wealthy suburban communities.

Consistent with the last quarter, 100% of our properties and 98% of our tenants remain open and operating as we continue to provide the necessary support for our communities. Collections continue to move higher. And as of Friday, we've collected 94% of fourth quarter and 94% of January rents. Unresolved monthly rent is now running around 3% with the remaining tenants in various forms of settlement negotiations. We continue to take a methodical approach to resolving any unpaid rents, which, along with the deferral repayments, is driving continued progress on prior period collections. We've now collected 88% of rent from the April 2020 through January 2021 period. And after including deferrals for accrual tenants, we are expecting to collect 94% of base rent.

To put that in context, at the time of our first quarter 2020 earnings call on April 30, only 49% of our tenants were open, and we had collected just 50% of April rent. We've come a long way since then and towards stepping back and recognizing 2 important outcomes that developed throughout 2020. First, around 90% of our tenants are national with a deep understanding of their contractual obligations and proven access to capital. Notwithstanding those contracts, many national tenants reacted to the early COVID fears by withholding rents, while we continue to pay operating expenses and property taxes to our local communities.

Over the next few months, most of these tenants realized that protecting the rights to occupy their space within our properties was extremely important, and they began to repay their rent that was owed. Some of our tenants offered other financial benefits to us, such as out-parcel approvals or a relaxation of exclusivity terms in return for a deferral program, which has helped us with leasing as we have more site control and flexibility to accommodate tenant demand. These negotiations are the primary reason why our collections continued to improve, even for prior quarters throughout the year.

Once store openings occurred late in the summer, the second trend emerged, strong sales performance. With the increased movement in the suburbs, continued strong household income in wealthy communities and a growing work-from-home culture, our tenants are seeing and forecasting an improvement in profitability, which is increasing their interest in signing leases at our properties. It's notable that our leasing volume in the third and the fourth quarters as well as our pipeline of new leases being negotiated now is running ahead of pre-pandemic levels, with the fourth quarter representing the highest level of activity since the third quarter of 2018. And based on the volume of deals in our pipeline, there's still more to come.

To add some perspective on the scale of the pipeline, for the comparable SITE portfolio, we completed 30 anchor deals in 2019 and another 18 anchors in 2020. As of year-end, we had 22 anchors in various stages of lease negotiations with 3 already done as of Friday and the rest expected to be executed by mid-year 2021. The biggest driver of the uptick in leasing, in our view, relates to pandemic-induced societal shifts that I previously mentioned.

The population increases in our suburban communities and attractive growth due to work-on-home flexibility at our properties, our leading retailers to increase their store footprints in the last mile of the wealthiest suburbs and in many case, launch new concepts, which is broadening the universe of tenants seeking space. Restaurants, discounter banks, warehouse clubs, medical care, delivery services, sporting goods, all of these users desire convenient access to these communities with ample parking, space for curbside pickup and lower operating costs compared to other formats.

We believe that we are in the beginning of a multiyear trend and that the value of our offering centered around convenience will drive sustainable activity and cash flow growth for a number of years. Our current leasing investments will provide our initial portfolio growth, and I would expect our future capital allocation to capture these societal changes happening today that are fueling rent growth and made open our properties. These trends are simply too apparent to ignore, and there will be investment themes to develop as a result.

Turning to the dividend. The company declared the first quarter dividend of $0.11 per share, which is up from $0.05 per share in the fourth quarter. This dividend is based on the current collection rate, and our Board of Directors will continue to monitor our dividend policy throughout this year, should operations and cash flows improve. Importantly, this dividend rate provides significant cash flow to fund our 2021 business plan.

And with that, I'll turn it over to Conor.

Thanks, David. I'll comment first on fourth quarter earnings and operating metrics, discuss 2021 guidance and conclude with our balance sheet and dividend.

Fourth quarter results were primarily impacted by uncollectible revenue related to pandemic. Total uncollectible revenue at site share was $4.5 million or a $0.02 per share hit to OFFO. Included in this amount is $2.2 million of payments and net reserve reversals related to prior periods. Other than the write-off of $1.6 million of pro rata straight line rents, which is additional $0.01 per share headwind, the only other material onetime item that impacted fourth quarter OFFO was $1.2 million of lease termination fees, which is higher than our normal run rate.

In terms of operating metrics, the lease rate for the portfolio was down 30 basis points sequentially, largely due to Steinmart store closures. Based on minimal bankruptcy activity we are tracking today and the recent pipeline that David outlined, we expect the lease rate to stabilize at this level. Trailing 12-month leasing spreads decelerated in the fourth quarter with renewals impacted by 1 anchor deal executed to maintain occupancy.

New lease spreads were impacted in part by deals that backfill space formerly occupied by Pier 1, which generally pay above market rents. Based on our pipeline today, we expect blended leasing spreads in 2021 to be consistent with the first 3 quarters of 2020, though renewable spreads may remain under pressure in the first quarter due to short-term COVID-related deals.

Moving forward, we are introducing 2021 OFFO guidance of $0.90 to $1 per share. The bottom end of the range assumes no improvement in collections with continued occupancy headwinds, and the top half of the range assumes a steady improvement in collections and a return to a more normalized pre-COVID operating backdrop. Additional 2021 guidance thesis include JV fees of $11 million to $15 million and RVI fees, which exclude disposition and refinancing fees of $13 million to $17 million. Other 2021 factors to consider include: G&A, which we expect to be around $54 million; interest income, which we expect to be immaterial in 2021 with the closing of the Blackstone transaction in the fourth quarter and the repayment of our preferred investment and interest expense, which we expect to be around $23 million in the first quarter at our share and relatively consistent over the course of the year.

Lastly, we provided a schedule on the expected rent of our $13 million signed but not opened pipeline on Page 10 of our earnings presentation. This pipeline alone for context represents just under 4% of our share in the 4-quarter annualized base rent. If you were to also include the 22 anchors that David referenced, the pipeline increases to approximately 5% of our base rent with the majority of rent commencement expected in 2021 and 2022.

Turning to our balance sheet. Included in the receivables line item at year-end is approximately $14 million of net COVID-related deferrals we expect to collect in the future. Details on timing and composition of the balance are outlined on Pages 8 and 9 of our earnings slide deck. As I mentioned last quarter, the balance majority of this revenue is attributable to public tenants with half the balance from tenants operating in the discount sector.

In terms of liquidity, the company remains well positioned with minimal 2021 maturities, no unsecured maturities until 2023 and minimal future development commitments. Additionally, we have $835 million of availability on lines of credit and $74 million of consolidated cash on hand at year-end. We have no maturities at this time.

Lastly, as David mentioned, the company declared first quarter dividend of $0.11 per share, which is based on current collection trends. This dividend level provides significant free cash flow to fund our growing leasing and tactical redevelopment pipeline with excess cash we received. We continue to believe our financial strength will allow us to take advantage of future opportunities to create stakeholder value.

And with that, I'll turn it back to David.

Thank you, Conor. Operator, we are now ready to take questions.

(Operator Instructions) The first question comes from Todd Thomas with KeyBanc Capital Markets.

David, you talked about some investable themes materializing as a result of population shifts and work-from-home trends. What does that mean for SITE's investment efforts here? The company was starting to invest ahead of the pandemic. I think the acquisition of Blocks in Portland was one of the more recent acquisitions, and commentary was shifting toward becoming more offensive. How are you thinking about investments today? And how should we think about the time line to act on some of these themes?

I think right now, our investment, as you can see from the leasing pipeline, is primarily a leasing CapEx. We just got a ton of activity. And our capital allocation right now is squarely in the leasing front. Having said that, it's just very interesting to note that even before the pandemic, we were making investments in properties that I would say were heavily tilted towards convenience, a little bit more format agnostic. In other words, less focused on a specific type of anchor or a format and more focused on where the tenants want to be.

The Blocks portfolio is a bit more urban. It is also heavily convenience oriented. And if you look at the tenant roster, it's just got a lot of service tenants and banks and so forth. And there were other investments we made, one in Austin and one in Tampa that were also heavily based on convenience, kind of a local 2- to 3-mile community. And those properties performed better than most over the course of the pandemic. So I think for me, it's just reinforcing the fact that the customer traffic tends to be heavily focused towards convenience.

All of these trends that are coming out of COVID are making me a lot more bullish on the convenience aspect in wealthier suburbs. And so as we start to make property acquisitions, which I do expect to happen this year, we're going to continue that focus on where the tenants want to be because, frankly, that's where the rent growth is. And the rent growth is in convenience-oriented properties. And so I think we're going to be buying into a rent growth theme as opposed to buying into a vacancy theme.

And those are different, right? When you get into an early part of a recession, a lot of investors have a choice to make. They're either going to kind of go for distressed assets that have some vacancy and you can provide some near-term growth. For this particular recession that we're seeing, it's a bit of a split. You can't make an investment theme based on occupancy. But boy, I'll tell you the leasing volume and the number of calls that we're getting from tenants makes me feel like the rent growth theme is a much more powerful long-term investment strategy.

Okay. And then, Conor, in terms of investments, is there -- are there any investments embedded in the guidance at all at either the high or low end of the range?

No. There's not, Todd.

Okay. And then, David, you also talked about retailers launching new concepts. And it sounds like the leasing pipeline is pretty healthy here. How much of that pipeline is comprised of new concepts today? And how meaningful of an opportunity might that be? Maybe you can just shed some light on what you're seeing there in terms of where the demand is in terms of the space sizes and maybe give some examples of some of those expansion or new concepts.

Sure, Todd. I mean, at this point, if you look at the supplemental and you look on Page 14, which kind of shows the total new leasing and the comp leasing, the fourth quarter was pretty dramatic. I would say that the percentage of those total deals is still the same kind of strong suspects that have been heavily in leasing for the last couple of years. So I don't think the newness of concepts is contributing heavily today, but it is providing competition. And a number of the new concepts have us under NDA, so I can't really be open about new concepts we're seeing because a lot of retailers are looking at creating another banner or another flag within their empire. And I do think over the next couple of years, we are going to see some new concepts roll out.

What surprised me most, Todd, is that the 2 categories that were most difficult to fill in the last 5 years have been box spaces number one, which, I would say, 20,000 to 50,000 square category. And then secondly, as you know, when we lost Pier 1, that kind of 8,000 to 10,000 square foot space was the most difficult. The new concepts that are emerging now seem to be half in the 8,000 to 10,000 and half in the kind of 25,000 to 50,000 range. And that was surprising. I mean, it's surprising to see new concepts that are focused on larger suites. And I do think that, that is driving some of our square footage gains in the fourth quarter. And I do think that's going to continue for the next year or 2.

The next question is from Rich Hill with Morgan Stanley.

First of all, let me thank you for the earnings presentation. I thought it was very good, particularly Page 14. I wanted to talk through just a little bit about the guidance in 2021 and maybe push you a little bit. Because if we're thinking about 94% of rent collected and presumably you're going to get a healthy percentage, my words, not yours, of deferrals back in 2021, why isn't in a realistic scenario where total NOI, consolidated NOI, could be closer to 2019 levels versus still what looks to be relatively still behind versus -- given what's implied by the guide. Walk me through that. Why shouldn't we be more bullish?

Yes. I mean it depends, Todd -- or excuse me, Rich, on the classification of deferrals, right? So these are accrual-based deferrals. There's no necessarily NOI impact, right, you're not going to see in earnings. If they're cash basis, you're right, it could be a decent tailwind. What I would just say, I mean, if you think back to my prepared remarks, and we're at $0.25. And let's just use (inaudible) a proxy for NOI. Included in the quarter were $2.2 million of reserve reversals from prior periods, right? We also have lease termination fees of $1.2 million. And then RVI fees will step down by $1 million. So those 3 pieces are about $4.5 million or $0.02 a share. So start at $0.23 (inaudible) there.

But to your point, I'm not going to say we support that logic. But I think from a cash flow perspective, maybe on an NOI perspective, you could see some pretty big tailwinds this year if those deferrals come through and you're seeing acceleration in collections. I would just say it's really early, Rich. I mean we're encouraged by activity. We're encouraged by collections. David mentioned a number of times our national exposure and how important that is to us. 41 of our top 50 are public companies. That helps with our visibility. But just given where we are in the pandemic, we don't have perfect visibility. So I think you're going to hesitate to see us really commit to anything until we get to a little more clarity over the course of the year.

Yes. That's completely fair. And I appreciate, and I would expect nothing less. I want to come back a little bit to the leasing volume in 4Q. It was really nice to see leasing volumes accelerate. One of the things that we've always thought is attractive about SITE Centers is you've intentionally selected properties with below market leases for a number of different reasons, which provides an interesting growth story over the medium term.

So if that narrative is still true, why did the leasing spreads, at least on a quarterly basis, not trailing 12-month basis, but on a quarterly basis, why did they turn negative? And I'm not saying it's a bad thing because, obviously, there's 2 components. There's occupancies and there's leasing spreads. But can you maybe walk through if there's anything specific that happened in the quarter that maybe would have led to a temporary decline in leasing spreads that we shouldn't project going forward?

Sure. Let me back up one second, just in terms of asset selection. If you have a chance as an investor to build a portfolio one at a time, you can do so on investable themes that you think are going to work long term. When we did the RVI spin-off, it was a chance to almost do that. You're not building a property by property, but you're selecting the keepers from the sellers. And doing so, you have to make a decision as to how you're selecting those properties.

It is true that we had a number of properties and do that have below market rents. And Steinmart going away is an example where we're going to capture a lot of those below market rents. But really, if you look at the statistics of what was selected for SITE Centers to keep and be an ongoing growing entity, it was number one, household income.

I mean, there's just no question that that's the biggest difference between RVI and SITE Centers is household income. It's not necessarily tenant roster. It's not grocery anchored versus power. It wasn't necessarily mark-to-market on in-place rent. It really had everything to do with household income because historically, that's where I've seen the most stability in bad times and the most rent growth in good times. I do think that it was a reasonably good idea. And I think that the pandemic is kind of doubling down in that thesis simply because of the interest by retailers in those markets.

I would agree with you, Rich, that over the long term, rent spreads are important because they tell a story about rent growth. The problem is with the company of our size, it's a pretty bumpy path. And we have some quarters that have had really strong spreads, and then we had this last quarter, which was negative. In this quarter, in particular, it had almost everything to do with releasing Pier 1 boxes.

And if you remember from what I mentioned a minute ago, the lease-up of 8,000 to 10,000 square foot boxes has been pretty weak for a couple of years. It's starting to get strong. And there's a couple of new concepts, particularly medical uses and other types of convenience stores, they really want that square footage. And so we're happy to add those to our properties. But the leasing surprise were impacted negatively by kind of those recent Pier 1 spaces getting eaten up.

That could continue. If we continue to lease spaces that had a higher rents, if the inventory is more Pier 1 or it could reverse substantially if we start leasing up the Steinmart locations or other ones like that, that have lower rent. So it's going to be bumpy. But I will say, if you look on Page 14 in the supp and you kind of see the rent spreads over the trailing 12 months around 8%, a couple of years ago at Investor Day, I believe we showed that we felt that portfolio could deliver 5% to 10% positive rent spreads kind of in the long term. And so I'm still supportive of that original thesis that we're going to be in the long term in that 5% to 10% range. But it's not that we won't end up with a quarter or 2 here and there that are negative.

Yes. Just to echo David's point, the vintage of the bankruptcy is incredibly impactful given our denominator. So Steinmart's probably 300% to 500% mark-to-market. The pipeline that David mentioned and that's kind of a blunted spread in the kind of low 20s, but what do we sign those and what's in the pool, et cetera, could have a material impact on what we reported.

That's really helpful, guys. And one more quick question from me. Transaction activity. And the market feels a lot better than it did, gosh, 6 or 8 months ago, but we haven't seen a tremendous amount of transaction activity. We've seen some, but not a lot. We haven't seen maybe as much as some would have hoped in RVI. Is it -- are we in a weird time period where there's a bid-ask spread that is limiting that transaction volume? So said another way, there is no distressed coming out, but there's still enough uncertainty in the world where people don't want to come in with both feet in? How are we supposed to think about the transaction market?

Yes. It's really interesting because you would think that the bid-ask spread is the reason why the industry hasn't seen a lot of transactions. There's been a couple in RVI, but it hasn't been dramatic. We've sold a few properties here and there. I think it's less, the bid-ask spread, as much as the equity out there seems to be following the credit markets. And I just think that debt was less available last year.

That seems to be changing pretty -- I mean, in the last month, I think we've started to see a lot more positive momentum on the credit side. So my feeling is with the strong performance in the open-air sector, from most portfolios, I do think the credit markets are going to be more constructive on lending to open air, and you better believe that there's equity weighting to be invested, but I think that equity has to follow the credit market. So it feels like this year is going to start to ramp up.

The next question is from Michael Bilerman of Citi.

David, you talked a lot about sort of the anchor renewals, and you threw out some numbers in the call about the pipeline 22 deals in negotiation following 18 that you did in 2020. I wasn't sure if that was just the wholly owned 78 assets or whether that was the whole portfolio. So if you can just clarify sort of what basis it's on.

And then talk a little bit about how much of that activity represents the rollover that you have, I think, over 10,000 square feet there's about 8, at least in the wholly owned portfolio and a few more in the unconsolidated that don't have options. So I don't know how much of it is those types -- those tenants that are rolling, how much is existing vacant space?

Yes. Michael, it's Conor. So it's the comparable portfolio. So it's the JVs and wholly owned. And that's why I gave some color on the kind of NOI impact. What it means for SITE Centers, let's call it, an additional 2% boost to our signed not opened pipeline. If you look at that pipeline today, the $13 million signed not opened, plus the 22 anchors, all but maybe 1 or 2 anchors are effectively vacant today. So that's all. If you're taking kind of fourth quarter 2020 NOI as a starting point, that's all NOI to come.

The other point I would just add to that is, remember, we're talking just base rent, right? The recoveries on these anchors of these deals are pretty impactful. And then the last point I'd make is the pipeline David mentioned is just anchors. We've got a number of pads, ground lease, et cetera, in the hopper as well, which David mentioned, the rent growth we're seeing for convenience or rented real estate, some of those brands are bigger and larger than some of the anchors we're signing. So I would just say, again, to answer your original question, it's a mixture of wholly owned and JVs, but remember, we're also qualifying it by just giving you base rent.

Right. And then at what point do you sort of feel the small shop occupancy will start to revert and start to move up with all this demand and the data that you're seeing on the traffic levels, I would have thought you would have seen more, maybe some small business openings to take advantage of those stores, which don't require as much capital investment relative to an anchor. And so -- and you're sitting there at 83%. At what point does that start to march the other way consistent with the anchor deals you're doing?

It's a really good question. I wish that I had a crystal ball, Michael. I mean normally, I would say that we're getting a lot of shop activity. Maybe a lot is too aggressive, we're getting reasonably strong shop activity, but the back door is still open. Meaning, it's more difficult for shop tenants during the recession than it has been anchors. So I'll echo again what Conor said. If you look at our top 50 tenants, they represent 60% of our base rent. And of those top 50, 41 of them are public companies, and that same group raised over $50 billion of fresh capital in 2020. So I think the kind of immediate leasing momentum is coming from the anchors.

If they start opening and generating sales and the vaccine gets out, I do think the shops will follow that. But to date, I wouldn't say that the shops are as aggressive as the anchors are. I do agree with you, if you're saying that the shops should follow, what we need to see happen is we need to see the shop is not going out the backdoor. In other words, not closing or staying close. And on that front, I do think we have a pretty small exposure since most of our shops, you look at our restaurant list, they tend to be national tenants. But they're being a little more careful than the anchors are right now.

And just one last quick one, just on Canadian. The land sale up in Toronto for $22 million. Was your basis cost $3 million? Or had that been written down? And looking at the supp, it looked like it was a 10% ownership, and you sold it for 88%. So I wasn't sure if there was a promoted interest that got you to $22 million. Just -- can you just go through the math there?

Yes, Michael. So it was $83 million. It's on Page 18 on the transaction at the very -- at the very bottom of the page there. I actually don't recall if that was a net basis. We took a write-down previously. I think it's a piece of land we're doing for some time. So I'd have to come back to you on the promoter, the structure on that front.

The next question comes from Alexander Goldfarb with Piper Sandler.

So just a few questions here. First, David, going to RVI, I understand from the U.S. perspective that open air coming back and that should jog loose some more sales there. But how would you rate things on the island as far as the same trends and preferences for open air are also on Puerto Rico and the -- and also the credit is the same? Or is it a different dynamic there that's still lingering from pre-pandemic when that -- when sales in the outing were a lot slower than they were in the mainland.

It's a very reasonable question. I think it is important because, as you all know, we'll be very happy to receive back our $190 million prep that is at RVI, and that's dependent on asset sales. So I do think that even though it's a separate company, it is relevant for sure.

My personal feeling, like you're saying, is that the durability of open air in the U.S., even in secondary markets, if there's a dominant property, they performed pretty well during the pandemic. And I would say that's true of the RVI assets in aggregate that the U.S. performance was pretty good.

The tenant roster looks somewhat similar to SITE Centers. And so if the credit markets continue what they're doing in the past month and getting more constructive on lending, my hope and my expectation is we'll start to see more U.S. RVI transactions this year.

For Puerto Rico, it's really hard to tell. I mean, as you know, we closed on one asset sale on Christmas Eve. We have had a number of conversations recently with people that are kicking tires in Puerto Rico and kind of trying to understand the dynamics there. I personally think that the equity is a little bit ahead of the debt in Puerto Rico. And the reason is that there's some interesting macro issues. Puerto Rico has much less square footage per capita than the U.S. Puerto Rico has much less online sales saturation. And if you look at the traffic going to the properties, the sales of grocery stores and Walmart and so forth, it's really strong in the island.

And I think there's a lot of interest politically as to how the country is doing, what their own credit profile and economic future looks like. So a lot of people are interested, but I will say that I don't have any visibility as to when transactions will pick up in Puerto Rico. I wish I did, but I just don't.

Well, maybe just to that point, the rent mark-to-market, if leasing trends here in the U.S. you expect to be sort of modestly positive rent spreads, is that the same there? Or are you guys still looking at heavy rent roll downs, which is perhaps more of the issue from a lender perspective on the islands?

The Puerto Rican portfolio, it just like we said in the U.S., when we see rent spreads, it has everything to do with the vintage of bankruptcies. In Puerto Rico, you're right, it had everything to do with the vintage of the leases being signed. And this happens when a lot of big box and kind of national chains moves into Puerto Rico. They are now past their primary term there in their options. And so when they get to the end of their term, a number of them have been above market. And so I would say we're still dealing with some roll down. I think the last 2 years or so, we've probably dealt with the bulk of them. So there's a little bit of roll down left, but I don't think that the spreads are as strong as they are in the U.S. on a trailing 12 months.

Okay. And then just looking here, David, one is -- looking at Slide 12 of the PowerPoint, you guys are still heavy anchor and small shop is pretty small as a percent of ABR. So when we think about rent spreads and your ability to drive rents, which is clearly something you've well-articulated, my impression is that the big anchors, the rent bumps are pretty modest, pretty tepid, and that the real juice comes from the smaller tenants. But for you guys, the smaller tenants are a small part of the portfolio. So is it really that, that small part -- the small shops really are driving the outsized? Or is there more juice as these anchors roll that we may not typically be thinking of?

I think, Alex, I'm trying to unpack that question. I mean, if you look at the near-term growth of this company, a lot of it is occupancy related. The number of anchors being signed on existing vacant space is so large that we were going to see a lot of good, solid growth from brand new tenure leases with credit and stealing space. And like Conor said, it's not just the ABR. It's also the leverage on the triple nets, which the landlord is paying at this point.

Once that stabilizes, I mean, the fact of the matter is any portfolio that's heavily weighted toward national credit, whether their anchors or shops, the national credit tenants, they get something for being a credit-worthy tenant. And in general, it's rent bumps every 5 years, not rent bumps every year. So this product type is open-air product type that's geared towards national tenants. Once you fill up the space and get to kind of the high stabilized occupancy, the growth is not that high because the tenant rent up can be 10% every 5 years. And so you kind of have a cap on your growth. I think that's what's you're asking.

Now where that would change is something we haven't seen in a while, which is rent growth in anchors. And that's an interesting subject. I mean I don't think you generally see rent grow until you have a lack of supply. And as you can tell by our leasing volume, we still have supply. But it sure feels like that supply is winnowing down pretty fast. And so my hope is, once we get through this kind of big wave of box leasing, the opportunities that we have left, let's say, an office depot leaves or runs out of term and we want to replace that, my hope is with the small inventories left, we are going to be able to push anchor rents. And that hasn't happened in a while.

Okay. So that's really the point where you're talking about the rent growth, which is some of it is just coming from getting back underwater space, Pier 1 aside. And the other part is just as you rapidly lease-up the anchors that the scarcity then allows you to get leverage there. So it sounds like that's the 2-step part of it, which is...

Yes. I mean, yes, it's exactly right. I feel like in the near term, this is all about occupancy and mark-to-market on whoever leaves. Step 2 would be market rents go up. And I have not seen market rents in anchors going up. And I don't think they've gone up in the years. Having said that, your average household income is over $100,000. There's no new supply, and when you end up leasing, you don't -- this will be amount of space in the 3,000 or 5,000 square feet in comparable through last year. At some point, we're going to have pretty low inventory, which means that's the point where we can start selecting tenants, and we can start pushing rent.

The only other thing I'd add, we have that effective manufacturing rent growth through the tactical projects that we've talked about in the last 6 months. So if you look at Page 17 of our supp, effectively, every one of those projects is a reconfiguration of space, i.e., going from anchors to shops. And so it's obviously, it's small relative to enterprise, but it really does start to add up, if we can kind of continue this path for a couple of years.

Okay. And just finally, the 6% sort of outstanding, you collected 94% whether in cash or deferral. The 6% outstanding, should we think about that being 6% pending vacancy or sort of split the difference, 3% vacancy, 3% that you'll collect? How should we think about that remaining 6%?

Alex, in normal recession, if you look at tenants that don't pay rent, there's always a question mark of when is that tenant going to go away. And I think that's the basis of your question, right, how much of the unpaid is simply not going to open back up and pay rent again. But if I look back in my experience in previous recessions, I would say there's 2 reasons why a tenant that's not paying goes away. Reason number one is, they're a bad operator and they run out of money. The reason number two is, they're a good operator, but they don't really see a future in your property or in their business. And so they throw in the towel before things get worse. I mean, those generally are the 2 reasons why a nonpaying tenant goes away.

With respect to the first, like I said before, if our top 50 tenants is 60% of our ABR, 41 of those are public companies, and they've raised $50 billion this year. I'm not concerned about access to capital. So I don't think in our tenant roster running out of money from the tenant perspective is an issue. The second would be there's obviously a bright future. And at this point, good operators that have a negative view of the future don't sign new 10-year leases. And so it just -- it feels like the risk of our nonpaying tenants going away in this part of this particular recession seems pretty low.

My caveat would be if there are sectors like full-service sit-down restaurants, which is pretty small but it's there, and the theaters, those experiential types of retailers, if they're just not able to hang on because the pandemic causes a much longer tail than other types of businesses, then that's a risk. But for the most part, I feel pretty good about those tenants that aren't paying not eventually leaving.

Next question comes from Hong Zhang with JPMorgan.

It sounds like you put a couple more tenants on a cash basis in the fourth quarter. Is that just cleaning up the roster at year-end? Or are there any other troubled tenants that you could potentially put on cash basis this year?

Hong, it's Conor. We did put some more cash basis tenants on the -- are at that list in the fourth quarter. I think as a percentage of ABR, we're just over 13%. I mean over the course of the year, it's likely we could add some more. If you come back to my comments, though, there's not much we're tracking on the bankruptcy front. That could change, right? But there isn't much we're tracking. So as of today, it's not a long list that we're worried about that's not on a cash basis. But if things change over the course of the year, it certainly could change our view on some tenants.

Got it. And are you expecting any additional, I guess, reserve reversals? Or have you received any income that you -- that you've previously written-off in the first quarter so far?

We have. We haven't quantified that. We'll do so with first quarter results, but we absolutely have.

Got it. And just to clarify, is there assumption for that sort of income in your 2021 guidance? Or is your 2020 guidance excluding that sort of stuff?

It excludes any reserve reversals.

The next question is from Paulina Rojas-Schmidt with Green Street.

Could you please elaborate on the increased demand for -- that you are seeing for former Pier 1 boxes between 8,000 and 10,000. It would be ideal if you could please cite some specific examples. And also, you mentioned that you're seeing some new concepts emerge. I'm not sure if it's for the same type of box size. What is different? If you could also elaborate on this, it will be appreciated.

Yes. I would say that the demand increase for the 8,000 to 10,000 square foot range is off of a pretty low base. So I wouldn't take that as being an indicator that there's sudden on outsized demand. There are a couple of tenants that recently started to grow. There are a couple of new categories. As I mentioned before, we're under NDA from a couple of new concepts. So I unfortunately can't really go into great detail about the specific types of tenants. But there's been a couple of tenants that are wanting to get into properties, particularly ones that are in wealthy suburbs. And so the first few that they're trying are in the 8,000 to 10,000 square foot range.

I think what's been more impactful, honestly, is the demand for larger boxes, kind of the 25,000 to 50,000 square range. That's been more surprising to me. And I think there's a little bit more on the new concept front for those larger spaces than there is 8,000 to 10,000. But it really runs the gamut. I mean you've got some grocery concepts. You've got sporting goods concepts. You've got delivery services. You've got kind of logistics-style tenants that are taking the 8,000 to 10,000 square foot space, that are less retail and more logistics.

There's tenants that are medically oriented. A lot of people in the suburbs appear to be moving their doctors and dentists and opticians from the cities to the suburbs long term, and that's propelling a lot more kind of health and wellness. A lot of the health and wellness categories seem to be kind of moving away from individual 500 square foot suites and office buildings and moving into kind of a collective health and wellness suite in the suburbs. And so that's kind of one of those categories that fills that 8,000 to 10,000 square foot void.

Next question comes from Ki Bin Kim with Truist Securities.

Can you just talk about high level the sales activity that you're seeing? And I know you don't track every tenant obviously, but whatever information that you do have, the sales activity that you're seeing in 4Q this year versus last year and maybe foot traffic.

Ki Bin, it's Conor. I mean, to David's point, one of the downsides of national tenants, one of them is sales and sales collections, and we get very little information on that front. I think it's just about 1/3 of our tenants' reported sales. I would kind of point you back to our public tenants, right? That's where we get the most information and our anecdotes with our -- during our portfolio review. So I don't have great information for you there.

What I would just say, though, is if you start ticking down our top 50, you'll see fairly dramatic sales increases for the home improvement, home furnishing, grocery. The discounters are starting to ramp up a little bit. They're probably the laggard, but everyone else has put up, especially the crafts business, they've been putting up 20%, 30% comp. So we have some data on that from a couple of weeks ago or a couple of months ago, excuse me, on the presentation we did. But I would just point you to our public tenants on that front.

Okay. And what was your retention ratio? It's one of those simple stats that a lot of stores don't report. And I was curious what you expect going forward in 2021.

You're correct. We do not report retention ratio. I would say for anchors, it's historically been in that 90% to 100% range in the quarter. And there's nothing in our pipeline that makes me think to deviate from that. For shops, to David's point, it's much lower. Historically, I think it's been in the 70s. My guess is now it's even lower, just given fallout in the recession. So our blended is probably down marginally in the kind of 80s. But for anchors, it's extremely high.

And implicit in your guidance, you're assuming that doesn't change much or improvement. How are you thinking about that?

Yes. Most of our anchor leases roll in the first quarter. So our visibility on that front is extremely high.

The next question is from Linda Tsai with Jefferies.

What's the best way to think about dividend growth going forward?

The best way to think about dividend growth is I think the Board of Directors is kind of thoughtfully and carefully considering what the growth rate of the dividend is. And I think all of us, management and the board, are looking very carefully at the durability of collections. I don't think anybody wants to get over our skies until we really see more of a conclusive end to the COVID environment. So we're really basing it on the current collections for this quarter. And I think the board will simply reconsider it every quarter and look at where collections are.

From a long-term basis, I think there's a payout ratio, we think, is appropriate. Conserving capital for us is great because it allows us to fund a lot of leasing CapEx and hopefully some acquisitions coming up. So I think we're going to be pretty careful with the high watermark once the collections get back to normalized. We'll be pretty careful about the higher watermark for the dividend over time.

And then to clarify, you said that the leased rate should stay stable from 4Q levels. Does that also mean that the 290 basis point signed but not occupied spread starts to compress?

I don't think so. And if you look at our slide, Linda, I think it's Page 10 or 11, we've got the sign -- on Page 10, we've got the signed but not opened kind of cadence of commencement. So from a commence rate, we're really not going to see a big uptick until the back half of the year. Lease rate is always really difficult to forecast. Again, to my comments, we're not tracking material bankruptcies at this time. To David's point, we could have some additional shop fallout that's not material for us, but it could be a little bit of pressure. But I do think based on our leasing pipeline, it's stabilized, and we're hopeful it will start to accelerate over the course of the year, but we're not going to commit to that just yet.

For the lease to occupy gap, then, I mean, look, based on our activity, like I mentioned to Michael, the pipeline David mentioned are just the anchors, right? So if we have additional pads and convenience or the retailers in addition to that, you could see an acceleration or an expansion of our lease to occupy gap, even with the signed not opened pipeline commencing in the back half. But we should, right? We're also 90% leased. I mean we've got a lot of run on that front.

The next question is from Chris Lucas with Capital One Securities.

David, just going back on the anchor sort of retention rate number. As it relates to the leases that you have that have no options left with them, is there a similar expectation? Or how should we be thinking about those 11 leases? I know it's a pretty small number, but just kind of...

Similar expectation on -- I'm sorry, just give me a little -- so what you're saying is if an anchor tenant in our portfolio runs out of term end options and they're naked, what's our expectation on retaining them versus replacing that, is that what you mean?

Correct. Yes. Exactly.

Yes. I think in the recent past because there's been so much kind of anchor churn in the past 3 or 4 years, you were more -- we were more likely to retain an existing tenant that ran out of term because the CapEx is low, they have at least a proven business in that property, and we can probably get a reasonable rent increase. And by reasonable, I mean, kind of a traditional 10% bump.

What's going to be very interesting is throughout this year, it looks like our inventory of available boxes in wealthy suburb is going to go down pretty dramatically, which means we're going to have some tough choices to make when tenants that are maybe not top tier run out of term. And it sure feels like we might be in an environment where we start purposefully replacing tenants with better ones. And that's a pretty good spot to be.

And we've done a little bit in the last quarter where we decided to not renew an existing tenant, go ahead and take the vacancy because we want to replace them. And so maybe there's 1.5 years of downtime, but you end up with a much stronger long-term property. That's a good position to be in, and it feels like we're kind of at the beginning of that right now. So the retention from the tenant side might be stronger in this environment. The question is whether the landlord wants to keep that retention or would rather replace the tenant.

So as an example, in Shoppers World in Boston, there have been a number of tenants that we've decided we would like to replace them and upgrade the tenant roster because when you get these windows where anchors are active, it's best to take advantage of them because it doesn't last forever.

Okay. And I guess that sort of leads me to the other part of this, which is, I think, pre-COVID, a lot of the conversation among the national tenants was about rightsizing their footprint. Is that conversation sort of put on hold right now as they sort of reevaluate how they want to work with consumers in terms of how they want to build their distribution?

Yes. That's one of the most fascinating subjects that I personally haven't developed a conclusive opinion on. But it is really interesting. I mean, as you know, you and I have talked for years about anchors wanting to downsize their space and get more efficient. It almost feels like there have been a number of examples where that's reversed during COVID. And the reason I say that is demand for space that's 30,000, 40,000, 50,000 square feet has increased.

So we're doing less box splits in this last year, and we're doing more full box leasing. I'm not exactly sure what the reason is. I mean, we have pulled some of their building permit drawings just to kind of look at what the new footprint looks like. And it does appear that the tenants are making sure they have enough square footage to be flexible on delivery from store.

And if you look at some of the new building permits, you can see the involvement of a different type of loading and delivery dock, a different type of customer pickup lane. And those things take square footage. It's hard to shrink your store down to just-in-time inventory and at the same time want the inventory in the store. And so it feels to me like that trend of shrinking footprint might be reversing a little bit.

Okay. And the last question for me is now that you guys have sort of concluded the sort of the joint venture deconstruction between you and Blackstone, and you've got a handful of assets on a wholly owned basis, how should we be thinking about that group of assets that you picked up on a wholly owned basis in terms of the long-term viability of them in your portfolio versus future disposition proceeds potentially?

Yes. I think you should assume the same thing with our existing core portfolio. There's going to be a handful that we sell fairly soon because we want to recycle that capital into higher-growth assets. And there's a couple that have really strong tenant sales. They've got contractual rent bumps coming up or there's outparcels that we can build. So of the 9 that we bought, I would say, 1/3 of them would probably sell fairly soon, 1/3 of them are stable and growing at the same rate as the rest of the portfolio and 1/3 of them have some tactical redevelopment, where we can add an outparcel or subdivide box or lease some vacancy.

And so that's kind of -- to me, it's the proxy of our overall portfolio. We're always going to be selling the bottom couple of assets, not because they're necessarily bad or risky, but they just run out of growth. And in this industry, I think once you run out of growth, there are other ways to make money, and I'd rather see us continue to recycle.

This concludes our question-and-answer session. I would like to turn the conference back over to David Lukes for any closing remarks.

Thank you all very much, and we will speak to you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.