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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Greetings and welcome to the Brixmor Property Group Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded.
It’s now my pleasure to introduce your host, Stacy Slater, Senior Vice President of Investor Relations and Capital Markets. Thank you. You may begin.
Thank you, operator, and thank you all for joining Brixmor's first quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; and Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A.
Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings. And actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website.
Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue.
At this time, it's my pleasure to introduce Jim Taylor.
Thank you, Stacy and good morning, everyone. Thank you for joining our call. I'm extremely grateful for how this Brixmor team continues to deliver. Our performance prior to during and now emerging from the pandemic highlights not only the strength of our portfolio, but also the quality of our team, our value-added platform and the disciplined execution of the business plan we implemented nearly five years ago. But just -- don't just take my word for it. Simply look at our NOI performance in 2019, 2020 and now emerging from the pandemic in 2021.
In each period, our performance stands apart. And when you stack that performance for the entire timeframe the difference is even more striking. This pandemic has revealed several fundamental truths about the shopping centre business, including the durability and resilience of our asset class, the importance of being within the last mile with the consumer and the flexibility of our format. But among the most important truth is that if you're looking to drive value and growth and ROI, rent basis matters.
For a retailer to be successful, you must not only have a location that is convenient to their customer, you must provide a cost of occupancy of which they can be profitable, continue to invest in their store’s growth sales, and thereby afford growing rents. If our job is to grow rents and ROI, we believe having a high rent basis is a potential liability not an asset.
We further believe having an attractive rent basis enhances the cap rate or multiple that should be applied to our centers. That differently, it's not where ABR is, but where it's going. At Brixmor our attractive rent basis and value-added execution position as to substantially outperform as the economy accelerates post pandemic.
The markers of that coming from outperformance are evident in our sector leading leasing volumes. Our building forward leasing pipeline, our strong cash spreads on new and renewal leases, our continued delivery of accretive reinvestments and importantly the impact of those investments have on our asset value.
During the quarter, the national and regional teams executed leasing at a blistering pace under Brian's leadership, signing 1.4 million square feet of new and renewal leases with cash spreads on new leases of over 20% with 140 new leases executed during the quarter new lease productivity was on par with the peak in 2019.
We will provide additional color in the question and answer session, but encouragingly, we are seeing demand across all of our core tenant categories including specialty, grocery, home, general merchandize, value apparel, pet store, restaurants and health and wellness. Also, we're seeing a remarkable recovery in demand from small shop tenants, including national, regional and local tenants, which allowed us to drive sequential growth of 40 basis points and our small shop lease occupancy during what is typically a seasonally slow quarter. This improvement in small shop demand, which in part reflects the fruits of our reinvestment program and enhanced operating discipline will be yet another level of -- lever of growth as we move through the recovery.
And our forward visibility on growth continue to improve this quarter, as our productivity and executed leases drove over $40.4 million of sign but not yet commenced revenue, which is equally balanced between small shop and anchor spaces and 70% of which is expected to commence before year-end. Our strong productivity is also reflected in our forward leasing pipeline, which currently stands at over 2.2 million square feet and $41.2 million of ABR.
We continue to execute under our reinvestment program under Bill and [indiscernible] leadership, delivering another $28 million of value enhancing investment and an incremental return of 11% with another $400 million of projects underway an average return of 9%. These projects not only drive great ROI while enhancing our centers, they also create value through reducing the cap rate that would be applied to the centers enhance through that leasing and reinvestment.
Since we've begun the program, we've delivered over $500 million of reinvestments at an average incremental return of nearly 10%. Just on the capital deployed, we've created huge value given those the accretive yield. But in fact, those investments have also reduced the applied cap rates on the impacted centers. Centers that comprise nearly 30% of our total NOI. That cap rate compression is a value multiplier. And for those of you focused on growth in NAV, I would invite you to review the projects we've completed in our supplement or on our website to fully appreciate that follow on value creation.
We are also seeing positive momentum from an external growth perspective under Mark's leadership. We are pleased to announce subsequent to quarter end the $48.5 million acquisition of the Center of Bonita Springs located on the prime corner of one of the busiest intersections in Southwest Florida with an exceptionally highly productive grocery this center, which is our 48th in the state will generate tremendous upside as we executed the repositioning of an underperforming anchor currently paying only $2 a foot in rent, as well as lease up the small shop space, which is currently at 60% occupied. Mark and team continue to see their pipeline and build a target assets in our core markets that will yield great opportunities for us to continue to leverage our platform and generate growth.
And under Angela’s leadership, our balance sheet remains very strong with more than ample liquidity to capitalize on what we believe will be a growing pipeline of attractive acquisition opportunities. But most importantly, regardless of what opportunities we delivered from an external growth perspective, I'm particularly pleased with how the ongoing execution of our balanced business plan that we communicated over four years ago has demonstrated outperformance both through the pandemic and as we emerge in 2021, 2022 and beyond.
With that, I'll turn the call over to Angela for a more detailed look at our results this quarter in our improved outlook. Angela?
Thanks, Jim, and good morning. As Jim highlighted the first quarter further demonstrated the resiliency of our portfolio and the strength of our tendency as we leverage our platform to capitalize on the ongoing recovery. NAREIT FFO was $0.44 per share in the first quarter, reflecting $3 million or $0.01 per share of items that impact FFO comparability including litigation and non-routine legal expenses and loss on debt extinguishment in addition to $1.6 million or $0.01 per share of straight-line rental income reversals.
Same property NOI growth was negative 1.5% in the first quarter, as base rent and net recoveries detracted from growth and were offset by positive contributions from ancillary and other income revenues deemed uncollectible and percentage rents. While base rent and net recoveries were impacted by 150 basis point year-over-year decline and build occupancy. Base rent was also impacted by 120 basis points of lease modification deferral agreements and abatement, the majority of which were reserved for in 2020.
For those previously reserved, the result is a geography change between base rent and revenues deemed uncollectible this quarter, with no net impact the same property NOI or FFO.
Total revenues deemed uncollectible totaled $4 million in Q1, representing an $8 million sequential improvement. Revenues deemed uncollectible this quarter was comprised of approximately $11 million related to first quarter build base rent $2 million related to prior period based rent and $1 million dollars related to net recovery or reimbursement income, which were collectively offset by the $2 million of lease modification and abatement geography adjustments that I highlighted earlier and nearly $8 million of cash collected on base rent amounts previously reserved.
As we look forward, it remains challenging to predict the exact trajectory of revenues deemed uncollectible. That said, we are encouraged by the continued improvement we are experiencing and collections rates on our cash basis tenants, which account for 15% of our total portfolio ABR.
As of March 31, we had collected 66.2% our first quarter build base rent from our cash basis tenants, which improved by 250 basis points to 68.7% as a result of cash collected subsequent to quarter end. And the trend has continued to improve in April, where we have now collected over 72% of April build base rent from our cash basis tenants. Well, there's still work to be done to return to full collection levels on this segment of our tenancy, we are making meaningful progress.
As Jim highlighted in his remarks, we're also very encouraged by the strength of new leasing demands against the backdrop of significant rent commencements across the portfolio and moderate move out activity. Build occupancy in the first quarter was flat sequentially, beating the typical seasonal trend of declines early in the year. During the quarter, we commenced over $9 million of annualized ABR and added over $12 million to the sign but not commenced pool. As a result, the spread between build and leased occupancy expanded to 300 basis points, representing over $40 million of contractually obligated rent of which approximately $28 million is expected to come online ratably over the course of 2021.
We've updated our 2021 FFO expectations to a range of $1.60 to $1.70 per share, based on an improved same property NOI growth range of 1% to 3%. Our current expectations reflects our strong first quarter performance and the positive trends we're seeing across the portfolio, while also remaining appropriately balanced at this point in the recovery. As always, our guidance range does contemplate additional expected transaction activity during the remainder of the year, but does not contemplate any items that may impact FFO comparability in future periods, including litigation and non-routine legal expenses, loss on debt extinguishment or any one-time items. In addition, I would underscore that this range does not contemplate the conversion of any tenant to or from cash basis accounting during the remainder of the year, either which could result in significant volatility and GAAP straight-line rental income.
Turning to the balance sheet, during the first quarter, we again access the unsecured bond market raising $350 million that was utilized to repay our $350 million unsecured term-loan, maturing in 2023. This transaction was opportunistic and consistent with our broader goal of continuing to extend duration across the balance sheet. At quarter end, we had $1.6 billion of total liquidity representing our undrawn $1.25 billion revolving credit facility and over $370 million of cash on hand. We have no debt maturities in 2021 and only $250 million of remaining maturities in 2022.
In conclusion, I'd like to thank the entire Brixmor team for another outstanding quarter that spotlights the extent of the portfolio and platform transformation that has occurred at the company over the last five years. Through your efforts, we successfully navigated the pandemic and are well positioned to drive growth and create intrinsic value throughout the recovery.
And with that, I'll turn the call over to the operator for Q&A.
Thank you. [Operator Instructions] Our first question comes from the line of Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.
Hi, thanks. Good morning. First question around investments seems like the investment landscape is falling out a little bit. What should we expect moving throughout the year in terms of deal flow? And then in terms of pricing seems like there's been a greater appetite from REITs and institutional capital looking for value add deals, how competitive is the landscape today? Are you seeing that competition materialized for assets that you're looking at?
It's always competitive. And we certainly see competition and some of the assets that we're looking for today, we are encouraged by the breadth of opportunities that we're seeing. And yes part of that is being driven by some of those very same institutional investors looking to reduce their exposure to retail. And from a value-added perspective, we continue to see opportunities importantly to put our platform to work where we can leverage our knowledge of tenant demand, our reinvestment and redevelopment capability to really drive IRR.
So we're encouraged, tied by what we see. But obviously, we're not going to be providing estimates of what we expect to do until we actually get it done. So we're all encouraged by the closing on the Center of Bonita Springs. We talked a little bit about in our prepared remarks, that's certainly an asset that I think is emblematic of some of the opportunities that we're seeing in our core markets.
Okay. Angela, I think you've commented that the guidance does contemplate additional transactions. Can you just elaborate on that a little bit? And then can you also touch on the cash balance it's still north of $300 million? Do you expect to sit with an above average balance for an extended period of time or is that earmarked for something specific? Just curious if you could talk about the deployment of that cash and also what's embedded in the guidance from that standpoint?
Sure, in terms of that transaction activity contemplated in guidance. As a typical for us, we begin some expectations for additional activity as we move through the year. We'll update those as appropriate as time passes. At this point, when you consider the fact that we were a net seller in 2020, which has implications for 2021, and then our expectations for acquisition and disposition activity during 2021 itself, I would say the total dilution from both years is in the $0.04 to $0.06 range embedded within our guidance and that contemplates like I said, our current expectations about the [indiscernible] and potential timing.
As it relates to the cash balance. I think about it this way, we have effectively prefunded the 2022 maturity, which is early in 2022. We have repaid now our 2023 term-loan. And so we'll continue to -- as Jim sort of highlighted look for opportunities in the market where we might be able to deploy some of that cash. But I would say the guidance range at this point contemplates that that we do carry higher than average cash balance for the remainder of the year.
Okay, thank you.
Thank you, Todd.
Our next question comes from the line of Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Good morning.
Hey, good morning. Good Morning Taylor. So, two questions first, Angela. Just going to the credit side. Clearly the narrative on retail has done a 180, right? I mean, we haven't read a debt of retail article in probably a year curbside, the retailer feedback, customer feedback to open-air has been clearly proven. You guys have sort of still been in the penalty box from the accounting stuff of years ago, while your bonds trade much better than where your rating is. In your view, what are the latest conversations with the agencies? Are they still skittish on moving or do you think they'll finally recognize that the rating that you have now is not indicative of where your credit truly is?
Yes, Alex, I'd say, if you go back kind of pre-pandemic, we were on positive outlook from two of the three agencies that cover us. And I do think that was an acknowledgement of the progress that have been made on the balance sheet, over those few preceding years and the fact that I think sort of objectively speaking the credit metrics here do line up with some more of our -- our more highly rated peers. So I think we were certainly on that path, I think that path was paused, we’re moved to kind of stable outlooks at the beginning of the pandemic.
And I really believe that, as we've continued to demonstrate and execute over the course of the last year, our performance and the stability and resiliency of the cash flow stream here, really I think speaks volumes about the quality of this portfolio and how the credit should be priced and how the credit should be rated. So I certainly won't speak for the rating agencies, but we're very hopeful that the execution over the last year can address any concerns specifically related to the pandemic and I think more than that really highlight that overall stability and resiliency of this cash flow stream.
Okay and then a question for Horgan, you guys made a pretty big acquisition, I think it's the first one in quite a number of years. I was just curious, one any comment around cap rate or how you guys underwrote it, the bigger picture how have your acquisition thoughts underwriting the assets that you target? How has it changed now versus a few years ago maybe it hasn't changed or maybe it has changed but just curious?
Right, we really haven't changed our strategy. We've spent years looking at the assets we want to buy, we do have a target asset list, it is updated, it is organic, but we haven't really changed why we want to buy assets, it's really assets where we can drive value through leveraging our platform.
So we're just seeing more of it today because the markets back open, we're seeing that there was a bit of a backlog through COVID of assets that when we come to markets, we really are seeing a wider range of opportunities today than we've seen in the last couple of years.
From a cap rate perspective, I think Bonita is a great example. And a great example of why we do have some advantages in the transactions market. We move pretty quickly from a range of prices to close because we're an all cash buyer, which is great from a cap rate perspective, it was a bid to high fixed cap rate we think and underwrite to that high single-digit, low-double-digit unlevered IRR.
So we really see a bunch of value add opportunity here, it's actually pretty clear. We've got a really hot, highly productive grocery. It's actually in line with the production we see down in Naples, but the online occupancy, as Jim said is around 60% versus high 90s down in Naples. So we really do see great value add there. And Jim mentioned the anchor box where we're paying low $2, $2 per square foot and we think there's a five times rent spread there. So really excited about that one, we think we can find more opportunities like that as we go through time here.
So just to be clear, the mid-to-high [6s] reflects that the inline occupancy is at 60%. So it's not really a stabilized cap rate it’s a collective of…
Correct. [indiscernible].
Okay, cool. Thank you.
Our next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.
Thank you. I was wondering where you expect leasing volume will be in 2021 versus 2020?
Significantly higher, one of the interesting things when you look at ‘20 is we saw a pretty significant pause in the second quarter as retailers, national retail or regional and local took a pause to assess the timing of their pipelines and how they were responding. But encouragingly Craig, we actually saw pickup in the third quarter, I'll be more weighted towards anchor type transactions that in the fourth quarter and now in this first quarter, we've seen very good volumes and good balance between anchor and small shop leasing and as we look ahead, the strength of that forward leasing pipeline is about as strong as it's been. Brian, I don't know if you have other thoughts.
Yes, I would just add the new and renewal leasing volume Craig, it’s up 50% versus the height of the pandemic and ABR per square foot is at an all-time high of close to $19. And so if you look at the productivity that we had during the first quarter, it was in line with the first quarter of 2019, where we had one of our most productive small shop years as a company. And Jim mentioned the pipeline of 2.2 million square feet, that's up 15% versus the end of the year, despite all those executions during the first quarter. So we're very excited with the depth of the of the demand. Again, it speaks to the investments that we've made in our shopping centers as we continue to deliver those. We expect that activity to continue, but we're very encouraged by what we've seen at the start of the year.
Great. And then just I noticed number of your anchored [retailers] include fitness centers, Jim can you tell how you got comfortable with those retailers or that category?
Yes, one of the biggest surprises for us coming through and out of the pandemic has been the strength as a fitness providers. Certainly we saw some turbulence in the middle of ‘20. But when we look at traffic levels, when we talk to the fitness operators themselves, we look at their cash flows and their overall credit, we've been quite encouraged by the strength of return of the consumer to utilizing gyms and other fitness uses. So we remain pretty bullish on that segment and continue to see a lot of demand from some very well capitalized operators.
Thanks.
Our next question comes from the line of Katy McConnell with Citigroup. Please proceed with your question.
Thanks, good morning. Did you provide some insight into the volume of acquisitions that you evaluated with screened out over the last quarter? And would you expect recent sector M&A to have a meaningful impact on pricing for one-off deals going forward?
It's a great question. We screen a lot more assets than we transact on probably four times what we actually transact on at least. And the other thing Mark highlighted Katy, which is important appreciate is that we target assets for acquisition before they become available and we track them such that when it does come a moment in time to trade, we're in a position to move quickly as we did with Bonita Springs, which is a great example and also points to the speed with which we were able to get that asset close.
And the real interesting dynamic right now within the acquisition market is that assets that are smaller in size remain pretty liquid. And we see a lot of depth of competition larger more complicated assets with more moving pieces, we see less competition. So as we move forward, we do expect to see some compelling opportunities, a little bit hesitant Katy to give you an estimate of what that pipeline might look like, because we aren't going to report on it until we're actually close. But we're encouraged by the level of activity that we're seeing.
And then I think you asked about a read through from M&A to the property market, I think you'd be surprised that you really don't get a lot of like when we seek the [ODs] represent only [0.2] M&A in the REIT space, as far as that's about as early [0.2] transactions and what's happening with the property market.
Okay, thanks. And then can you walk us through some of the key factors that are now assumed in the revised low end of your guidance range? And what is the range contemplated for us cash basis tenant collection improvement?
Yes, I would say as it relates specifically to cash basis collections, which does remain kind of one of the key pieces within the range between the low end and the top end of guidance range, I would say at the bottom end of the range, we've effectively assumed trends kind of in line with where they were in Q1 or towards the end of Q1.
So really no significant improvement, additional improvement from this point going forward, and no additional recoveries of prior reserved amount at the low end, as you get into the top end of the range, we have embedded some additional occupancy upside in improving collections picture from cash basis tenants and or some modest recoveries of prior period amounts. But, importantly, you can certainly get to the top end of the range without any prior recoveries of amounts that was reserved for in 2020 and without collections from cash basis tenants getting back to 100%. So that's kind of how I frame up the two ends of the range.
Okay. Jim, Thank you.
Thank you, Katy.
Our next question comes from the line of Paulina Rojas Schmidt with Green Street. Please proceed with your question.
Good morning,
Good morning.
I'm curious, if you have to guess, how do you think market runs will evolve in the next year or couple of years even on the one hand, how strong the economic recoveries shaping to be and on the other hand the higher levels of vacancies in the market?
Well, we're encouraged by what we see is very broad base tenant demand. And in fact, we were hearing from several of our tenants, please show us your available space, your available boxes, those were working through the opportunity, that is they can see, we're not wondering how we're going to backfill space. And we're in a position where we're able to generate some pretty healthy competition, which is one of the key drivers to growth and underwriting rent.
One of the things as I highlighted in my remarks that I'm particularly encouraged by is that we're going into this recovery with very attractive rent basis. So even if the recovery is more modest, we're still going to be making money, we're still going to be driving growth, we're still going to be finding opportunities to creatively reinvest in our assets. If the recovery continues as strong as it appears to be, that's really like a turbocharger for us, because I think we'll see that inflation reading through into the underlying rents, tenants are willing to pay and drive even better growth over the next couple of years.
And then more the same philosophical question, we're seeing robust listening volumes, and what appears to be a broad-based tenant demand for space. How -- have you reconcile these retailer activate for growth, with the idea that there is too much retail GLA in the U.S. And these things, there is the risk that some retailers are being maybe short sighted and an open stores to take advantage of a recovery that could be short-term in nature?
The retailers themselves have shown remarkable and ongoing discipline as it relates to new store openings. And their ability to project what the sales will be served by a particular location, given their access to data has never been better. So they have a very informed view as to what a new unit will produce. And in our discussions and our coverage of these national and regional tenants, we're seeing that accuracy if you will and sales forecast coming through.
The other thing I'd say is, as it relates to the comment about GLA out there, there's really no new supply being created. And you do have obsolescence that occurs every year in the base of product out there that's of an institutional quality, acceptable to the tenants who are opening stores in this environment.
So we like how we're positioned to capitalize on those dynamics. And the other thing I would say is, remember we're a segment of the overall retail space in the country. And I think what this pandemic has shown is the growing breadth of demand for retailers that previously weren't in open-air product to come in to open-air product why? Because it's convenient to the customer. It's got great access, great visibility, and again importantly, a reasonable cost of occupancy so that they can be profitable serving their customer with flexibility by the way to serve them in a multi-channel format, whether it's in the store fulfilled from the store, fulfilled at the curb, et cetera. Retailers are seeing the real power of coming into these community and neighborhood centers such as the ones that we are.
Thank you.
Our next question comes from the line of Ki Bin Kim with Truist Securities. Please proceed with your question.
Good morning.
Good morning Kim. How are you?
Good morning. Good. Hope you've been well.
Good.
So I wanted to talk about the leasing activity that you guys have been posting. And not just for you guys, but I guess for the industry too, but I'm curious, is the credit quality and the type of tenants composing that leasing activity or has it changed in the margin because that could imagine a scenario, right you have a lot of inventory to lease out and maybe this isn't the time to be so picky and choosey about what types of retailers come in. So I can imagine a scenario where on the margin, perhaps you or the industry can be leasing space to perhaps not the same type of credit quality as it was pre-COVID?
We've actually been really encouraged by that trajectory in terms of the improvement of the quality of the tenants. And Brian, maybe you can talk a little bit about the types of tenants that we're seeing big demand from and that improvement quality.
Yes, sure. Jim, you're spot on in terms of the depth and the credit quality, just the overall quality of the tenant base that we've been doing deals with. And Jim touched on a number of the categories Ki Bin, so if you look at specialty grocery, which has been among the most active categories that we have, we signed three more grocery leases during the quarter, we have another 15 grocery leases either at lease or final ROI. And that's across a broad range of segments in the traditional ethnic and specialty and all very strong operators. And as we look at value, apparel, health and beauty, pet store, general merchandize and home, these are very strong tenants that we continue to attract to our shopping centers. I know you've highlighted the outparcels demand in the past, that's another one of our most active categories.
During the quarter, we signed leases with Starbucks, Chipotle and Chick-fil-A and we have a depth of demand with them as well. So we've really been pleased. And to your point about the mom-and-pop our local tenants, we're seeing entrepreneurs, strong operators, multiple unit operators that are seeing an opportunity here with some businesses that may have failed during the pandemic.
So we're actually improving the credit quality for a number of those tenants that are coming in and say second generation restaurant space or hair salons and nail salon. So overall, we've been extremely pleased with the depth of the quality of our tenancy.
Okay, great. And the question for Angela, the $40 million though signed but not commence leases. Also I was wondering if you provide some more color on because one common question I get is, does that really become additive or is it replacing in place tenants that are paying rent when they expire or is it just staying on the treadmill at the same speed? So I was wondering if you can provide commentary on that?
Yes. Almost all of its really, truly additive. First of all, I guess I'd start by saying that, nobody who's currently -- there's a tenant that's currently paying today, you don't get to be counted in both kind of the build and lease side. So they don't -- we don't show them in that $40 million until the existing tenant has left and it's truly additive.
When you think about kind of how that $40 million might compare relative to just the broader lease expiration schedule, I would say based on kind of historical retention rates, I would expect something like 80% of it to truly be additive relative to just how the normal course of move outs kind of trends.
So it really is a significant tailwind for us from a growth perspective, as we move forward. I think if you look at the year-over-year occupancy decline we had throughout the pandemic, which is, I think 130 basis points on build occupancy, a significant reason for that was the fact that we went into the pandemic with such a large sign but not commenced pool and we continued to commence leases throughout the course of 2020 in the first quarter of 2021. So it's certainly you've seen it, I think, relative to other into the broader industry in terms of what's happened to our occupancy over the last year, just how additive that really can be.
Okay, thank you.
Okay, Ki Bin I would also just highlight that that, we've talked about our sign but not commenced for several quarters and we've delivered that growth for several quarters, right. We've delivered that outperformance in part because of the continued demand and that forward pipeline.
Thank you again.
Our next question comes from the line of Derek Johnston with Deutsche Bank. Please proceed with your question.
Hi, everybody. Thinking pre-COVID to now, how has leasing contracts evolved or what stipulations are now included or omitted that was normal practice before the shutdown? Are you doing more or less percentage rents? And how have your omni-channel requirements or perhaps [indiscernible] asks from tenants evolved?
Brian, do you want to handle that, Brian?
Yes, sure I'll take it. Derek what's been interesting to us as we look at our leases is many of the things that we're focused on in terms of embedded rent growth, sales reporting, conversion of tenants to recapture more from a account perspective, we still been able to achieve that. In fact, our embedded rent growth over the course of our leases was in 2020 was the best that had been since 2017.
We don't have a tremendous amount of percentage rent only leases, I think we might have done a handful over the past year. And as it relates to omni-channel, we had spoken on prior calls for years talking about how accommodating we were being with our grocers in terms of rolling-out click and collect. And Jim talked about just the flexibility of our format, we've been able to do that with a number of national tenants, being able to accommodate a number of national tenants from a curbside pickup perspective.
And it really speaks to the platform where we're able to go to those tenants through our relationships, create one agreement and get those deployed very quickly, we saw that during the third quarter, we wanted to have as many of those pickup spaces in place for the holidays for our tenants.
So that's been -- that's certainly been a focus of ours. And when we talk to our tenants, their number one asset is their stores, and everything they're doing around it, whether it's shipping from stores, or whether it's curbside pickup is to drive more traffic to the store. So what we're seeing with a number of these initial -- these initiatives is just more trips that otherwise would have been here. But from a lease contract perspective, we've been very encouraged by what we've been able to continue to negotiate with our tenants.
And I would say the quality of those leases continues to hold. Certainly some tenants were looking for future type for leased. And, we were able to strike the right balance there and continue to make sure that our leases remain enforceable through whatever may happen in the future.
Okay, thank you. And then secondly, with leasing demand so strong, how patient are you planning to be with your cash basis tenants in both buckets? I mean, those that who are paying and especially those that are challenged? I mean, it seems that it's sticking with these tenants may be somewhat of an opportunity cost versus taking space back and releasing, giving the demand backdrop you -- can you please weigh in?
Yes, we've tried to approach this on a tenant-by-tenant basis looking at their productivity prior to the pandemic, what impact the pandemic has had on their business and importantly, how they're emerging. And we've worked with these tenants where we think it's appropriate to help them get to the other side. And I think that's been a very positive approach, as we've seen our outperformance now coming into the recovery, but certainly for tenants that have not engaged with us or who continue to struggle, we're being more and more assertive as it relates to resolving their occupancy and background.
So it's difficult to generalize but that's the approach that we've taken is really tenant-by-tenant, we're not trying to make high level decisions when really it's -- what's happening at the real estate level at the center that determines how we're going to approach that particular tenant.
Our next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.
Hey, good morning. It was encouraging to see the [stable] occupancy this quarter and especially the increase on the shop leasing size. Are you comfortable saying that you've turned the corner on declining occupancy? And you can start to build from here? Are there still some pockets of tenant risks to navigate? And if so, what categories might use still speaking elevated risk?
We're very encouraged by what we're seeing generally within the small shop segment of the portfolio. And as Brian alluded to earlier, the strength of some of these operators that they've shown through the pandemic and frankly the strength of demand that we're seeing for some of the second generation states that we've recaptured. So could there be a quarter or two where you see some volatility, certainly. But I think most importantly, we're seeing great momentum and great demand out of these small shop tenants, really in all categories national, regional and local. And really in the last quarter and a half, we've been very pleased with the strength of demand that we're seeing from the mom-and-pop and local businesses as they position themselves for the recovery.
Was there ever a shift in market rents for those mom-and-pops and as the economy starts opening up more people are shopping, can we potentially start to see rent spreads expand from here?
I think that the way this recovery is setting up is a strong positive for the direction of where rents go. And I think we're particularly well positioned to benefit from that. And it really outperform whether it's a modest recovery or a strong recovery. I like how we're positioned. The pandemic itself didn't have direct impacts on market rents are -- the impacts were probably too transitory to talk about, we're seeing good recovery and demand. And importantly, we're creating competition for the space that we're leasing which helps us push rents as well.
Great, thanks. If I could just sneak in one more here, just to touch on the cash basis tenants. In Q2 and Q3 of last year, what now about how your tenants are doing, how much that have impacted your decision to shift those tenants to a cash basis, I am trying to get a sense for maybe the unaccrued rent that you may now reasonably expect to collect without specifically asking for that number?
Angela, I'll let you handle that.
Yes, look I mean, I think we made the right decisions at each point in the process, given the amount of uncertainty given what we were seeing at different periods of time from a collection standpoint and category exposure and a host of other considerations we took into account when we moved tenants to cash basis.
We always knew given sort of the unique dynamics of a pandemic that to the extent we got through to recovery that we're going to be tenants that would likely be moved back to accrual at some point. I do think that's certainly a possibility as we get further into the recovery later in the year. We haven't moved anybody back to accrual yet. But we're watching a number of tenants where their businesses or categories have significantly improved. Maybe they've had a recapitalization event something like that. And we'll continue to monitor that. But, I think -- yes I really think we went through a very robust process in each quarter of the pandemic and think we made the right calls based on the information we had at each of those points in time. And we'll continue to evaluate that as we move into the second quarter and then the second half of this year.
Thanks, Angela. Thank you, Jim.
Thank you.
Our next question comes from the line of Juan Sanabria with BMO. Please proceed with your question.
Hi, good morning and thanks for your time.
Good morning.
Just a question on cap rates given all the redevelopments you've done and what's in the pipeline, where do you see stabilized cap rates for high quality shopping center back assets and empower centers?
Mark?
Hey, it is Mark. We were seeing trades for you to stabilize for second centers trading into the low 5 at this point, low-to-mid 5 and a lot of it is dependent on scale when they're really just that grocery-anchored asset with some small shop you get some pretty tight cap rates and really strong demand from local buyers who are putting some cheaped out on those assets.
What's interesting, and what we're seeing in the market real time is a bit of a following on the power centre more boxy side of the market. Some of the assets we've been looking to transact on the liquidity we're seeing is allowing us to exit some assets, I think at some pretty opportunistic prices, you're starting to see some of those cap rates [buy] and come back in line with what you were seeing pre-pandemic.
I would say one of the other interesting characteristics about this environment is that because the marginal buyer typically is utilizing leverage in particular asset level bank financing, that buyer is not able to put the same type of value on vacancy that we might given our visibility on how we're going to lease that vacancy up and drive returns. So in that way you're saying a nice environment for integrated platforms such as ourselves to capitalize on real value-add opportunities.
Thanks. And then just a quick follow-up, has the increase in raw material costs labor [yields] what have you. Impacted, expected redevelopment yields have noticed because of the most recent addition, seeing a bit below what's already in the pipeline, I'm not sure if that's specific to those opportunities are being impacted by what we're seeing on the cost side?
We're watching it carefully. Fortunately, most of what we have in the pipeline has been
pre-committed pre-bought, and is under GMAX type contract. So we're somewhat hedge there in terms of what we have underway, but we're watching it. And just on the issues of cost, but also the issues of availability of product whether it's steel or lumber certain other equipment that we use in our redevelopment pipeline. Difficult to point to what its impact might be on future returns. Because we're also seeing some nice demand and growth in terms of [REIT]. So we're watching it closely. I think, at least in the near-term, the thing we're most focused on is just timing, making sure that we continue to hit our timing in our days.
Thank you.
Our next question comes from the line of Caitlin Burrows with Goldman Sachs. Please proceed with your questions.
Hi, good morning.
Good morning.
Maybe just as a follow-up to the -- one of the prior questions on leasing, spreads and pricing, Jimmy you talked in the beginning even about how high we think spreads have historically been a differentiator for Brixmor, but it does look like that spread on like a trailing 12-month basis has come in somewhat on overall leasing and new leases. So I was just wondering if you could talk through that, to what extent have those mark-to-market has been impacted by the pandemic or do you expect the spreads to pick back up or is this how you were always expecting that the trend would play out?
Well, there's no doubt that, if you look at on a trailing 12 basis, you really are picking up the height of the impact of the pandemic. And it did have some drag what I'm particularly encouraged by is we're seeing these spreads, whether they be new leases or renewals, continue to accelerate into sort of that longer term trajectory that we've been delivering over the last four to five years. And given the quality of what we're seeing in the pipeline, I think we feel pretty good about, where the spreads will be on a rolling forward basis, you may see a quarter 2 of volatility here and there. But we're particularly pleased with what we're seeing in the forward pipeline both with respect to new and renewal deals.
Okay. And then just back to the redevelopments, you have a long list of current and future opportunities, I was wondering if you could go through to what extent the pandemic has changed this pipeline of projects at all or not. For example, have you changed any projects, return expectations or different target tenants or what do you think will work now versus before or has there been any change to many of those clients?
One of the things that we've been most encouraged by through the pandemic is the beneficial impact it's had on grocers, in terms of their cash flows or willingness to invest in their existing stores, as well as their willingness and capacity to invest in new stores. So I would say that, against the backdrop of both the pandemic and importantly underlying food price inflation, we've been particularly encouraged by the depth and breadth of grocery demand.
Also, though, we're seeing great demand from some of our other core categories of tenants, and value apparel, general merchandize, fitness, services, et cetera and if anything, as we come into this recovery, we're even more encouraged by what we see in that forward shadow pipeline, if you will that we talked about in the supplement.
And you can see, every quarter we continue to add new projects to the pipeline that's underway while we're also delivering. So this past quarter, for example, I believe we added 25 million or 35 million of new projects, while we were also delivering 27 million or 28 million.
So that constant refreshment of the pipeline in deliveries importantly, I talk about this a lot, but you see us delivering real time and that that's one of the benefits the granularity of what we're doing. We're not taking long leap risk, the projects themselves are substantially preleased, we have the costs in hand before we commit. So that makes what we're doing from a reinvestment perspective. I think, particularly attractive both through the pandemic but also as we recover and can benefit from where market rents are going versus longer term more complicated projects that may have been priced into it different environment.
Got it. Okay, thanks.
You bet.
Our next question comes from the line of Mike Mueller with JP Morgan. Please proceed with your questions.
Good morning, Mike.
Yes. Hey, good morning. So going back to the prior question on cap rates, are you seeing any differences I know you mentioned low fives for grocery-anchored. But when you think about different markets, say like the major coastal markets versus sunbelt and other areas, I mean, how are you seeing the cap rates differ by geography for similar product?
Mark?
Yes, you do certainly see some cap rate variance by market. But again, I think a lot of the cap rate is driven by what that future forward cash flow looks like. So you do see assets where we see strong growth, people are definitely leaning into cap rate of it. I'd say where you see a bit wider cap rates are markets like for the Midwest markets generally have traded a bit larger than some of the coastal markets.
We're seeing -- and one of the things I think we have seen in the past two years, if you kind of think through pre-COVID we're seeing today is that that spread between tertiary cap rates for grocery-anchored and [indiscernible] cap rates appears to be shrinking a bit. We're seeing some positive momentum there. But yes, you certainly see some cap rates difference across different markets. Market -- the market like Southern California always trades very tight. So I guess that's what I tried to answer your question.
Got it. Okay. And then just thinking about physical occupancy? I mean, do you have a sense as to where just given the leasing this in place where physical occupancy could end a year?
Angela?
Yes, I mean, I say there's a -- still a relatively wide range. And sort of embedded in our expectations for the course of this calendar year, we're still at a 200 basis point spread in the same property NOI guidance. We're certainly very encouraged by what we saw in the first quarter. And, in particular build occupancy remaining flat on a sequential basis, as I mentioned in my remarks, pretty unusual to see that in the first quarter.
So that was certainly a positive indicator. And we do have that $40 million signed but not commenced to continue to provide support and hopefully growth as we move through the year. But there are, as we talked about, in previous questions, parts of the tendency, we continue to watch closely and watch how strong or how robust the recovery is in certain categories. So I think it's too early to say, but there are certainly some pretty positive indicators based on how the first quarter shaped up?
Got it. Okay. That was it. Thank you.
Thank, you Mike.
Our next question comes from the line of Tamara Fique with Wells Fargo Securities. Please proceed with your question.
Good morning, Tammy.
Good morning. There's just a question for Angela, wondering how we should be thinking about the quarterly FFO throughout the year, just given kind of the implied drop-off in guidance from the $0.45 comparable FFO reported in first quarter, and I guess what seems like really an improving and positive -- and all the positive indicators that you guys are discussing today?
Yes, I mean, I think there are kind of two factors to think about in terms of how it trends from here. Sequentially, the first is sort of the impact of potential transaction activity, which I mentioned earlier, the 2020 activity, 2021 activity should cost us a total of $0.04 to $0.06 on a year-over-year basis, you're not seeing all of that impact the items in the first quarter. So that's one factor. But the biggest factor is really just revenues deemed uncollectible we didn't it's highlighted for you, I think, on Page 11 of our supplemental package pretty well.
First quarter definitely benefited from a significant amount of cash collected from amounts that we did reserve for in 2020. It was about $7.6 million just on the base rent piece. There was probably another, $1 million or $1.2 million of recoveries as well, that we were -- we collected in the first quarter.
And as I mentioned, in my commentary, our guidance, particularly at the low end of the range, doesn't assume that we'd collect any additional amounts that we had reserved last year. So that's probably the biggest factor in terms of how to think about, as we move through the year, and what that might look like.
Okay, great, thanks. That's really helpful. Maybe just one question. Are you seeing any notable differences in demand kind of based upon geography, particularly given the migration trends that have been accelerated or would you say demand is generally strong across the entire portfolio?
Brian?
Jim. Yes, I'd say certainly in our south region, we've seen a significant amount of demand but what we've been encouraged by it's been fairly broad based the Northeast last year for much of the year, the height of the pandemic was having a strong year as we were having in 2019.
We did see in the fourth quarter and in early this year in California with the restrictions still in place and the level of those restrictions, a little bit tepid demand. But that's really picked up is what's been interesting over the entire period is these restrictions are lifted, we're often seeing tenants come back to the table. So it's been fairly broad base, we are seeing a significant amount in the south. But what we've been encouraged by what we've been seeing across the portfolio.
Great, thank you.
Our next question comes from the line of Floris van Dijkum with Compass Point. Please proceed with your question.
Thanks for taking my question, guys.
Good morning.
Good morning. Good Morning, Angela, for you. Just maybe if you can comment on bad debt and also generally what are your expectations later on this year presuming that all of your tenants that -- watch are on a cash basis as well. What do you assuming going forward?
Yes, I would say about the low end of the range, we're assuming that cash basis, tenant collections was pretty similar to the way they look towards the end of the first quarter, kind of in the high 60% range. As I mentioned in my prepared remarks, so that kind of our expectations at the low end of the range.
And I would say the low end of the range, also doesn't contemplate any additional recoveries of amounts that we reserved in 2020. And I think, Page 11 on the supplemental does a good job at breaking out specifically how much we reserved in Q1, just related to Q1 billed base rent based on what was a lower cash collection number kind of more in the mid-60s in the high-60s.
So we are assuming some incremental improvement. But again, at the low end of the range, recoveries previously reserved amount. The higher end of the range, we certainly assume that that cash basis collections improve. So as I mentioned earlier, we can get to the top end of the range without needing cash basis collections to recover entirely. So we don't need to see 100% collections from cash basis tenants to achieve that higher end of the range.
Right. And then again, the range does not include any of the recapture of previous uncollected rents, maybe my other question is to Jim, Jim, as you think about allocating capital and one of your peers just bought another one of your peers at a call it a mid-5 cap rate. What does that make you think about your appetite to do deals when you've got call it $280 million right now of redevelopments? And call it 9-caps and a billion pipeline presumably something similar. How do you think about bigger deals versus just the slow but steady improvement in your own portfolio?
I'm encouraged by what we're seeing in the environment today in terms of not only the continued growth and our own reinvestment pipeline and the yields that I think are, as you highlight pretty compelling. We are seeing some external growth opportunities out there. At the asset level where -- for us, I think we have a great opportunity to bring our fully integrated platform to bear and drive value and drive some pretty nice IRR, just as Mark alluded to, the Bonita Springs acquisition I think, is a great example of that, where we're coming in at a pretty reasonable cap rate in the mid-to-upper 6s on an asset that's got significant vacancy, and rents that are below market.
We're able to assess what the national, regional and local tenant demand is to be at that center and underwrite returns without having to stretch much that are in the high-single-digit, low-double-digit from an IRR perspective. And I think again in this environment, the marginal buyer and the buyer that we tend to compete with is going to be somebody relying on leverage who's less able given their capital stack and their capital source to give value for vacancy or to underwrite how to address that vacancy.
So I'm excited by what we see both within our portfolio in terms of reinvestment opportunities, but also what we see from an external growth perspective as we capital recycle, and as we identify assets in our core markets.
Thanks, Jim.
You bet.
There are no further questions in the queue. I'd like to hand the call back over to Stacy Slater for closing remarks.
Thanks, everyone for joining us today.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day.