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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to the SITE Centers' First Quarter 2021 Operating Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Brandon Day of Investor Relations. Mr. Day, please go ahead.
Thank you operator. Good morning, and welcome to SITE Centers' first quarter 2021 earnings conference call. Joining me today is Chief Executive Officer, David Lukes; and Chief Financial Officer, Conor Fennerty. In addition to the press release distributed this morning we have posted our quarterly financial supplement and a slide presentation onto our website at www.sitecenters.com.
[Indiscernible] that supports our prepared remarks during today’s call. Please be aware that certain of our statements today may constitute forward-looking statements within the meaning of the Federal Security laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements. Additional information may be found in our earnings press release and our filings with the SEC including our most recent reports on Form 10-K and 10-Q.
In addition, we will be discussing non-GAAP financial measures, including FFO, operating FFO and same-store net operating income. The non-GAAP financial measures reconciliations to the most directly comparable GAAP measures can be found in our quarterly financial supplement.
At this time, it is my pleasure to introduce our Chief Executive Officer David Lukes.
Good morning and thank you for joining our first quarter earnings call. We had an excellent start to the year with another quarter of near record leasing activity, continued improvement in collections and deferral payments, stabilization of our least rate, over $200 million of growth capital raised. This year already feels a lot different than 2020 and the operating environment continues to improve each week with accelerating demand for space. The company is in a fantastic position because of the work of our SITE Centers' team, so a sincere thank you to all of my colleagues for their contributions.
I’ll start this morning with a summary of first quarter events, and then discuss our equity offering and our acquisition pipeline as we look to grow our portfolio of assets in wealthy suburban communities. Consistent with last quarter, 100% of our properties and 99% of our tenants remain open and operating as we continue to provide convenient access to goods and services in suburban communities.
Collections continue to move higher, and as of Friday, we've collected 96% of first quarter rents. Unresolved monthly rent is now running less than 3% with the majority of remaining tenants in various forms of settlement negotiations. We continue to take a tenant by tenant methodical approach to resolving any unpaid rent, which along with deferral payments is driving continued progress on prior period collections for those who are leasing and our collections team for their incredible work this past year.
If you consider the past 12 months from April 2020 through March 2021, the measure the durability of our portfolio during that time, three supportive data points have emerged. Number one, rent collection on contractual rent basis continues to move higher. We've now collected 91% of rent from April 2020 through March 2021. And after including deferrals for accrual tenants, we do expect to collect over 95% of base rents.
Included in the 91% number is $2 million of deferral payments from cash basis tenants, which was a one-time positive benefit to us in the first quarter. Number two, leasing volume is very high. We've completed over 700,000 square feet of new leases during this period, inclusive of 23 anchor leases over 10,000 square feet.
And number three, bankruptcy move outs have been relatively low, which we believe is a testament to our credit quality and the improvement of retailer balance sheets combined with a higher top line sales number, which are pushing occupancy costs ratios lower for the tenants. The resiliency of our portfolio and the increasing demand for space at our properties is a true testament of our team, the quality of our real estate, the credit quality of our tenants, and the durability of our cash flow.
More importantly, it's a positive signal for future cash flow since many cash based tenants are paying the current rent along with background, which does give us a greater confidence in the durability of our income stream going forward.
Moving to leasing, we had another quarter of near record activity with 219,000 square feet of new leases, including nine anchors, which is half of all anchor signings in 2020. We continue to expect the remaining anchors that identified last quarter to be executed by mid-year with a dozen or so additional anchors in the works. There's a good chance we ended up executing more anchors this year than our peak pre-COVID years for the comparable portfolio.
In terms of our new deal pipeline, the level and quality of demand continues to grow and I'm extremely optimistic about future activity. Conor will give us some details on the pipeline relative to our company. But needless to say our optimism on the operating side is spilling over into investment activity, which brings me to our first quarter equity offering. We raised just over $225 million of equity in March, with $150 million of the proceeds used to retire preferred stock. We expect to use the remaining cash for acquisitions and currently have $50 million of assets under contract.
Importantly, the offering puts our company and our balance sheet in a position where we can pursue accretive acquisitions with cash on hand. Our improved retained cash flow, which is now running north of $40 million annually, and additional future sources of capital like the RBI preferred or select accretive disposition.
So what's driving our increased confidence and growth? We believe that we are at the beginning of a multiyear positive operating environment, driven primarily by pandemic induced societal shifts that I previously discussed. Specifically, the increased movement to the suburbs, continued strong household income and wealthy communities, and a growing work from home culture. Quite simply, these three changes are putting more people with more money at the footsteps of our shopping centers more frequently, and this is leading retailers to increase the value of their own existing store fleets, and launch new concepts which is broadening the universe of tenants seeking space.
All of these factors taken together are increasing the value of convenience, which is fueling market rent growth in open air properties in select wealthy sub markets. These trends are simply too apparent to ignore, and we intend on investing around this thesis. We will provide more detail on the assets we expect to acquire like targeted returns geography and format as we move later in the year and close on the assets. But we are incredibly encouraged by the size and the profitability of the opportunity, and we're looking to accelerate our investment activity.
And with that, I'll turn it over to Conor.
Thanks, David. I'll comment first on quarterly results and operating metrics, discuss revisions to 2021 guidance, and conclude with our balance sheet. First quarter results were primarily impacted by uncollectible revenue related to the pandemic. Total uncollectible revenue at SITE share was a positive $1.7 million. Included in this amount is $5 million for just over $0.02 per share of payments and that reserve rehearsals related to prior periods, primarily from past basis tenants. Outside of G&A, which was just under a $1 million benefit there were no other material onetime items that impacted the quarter.
In terms of operating metrics that we strike for the portfolio was down 20 basis points sequentially. Now this was almost entirely related to the sale of anchor pad with the comparable portfolio flat. Based on minimal bankruptcy activity we're tracking today and the leasing pipeline that David outlined, we believe the lease rate has stabilized.
Trailing 12-month leasing spreads are relatively unchanged from the fourth quarter with renewals impacted by strategic, short term deals that I called out last quarter as a bridge to upgrade tenancy. Based on our leasing pipeline today, we continue to expect blended leasing spreads in 2021 to be consistent with 2020 where there will be volatility given the size of our portfolio.
Moving forward, we’re reviving 2021 OFFO guidance to range of $0.94 to $1.02 per share to incorporate first quarter results, including the recent equity offering. The bottom end of the range assumes no improvement in collections with continued occupancy headwinds and lower investment activity. The top half of the range assumes a steady improvement in collections that are returned to a more normalized pre-COVID operating backdrop, along with $75 million of acquisitions in the back half of this year, which includes the $50 million that David mentioned.
2021, JV and RVI fee related guidance pieces are unchanged. And based on RVI asset sales completed today, we expect third quarter 2021 RVI fees to be at most $4 million. We have not reinstated same store NOI guidance at this time. But based on first quarter results, and our latest forecast, we now expect same store NOI guidance, including redevelopment to be at least positive 4% for the full year. More details to follow on that front as we move through the year.
Lastly, we provide the schedule on the expected ramp of our $14 million signed but not open pipeline on page 10 of our earnings presentation. Despite 158,000 square feet, or $2.8 million of annualized base rent commencements in the first quarter this pipeline increased over $1 million a year and represents just under 4% of our share a first quarter annualized base rents. If you also include the downside anchors that David referenced the pipeline increases closer to 5% of our base rent, providing a significant boost to net operating income and cash flow over the next two plus years.
Turning to our balance sheet, included receivables line items at year end is approximately $7 million of net COVID related deferrals we expect to collect in the future. Details on the timing and composition of the balance are outlined on pages eight, and nine of earnings slide deck.
As I mentioned earlier, we've been encouraged by deferral repayment trends today, with a vast majority of the remaining revenue attributable to public tenants. Lastly, in terms of liquidity, the company remains well positioned following our first quarter equity offering, with minimal 2021 maturities, no unsecured maturities until 2023, and minimal feature development commitments.
Additionally, we have full availability under $970 million lines of credit. Pro forma for the equity offering and a sign on open pipeline, the company is running right around our six times debt-to-EBITDA target, which is in the top quartile and sector. We have substantial liquidity and free cash flow, and continue to believe our financial strength will allow us to take advantage of opportunities that David outlined to drive sustainable growth and create stakeholder value.
With that, I'll turn it back to David.
Thank you, Connor. Operator, we are now ready to take questions.
Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Rich Hill with Morgan Stanley.
Hey, good morning, guys. I wanted to just spend a little bit of time, unpacking the quarter. And I know you gave some details on this, but unpacking the quarter between, past rents that were caught up in 1Q versus, the impacts of strong leasing velocity in 1Q and I bring it up because, obviously there's various different accounting under GAAP for deferrals and what was collected, what was previously accounted for in past quarters versus what's now. So if you can just maybe walk us through, what was past quarter catch up versus strength in 1Q, does that make sense?
Yes, I mean absolutely Rich. It’s Conor. So included in the first quarter, if you think about dollars that relate to prior periods, it's $5 million. And that's all flowing through the uncollectible revenue line items that the pieces of that share point, some of that are cash basis tenants, kind of coming up or catching up on prior rent. Some are cash basis deferrals. But if you're looking forward to a kind of a ramp from the first quarter to the second quarter, the way to adjust for that is just remove $5 million net uncollectible revenue item, and that will give a good runway for the second quarter.
Okay, that's helpful. And then as a follow up to that, and I'll jump back in the queue. It looks like your leasing velocity is really strong. And I go back to sort of some of the comments you made post the spin-off RVI, where you made a case in SITE Centers' was really well positioned with below market rents and maybe higher vacancies, but intentionally higher vacancies. So I guess the question for you guys is, is the leasing velocity that you're seeing reflective of the broader industry? Or is it something unique to SITE Centers' portfolio that you intentionally set up several years ago?
Rich it’s a difficult question to answer because, the sector is quite large, and we only own 78 wholly owned assets. So it's hard to comment. And I will say, when we did this [Indiscernible] we selected assets that we felt had the ingredients to stay well occupied and be desirable for tenants and to have rent growth. And I do think that's going to be true. But I will say, at the time, I don't think any of us really anticipated that these big societal shifts would take place. And I do think these macro themes, I mean, particularly the suburban kind of movement and the kind of continued wealth, durability in wealthy suburbs, and then this kind of lingering work from home culture that it seems like it's going to have some permanence. I do think that those are tailwinds for the entire sector.
So just based on tenant conversations we have, they're active in a lot of properties. I feel good about the leasing volume, because it feels like they're hitting the highest income suburbs first. But I don't doubt that the next few years are going to be very active in the sector.
The only thing I say Rich we are skewed, obviously towards national tenants and we talked a lot about this over the last year. The National tenants are better capitalized, they have figured out the e-commerce omni channel angle better than others. And so that is a distinct advantage for us. You kind of roll into the numbers and I think why you're hearing this level of excitement from us is we're 91.4% lease. There's no reason this portfolio can't be 95%, 96% leased. And so that's why I think you are hearing us talk about this multiyear tailwind and our confidence around that continues to grow based off the leasing pipe we have today.
Okay, that's very helpful, guys. Thank you.
Thanks, Rich.
Thank you. And the next question comes from Katy McConnell with Citi.
Hey, thanks. Good morning. So given occupancy bar, it's been lighter than expected to date. Do you think it's bottomed out at this point? And how are you thinking about fall at risk from the small shops and a bucket at this point?
Katy, I'm sorry, we missed the first half that question.
I just said given occupancy fallouts been lighter than expected to date. Do you think it's bottomed out at this point?
I – we’re feeling like, with the least to occupied spread, right now. It's difficult to come up with a scenario where occupancy has not bottomed. I guess that's a triple negative way of saying it. But yes, it really feels like just the amount of leasing velocity is so strong. I mean, even if there were a couple more bankruptcies this year, it just feels like there's no way we're going to go backwards.
And Katy, on the shop side, I mean, we're not seeing more dramatic fallout, there are some shops, but the kind of initial way that we saw a fallout has definitely tapered off quite a bit.
Okay, thanks. And then on the transaction front, are you seeing much movement in pricing or buyer competition taking up as you source new deals today?
Katy, the buyer competition has actually been somewhat consistent. I guess the real issue is how much inventory is out there. I mean, last year, not many assets were put on the market by sellers. And, I don't think that the, the despair showed up enough that the owners of real estate, private owners, had to sell. And so if it's their choice to sell, they're going to wait for a better time, if it does feel like the debt markets became a lot more accommodative in January. And I do think that has allowed more traditional sellers to say, hey, look that, the debt’s there, the equity is, is it's, it's been raised by both private and public companies. Now is the time to list properties. So we're seeing a little bit more activity in the past couple of months. And it's, it's competitive. It definitely is competitive.
Okay, great. Thanks.
Thanks, Katy.
Thank you. And the next question comes from Todd Thomas with KeyBanc.
Thanks. Good morning. Just first, a quick follow up on the I guess the prior period adjustments. Conor, the same store NOI growth also reflects the $5 million prior period adjustments, I believe, which I think's about a 400 basis point positive impact in the quarter. Does the better than 4% same store NOI growth that you're anticipating for the year, assume any additional prior period adjustments in future quarters?
Yes Todd, it's Conor. It’s about the same store, it’s about 4.8 million of the 5 million is included in same store and has about a 500 basis point boost for the quarter. So apples-to-apples, same store NOI would be without prior based adjustments down about 5% or 6%. Going forward on that number, the short answer is no. I mean, guidance today does not include any other prior period adjustments.
Okay, got it. And then David, back to acquisitions. I guess a couple of questions. One, can you comment on, the types of assets that you're targeting, whether they're stabilized or, are you targeting assets with vacancy and lease up opportunities? And then can you also comment on the level of competition that you're seeing. I guess, if we think back over the last several years or more, the buyer pool for retail assets has been somewhat limited. And I'm just wondering if that's changed at all? And if you're seeing new investors or types of capital showing up today?
Yes, sure. I mean, Todd I can be, I can be generally specific. And that, if you think about what we've said, is working. From our perspective, it's wealthy suburban communities that tend to have lower square footage per capita. And they tend to be heavily based on convenience, the more convenient the property, the more likely the tenants want to be there. And we're seeing that with our leasing volumes. So I think that we're somewhat format agnostic, whether it's grocery non grocery strip, the format, I think, is much less important than the likelihood that rents are going to grow. So to your point about the targets. If we're targeting these three macro trends that we think our multi-year trends. And what's most important is rent growth and this is a great time to be investing early in the cycle because if you believe that rents are growing, and I do think they are, it's a good time to be coming in at this basis. So we're less focused on existing vacancies. And we're more focused on really high quality stable assets that have rent growth.
Okay, and can you just comment on the competition that you're seeing whether that's changed at all, in recent for any of these investments that you're, you're looking at compared to what you've seen, in prior years?
Yes, I guess it's not, there's not quite enough activity yet to be able to say whether there's more capital out there. It feels like there is. It feels like, a lot of private investors have started to realize that cash flow growth is happening. And part of the reason for that, Todd is that, I think, I think the viewpoint a couple of years ago on the sector was that it had a high percentage of CapEx, at least in CapEx.
But if you go into a rent growth scenario for the next couple of years, and you have stabilized properties, the CapEx is going to drop pretty fast, because you just simply can't spend enough CapEx if you don't have vacancies. And so it becomes a renewal business where the renewal spreads are high and the CapEx is low. I think that's the cycle we're heading into. And I think it's not lost on a lot of private capital. So when we've been out bidding on properties, we definitely think we're competing with kind of, core plus type of capital in the in the private sector.
Okay, thank you.
Thanks, Todd.
Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler.
Hey good morning, morning, bright and early. So just a few questions here. First, Conor, on the cash tenants, obviously, we all love cash. And it's great to get paid cash. But as we think about your full year, numbers, how much how, how as a percent to ABR, however, NOI, however you want to gauge it? How many of your tenants are now cash? And what is that delta? Meaning if you collected 5 million in the quarter was that you were you build 5 million attachments, you got paid 5 million. So we can think about 5 million benefits in the second quarter, third quarter, fourth quarter, etcetera? Or how do we think about this the cash and how it's going to impact earnings?
Yes. Alex, good morning. So 13% of our tenants are on cash basis accounting. So in terms of numbers, it's unchanged, subtracted from year end, I think we could make a count of one handheld unit tested this last quarter, so no material change in the pool. If you think about coming back to Rich's question, and how that was their income statement. Cash basis collections, were about 80% in the first quarter. And so if that, that that collection rate was unchanged in the second quarter at 80%, you would see our uncollectible revenue from the first quarter number minus 5 million, so call it round numbers about negative $3.5 million. That would be what the kind of drag would be on earnings, or FFO, assuming the same pool and the same collection rate.
Now the problem is the pool may change, right? We may take some folks off cash basis accounting, the odds of that being a payer though, or we want the steady state of collecting for that period. So I don't think that materially impact. But there could be some follow on as well, some copies of tenants aren't paying, we're in litigation, or we're going to do something with and they're out.
So it's a really long way of saying it's going to change the pool will change. But I think from a run rate perspective for you, if you just take the current uncollectible revenue from the first quarter, knock out 5 million and assume if you assume no improvement in collections, that's a good number to use going forward.
Okay, so for those of us still on the first cup of coffee, Conor. So the 5 million that you booked in the first quarter, is is your full year guidance, the you know, the 94 to $1.02 is that assuming 5 million benefits in the second quarter, third quarter fourth quarter, or is not assuming that?
There's no there's no prior period adjustments and guidance for the rest of the year. So looking at the trends, as I mentioned in my prepared remarks, we are trending towards the top end of the range, right? We're seeing a steady improvement in leasing activity. We're seeing a steady improvement in collections. The bottom end of the range assumes that deterioration and occupancy which is what we're seeing, but it's April 22, we're trying to be prudent, we're in the middle of pandemic. So any other prior period reversal analysis would be good guys to turn earnings into guidance.
Okay, so the simple answer is that if you get another 5 million in the next each quarter, you're going to be at/or or above the top end of guidance. Correct? That's how the math works.
If we got in $5 million a quarter for the next three quarters, we'd be above the guidance range.
Okay, awesome. Okay. Second question is going back to active…
But I'm just going to have to say Alex is just I mean, those are cash basis tenants. Right? So implicitly, we don't expect to collect that. Right. So that's a, that's a big yes, right?
Yes, but things are getting better. So okay. A second question is on acquisitions. Just given where you guys are trading on implied cap rates, sort of on our numbers, high sixes. And the fact that it sounds like cap rates for assets are going to continue to compress? How do you, how do you think about making the math work, as far as using your currency to buy assets. And as part of that, David, you emphasize the benefit of national credit. But at the same time, you guys have been willing to buy Centers that are sort of, not anchored, more smaller neighborhood type centers, which I would assume would have more small shops. So how do we think about, sort of the balance of buying Centers with preponderance of National Credit versus infill in the neighborhoods you want in to competing with your cost of capital versus, where cap rates probably are in the market, which I'm assuming is inside of where you guys are trading?
Yes. It's a great question. And since I've had three cups of coffee, I can answer it quickly. I think that, Alex the way that I'm looking at it is from an unlevered IRR perspective. And the thing to remember about cap rate compression is there's a reason and the reason is, market rents are growing, and CapEx is going down. And those two functions in the IRR do make a tremendous difference. So as I look at our cost of capital, I would still like to see us make acquisitions that are approaching that round numbers 10% unlevered IRR. And it may be that you can get that in the mid six cap rate, it may be that you can get that at a low five cap rate. But I do think that if we're selecting the right assets in the right sub markets, and we have confidence that there's rent growth, natural rent growth on renewals, that's a big piece of the function.
So tilting to what you mentioned about format type. I don't think we're against any format and acquisitions, as long as it's it kind of targets the sub market and the rent growth profile that that we think is, is available to us. Most of the acquisitions we've made in smaller neighborhood centers do have a pretty sizable component of National Credit tenants. The, the Horizons, the Starbucks, the banks, those types of tenants are active in in wealthy suburban communities. And those are the properties that tend to drive a lot of convenience traffic and can boost market rents over time, the real difference between them and a larger format asset is they tend to control the real estate for a shorter duration.
Some of these boxes have 20, 30 years of term with options. That's not necessarily the case in the smaller assets, even if you have credit, but you're able to access the rent growth a lot faster than you can with larger boxes.
Now, the only other thing I would say on kind of accretion, accretion dilution is they've been a common market, we have north of $40 million of retained down. So now, we also have the RBI prowess. So there are a number of sources of capital we have where we can we can invest and not worry about over -- for the dilution. The other comment that you made is we referenced accretive dispositions, meaning selling at a lower spreads than what we're buying.
So I would just tell you, we're incredibly focused on earnings growth, along with intrinsic value growth. So don't think we were buying just for the sake of buying and we're not we're not focused on earnings growth.
Okay, cool. Listen, thank you. Thank you, Connor. Thank you, David.
Thanks, Al.
Thank you. And the next question comes from Samir Khanal with Evercore.
Hey, good morning, everyone. David, just curious I mean, how do you think about the long term growth of the portfolio coming out of the pandemic here? I know you talked about anchor leasing that peak levels, you've talked about shifts you are seeing kind of, kind of during the pandemic, so as we think about the long term growth, I know, I kind of, if you look back, for the portfolio, I believe that, for the investor day, I think it was like 2.5% or something back in 2019. Maybe it's still early, but just we'll kind of want to get your initial thoughts of the kind of thing about recovery.
Yes, it's a it's a, it's a really interesting question, because I think at the time that we had our investor day conference, the macro trends were different. If you remember that 2.5% growth included 150 basis points of bankruptcy every year because we were in an environment where there was a lot of retailer churn. And we also assumed a pretty heavy CapEx burn in order to make that, in order to basically keep occupancy and keep a little bit of growth but it had a cost to it.
What's really changed in the last maybe since September, October last year, is that the amount of leasing from large box and small shop tenants, particularly on the national side has been so robust, and surprisingly so that I think that the growth rate is higher than we originally thought and the bankruptcy rate is lower. And whether that continues for 10 years or for two or three years, I guess we'll find out. But it sure feels like if you look at 2022 versus 2019 portfolio, NOI portfolio, it feels like there's a bull case emerging where 22 is going to surpass 19 highs. And I think it comes back to Katy's questions about occupancy. If occupancy is not deteriorating rents are growing, then it really means that 2022 is shaping up to be, likely it at least, at least even likely better than 19 was.
I guess, as a follow up, you think about, NOI growth and maybe the breakdown of that, is there anything that's changed on the contractual rent bump side, is it kind of still that sort of, one percentage for anchor boxes? Or are you getting more than that to say?
Well, I'm uncertain shops, or nine credit tenants, I think getting higher bumps is, is achievable. We've been getting higher bumps than normal on the smaller shop deals for sure. The differences were 90% credit National Credit tenants. And so our existing portfolio doesn't benefit quite as much from those tenants that can sign annual bumps. One, one thing you could look at, it's kind of interesting. If you look at page 14 of our sub, we did add a little bit of disclosure, which I think you'll find interesting, you're looking at the sign but not open pipeline of leases, compared to the lease expiration schedule of the existing portfolio. And what it shows is there's a delta, the rents are higher in the box, the box average for the lease we've signed to date in the last 22 they are not open is about almost 17 bucks a foot and the existing is about 14.
So you're seeing a natural spread on the on the new leases, both for shops and anchors. And the compounding nature of those, when they hit their options is helpful. But to your point, the industry I don't think has changed in terms of it naturally is, 10% growth every five years for anchors, and it's kind of 2% to 3% growth for shops. And I don't see that changing dramatically, which is why we like acquiring properties and have near term expirations because that's really where the growth is going to come from.
Right. That's very helpful. Thanks so much.
Thank you.
Thank you. And the next question comes from Linda Tsai with Jefferies.
Hi, thanks for taking my question. You've spoken about the Steinmart boxes having solid releasing upside but maybe more pressure on the Pier 1 boxes. Is this still the case for Pier 1 in the context of the leasing strength you're describing?
I think generally it is Linda I mean, I think we talked about 300%, 400% market on some of the Steinmart boxes. We just got back to the end of last year. So but I would say that's generally consistent. On Pier One, I would say it's marginally better. There are we've talked about some new concepts in that eight to 10 square footage range last quarter. So medical users, a couple of new concepts and that exact eight to 10,000 square feet. So I would say it's marginally better. But in general, it's fairly consistent with prior periods.
Thanks. And then on micro-fulfillment, and the build out of these platforms to the extent that's happening in your portfolio, and it reinforces the value of that distribution point. Are landlords helping to pay out for these build out costs, or is it the retailers?
I think it's generally the retailers. I mean, if you look at this, the CapEx that's been required to do anchor leases, it is kind of noteworthy. I mean, we've been signing leases with a CapEx, which is not inconsistent at all with previous years. I think we're averaging around $40 a square foot on average. So I don't think that we've seen any additional costs for the tenants to change the interior of their space. But we have noticed it, Linda. I mean, we've seen some of the permit drawings. Every time a tenant goes in, they have to submit permit drawings to the city. We're able to get a copy of those drawings and review them and you do see some changes on the interior of the store related to a little bit larger sorting areas a little bit smaller customer areas, a big tilt towards customer pickup areas in the parking field and how that interaction occurs. So I feel like the cost is being borne from the tenant side at this point. But it is interesting to note and I agree with you that is happening.
Just one last one. The 15 million under contract are those in regions where your properties are already or you kind of market agnostic.
They are in regions where we already have staff and in portfolio.
Thank you.
Thank you. And the next question comes from Floris van Dijkum with Compass Point.
Morning, thanks for taking my question, guys. Obviously, very encouraging, report net effect of rents are up. The pipeline seems to be strong. I’m intrigued by your comment about going on offense, obviously your balance sheet is in decent shape now as well. Are you guys also thinking about JVs as a way to buy to buy assets and maybe if you could provide some, some commentary on your view of the Kimco transaction, changing the sentiment perhaps in the sector, for other investors as well as yourself?
Sure, Floris, I happen to -- be sorry, apparently three cups of coffee wasn't enough. The company, this company has a long history of joint ventures. And I do think that it's always going to be a part of our platform, but it has to be for a purpose. And if you look at the JVs we've done in the past couple of years, it the purpose, it has been a recap of a portfolio so that we could recycle capital. The need to do that before was to delever our balance sheet and kind of prepare for bad times, which turned out to be a good move. I think at this point, we do have capital to invest from multiple sources. And at this point, I think we are continuing to invest on balance sheets. But I'm certainly not out of favor with doing, venture as long as they have a purpose. And that purpose could be the partner brings you a deal and they want to be involved with a REIT, it could be that the scale of the opportunity we find is simply too big for us. And we'd like to have a partner. So there can be multiple reasons, and I'm not against it. And I think you can assume that, we'll be very careful about it. But we're open to joint ventures.
From the from the industry standpoint, with the Kimco Weingarten announcement. I mean, I do think it was positive for the industry, I agree with you that it seems to have stoked a little bit of animal spirits. Because it's a, it's a big deal. And it's positive for the industry, the pricing, I thought was a particularly a pretty good read through, because I do think it's a bit more consistent with where private market pricing is. So it's felt like validation of that.
And the other thing I think is interesting is that, if you look under the hood, the Weingarten portfolio does have quite a few similarities to the SITE Center portfolio. We have similar ABR per square foot, we have similar grocery sales volumes, we've got similar demographics of I think we're talking a little bit higher household income. And if you really carefully look through the portfolios, you'll see that we have a pretty similar mix between grocery anchored and power center. So I thought it was great for the industry. And I particularly thought it was it was kind of a good read through for us.
Thanks, David. And do you expect that there'll be additional transactions like that, in your view, do you think this is, sort of awaken people to the possibility and where do you see or how do you see yourself at position in such a situation?
I think your guess is as good as mine, whether there's more public activity. I certainly think there's going to be more private activity. I mean, the amount of private capital that's looking for yield and they're starting to see durability. But durability is what I think was proven over the past 12 months. I mean, for us to be having collected 91% of rent through a pandemic is it's impressive. And I think the industry has proven quite a bit of durability. But now I think you're starting to see growth. And whenever you get market rents growing in a sector, I do think the private capital starts to raise its head and it feels like we're getting into that period. I think we'll see because there haven't been a lot of private capital investments to date. But we'll see over the next couple of months.
Thanks, David.
Thank you.
Thank you. And our next question comes from Mike Miller with JPMorgan.
Yes hi, David a couple of quick questions here. First, did you mention the cap rate on the $50 million that you have lined up for Acquisition?
I did not. But I did say that, once we close, we would be happy to talk a bit more about unlevered IRR, I think it's probably a better way to look at it personally. But I think once we close on the acquisitions, we'd be happy to walk through the reason and the rationale and the investment thesis. But I'd like to kind of punt on that for now, Mike.
Got it. And then you talked a little bit about, properties that are more convenient, having better growth potential. And just curious, if you look at a market or sub market, what makes in your eyes, one property more convenient than, than the other?
It feels like the, the most of the tenants have decided that proximity to the street with visibility. And access is really important. What we've been measuring, as a couple of things. We've been measuring traffic counts, because during the pandemic, you have so many more people in suburban communities that are home all the time, the traffic patterns have changed. They're not as dramatic on a Saturday and Sunday, but they're much more dramatically positive on a Tuesday or Wednesday. So we're being very thoughtful about tracking, geolocation, cell phone mobility, and we can kind of witness how communities are acting when they're home five days a week, seven days a week. It tells you something. And then tenants are seeing it as well. So I would say traffic patterns are simply the amount of people that are nearby the property and then relate that to how much square footage per capita is in the market. That's really why I like wealthy sub markets, because they tend to have much stricter zoning laws, and so the supply is less. And the result of that Mike is pretty amazing. And we've had a couple of shop deals, we find the last couple of months that are approaching $100 a foot in suburban strip centers. Our average shop rent right now in the portfolio is 2850. So that's what I mean, where I'm saying we are definitely in a period where convenience is extremely desirable, and the tenants are willing to pay for it. And to me, that's a good time to be investing if you're seeing the beginning of that cycle.
Got it? And maybe one last one, Conor for the 3.3 million reserves, kind of the clean number which is stripped out prior period. Can you just give us a like a rough breakdown of what's making up that 3 million in terms of categories?
Yes, it's a mixed Mike. I mean, obviously, it's if you look at our, our deck on categories that are open, it's not surprising. The laggards are more COVID sensitive. So fitness, theatres, entertainment. So it's a little bit of mix. I would say in that are some some local names that we expect to pull out, like, like I mentioned. And it's just a question of land and we've got the right backfill in place, it's so you can see how the survivorship lies, that number shrink over the next couple quarters. So there's not one sector Mike that's jumping out, but it's the kind of the same, the same genres or same categories that we've seen over the last year.
Got it? Okay, that was it. Thank you.
Thanks Michael.
Thank you. The next question comes from Chris Lucas with Capital One.
Good morning, guys. David, just sort of a big picture question as it relates to the inflation outlook. Does that impact at all how you think about you're retaining mix for things that you're looking at in terms of acquisitions? Or is it sort of too, too early in the process of seeing reflation to sort of make that an important part of this analysis?
You mean, consumer inflation, Chris?
Correct, correct. Yes, that's an asset.
Yes, I yes, you would probably agree or not be surprised that there's, there's two pieces of inflation, that I think are really important. One is a risk and one is a benefit. But one of the risks of inflation is the long duration leases that tend to be flattish. They tend to get, they can't keep up. And that's why sometimes these convenient properties that have shorter duration leases are a lot easier to raise rent during an inflation and keep up with market and market rents are growing. So that's a good time to be finding acquisitions where we know we can adjust the rent roll a little bit sooner, once it's fully occupied.
I think the second piece of the puzzle is is really interesting, and that is if you have a lot of National Credit tenants, and they sign a lease with a certain occupancy cost ratio. And five years later, they're still paying the same rent but their sales have escalated with inflation. What's happened while the landlord hasn't benefited because we don't have percentage rent clauses. Having said that, their occupancy cost ratio is much lower. And so I think what's going to happen as the probability of options being exercised, will go up if you see more inflation. And so that does reduce the amount of future CapEx and future tenant burns, because they're simply more profitable in place.
So we do think about those quite a bit, particularly on our acquisitions. And I think it would be marginally positive. The downside, of course, is exit cap rate, and what's the effect on cap rate? So I think that's, that's kind of the two sides of the coin that we think about.
Okay, thank you for that. I guess you've sort of opened up Pandora's box when you talked about occupancy costs. And what I'm getting at is, how are you guys dealing with the sort of sales in store versus, e-commerce, this whole omni channel and how that impacts essentially, what sales are at a specific unit and how retailers sort of pushing back on how they were thinking about it?
Yes, I feel it's an issue that I know we many people in the industry have been talking about for a number of years. And the good news is, we have almost moved so little percentage rent in the company that we just don't have to deal with it. But I agree with you that it is a challenge.
But that ultimately drives rents, right? I mean, the occupancy cost is an important factor just as you described before. So it's something that's…
Right to David's point, we have very little overdraft. And then on top of that, only about 30% of our tenants report sales, right? So it's just not a big part of our business. Now, if we do get sales, does it muddy the water, whether you have a click and collect included in our return included? Absolutely. So to David's point, it's a focus of ours, but it's not necessarily it’s impacting our day to day business.
The other thing to remember is that it's – if you’re thinking about occupancy cost should drive the rent that a tenant is willing to pay. But it doesn't really drive market rents, because that has more to do with what the other tenants are willing to pay for the same space. And given the amount of box leasing activity going on there is competition brewing. And so I think it has market rents have more to do with multiple people seeking the same space. And that's a good situation to be in.
Sure. Conor, kind of want to have you, can you help me sort of looking at the sign not opened chart from last quarter, and I'm comparing it to this quarter, it feels like just looking at it adjusting for the 2.8 million that you brought on board in the first quarter, looks like there's some more ramp to third and fourth quarter of this year, compared to where you were in the prior period. Is that related to some faster delivery of space? Or is that related to just more leases signed in the interim?
I would say it's a little bit of both Chris. So one, we have more visibility on just rent commencements or and or more confidence. And the second to your point is probably a bunch of shops that we think we can get opened this year to David's point, signing $70 $89 foot shops. They turned into kind of mini anchors, right in terms of their contribution. So that's probably the two factors driving away. We can dig into that and come back to you, but that's my gut.
Okay, thank you. That's what I had this morning. Appreciate it.
Thanks, Chris.
Thank you. And the next question comes from Tammy [Indiscernible] with Wells Fargo.
Good morning. I guess maybe just following up on the recent transaction between Kimco Weingarten. And I guess, are you sort of satisfied with the scale and efficiencies of your current size? Or do you see real benefits from being a larger company in the shopping center industry? And then correct me if I'm wrong, but it sounds like you're looking to be a net acquire this year. So I'm sort of curious if you have a five year target in terms of size, or is the plan just to be opportunistic, depending on market conditions? Thank you.
Hi, Tammy. It's a great question. Given the announcement of that merger, I think what we're most happy with is the runway we have in the near term. And by near term, I mean, probably two or three years. It just, it feels like we've got a lot of growth runway, our balance sheets in really good shape. We don't have any commitments for development. We haven't committed to, high CapEx, mixed use properties. And I really feel like we're in a position where we can make external investments for high quality properties with cash that's coming from multiple sources. So it feels like we're in a really good spot. And, and back to your question of scale, the G&A load of this company can be flexed quite a bit, and so it feels like we're going to get the benefit of being able to grow without having to increase our G&A. And that's a good spot to be. So I do think there's a benefit to scale. And I think we're beginning to get more scale over the next couple of years. So yes, I guess I would leave it at that.
Okay, great. Thanks. And then I'm just wondering, are you actively marketing any assets for sale today?
We are always actively marketing one or two. I mean, last quarter, we sold a single tenant box pad that was across the street from our main shopping center. There are a few assets that once they get to be 100%, leased, they've got long term credit tenants, it's more likely that there's an arbitrage between what the private market is willing to pay for that flat lease and what we would like to recycle that capital into. So there's always a little bit of recycling, but it's not meaningful.
Okay, great. Thank you.
Thanks, Tammy.
Thank you. And that does conclude the question and answer session. I would like to return the floor to David Lukes for any closing comments.
Thank you all very much for your time. And we will speak to you next quarter.
Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.