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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 day and welcome to the SITE Centers’ Second Quarter 2021 Operating Results. All participants will be in a listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note that this event is being recorded.
I would now like to turn the conference over to Brandon Day of Investor Relations. Please go ahead.
Thank you, operator. Good morning and welcome to SITE Centers’ second 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 slide presentation onto our website at www.sitecenters.com, which is intended to support our prepared remarks during today’s call.
Please be aware that certain of our statements today may contain forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially from our forward-looking statements.
Additional information may be found in our earnings press release and in 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 on today’s call, including FFO, operating FFO and same store net operating income.
Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in today’s 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 second quarter earnings call. We had another very strong quarter with results well ahead of our expectations, and the deployment of nearly $50 million of external investments. Leasing activity remains robust. And we’re seeing the early signs of that velocity in our lease rate, which will flow through in future periods.
I’ll start this morning with a summary of our second quarter events, talk briefly about operations and then discuss our investments and our capital as we look to grow our portfolio of assets in wealthy suburban communities.
Our properties remain 100% open and customer traffic continues to grow. Collections and deferral repayments also continue to trend higher. And as of the 21st, we’ve collected 98% of second quarter rents. We’ve also collected nearly 100% of the deferral payments due to date, which when applied to last year’s rent, means that we’ve now collected 95% of contract rent for the calendar year 2020.
The durability of our portfolio cash flow and the elevated level of demand for space at our assets speaks to the quality of our team and our real estate. Included in the 95% of 2020 base rent collected to date are $5.4 million of deferral payments from cash basis tenants. This is a positive onetime benefit to us, including $3 million in the second quarter and speaks to 2 things: first, the success of our methodical tenant-by-tenant approach to resolving unpaid rent; and second, the strength of the credit profile of our national tenants, which make up 90% of our base rent.
Moving to leasing, we had another quarter of elevated activity with 873,000 square feet of total volume and 167,000 square feet of new leases, including 5 anchors. We have 15 more anchors in lease negotiations, which we expect to be completed by yearend. To put all of this activity in context, we’ve signed more deals in the first 6 months of this year, as we did for almost all of last year.
And the first half deal count is up over 30% from 2018 and from 2019. Needless to say, I’m really excited about the level and the quality of activity, and our pipeline continues to grow.
Conor will give some details on this leasing pipeline relative to the size of our company. But as I mentioned last quarter, our optimism on the operational side is giving us greater clarity on where we see opportunities to deploy capital. We closed on 2 new acquisitions in the second quarter, totaling just under $50 million, which is good progress toward our capital allocation goal this year of $75 million of external investments.
Both properties are benefiting from what we believe is the beginning of a multiyear trend. More money in wealthy suburbs, with more frequent customer visits due to a flexible work-from-home culture and an increasing value and convenience both from tenants and from customers alike. In the case of our recent acquisitions, convenience is the anchor as neither has a traditional large format tenant on the site.
We know the scale and the depth of the trade area, as mobile phone data tells us that these locations are dominant and well located, and the rising rents are proof that the tenants agree and are performing well.
Our investment thesis for these properties is that simply design the role of shop tenants with the ubiquitous size and depth that fits many retail concepts, located along the high traffic corridor will result in rising rents and low CapEx, and therefore, match or exceed the durability and the growth of our core portfolio today.
We are seeing rent growth in many of our submarkets. And we’re continuing to target investments in those properties that have a heavy convenience element and are set to benefit from these tailwinds.
The foundation of our acquisition program is our access to growth capital. As many of you know, SITE Centers has a $190 million preferred investment with no coupon in our spin-off company RVI. The Board of Directors at RVI will need to decide when to repay this preferred investment as it has no defined maturity. However, the preferred must be repaid to SITE Centers before RVI can make special dividend payments to its common shareholders, which is why I wanted to briefly mention the RVI 8-K filed on July 15.
RVI has entered into an agreement to sell its remaining Puerto Rico assets for $550 million, with an expected closing in the third quarter subject to various closing conditions. The sale proceeds would be sufficient to fully repay RVI’s mortgage loan, which had an outstanding balance of $215 million as of June 30, 2021. This transaction would also leave RVI with just 8 of the original 50 spinoff properties, all of which are located in the continental United States.
SITE Centers is in a fantastic position to recoup its preferred investment in RVI, because of the work of our entire team. So a sincere thank you to all of my colleagues across the company for their creativity and their contributions.
And with that, I’ll turn it over to Conor.
Thank you, David. I’ll comment first on quarterly results, discuss revisions to 2021 guidance and second half earnings considerations and conclude with our balance sheet. Second quarter results were primarily impacted by uncollectible revenue related to the pandemic. Total uncollectible revenue at SITE share included $7.6 million of income, or almost $0.04 per share from payments and net reserve reversals related to prior periods primarily from cash basis tenants.
Outside of this COVID related impact, there were no other material one-time items that impacted the quarter. In terms of operating metrics, the lease rate for the portfolio was up 40 basis points sequentially, which is consistent with our commentary since the start of the year that we believe that portfolio occupancy has bottomed. Based on minimal bankruptcy activity that we are tracking today and the leasing pipeline that David outlined, we believe the lease rate will continue to grind higher over the course of the year.
We provide an updated schedule an expected ramp of our $11 million signed, but not open pipeline on Page 9 of our earnings slide. We had 299,000 square feet, or $7 million of annualized base rent commencements in the second quarter. And the SNO pipeline now represents about 3% of annualized second quarter base rent. If you’re also include the unsigned anchors in various stages in negotiation that David referenced, and all of the leases, the total leasing pipeline remains about 5% of our base rent as new activity remains strong.
Moving on to guidance, we’re revising 2021 OFFO guidance to a range of $1.06 to $1.10 per share, to incorporate first half results, including recent acquisitions, without performance driven by prior period reversals, earlier rent commencements and higher retention. The bottom end of the range assumes stable collections and occupancy and no additional investment activity. The top end of the range assumes continued improvement collections and a return to a more normalized pre-COVID operating backdrop, along with $25 million of additional acquisitions.
For RVI fees, the new guidance range reflects asset sales completed to date. And we now expect third and fourth quarter 2021 RVI fees to be about $3.5 million per quarter. As asset management fees are based on the assets owned as of June 30. We’ve also reinstated Same Store NOI guidance with range of 10.5% to 13%.
The updated range reflects first half results and excludes any future prior period adjustments. The significant increase from our earlier guidepost of at least 4% is due to the same factors that drove the OFFO increase and imply that 2021 Same Store NOI is effectively running down about 3% from 2019 levels after adjusting for prior period reversals. Lastly, there are a number of moving pieces to consider in the third quarter versus the second quarter, as outlined on Page 12 of our earnings slide.
First, as I previously mentioned, we had $7.6 million of non-recurring uncollectible revenue in the second quarter, and RVI and JV fees will decline sequentially due to asset sales. Second, I would expect the lease term fees to be lower in the back half of the year as we had several COVID related deals positively impact the first and second quarter, and third G&A will increase in the first half of the year as expenses pick up. These factors will act as headwinds versus the first half year partially offset by rent commencement and investment activity.
Turning to our balance sheet, including the receivables line item at quarter end is approximately $4 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 7 and 8 of our earnings slide deck. As of last week, we have collected 72% of our total gross deferral balance with as David mentioned, effectively 100% of all deferrals do pay today.
We’ve been encouraged by these trends that are national tenants highlight their access to capital and balance sheet strength and their commitment to our high quality suburban open air real estate. In terms of remaining repayments, we have just $7 million of gross base rent deferrals, including $3 million from cash basis tenants to collect as of last week, which will limit the impact on earnings in future periods.
Lastly, in terms of the balance sheet and liquidity, the company remains in a great position with minimal 2021 maturities, no unsecured maturities until 2023, and minimal future redevelopment commitments. Additionally, we have full availability under $970 million lines of credit, $58 million of cash on hand, and we raised $14 million of common equity on a forward sale basis during the second quarter under our ATM program, which is available for future drawdown.
This liquidity along with the expected future repayment of the $190 million RVI preferred will allow us to take advantage of investment opportunities as they arise and to drive sustainable overall growth increased stakeholder value.
With that, I’ll turn it back to David.
Thank you, Conor. Operator, we are now ready to take questions.
Thank you. We will now begin the question-and-answer session. [Operator Instructions]
And our first question today will come from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning, guys. First of all, congrats on a really nice quarter and doing exactly what you said you were going to do. I want to maybe just unpack some moving parts as it relates to RVI wind-down and the buying of new assets. So first, Conor, maybe you can just refresh us, how long do your RVI management fees remain in place once RVI is wound down? I thought it was like a quarter or maybe 6 months after the wind down. But can you just refresh us on that?
Yeah, Rich, so if you recall the fees are reset effectively every 6 months. So there are some nuances when the last asset is sold. But I would just tell you that effectively June 30 and December 31, if we own an asset that will kind of impact the next 6 months of fees. So to my comments, I think I said we have – we expect $3.5 million per quarter in the third and the fourth quarter this year. That would obviously be lower, if and when Puerto Rico is sold. So it implies a lower run rate for the first half of next year.
I think to your point, the big factor is going to be the reinvestment of proceeds. That will be the ultimate driver, I think of kind of the OFFO impact from RVI’s asset sales.
Yeah, that’s helpful. And just thinking about the acquisitions for a second, where do you see acquisition cap rates going right now? I mean, you guys obviously have a lot of insight given what’s happening with RVI and what you’re doing in the acquisition market specifically with SITE Centers? But is it – can you can you buy at 5.5? Is it tighter? Is it wider? What are you thinking about here now?
Rich, it’s David. It feels like we’ve been pretty active in underwriting for the last six months. And it feels like, whereas cap rates 6 months ago were kind of low 6s, high 5s for the type of assets that we would like to buy. It feels like they’re kind of low- to mid-5s at this point.
I think what’s really driving that is the underwriting is allowing more rent growth. And so, when buyers are looking at the unlevered IRR, they’re able to pay more today for the asset because the growth is higher than people thought it was 6 months ago. And so, I think that’s really what’s impacting the cap rate.
So I think unlevered IRRs appear to be staying about the same for really great quality core assets that we want, because there’s growth the going-in cap rates seem to be going down.
Helpful. And then, Conor, just one more question. You’ve done a really nice job of moving your leverage down to a really conservative level. Where would you be comfortable taking that to, as you think about becoming more on the offensive over the next several quarters, several years and buying assets?
Yeah, Rich, it’s a good question. We haven’t talked about it in a while, because to your point, we’ve been so focused on getting leverage back to where it was to pre-COVID levels. We’re running effectively in the low-5 area today. Our range, we talked about pre-COVID was a 5 to 6 times debt-to-EDITDA range.
Look, if we saw the right opportunity, would we move to the top end of the range? Sure. But I would just tell you, we’re as focused on leverage as we are on duration. So if we’ve got the right runway, in terms of debt maturities, I think we’d feel comfortable at the high end of the range. But otherwise, I think you’d expect us to stay kind of in that midpoint to the low-end of the range.
But again, it just dependent on opportunities. The nice part is, I mean, our access to capital or the amount of capital we have on hand is substantial, right? With the cash, the ATM proceeds, the RVI preferred. I mean, it’s a pretty dramatic amount of liquidity relative to our enterprise value.
Yeah. So just one more question for me. And that’s really helpful, Conor. David, you’ve been pretty – I don’t want to say vocal. Those are my words, not yours. But you’ve been talking about recovery to normal by the end of 2022. Hopefully, I’m not putting words in your mouth. This was a really strong quarter. It feels like things are just getting better from here.
Is there any chance that’s pulled up? Or do you feel still very confident that that’s 2022 and not mid 2022 or early 2022?
You mean, in terms of Same Store NOI being back to 2019 levels, is that what you mean?
Yeah, or total NOI, however, you think about a normalization prior to pre-COVID levels. We look at it in terms of total NOI, but however, you would frame that.
Yeah, I think a lot has changed, Rich. I mean, in my own mind, this is my own memory, I think two quarters ago, I said it really feels like 2022 is the year, where things are kind of moving back to, to get to 2019. I think last quarter, I said there’s an emerging bull case, where if we don’t have that many bankruptcies and we have a higher percentage of tenants hitting their options and we have a lot of leasing momentum going forward, it feels like the bull case is that the kind of back to 2019 levels happens faster than what we previously thought.
And I would say all 3 of those things are true. As of today, we’ve had a much higher percentage of tenants hitting their options. So therefore, our downtime is less, we’ve had a lot more leasing than I would have expected. And it really does feel like. I mean, I think if you look at our introduction of same-store guidance for this year, what we’re effectively saying is that this year we’re going to claw back to 2019 levels, which means 2022 is likely to be higher.
All very helpful. Thanks, guys. That’s it for me. Congrats on a great quarter again.
Thanks, Rich.
And our next question will come from Todd Thomas with KeyBanc Capital Markets. Please go ahead.
Hi, thanks. Good morning. First question, just going back to investments, it seems like activities picking up a little bit. You’re not far from the $75 million goal for the year. And, you talked about the outlook around the repayment of the $190 RVI pref, which improved considerably and gives you some capital to deploy.
Can you just talk a little bit more about the investment pipeline today and how we should think about the timing of redeploying those proceeds? And the expected returns that you might generate?
It’s a really great question, Todd. I wish I had a succinct answer on the timing. I mean, the fact of matter is, we are in a position now where we have capital to invest. And as you well know there’s a long history of, that’s when management teams get into trouble, because you’ve got capital burning a hole in your pocket. So I think you’ll see us be very careful to try and buy the properties that we feel have long-term stable growth.
I would say at this point in the cycle, to me, that means core assets that have rents that are below market or core assets that have near-term maturities where you can have a mark to market. So an example of the Delray property we just bought, we are signing leases now at our Miami properties, shop leases that are north of 70 or 80 bucks a foot. And all of the asset leases in Addison place in Delray are kind of in the 30s and 40s.
So we feel like there is near-term maturities. There’s a great mark to market, and therefore, the growth is going to be there. So the more assets like that we can find, our pipeline will pick up. But I will tell you, we’re going to be very picky going forward on acquisitions.
And so, I guess, when we think about future investments for SITE Centers here, it sounds like we should – is it fair to assume that we should expect almost exclusively to see the company targeting these convenience oriented assets that you’re describing? Or are you seeing other opportunities to generate the rent growth and returns that you’re targeting in more traditional anchored or multi-anchored centers?
I think we’re very intrigued by a lot of the unanchored convenience type properties that we’ve been looking at. And we have been pretty active in that sub-sector. I would not say it’s exclusively there. If we can find larger centers to buy that we believe the rent roll has some durability and some growth to it. And that’s great. It’s just have been a little bit harder to find those properties. Part of the reason I do think is that, if you’re a seller, today is not a time where you’re going to sell vacancy. There’s too much tenant activity. There’s too much tenant demand.
I mean, everybody has a ton of leasing activity. And so, if you’re a seller, you’re not going to sell a vacancy into that market, you’re going to try and get it leased up. And that’s why I think the inventory so far of larger properties has been a little bit less. And we’re going to be very careful in those larger rent rolls, to make sure that we don’t have any negative mark to market spreads. And it’s a lot easier to figure that out on these smaller properties.
Okay, and then, just last question, I guess, the company has completed a few – during the quarter, the company completed a few unconsolidated dispositions and RVI is winding down or liquidating.
And so, the JV or asset management platforms continue to decline in size. Curious what the appetite is to form a new partnership for growth, a new investment vehicle, whether there’s appetite like that today on your end, and also, within the institutional or sovereign wealth market?
Sure, well, let’s take our end first. As you can imagine, relative to 4 years ago, this company has a very simple story right now. I mean, our supplemental is getting easier to read, because there are fewer redevelopments, there are fewer JVs, there are fewer JV fees, the spin seems to be winding down. So I like the simplicity right now. We have capital. We have access to capital. We’ve got leasing to do. It feels like just blocking and tackling is a nice way to just generate some internal growth.
If we do another joint venture, which I’m not opposed to at all, I think it just has to serve a purpose. And that purpose is probably recycling capital out of assets that we’ve kind of leased up to a slower growth. So they become durable, but less growthy, and we can recycle capital. That was effectively the strategy with our dividend trust portfolio with some Chinese investors a few years ago. I think that’s a high hurdle that we would hit by doing that type of deal again.
So now let’s switch gears to your second half of your question, which is on the institutional side. There is no question that there’s been more money moving into the sector in the last 6 months. I mean, John is sitting here with me. He’s been dealing with lots of sellers over the last couple of months, and we are starting to see more insurance money, pension money, more institutional capital, kind of looking into the sector and making acquisitions.
But we haven’t really found a partner that we think would be right for a recap. And so, I think we’re just going to continue on the strategy we have right now, which is to use our own capital and lease our own spaces.
Okay, all right. Thank you.
Thanks, Rich – Todd.
And our next question will come from Katy McConnell with Citi. Please go ahead.
Great, thank you. So following the Puerto Rico sales from RVI, can you discuss the GAV of the assets that’ll be left afterwards? And also, how the sale could impact your overall G&A load?
Katy, I’m sorry, I could barely hear you. Did you say what’s the GAV of the remaining RVI assets post the Puerto Rico sale, is that what you said?
Yeah, that’s right. And then, also just how the sale could impact your overall G&A load?
Okay, I can answer the second half, which is, the way that I think you look for G&A this year is, by the time this deal closes, if everything happens according to plan, you’re already down to the last couple of months a year. And so, when you take into effect severance and other wind-down costs of our office there, I don’t see any real material change to our G&A budget for calendar year 2021.
For 2022, there could be some G&A changes. But I think when we give guidance for 2022, that’s when we’ll incorporate that into our G&A load. But I don’t think it’s significant. I think that the bigger issue is what happens to the fees that we’re getting and less about the G&A.
As far as the GAV of the remaining 8 assets in the RVI, the company doesn’t give values for their properties. And again, they’re managed by us, but they’re not owned by us. So I can’t really comment on the value of the 8 remaining properties.
Okay, got it. Thanks. And then, assuming cap rates on new acquisitions remain lower than you’re comfortable with, how are you thinking about other priorities for deploying the preferred proceeds in the near term?
I guess, I wouldn’t say that they’re lower than I’m comfortable with, because if the growth is there, I think going-in cap rate is a little bit less relevant. And we have been seeing properties. I mean, we’ve been buying assets that have a 3% to 4% CAGR for the next 5 years. And so, I think that does merit having a lower going-in cap rate.
I think that’s really the reason why you’re seeing cap rates compress for many of the things we’re looking at, because the rent growth is there. So it’s not that I’m uncomfortable with it. Other uses of capital, we do have JVs that sometimes the JV partners want to sell and sometimes there are assets we want to buy. And that can be a good source of inventory for us.
We have a remaining preferred that’s still out there. So I think there’s other things that we can do with our capital. I think we have enough choices to make some good decisions over the next year.
Okay, great. Thanks.
Thanks, Katy.
And our next question will come from Samir Khanal with Evercore. Please go ahead.
Hey, Conor. Thanks for taking my question. I guess, just curious on what you’re seeing on the shop space. I mean, the anchor space leasing is healthy, but kind of, well, how does the recovery in shop space look for you guys?
Pretty…
We’re both excited to answer it. So we’re fighting over who gets to. But…
Yeah, Samir, I – go ahead, David.
You know what’s really interesting, Samir, is that we’ve been talking about box demand for the last 6 months. But when you look at our production this quarter, half of our leasing activity was shops. And it is kind of exciting, because if you look at the total deals done, half were anchors, half were shops, that’s a little unique.
I mean, that really does mean that shop leasing has picked up materially in the last quarter or two.
The second thing that’s interesting is about 83% of those deals are national credit. And so to me, it means that there’s a theme that’s kind of emerging right now, which I think is that the local tenants have struggled during the pandemic, may have provided an opportunity for well capitalized national tenants to get into the better assets. And they’re doing it quickly. I mean, I look at the number of deals we’re doing with national credit shop tenants, it does seem to be growing.
Yeah, Samir, we highlighted this a little bit at NARIET in June, about the opportunity we have in the shop size. And to David’s point, we’re starting to see kind of the fruits of some of our efforts. So it definitely is a, I would say a significant source of upside for us. And the exciting part is less capital and a quicker usually rent commencement date as well. So to David’s point, a big part of our volumes, and they were excited about and then a number of national credits, a few of which are first to portfolio for us, which is even more exciting.
And then, I guess, just on the demand side, I mean, it’s clearly been very robust here. And, I mean, are you seeing differences maybe from a geographic standpoint? I mean, when retailers are coming to you to open stores, I mean, are they targeting certain areas like first ring suburbs, formats. I mean, what are you sort of seeing on that site? What are the trends?
Well, we really only have 2 or 3 urban assets. And there’s no question that those have been slower. And I think that you whether it’s southeast or northeast or west coast, honestly, it feels like the box in the shop leasing has more to do with getting into the right ZIP code, the wealthier ZIP code in the right intersection and less to do about region. So I don’t think we’ve really seen any themes where one region is doing any better than the other. I mean, we’ve hit all time property level highs in shop leasing in Boston, Miami, Cleveland, and Portland.
And that just means, if the high watermark for a shop rent was $40 a foot. We’ve hit $50 or $55 a foot in Cleveland. We’ve hit $80 in Boston. We’ve hit $80 in Miami. So, I think, shop rents really seem to be growing in the right wealthy sub markets in a lot of the portfolio markets we’re in.
Got it. Thank you. Thanks so much.
And our next question will come from Alex Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning. How are you?
Good morning, Alex.
Hey, so 2 questions here. First, David, you’ve laid out clearly a case to be patient in redeploying capital. So presumably that centers around the $190 million of preferred that presumably you guys will get towards the end of this year once RVI completes their transaction in Puerto Rico. So the question about that $190 million is, should we expect your cash balance to just go up by $190 million? Are you going to try to prepay some debt, or if you are going to redeploy this capital? Is it going to be mostly equity based? Or should we think about the $190 million, maybe being more or like $300 million, if you assume issuance of incremental unsecured debt to lever this capital?
Hey, Alex, it’s Conor. It’s a great question. And as David mentioned a minute ago, we’ve got kind of a multitude of options. I think the easiest way to think about it is kind of tying this back to Rich’s question. Our general debt-to-EBITDA range, we target is 5 to 6 times. So if you factor in EBITDA growth, the disposition proceeds we’ve received here today, plus the cash on hand plus $190 million, you probably have an excess or well in excess of $190 million of buying power.
To David’s point, it will take time to slow that capital, and we’ll be judicious in how we deploy it. But it’s in excess of $190 million, once you factor in EBITDA growth and kind of our leverage targets. But again, it will take time. So just want to be kind of cautious on that approach.
Okay. And then, to that point, it’s not like you’re going to go out and do stock buybacks with that money, we should expect to just sit on the balance sheet?
We always as you know, we – every dollar that goes out the door, we’re looking at every option, every use. At this point in time, I will tell you, we’re pretty excited about, but the investment opportunities we’re seeing and think it’s the best use of our capital, but that could change. To your point, we’re in a really good spot leverage wise. It doesn’t feel like we want to go lower leverage wise. It really is about deploying capital externally growing enterprise where we feel like we can create stakeholder value. But you’re right, we always look at everything.
Okay. And the second question is, you guys did about $15 million on your ATM. Just sort of curious, was that just to make sure that your ATM card worked and you remember the [indiscernible] I mean, or you had some banker desperate to show something to his or her manager that you guys are printing a ticket?
It has more to do with blackout periods, I would say.
Yeah, volume blackout period to David’s point. Look, it’s a facility we have not utilized in the last 4 years we’ve been here. We’re really excited to have another source of capital. And, I think, it speaks to just the investment opportunity we’re seeing and our excitement about a creatively growing the enterprise, where we think as possible. So if the cost of capital is there, Alex, you should assume we’ll hit it. One really exciting part about that that feature, which I know you’re familiar with, as we’ve got a year to draw those proceeds, so if we find more opportunities to hit the ATM and build up that kind of liquidity reserved, and then we’ll take advantage of it.
So we’re really excited about it, I know, $14 million doesn’t sound like a lot. But, we’re looking at a range of asset sizes, and maybe it fits nicely for an asset we’re looking at. So that’s how I kind of think about it.
Right. But said to your previous answer on the $190 million, it seems odd that you guys would be looking at ATM issuance, if you’re being very picky on the acquisition and you see time taken to put $190 million, so they seem to be conflicting…
Yeah, just remember, Alex, that the Puerto Rico sale wasn’t announced until a few weeks ago.
The only thing, Alex, we could – I mean, I guess to our point, we’ve got a year to deploy that capital. The RVI proceeds potentially could come back this year. So I mean, you’re talking about a little bit longer timeline, I would just say if we think we – our cost of capital, we can creatively invest around it, we’ll take advantage, we’ll build the liquidity reserve. And again, to my point on the ATM, there’s no dilution, so we draw that down. So it’s a great feature that we really like and we can match fund or appropriately are expecting that fund. I would expect that if we like to call it capital, and we like what we’re seeing the investment opportunity or investment opportunity set, we’ll continue to utilize that.
Okay. Thank you, Conor.
You’re very welcome.
Thanks, Alex.
And our next question will come from Linda Tsai with Jefferies. Please go ahead.
Hi. I think a couple of quarters ago you talked about leasing TIs remaining elevated for the foreseeable future. But given a return to normalcy sooner, do you expect to spend less on TIs and leasing CapEx going forward?
I was going to say the short answer is no, Linda. We’ve been – you think about our leasing CapEx should increase. 2020 was depressed for a host of reasons, one for activity in second leasing volume. But as we get more tenants open, David referenced 15 more anchors that were in negotiation. As we get them signed and then open, you should expect our leasing CapEx to start to go up. The only nuance just to clarify, I don’t expect cost per foot to go up. But just total CapEx dollars going out the door will increase in the back half of this year and into 2022, especially versus 2020, and probably more comparable to 2019 and 2018 levels as a percentage of NOI.
Thanks. That’s helpful. And then in terms of the $11 million signed but not opened, what’s the cadence of that coming online.
Yes, we’ve got a chart in our earnings slide. Linda, I think it’s on Page 9 in the bottom right corner of that slide. It’s pretty back half weighted – or back end weighted, right? So typically, tenants want to open in the spring or the fall. And obviously, we’re through the spring for this year. So it’s really a fourth quarter event for us this year, and then for 2022 and 2023 same thing. What’s interesting is, if you look at this chart, we’ve got deals out till 2023 and 2024. And I think it speaks to David’s point, if a retailer sees an opportunity in some of our markets to get into it, they’re signing leases even though the rents might not commence till 2023 or 2024. So, I think that kind of speaks to the demand we’re seeing and why we’re so excited operationally.
Thanks. The final one, in terms of tenants on cash basis, sounds like it was $3 million that got paid back this quarter. Can you remind us what percentage is on cash basis and what’s considered a normal amount of ABR, when you’re – to be on cash basis, when you’re in a steady state?
Yeah. So it’s 12%, as of the end of the quarter, it was 13% at the end of the first quarter. So modestly down, we took a few tenants off of cash basis, I would say kind of normal pre-COVID steady-state levels is zero or close to it. So we’ve got a long way to go. I would just tell you, we’re really excited about the operating environment. We’re really excited about our outlook in next couple of years. But we’re going to be really cautious on a cash basis. And we’ve got to kind of fact pattern that we need to see before we take a tenant off.
And for some tenants, like I said, about a percent of our ABR, we saw that in the second quarter. But for others, we need to see a little bit more. So I think it’s something you’ll gradually see wind down over the next, call it, 12 months. But I would tell you, we’re in no hurry, and we need to make sure our kind of fact pattern is met before we make any changes.
Great. Thanks.
You’re welcome.
And our next question will come from Floris van Dijkum with Compass Point. Please go ahead.
Thanks guys for taking my question. Look pretty good, I’m trying to understand, one of the things, obviously, the balance sheet is in much, much better shape now than it was last year or a couple of years prior, Conor, congrats on reducing leverage. I guess, one other thing, which you alluded to, but maybe if you can expand on the term of the debt seems to be pretty short around 4 years. Some of your peers are closer to 8 to 10 years. Have you – do you – how do you planning on extending some of that debt? Or, obviously, some of these bonds don’t come due for 2 or 3 years? Anything you can do in the meantime?
Yeah, Floris, it’s a good question. And as you remember, in 2017, when we first started kind of making some changes in the balance sheet, we are hyper focused on duration, and that’s where we focus initially, and remains kind of intense focus of ours. I would not to sound like the middle child, but I would say our lack of issuance on the 30-year front definitely impacts us on the relative comparisons to the peer group. Look, we don’t have an unsecured maturity until 2023. You’re absolutely right. We do have some kind of straggler bonds in 2023 and 2024. So maybe there’s an opportunity for us to clean up some of those.
I would just tell you with the amount of liquidity we have, where leverage is today, we feel extremely comfortable with our duration and our debt maturity stack, but you’re right, there are some opportunities for us in the next couple years to even further improve upon that. So, again, if you look at kind of the big unsecured maturities, there really don’t start until 2025, so 4-plus years. But there are some opportunities to further extend that.
The only other thing I would add is just, it’s important to look at kind of the unencumbered pools. And to me, that’s probably the most important we talked to our bond investors that they’re extremely focused on that. Unencumbered debt yield is close to 20%. So, I mean, there’s incredible security around our bonds today. And it’s something I felt really good about our positioning and our conversations with the IG community.
Thanks, Conor. So maybe on the acquisition side, I noticed also it didn’t get much press, but you bought an asset in Charlottesville, I think, it’s right next to the federal asset there. Maybe if you can talk about the thought process behind buying a relatively small asset in a new market, and your thoughts on that market and also on the growth in that asset?
Yeah, sure. Well, Floris, I mean, given the size of it, you’re right. It doesn’t warrant a whole lot of conversation. We’ve got about 1.5 million square feet in Virginia. We’ve got a lot of leasing presence there. I think, we have always targeted Charlottesville as an interesting area. The corner of Emmet and Barracks is a very, very high traffic intersection, probably one of the highest traffic intersections in the whole submarket. You’re right around the corner from the law school. You’re right, there’s a Kroger and Harris Teeter right across the street. I mean, this particular asset has really high credit. It’s a corporate Verizon store and a couple of shops.
So I would say it’s an indicator that we’re willing to aggregate smaller properties that have kind of some durability and some growth and some good credit. And this is one market that we would love to do that. So we’re looking at more properties along this corridor.
And then last, maybe in terms of other opportunities within your JV. Would you consider buying out some of your JV stakes in some of your properties as cap rates for other assets have gotten really lower? And, obviously, these assets well – are these things less growthy, and you were more interested in pursuing things such as the Charlottesville or the Florida transaction you did recently.
Yeah, I think one of the benefits of the JV program is that you’ve always got inventory that you’re very familiar with, right? So it does make it natural for us to always be looking at potential JV dispositions. And, again, I think we’ll be very careful. Some of them might be good assets, but a little flat. Some of them might be great assets with some growth. And, I think, you’re right, we would see that as an opportunity. But it really depends on when our partner wants to sell.
Yeah, Floris, coming back to, I guess, tying that into Todd’s question, but one kind of material change in our JV pipeline is these assets generally consistent of what we own today. So they’re more consistent with what we own today. To David’s point, there’s a variety of growth profiles. But you’re right, it could be opportunity. The only thing, I would just clarify is, our partners are extremely sophisticated, and we’re really excited to have them as partners, there is no discount, per se from buying from a JV partner you’re buying at market. So that’s the only clarification I would make on that.
Do you typically have a right of first offer or right the first bid on those assets?
You typically have some way to accept the real estate if you want it. To be perfectly honest, in my experience, whatever the legal contracts, say, if a partner wants to sell your operating partner is the most natural and logical buyer, especially one that doesn’t need mortgage debt to make it happen. You don’t have to hire a broker, I mean, there’s a lot of benefits. But again, to Conor’s point, our partners are sophisticated investors, they know when they want to sell, they have a view on pricing.
And so to a certain extent, we wait for them to make a decision and then we can start some dialogue. We’ve done in the past when we bought some assets, as you know, from Blackstone last year. We bought assets from JV partners in the past. It’s a pretty common theme, and it is nice to have inventory that you’re familiar with.
Thanks, guys.
You’re welcome.
And our next question will come from Mike Mueller with JPMorgan. Please go ahead.
Yeah. Hi. Just a quick one, I’m curious for the 2021 FFO guidance, are there any other prior period when collections anticipated in the second quarter that are baked into guidance?
No, they’re not, Mike.
Okay. That’s all I had.
But the only comment I’d make there, I mentioned in my prepared remarks. We’re not running out of reversals per se, but there’s definitely a smaller amount, right? So our cash basis deferral pipeline is down to $3 million. And you can see from more slides, our deferrals really are spread out a little bit more now between 2021 and 2022, just because the 2021 deferrals has entirely been repaid. So that kind of impact from reversals, you’ll see in the third and fourth quarter, in theory should reverse if we kind of see – or it should mitigate versus the second quarter. And it’s simply because we’re running out of kind of cash basis deferrals to impact numbers.
Got it. Okay. That makes sense. Appreciate it. Thanks.
Yeah.
And our next question will come from Chris Lucas with Capital One Securities. Please go ahead.
Hey, good morning, guys. Hey, Conor, this may be following up on Mike’s questions as it relates to some of the feature of potential upside in the second quarter. What was the impact of your move from cash basis to accrual basis on the second quarter results?
It was a couple of $100,000 a straight line rent, Chris, so I would call it immaterial.
Okay. And then as it relates to your updated guidance, is there any additional sort of accrual – cash to accrual upside included in that guidance?
No, there’s not. There’s no assumption per se that will put more people on or take more people off cash basis.
Okay. And then my last question for you is it relates to your sort of your thoughts about debt duration. I think your predecessor thought about preferred being sort of a very long duration debt instrument. How do you think about preferred stock in your calculation of duration?
I would say, we think about it quite a bit or talk about it quite a bit. For us, it really depends on our cost of capital, right? And you remember in 2018, we used – 2019, excuse me, we used equity to take out press in 2021, we used equity to take out press. So I would say there’s a point in time and there’s periods of time, where preferred makes sense in your capital structure. And it depends almost entirely on your cost of equity and your cost of debt. So if our cost of equity is attractive, maybe we use it as an opportunity to take out press.
The nice part is, Chris, as you know, we’ve got until June of next year to make that decision or to think about it. But I think there’s a point in every year and place in every capital structure for preferred, it’s just the question of how big you want it relative to the enterprise? And what are the other kind of costs of debt and equity. So I would just say we’re in no hurry to make that trade again, but if the prices there, then we consider it. So I would say that’s kind of our way of thinking about it. But, I do think it’s consistent with what – as you said, my predecessors thought about it and how we think about it going forward.
Okay, thanks. And then, David, for you, when I think about sort of the whole leasing cycle from the retailer’s perspective to the competition for leasing to getting leases signed, with your conversations that you’re having with your national retail clients. What are you seeing in terms of their demand right now for open to buyers, which would be essentially for rent commencements that would be in 2023 and 2024? How does it compare to sort of 2018 and 2019 in terms of the demand level?
Well, I mean, it’s uncomfortable to say that they’re higher. And I know that that’s somewhat shocking, given where we are in COVID and what happened last year. But there’s probably the biggest change we’ve seen is that there are new concepts.
I mean, we can name 100,000 square feet that we’re going to sign in the next quarter that is tenants that didn’t exist a year ago, and they’re credit tenants. So I think what you’re really seeing is a lot of the high credit brands have come up with sub-brands. And they’re starting to roll out those sub-brands with the parent guarantee.
And when they have kind of an open to buy, they’re picking the wealthiest zip codes in the country, and they want to do portfolio reviews. And they want to do multiple brands on the same site, that’s new for us. I mean, that has not been the case for a while. If you remember, 3 or 4 years ago, there was a cycle where a lot of the old line retailers were filing and liquidating.
And now, it seems to be the opposite, where the survivors are coming up with new brands and they’re starting to roll out new concepts. So that has been a big piece of it. The other theme I think that’s interesting is the shop leasing is significantly better than 3 years ago, even 2 years ago. There is just more national credit demand for shop space.
Two years ago, Chris, we maybe had one or two tenants that were right-sized to backfill a Pier 1. Now, there’s a half a dozen to a dozen tenants that are strategically sized to fit that type of unit. So it just feels like there is a lot of examples of retailers that are growing right now. And it does feel like the open to buy is much better than it was 2 years ago.
Great. Thank you.
And our next question will come from Tammi Fique with Wells Fargo Securities. Please go ahead.
Thank you. Good morning. I am just wondering, I’m sorry if I missed this. But in the presentation, you mentioned that 13 of 20 anchor deals are with investment grade or net cash entities. And, I guess, I’m just curious what the credit looks like on the remaining anchor deals that you are doing.
I think, Tammi, to David’s comment, there’s, I would say, more depth in demand from anchors today than kind of ever before. So you should assume if we’re not doing an IG or a net cash entity, it doesn’t mean they’re in a materially worse balance sheet position, they might just not be IG or they might not be public or they might have some debt.
But to David’s point, there is a real depth in demand. And so, we are making sure if we’re investing capital in an anchor today, which is significant, we’re doing it with the right anchor that we believe in their business plan and their balance sheet over a longer period, well in excess of just our initial 10-year term.
So it’s not to criticize the other 7. It’s more just to speak to the quality. I mean, you’ve heard us talk about multiple times, 37 of our top 50 are public, 64 of our top 100 are public. I mean that matters to us. And you’ve seen that in our collections and our reversals this quarter. And it’s a huge focus of ours as we invest capital in the tenant.
Okay, great. Thanks. And then, maybe just one more. It’s obviously been a busy time in the sector in terms of M&A and I think you’ve talked pretty extensively today about accretively growing the enterprise. But I guess I’m just wondering if, I guess, one, that acquisitions are a part of the long-term plan for SITE Centers. And if that is in any way driven by benefits of size and scale in the sector. And maybe asked another way, just do you think bigger is better in this space?
Well, let’s take that in 2 parts, Tammi. There is no question that when we’re in the position we are, which is a good amount of retained earnings, we’ve got some asset sales here and there. We’ve got the preferred coming back.
We do want to be in an acquisitive stance. We will be focusing a lot on external growth. And the more we grow, it is true that it does leverage your G&A. And so, it is beneficial to be growing the company. But I don’t necessarily think that needs to result in M&A activity. A lot of times it’s easier to grow a succinct portfolio that you know all the pieces.
And so, from that perspective, I think having 80 wholly-owned assets, and kind of being very careful about deploying and growing that core portfolio, along with operating the assets that we know, it feels like we’re at a pretty good size right now to grow methodically. And I don’t think we have to worry about super-sizing or super-scaling.
Okay, great. Thanks for your thoughts.
Thanks, Tammi.
And this will conclude our question-and-answer session. I’d like to turn the conference back over to David Lukes for any closing remarks.
Thank you all for joining our call. We’ll talk to you next quarter.
The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect your lines at this time.