Brixmor Property Group Inc. Q4 FY2020 Earnings Call

Greetings and welcome to the Brixmor Property Group Fourth Quarter 2020 Earnings Conference Call. It is now my pleasure to introduce your host, Stacy Slater. Thank you, Stacy. You may begin.

Thank you, operator, and thank you all for joining Brixmor's fourth quarter conference call. With me on the call today are Jim Taylor, Chief Executive Officer and President; Angela Aman, Executive Vice President and Chief Financial Officer; as well as Mark Horgan, Executive Vice President and Chief Investment Officer; and Brian Finnegan, Executive Vice President, Chief Revenue Officer, who will be available for Q&A. Before we begin, let me remind everyone that some of our comments today may contain forward-looking statements that are based on certain assumptions and are subject to inherent risks and uncertainties as described in our SEC filings. Actual future results may differ materially. We assume no obligation to update any forward-looking statements. Also, we will refer today to certain non-GAAP financial measures. Further information regarding our use of these measures and reconciliations of these measures to our GAAP results are available in the earnings release and supplemental disclosure on the Investor Relations portion of our website. Given the number of participants on the call, we kindly ask that you limit your questions to one or two per person. If you have additional questions regarding the quarter, please re-queue. At this time, it's my pleasure to introduce Jim Taylor.

Thank you, Stacy. Good morning, everyone, and thank you for joining our call. I trust that each of you, your families and loved ones are well. As I'm sure you are, I'm beyond glad to put 2020 in the rearview. Yet, I'm also very grateful for what the year revealed in terms of the durability and resilience of our team, our portfolio, our business plan, and our purpose. With nearly 95% of our base rent for April through December now collected or addressed, leasing levels and spreads are approaching pre-pandemic levels and highly accretive redevelopments delivered attractive incremental returns. Our performance continued to accelerate through the fourth quarter and it continued in January, where cash collections exceeded where we were at the same point in December. In short, we delivered one of the best performances in the sector navigating through the crisis. That's true whether you measure it in terms of cash collections where we are among the highest; impact on NOI, where we are among the lowest; the adequacy of reserves for amounts not collected or value delivered through reinvestment. And importantly, we are among the best positioned for the recovery with strong visibility on how we will grow going forward. In a few moments, Angela will cover our performance in more detail in addition to providing some color on the specific assumptions underlying the guidance we've provided for 2021. I'd like to focus my remarks on those elements of our team, portfolio, and plan that provide us both visibility and confidence in the continued outperformance in the months and years ahead. As always, it begins with leasing where in the fourth quarter, we signed another 1.4 million square feet of new and renewal leases with a vibrant mix of tenants in groceries, value, service, quick-serve restaurants, and home improvement categories. Importantly, we continued to gain share of new store openings for our core tenants, added new-to-portfolio concepts like Wren Kitchens and also built a significant pipeline of specialty grocery deals that will trigger some very accretive redevelopments in the future. Leveraging our attractive rent basis, we achieved cash spreads on new leases of 22% in the fourth quarter. Interestingly, where we have active or completed reinvestments, those spreads approached 30%, reflecting longer-tail benefits of our reinvestment strategy, and we continued our success in driving strong intrinsic lease terms, achieving annual embedded rent bumps of 2.1% in the quarter, while remaining disciplined with capital where we achieved a near-record net effective rent per foot of $15.23. Encouragingly, we also saw an acceleration in small shop activity despite the re-closure orders with 268 new and renewal small shop deals in the quarter, representing over 700,000 square feet. We expect this activity to continue to accelerate as closure orders are lifted. During the quarter, we commenced another $13 million of new ABR, and as of the end of the quarter, we had $38 million of signed, but not commenced ABR which provides us with a tremendous tailwind as we deliver that rent over the next several quarters. As reflected in our guidance that Angela will cover in more detail, we believe that this production will allow us to deliver growth in 2021 at a level that should set us apart despite what we believe will be continued disruption from the pandemic. In addition to those signed leases, we have a forward pipeline of leases in negotiation of 1.9 million square feet, representing an additional $35 million of ABR. Brian and the leasing team have truly hit their stride at a pace that leads the sector and clearly demonstrates the demand by growing relevant tenants to be in our well-located shopping centers. Importantly, this leasing productivity also unlocks tremendous value creation in our centers through our accretive reinvestment program. During the quarter, we delivered another $21 million of reinvestment at an incremental return of 12%, bringing our total reinvestment deliveries during the year to $113 million at an incremental return of 10%. Stop for a moment and consider that despite a pivot in how we served capital during the height of this crisis, this team still created over $75 million of incremental value through reinvestment during the pandemic. And as we look forward, our pipeline underway now stands at over $400 million of investment, of which we expect to deliver over $200 million this year at an incremental return of 9% to 10%. Of course, as always, we remain disciplined, ensuring that we don't commit significant capital ahead of the signed lease commitments. That's what makes this reinvestment activity so much more attractive from both an absolute and risk-adjusted return basis versus ground-up development, where you don't have the same levels of pre-leasing, and you therefore don't know if you're building a bridge or a pier until it's too late to stop. Further, we phased our spend to ensure that we don't have too much exposure to any specific project. As we demonstrated last year, that discipline allowed us to be flexible in responding to the crisis while still creating significant value. And importantly, with each completed reinvestment, we drive our centers closer to our purpose of being at the center of the communities we serve. As I mentioned earlier, we are pleased to see the follow-on benefit of this reinvestment strategy in terms of leasing and spreads at centers that we've impacted, which now represents over 30% of our portfolio. I'm also excited about the level of grocery activity in our forward pipeline, which again will be transformative for the centers impacted. I strongly encourage you to visit our website to take a virtual tour of the projects we have completed or underway to get a sense of the scale of what is happening at Brixmor. From an operations perspective, we began transitioning in the fourth quarter back to normalized OpEx spend levels as our portfolio reached 97% reopened, and there was less necessity for us to reduce CAM burdens for closed tenants. Again, I'm very proud that our team pivoted during the crisis with a focus on our tenants, whether it was reducing CAM burdens, assisting with access to the PPP program or providing additional service levels in terms of outdoor dining, curbside pickup, and additional signage. As we look forward, our focus from an operations perspective will be maintaining operating margins, tightening tenant delivery timetables and continued progress towards our Proudly Owned by Brixmor standard, and of course we will continue to apply the lessons learned over the past year in accommodating the ever-evolving needs of our tenants. Speaking of those evolving needs, I would highlight in closing that the pandemic has also accelerated many of the longer-term trends that are important to consider as we execute our plan this year and beyond. Those trends include mall-native tenants such as Bath & Body Works, Foot Locker, Kay Jewelers, Sleep Number and Visionworks increasingly relocating from malls to our open-air centers; the ever-growing universe of service providers seeking to capitalize on the convenience, flexibility and proximity of our shopping centers to the consumer; the increased tenant demand for buy-online-pickup-in-store, which can be easily accommodated in our format; the increased appeal to retailers of locations like ours near single-family rooftops; the focus by retailers on opening or relocating stores and partnering with landlords such as Brixmor that have proven track records and access to capital; and the convergence of retail and logistics within the last mile of the customer. Each one of these trends is individually significant for our business and collectively, we believe, they will help us continue to drive outperformance in the years ahead. Again, thank you for your interest in Brixmor. And with that, I'll turn the call over to Angela before opening the line up for questions.

Thanks, Jim, and good morning. As Jim highlighted, our performance in 2020 demonstrated many of the core strengths of the Brixmor portfolio, including the essential nature of our open-air retail centers to the communities we serve and our significant tenant and geographic diversification. NAREIT FFO was $0.33 per share in the fourth quarter or $1.47 per share for the full year. Fourth quarter NAREIT FFO reflected $0.06 per share of items that impacted FFO comparability, including loss on debt extinguishment, litigation and other non-routine legal expenses and transaction expenses in addition to $0.04 per share of revenues deemed uncollectible and $0.01 per share of straight-line rental income reversal. Same-property NOI was down 6.4% in the fourth quarter or 5.4% for the full year. Fourth quarter same-property NOI reflected a 420 basis point detraction from revenues deemed uncollectible and a 120 basis point detraction from lease modification deferral agreements and abatement in addition to a smaller detraction from percentage rents, all other base rent and net recoveries. Importantly, rent collection levels have continued to improve since April. As the COVID-19 disclosure provided on Page 11 of our supplemental package demonstrates, as of December 31, we have collected 91.8% of fourth quarter billed base rent, approximately 450 basis points ahead of third quarter rent collection as of September 30. In addition, during the fourth quarter, we continued to collect additional amounts related to the second and third quarter billed base rent, totaling $12.8 million or 300 basis points of billed base rent during those periods. Revenues deemed uncollectible this quarter totaled $12 million, down from $21 million in the third quarter and $28 million in the second quarter. While still above our historical run rate, the trajectory over the last several quarters reflects both improving cash collections and the appropriateness of reserves taken in prior periods. At year-end, tenants representing approximately 15% of our annualized base rent were on a cash basis. As highlighted on Page 12 of our supplemental package, for the second, third, and fourth quarters on a combined basis, we are now 72% reserved on all accrued but uncollected base rents, which is comprised of a 52% reserve on executed deferrals not subject to lease modification treatment and an 88% reserve on all accrued but uncollected and unaddressed amounts. We provided initial 2021 guidance with a range of $1.56 to $1.70 per share, based on same-property NOI growth expectations of negative 1% to positive 3%. The width of these ranges reflects the continued uncertainty inherent in the current environment, which may manifest as a combination of continued rent collection headwinds, resulting in reserves related to 2021 billings, particularly for cash basis tenants and occupancy loss. This dynamic makes it very challenging to provide line item guidance within the same-property NOI at this point in the year. That said, we believe that our assumptions for reserve and/or potential occupancy loss are appropriately conservative in light of the current environment. While reserves on accrued but uncollected rent and occupancy pressure primarily from bankruptcy activity represented clear headwinds in 2020, it will persist into 2021. Rent commencement activity, driven by strong leasing productivity and value-enhancing reinvestment execution, represents an important and significant tailwind. During 2020, despite the impact of the pandemic, we commenced leases representing $39 million of annualized base rent, approximately $2 million more than we anticipated based on our signed but not commenced pool at the beginning of the year. The full benefit of these commencements will deliver $20 million of base rent growth during 2021. In addition, the spread between billed and leased occupancy was 290 basis points at year-end, representing nearly $38 million of annualized base rent, of which approximately $30 million is expected to come online during 2021 and deliver $15 million in base rent during the calendar year. In short, the annualization of 2020 commencements, the partial-year benefit of 2021 commencements, in addition to contractual rent escalations, and the impact of consistently-positive rent spreads have put us in a strong position to weather the ongoing impact of the pandemic in 2021, while also delivering expected growth at the midpoint of the range. As always, our guidance range does contemplate expected transaction activity during the year, but does not contemplate any items that impact FFO comparability, including loss on debt extinguishment, litigation and non-routine legal expenses or any one-time items. In addition, I would underscore that this range does not contemplate the conversion of any tenants to or from cash basis accounting during the year, either of which could result in significant volatility in GAAP straight-line rental income. From a capital allocation perspective, the strength of our forward leasing pipeline is facilitating the re-acceleration of our value-enhancing reinvestment program. And we anticipate spending as much as $300 million in value-enhancing capital during the coming year, slightly above our annual targets of $200 million to $250 million. This spend will be focused on continuing to reposition the portfolio with creditworthy, vibrant retailers that solidify the competitive positioning of our assets in their market, while providing accretive incremental returns and enhancing the long-term growth potential of our portfolio. Turning to the balance sheet, we utilized cash on hand during the fourth quarter to redeem our remaining 2022 fixed rate unsecured notes. At year-end, we had $1.6 billion of total liquidity, representing our undrawn $1.25 billion revolving credit facility and $370 million of cash on hand. We have no debt maturities in 2021 and only $250 million of remaining maturities in 2022. In conclusion, I would like to thank the Brixmor team for their dedication and perseverance during a truly unprecedented year. While we enter 2021 mindful of the current economic backdrop and the challenges that we collectively face, we are confident that this portfolio stands to benefit from the rapid evolution occurring in the retail industry. And with that, I will turn the call over to the operator for Q&A.

Our first question comes from Samir Khanal with Evercore. Please proceed with your question.

I guess my first question is, just curious to know your views on tenant fallout over the next several months, maybe on the sharp occupancy side and maybe even on the anchor side. We haven't heard much about bankruptcies, right, so far. Just curious what your thoughts are for the next couple of weeks and maybe even the months as we think about the first half, and do you think — are your views, do you feel better, maybe, as you did three months ago, and what are your views in the first half of this year?

I think the big question, and we tried to capture this in our guidance, is what the shape of the recovery will look like, and how much longer we're going to be somewhat shut down as a result of the pandemic. We are encouraged by the performance of our core tenants who continue to do well throughout this crisis and mindful though that there are certain tenants in categories like entertainment and restaurants that have struggled, and we could see — and you see it in our collections, Samir — we could see some additional failures in that space if we continue through this longer than folks expect. So, I would say in general, we feel really good. Obviously, you saw a high level of bankruptcies last year. I don't think we're going to be quite at the same level, but I do think you may see some additional failures in those areas that haven't quite fully recovered.

And I guess just as a follow-up or second question here, and you talked about the long-term trends of the business. One theme is certainly that migration from urban to suburban. Are you seeing an impact at the asset level, whether it's traffic or just retailers saying, look, we need this many stores, greater open-to-buys because our strategy is to focus more on the suburban markets. I mean, are you hearing that in discussions when you're doing leasing at this point?

It really is the common theme that we're hearing from many of the retailers in terms of where their new store opening pipelines are focused; and Brian, I don't know if you want to add some additional color.

Yes, as Jim mentioned in his opening remarks, Samir, we've been really encouraged by just the breadth of categories, and it does speak to the traffic that our centers are driving — our suburban centers are driving — the demand to be in grocery-anchored centers with daily foot traffic. You're seeing operators coming out of the mall, and we saw it in our results this quarter with Foot Locker, Kay Jewelers, and Bath & Body Works, who are looking at grocery-anchored centers and seeing the foot traffic to deliver the sales that they want, so it's certainly coming up. From an open-to-buy standpoint, we've been very encouraged. Within those categories, most have very strong 2021 open-to-buy pipelines and even into 2022. We're talking about '22 deals today. So, we've been encouraged from a pipeline activity standpoint, but it definitely speaks to what these retailers have seen coming out of the pandemic in terms of traffic driving to grocery-anchored centers.

And again, Samir, I'd say, that demand, that's the biggest indicator of the trend.

Our next question comes from Todd Thomas with KeyBanc Capital Markets. Please proceed with your question.

A couple of questions around the '21 outlook. I guess, following up on occupancy, it sounds like the leasing activity is picking up. Jim, you talked about the forward leasing pipeline, but has occupancy bottomed or are you anticipating further pressure on occupancy and lease rates for the portfolio in the near term?

I think it's quite likely that we'll see some additional fallout from an occupancy standpoint as we move through the year, in part in those categories that are most at risk, entertainment and restaurants. And again, a lot of that will be driven by the duration of the crisis, but we certainly anticipate that we're down about 150 basis points or so year-over-year on occupancy. You could see that decline more, and that's in our expectations.

Yes, I would just add to that, as I sort of highlighted in my prepared remarks, our same-property range, 400 basis points this year, does reflect a wide range of potential outcomes as we navigate, particularly in the next three to six months of the pandemic. That may come through additional occupancy loss, and certainly the guidance range contemplates that. It might also come through some of those tenants hanging on, but maybe they're currently on a cash basis, and we will continue to take some reserves based on lower rent collection levels consistent potentially with where we've been, but lower than 100%. So, both of those potential outcomes are certainly embedded within the range, I would say. At the low end of the range, our expectations for total amount of reserves and kind of excess bankruptcy loss are more significant than what we saw in 2020. At the high end of the range, clearly, we've embedded some improvement over what we saw in 2020 as well.

And then Jim, in your remarks, you touched on margin improvements on the backside of the pandemic as we move forward here. Most of your leases are net or triple-net. How should we think about the margin upside that you see for Brixmor? Is it more than just improving occupancy and reducing expense slippage — is there sort of a bigger opportunity for the Company?

Our margins already are pretty strong, which I think reflects the discipline that we have both from an asset level and an overhead perspective in terms of operating the assets. I would say the biggest opportunity, Todd, really comes in improving occupancy over time. That's going to be the biggest lift to the bottom line from a margin perspective, because we really have been disciplined, both during the pandemic and as we emerge on those OpEx spend levels. So, I don't think there's really much more that we can do from an efficiency standpoint, but rather what I mentioned in my remarks is as we return to more normalized levels of OpEx spend, there is going to be a focus on making sure that we're being disciplined with that and matching that as best we can with occupancy, and of course avoiding leakage, which is CAM expenses for vacant spaces, so that's our focus. But I think the biggest upside will be in the latter part of the year and as we move into '22, as that occupancy begins to pick up and as that forward leasing pipeline delivers.

And just lastly, Angela, the $400 million or nearly $400 million of cash on the balance sheet, do you expect to maintain an elevated cash balance or is there a use for that baked into the guidance?

No, it's a good question. We did use a fair amount of the cash that we had going into the fourth quarter for the redemption of the 2022 fixed rate notes. So, we have, I think, demonstrated that we're comfortable using some of that cash continuing to solidify the balance sheet and push out duration. There may be opportunities as we move through the year to put some of that additional capital to work. I think based on the continued uncertainty, we're comfortable running with higher cash balances than normal, at least for another quarter or two here, but we will look at potential opportunities to deploy that cash as well.

Our next question comes from Katy McConnell with Citigroup. Please proceed with your question.

Could you talk about the pricing of dispositions completed in 4Q and your expectations around 2021 to provide some parameters around potential transaction activity that you are assuming in the guidance range?

I'm going to let Angela comment on the range of impact from potential transaction activity and I'll let Mark comment a bit on what we're seeing from a pricing standpoint, but I do want to highlight for you, Katy, that we do expect to increase the level of transaction activity in capital recycling and as I've said before, we expect to be balanced in terms of matching dispositions with acquisition as we move forward, more in line with the long-term goalpost that we provided in the past. We're encouraged by what we're beginning to see open up for us, both from a liquidity standpoint and an opportunity standpoint in the transaction market. And I'll let Mark comment a little bit on pricing that we've executed and pricing that we see going forward. Mark?

Sure. Thanks, Jim. For the fourth quarter, we sold some net leases. The pricing generally was in line with what we've seen historically for the portfolios. That felt pretty good. And we're looking at the market as we go into 2021. One, we're actually pretty pleased with the demand and liquidity we're seeing for assets, particularly for grocery-anchored deals that are less than $30 million, for net lease-like assets and for small and anchored strip retail. Recent trades and the demand we're seeing real time for our assets really is demonstrating to us that cap rates should be pretty stable versus pre-COVID, particularly for trading centers and that's really across all geographies. That liquidity is supported by the market being receptive to financing grocery-anchored deals at both CMBS and local banks. And I'd say that the net lease market continues to be very liquid with trade buyers, institutions and REITs really aggressively looking for product, which is allowing us to achieve attractive sale cap rates across all geographies, which in turn is allowing us to maximize value as we look at exiting non-core assets. On the acquisition side of things, we're definitely seeing better opportunities now than during the last few years to recycle the assets when we think we can drive value with the platform. Given what Brian said earlier regarding demand from tenants, some of the occupancy levels and where we think we can buy out now and really it's the willingness of owners that transact, both on and off the market that we're seeing. So as Jim likes to say on the acquisition side, stay tuned.

Yes and Katy, just on your question around what's embedded in the 2021 outlook, obviously, in 2020 we were a net seller. As we look forward to 2021, as Jim mentioned, we do expect activity to increase and for us to be more balanced. That means disposition proceeds will be used for acquisitions and a small portion of reinvestment activity that's not already funded with free cash flow. In total, we're looking at year-over-year dilution from total transaction activity, including the 2020 transaction activity, of between $0.04 and $0.06 per share.

And then can you just provide some color around the deals that contributed to the higher new leasing spreads last quarter and should we view that as a good run rate as we think about 2021?

Yes, I think you can. The mix of tenants was broad, importantly, and it reflected a lot of our core tenants as well as some new tenants to the portfolio. I think the best visibility that we can offer you in terms of forward leasing spreads is really embedded in what we have rolling over the next three to four years, when you look at those anchor rents averaging $8 to $9 and then you consider again, Katy, where we're signing new anchor deals in the low to mid-teens, we've got some runways for the next several years to continue to execute and continue frankly to capitalize on that below-market rent basis that we have throughout the portfolio.

Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.

So understanding there is pretty decent mark-to-market opportunity in the broader portfolio, what is the mix in the recent vacancies due to COVID of at or close to market rents versus below-market rents?

Fortunately, what we're seeing or what we're recapturing from the disruption in COVID is pretty much in line with what the balance of the portfolio is. Certainly, you've seen some pressure on our renewal spreads through this period of time and that's been quite deliberate on our part as we're making decisions to utilize shorter-term renewals to not have too much that we have to lease in any one period of time and to keep some of those tenants in occupancy as we set the portfolio up. One of the things, as I mentioned in my remarks that we find most encouraging as we continue to execute our strategy is the follow-on leasing impact for those centers that we've impacted through reinvestment. As I mentioned, we're about 25% to 30% of the portfolio penetrated as it relates to anchor repositionings, redevelopments and other investments that we're making to really improve and enhance the assets. And in those centers, you're seeing the spreads 500 basis points to 1,000 basis points higher than on the portfolio as a whole. So we feel good in terms of our ability to continue to execute as we recapture that space and I would also tell you Brian and team have been re-leasing that space over the last couple of quarters. When you think about the tenants that have gone bankrupt over the last four quarters, a lot of that leasing activity that we're doing now is in those very same spaces.

And then secondly, how many of your centers have really embraced omnichannel and BOPIS efforts? How widespread across the portfolio and what is Brixmor doing to assist tenants, both retailers and restaurants, with this emerging growth opportunity? We are seeing increased evidence that retailers are utilizing their store fleet as distribution centers versus renting industrial space. Thank you.

Yes, we're seeing it really broad based. What began as a trend focused primarily on our grocery tenants, tenants like Kroger and others with their click-and-collect program, now is being much more broadly adopted across a much wider array of our tenancy. And we're doing everything we can to accommodate that from providing pick-up lanes to special areas for the BOPIS personnel to meet the customer in the parking lot, always with an emphasis on safety and convenience. We think it's a huge competitive advantage that we have over other property types, because of our surface-parked, easily reconfigured shopping centers and it comes also at a time, interestingly, where parking requirements are beginning to decline in certain jurisdictions, so we can capitalize on that and utilize our parking areas more efficiently. We're also supporting restaurants with pickup and delivery services in areas and utilizing backs of certain properties for ghost kitchens. So I think there are a lot of ways where our asset type and our properties are located near the consumer and I think a lot of retail concepts and service concepts are recognizing that advantage of having a physical presence near where the customer lives and I think we'll continue to be in a position to capitalize on those trends as the evolution continues.

Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Just curious on the leasing demand. As you think out for a couple of years, how do you want to change the mix, if at all, of the portfolio? It sounds like you're seeing some demand from some traditional mall tenants that are looking at your centers and maybe looking to add more grocers. But if we think big picture, how do you think the mix shift of the tenant base will change and what's the goal from the management team?

As I mentioned, and I'll let Brian comment a little bit here as well, our goal is to continue to capture market share of our core vibrant tenants that are growing through this environment, whether it's in value, home, specialty groceries. I am excited about the forward pipeline of specialty grocer deals which will go into centers where there isn't an existing grocery use and I think add another relevant use to the communities they serve. Our purpose as a company is to make sure that the centers that we own truly are the center of the communities they serve. So we really look hard at what are the voids in that particular community, how can we better serve the needs of that community to drive traffic to the center, bring vibrant and relevant uses and make sure that we can continue to generate growth. What I like about how we're positioned for the next several years is I think there is a really broad funnel of tenant uses that want to be in our shopping centers that I think we can continue to capitalize on.

I would just add, Jim covered most of it, but our core tenancy is doing extremely well. If you look at the categories that Jim mentioned and the strength of the operators within those categories, our team's done a fantastic job of growing market share and finding opportunities for them to be in our shopping centers. Jim mentioned earlier we're testing out ghost kitchens at our properties in a small way to see how that goes as that starts to emerge. As we looked at many of the resolutions that we had with national tenants, where could we free up development rights so we could do more outparcels in our parking lots, which we have the ability to do, and we added five more to the portfolio this quarter. So more outparcel uses are coming into our shopping centers. We're very pleased with what we see from our core tenancy and then from a mall perspective, that's something that we were laser-focused on coming into the pandemic, you can see it in our results this quarter and it's something that we expect to accelerate as we get more into the recovery. So we're excited by what we're seeing in the mix of our core tenancy and some of those new uses that we're seeing coming out of the crisis.

And just a question, one of your peers talked about views on 2022. I don't want to start the whole thing, but any color you could provide or are you willing to go that far to the future?

I think the best way to get visibility on our business, as Angela alluded to in our comments on guidance, is to look at the leases that were signed. We have $38 million of signed, but not commenced rent that's going to commence over the next several quarters, a portion of which will commence in 2021, but a portion of it will also commence in 2022. I also mentioned the forward leasing pipeline, which represents another nearly 2 million square feet and $35-plus million of ABR that we're in the process of negotiating and it's that forward leasing productivity that really gives you visibility not only in terms of how we could outperform during the pandemic in terms of net impact on NOI, but how we're going to outperform going forward as we continue to bring that tenancy into paying occupancy. And so we feel pretty good about how we're positioned not only for this year but the next couple of years. The other thing I would highlight for you is, we have $400 million of reinvestment underway that's generally pre-leased at an expected incremental return of 10%. We expect to deliver about $200 million of that during 2021 and we continue to fill that pipeline as we drive that forward leasing. So I feel good about what our forward prospects are. Obviously, we're not going to be providing guidance on 2022, but if you really want to sort of get a look at where our business is headed, I would ask you to look at the leasing volumes that we've executed, what we indicated in our pipeline as well as that reinvestment pipeline, which I think in totality probably gives this platform more visibility on growth than many others in the business.

Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Just a follow-up on that and maybe it ends up being a quick answer but it's great to hear that optimism in the progress on the leasing. If we look at the new and renewal leasing summary page, it does look like the volumes are still lower versus pre-COVID. So I was just wondering if you could go through how relevant that is and your outlook for leasing volumes in particular getting back to 2019 levels.

Brian?

So just if you look at overall new lease volume, GLA was certainly down, but we did the same number of deals in the fourth quarter of 2020 as we did in the fourth quarter of 2019. We actually — and our small shop leasing was up 58% from the prior three quarters and the most that we've done since 3Q of '19. So we are really pleased to see the small shop activity come through. We saw the anchor activity come through in Q3 and as we had talked about coming out of the summer really seeing the executions pick up from what was in the pipeline. And then if we look at the pipeline at the end of 2020, it's not far off from where we were at the end of 4Q '19 despite all of those executions. Looking at the renewals, taking the renewal volume in Q4 and Q3 combined, if you average the two out, it was basically the average of what we were signing in 2019 pre-COVID. So looking at all that, the forward pipeline, the uses that Jim talked about, the tenants that we're signing deals with, we feel very encouraged as we head into 2021 and into 2022 to really continue to capitalize on the investments that we're making in our centers and the demand.

That's great and then maybe one on the deferrals that you guys did agree to in 2020, could you just give us some idea of when you expect to receive those payments and to the extent that some have already been due, have they been received on time, any earlier, any that are lagged in?

Thanks, Caitlin. We have already started to collect on some of those deferral payments. In total, between what was due in 2020 and what is due in 2021, we think by year-end 2021 about 90% of those deferral payments should come back to us. So it's a pretty high percentage, substantially all of them by the end of 2022. The collection rate on deferral payments that have been billed to date, while it's a relatively small number, has been high and pretty consistent with what you're seeing in terms of collections across the entire portfolio.

Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

So first question, Angela, is for you. I think you mentioned about 15% of your tenants were on cash accounting for the fourth quarter. What's embedded in the 2021 guide? I'm trying to get a sense if there is any meaningful non-cash benefit rolling into 2021 helping the FFO guide here, plugging in the high end of your same-site NOI outlook and I'm not getting close to the upper end of the FFO guide. I know that there are a few other things at play here, but just curious what could be a potential benefit from some of that that's not a cash accounting dynamic?

It's a really good question, Haendel, given the complexity associated with cash basis accounting, particularly during 2020. We effectively went from a very small portion of our tenant base on cash basis in the first quarter of 2020 to that 15% number by year-end, as you mentioned. When you move somebody to cash basis accounting, you have to reverse all of the straight-line rental income associated with that tenant and we've disclosed that number in our supplemental package. For the full year, it was about $35 million of reversals associated with straight-line rent. In our press release with guidance, we did mention explicitly that we have not assumed that any additional tenants moved to cash basis, nor that any tenants currently on cash basis moved back to accrual. So we have not included reversals, any additional reversals of straight line or any of those reversals being re-reversed and coming back in as income. So it really is kind of a more normalized non-cash figure in the current year. If you look at what we reported for straight-line rental income in the fourth quarter, it was about flat, and that flat number included those $4 million of reversals. So let's say you were kind of at $3 million to $4 million on a quarterly run rate basis for straight-line. We do give guidance in our — there is a table in the 10-K which was filed last night that shows what to expect for FAS 141 income in 2021. It's about $11 million there. And then we have on an annual basis somewhere between $3 million and $4 million that offset those income items of the amortization of tenant inducements. All of that together should get you to a number of between $19 million and $23 million a year in terms of non-cash income, but it importantly does not assume, again, any reversals of straight-line rent or any kind of re-reversal bringing any of that straight-line rent back on for cash basis tenants. It's really just continued recognition of straight line for tenants that are not currently on cash basis.

Got it, that was very helpful and I may need to come back to you offline, a bit more. Thank you.

Operator, a question from Haendel, and thank you for the congratulations on the contract extension. In terms of the cash balance question more broadly, I think it's both defensive and opportunistic. We're still in a period of disruption so we like the certainty of having a little extra cash on the balance sheet, but on the other side of it, it allows us to be a bit more opportunistic as it relates to investments or other opportunities that we might see going forward. So there is a bit of drag for having it and we currently enjoy over $1.6 billion of liquidity. We tend to be conservative and we never want to be in a position of having to access the capital markets at a particular point in time. We always like the opportunity and flexibility to access at a point in time of our own choosing. So as Angela alluded to, we'll continue to assess that quarter-in and quarter-out as we move forward, but we made the decision as we got to year-end to go ahead and keep the cash.

Our next question comes from Ki Bin Kim with Trust. Please proceed with your question.

It was good to see signs of activity in your leasing. Just going back to some previous questions, in 2019 you signed about 12.8 million square feet for your portfolio versus 9.6 million square feet in 2020. So I'm just curious as you're talking about the connectivity and signs of life that you're seeing from tenants, does 2021 look more like 2019 in totality or a little bit closer to 2020?

If you just look at the activity as it occurred through the year, what's interesting in 2020 is, in the second quarter, no one was doing deals and you saw some of that activity get deferred into the third quarter where we signed over 2 million square feet and then in the fourth quarter, we signed about 1.4 million. So we're at a level now that's approaching where we were pre-pandemic. Brian emphasized great momentum that we're seeing in the small shops, which I find particularly encouraging and I would expect 2021 to be a year where we continue to march back towards where we were pre-pandemic with good strong volume, good spreads and importantly good tenants that help us accretively reinvest in the portfolio and continue that program.

And if you take a step back and look at the current landscape and your business, those anchor repositionings going forward, do they start to make more sense given market rents, tenant demand and the risk profile? How do you think about that program?

We have impacted about 25% to 30% of our portfolio and we have a pretty big forward pipeline. We have $400 million underway of anchor repositionings and redevelopments and outparcels, again, at a 10% incremental return and then behind that we've got a shadow pipeline of opportunities that we've identified within the core portfolio to do the very same thing. We're focused on putting capital to work at very accretive returns. And where we don't see the ability to substantially improve an asset or get to those value-added returns, we start thinking about liquidity and exiting the remainder of that asset. Our discipline is always to look at those opportunities where we truly can create value through the strategy. If we can, we'd make that decision. In terms of what the mix is going forward, the best place to look is in the supplement as well as in the shadow pipeline that we've identified.

Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.

Two questions from me. First for Brian. You guys have done a lot of leasing, the re-leasing spreads are great, but how have the leasing conversations with tenants changed now versus pre-pandemic? Meaning are tenants more focused on the absolute rent they're paying versus the type of center they're in — are they willing to sacrifice some elements of one center versus another to get a cheaper rent? And then also, as they are looking at the centers and you're competing against others, are the retailers underwriting sales as-is or are they envisioning sales growth over time? I'm trying to get a sense of how discussions are today versus pre-pandemic.

Good questions, Alex. Retailers were focused on getting the best deal they could pre-pandemic and during the pandemic as well. So, I don't think that has necessarily changed. What they are very focused on today, and I think we talked about it on prior calls, is who their neighbors are going to be. Do they have the ability to do the initiatives that Jim talked about earlier, whether it's pickup, last mile as a portion of their store — that co-tenancy piece is very important. From a basis standpoint, we've shown through the year from a renewal spreads standpoint and where we're signing those leases, particularly this quarter when we added Wren Kitchens, we doubled the rent versus the prior rent with the tenant there. We continue to see those opportunities. Rent basis certainly matters. So, from a discussion standpoint, they want to be where they can have the best co-tenants and drive the most traffic. In terms of sales modeling, 2020 was an interesting year in terms of certain uses had very large pick-ups in sales. Looking at that versus 2019, I think it remains to be seen how to model those going forward. It's really taking a look at historical performance and what they achieved during the pandemic and combining those to project future performance. Conversations are a bit early on that front, but they're taking a look at both historical and pandemic performance.

And Alex, the one thing to keep in mind is that retailers are using data like they've never had before. They're getting a lot better at projecting what they expect the sales of a particular bricks-and-mortar presence to generate. We obviously work hard to understand their sales model at their use and there is really a data-driven approach to underwriting new locations today.

On the hard-hit categories, full-service restaurants, gyms, mani-pedi places — are tenants restarting their businesses in a disciplined way? Do you have confidence that most tenants are taking the right steps and it's more a matter of local regulations, or are you concerned some tenants aren't responding appropriately and that could cause problems?

I would say that our tenant base has learned a lot during this. Coming into this, it was a shock to the system in terms of the amount of businesses that were shut down, but whether it's been patio seating for restaurants, outdoor dining, or better delivery logistics, they were much more prepared for potential subsequent shutdowns. In the fourth quarter, where we had second-round closures, many operators were much better prepared. We're looking at which initiatives put in place during the pandemic will persist going forward and we've seen many strong businesses navigate second-round closures in California. In our North region, we saw the largest pickup in collection rates out of any of our four regions where we started to see openings. Many of our restaurants prepared for the winter and were still doing outdoor dining, heated areas and tents. So, we've been encouraged by what we've seen with a number of our operators in these hard-hit categories. It's still going to be a challenging few months in places with stricter government restrictions, but so far with our tenant base, we've been encouraged by the initiatives they put in place.

I would add that we are particularly watching movie theaters and when they will come back online — that's an area of most concern.

Our next question comes from Floris van Dijkum with Compass Point. Please proceed with your question.

Thanks for taking my question. The midpoint of your same-store guidance indicates 1% growth. One of the things I wanted to talk about is capital allocation. Your balance sheet is very strong and you have lots of liquidity. There appear to be significant opportunities to harvest low cap-rate net leases, ground-lease income and net-lease assets. How willing are you to pull the trigger on some of those, particularly during periods like this where demonstrating inherent value and further bolstering your capital position would appear sensible?

There is liquidity in the market for net lease buyers and ground-lease buyers at attractive pricing and it has presented a great opportunity for us to recycle capital out of our non-core assets back into redevelopment where we can get higher returns. As Mark noted, we do expect to ramp up that level of capital recycling to position us to benefit from attractive pricing for net lease assets, ground leases and smaller grocery-anchored shopping centers. We will look at hold IRR and that guides a lot of our decisions as we move forward. We don't look at it from the need to raise additional capital where we like our self-funded model. We believe our assets are under-rented and we will use that lever to find opportunities for additional external growth where we can find shopping centers priced below replacement cost that we can buy and drive value with our platform.

To delve into acquisitions, grocery-anchored deals are popular and cap rates have compressed. How do you think about buying opportunities versus repositioning lifestyle or out-of-favor centers where you could add grocery elements or change the tenant mix?

There are certainly a couple of opportunities that may be repositioned into product more consistent with our core business and we're looking at those. The greater opportunity is private centers without access to capital that have experienced disruption before and during the pandemic. The vacancies in those assets are generally priced well below replacement cost, which gives us an opportunity to come in, utilize our platform and access to capital to drive value-added returns. But in terms of stepping outside our discipline, don't expect us to go too far.

Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.

Do you think we'll see category or geographical mix shift over the next five years compared to pre-pandemic?

I think you'll see us continue to exit some of those single-asset, non-core markets. We still have probably 30 to 35 of those assets within the portfolio, many of which offer some reinvestment opportunity and significant upside, but are probably not long-term holds for us after we've executed on that. Expect to see us continue to cluster more in markets where we are already strong like the Mid-Atlantic, Philadelphia, Texas, Florida, Southern California, and those are the areas you will see us continue to grow and put capital to work at reasonable returns.

When you talk about increasing CapEx spend from $250 million up to $300 million, does that include doing anything different or is it just more of the same but a bigger volume?

It's partly the flexibility we had in 2020 to defer some projects with tenant agreement, so we've shifted some spend from 2020 into 2021. These are largely pre-leased and part of the $400 million underway that we've identified. We're working on continuing to fill that pipeline for '22 and beyond. Much of what we're doing right now from a leasing standpoint is setting up the pipeline into 2023. So that's where that larger level of spend is coming this year.

Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

One quick follow-up regarding the receipt of deferral rents. Angela, you mentioned that the rate at which you're collecting them is in line with your other rent collections, so in the low to mid-90s. Should we expect that to have an impact on numbers going forward either one way or the other in terms of reserves being reversed or not?

We just went through the exercise of assessing collectability across every tenant and every ABR balance in the portfolio and believe we're entering 2021 with the right reserves in place. So, we don't expect additional reserves on 2020 nor do we expect reversals necessarily. That said, if you look at the disclosure on Page 11 in the supplement and what happened with respect to Q2 and Q3 amounts, we collected additional cash on amounts that we had reserved, both on the deferrals and amounts that were reserved for amounts uncollected and unaddressed through deferral agreements. We also took some additional reserves. We ended up in a slight net positive position on Q2 and Q3 amounts, about $1 million. I would say we feel the assessments we made at year-end were accurate and correct, but as we navigate the next few months or the first couple of quarters in particular, there's going to be some volatility around that.

Our next question comes from Linda Tsai with Jefferies. Please proceed with your question. Hello, Linda. You may proceed with your question. Jim, are there any further questions?

Thank you everyone for joining us today. Have a great weekend.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a great day.