Retail Properties of America, Inc.
Q1 2021 Earnings Call Transcript

Published: 8 May 2021

[Operator:]

Greetings. Welcome to the Retail Properties of America First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Jennifer Moede. You may begin.

[Mike Gaiden:]

Thank you, operator, and welcome to the Retail Properties of America first quarter 2021 earnings conference call. In addition to the press release distributed last evening, we have posted a quarterly supplemental information package with additional details on our results in the Investor section on our website at www.rpai.com.

[Steve Grimes:]

Thank you, Mike, and good morning, everyone. I appreciate you joining us today. I'm pleased to report on our better-than-expected results for Q1, which built on the sequential gains we delivered in Q3 and Q4 of last year. The constructive macroeconomic, public health and consumer sector trends we outlined in our last earnings call have continued over the last 90 days and combined with strong execution by our team, our financial results continue to trend positively, as Julie will detail. Our stronger-than-expected performance in Q1 provides incremental visibility for the year ahead and enabled us to raise our full year operating FFO guidance by $0.05 at the midpoint to $0.83 to $0.87 per diluted share and narrow the width of our range from $0.08 to $0.04.

[Julie Swinehart:]

Thank you, Steve. This morning, I will review our first quarter financial results, including rent collection trends, our balance sheet positioning and our updated 2021 guidance. I'll begin with an update on rent collection. We collected 96% of our Q1 billed base rent, up from the 94% we previously reported for Q4 2020. The trends across use categories remained on par or slightly improved as compared to last quarter. I am encouraged to see another quarter of incremental progress on the statistics. Our aggregate 96% base rent collection includes approximately 70% collection of Q1 2021 billed base rent from cash-basis tenants, up modestly from last quarter. Our cash-basis tenants as a percentage of ABR decreased to 11% compared to 12% as of year-end 2020. The decrease was primarily due to several early move-outs of cash-basis tenants during the first quarter, partially offset by our overall smaller ABR denominator as ABR declined 80 basis points sequentially. Regarding deferrals, at the start of the year, total deferrals due to be repaid totaled $20 million, the majority of which is contractually due during 2021. Based on tenant concession structure and our accounting policies, $10 million was already recognized as revenue during 2020. The majority of the remaining $10 million yet to be recognized as revenue is due from cash-basis tenants. Our deferral collection experience during Q1 2021 was strong as we collected 93% of the $4.8 million of base rent due in Q1, which resulted in income recognition of $1.7 million during the quarter. Once again this quarter, we continued to collect amounts from prior periods, portions of which represent deferral repayments. Our Q2 2020 base rent collection rate increased 300 basis points and each of Q3 and Q4 2020 increased 100 basis points. The Q1 2021 96% base rent collection rate and the improvement in collections from the last three quarters of 2020, including our 93% deferral collection rate, helped to illustrate the health and strength of our current tenant base and also triangulate with the positive macro indications Steve outlined as well as the robust current leasing demand Shane will detail. Our strong collections during the quarter and better-than-expected tenant retention contributed to our generation of $0.24 of operating FFO per diluted share, down $0.03 year-over-year and up nearly $0.05 sequentially.

[Shane Garrison:]

Thank you, Julie. Our first quarter operational results reflect continued upward economic momentum in the large majority of our markets in addition to the increasing tenant bias toward profitability, co-merchandising and distribution. All have combined for relative acceleration in demand for high-quality retail assets. In the quarter, our continued pragmatic approach, combined with our high-quality portfolio, drove quarterly leasing activity to nearly 2.5x year ago levels of 687,000 square feet, continuing to build upon the signing momentum seen in each of the prior two quarters. These new lease signings also carry approximately 180 basis points of annual contractual rent increases, adding further visibility to our forward contractual growth profile. Three anchor box rent commencements, all of which occurred earlier than planned in Q1, enabled us to increase anchor occupancy by 20 basis points sequentially to 94.9%. These earlier rent starts also helped us narrow our leased-to-occupied spread by 20 basis points sequentially to 120 basis points in Q1.

[Steve Grimes:]

Thanks, Shane and Julie, for your updates, lots of insight in that commentary. With that, operator, can you please poll for questions?

[Operator:]

And our first question is from Todd Thomas with KeyBanc Capital Markets.

[Todd Thomas:]

First question on investments, I may have missed it, but I don't think I heard much about acquisitions in any other prepared remarks. And I know you're focused on the development pipeline, but those projects seem to be advancing, and I just wanted to get your thoughts on investments as we move further into the recovery.

[Shane Garrison:]

Sure. Good morning, Todd. This is Shane. Yes. So having just 10 markets, right, over 80% of our rent in this case in 10 markets, we have a select list in those markets we know well. The markets are still pretty tight, as you would imagine. But there are some interesting possible deals off-market, but nothing yet really to report. We still don't expect it to be a significant transaction year for us in general. To your point, developments remain a priority from a capital allocation standpoint. But there are some indicatives that some opportunities may be loosening up, there's a few bigger assets that look like they're getting closer to trading, so some pricing discoveries there, as well as a couple of portfolios that's generally core in nature and certainly a heavier grocery component. So, loosening up a bit, I think from here, it just depends on tax policy and a few other things as it relates to the broader economy as to what comes to fruition. But again, we don't expect a significant year on transactions but certainly have the balance sheet to do it should we see the opportunity.

[Todd Thomas:]

Okay. And then, I guess, sticking with the development in the in-process pipeline, can you talk about plans to move forward with some of the additional phases at these projects and also begin to move forward on some of the additional projects that are in the pipeline altogether? Just given sort of the increase in tenant demand, I'm curious if that's enabling you to begin advancing discussions and start dates for some of those projects.

[Shane Garrison:]

Sure. Obviously, Loudoun is just touching on the current in-process. Loudoun's going extremely well. And Towson, we continue to move from a leasing perspective along the cadence we outlined at the beginning of the year and even in Q4. So to your point, turning to kind of that next tier, we've got multiple sites. It's over 425 units right now in that next bucket that are entitled. I'll go into a little more detail here in a second and about 200,000 to 250,000 feet of, call it, mixed-use office with retail on the first floor in general. So next up, at Loudoun Pad T, given the office successes we've had here on the expansion and I'm happy to report that we are now 100% pre-leased for the office in G & H subsequent to quarter end. So with that, Pad T, which is about 40,000 square feet of office with first floor retail, we are currently updating costs there, and that would certainly be in the front of the queue. Downtown Crown, we're finishing costs there for 40,000 square feet office with first floor retail, again, a mixed-use project in a very vibrant environment. Naperville, we've got about 50 multifamily units as well as first floor retail, which is about 15,000 square feet. And then Carillon. So, Carillon is a big one. Hospital opens a bit late but will open in June, prospectively. We have our MOB building, which is about 125,000 feet, entitled, and are just finishing costs there, which is obviously more and more important every day, as well as the 375-or-so multifamily units on the back pad. So again, a lot of velocity in general, all of these projects are entitled. So I think for us, and to your point around tenant demand, we don't have a lot of trepidation around the demand side. One, we're local business, two, we've certainly entitled and known these projects and are generally expansions of existing assets. So, I think the broader macro setup in our footprint and comfort with the markets, we're very comfortable with the demand profile. I think it's just costs, and we continue to work through that. I think, again, scale has some advantages, but I think we're all aware of fairly rapidly escalating costs. I think the other part of this, especially for some of the larger buildings, is just time. What does it look like from a supply standpoint, delivery. And what are some of the possible issues we may have to work through as it relates to deliveries and hard costs in general. So, very large pipeline, obviously entitled. The only issue is cost and more visibility there. So, I would expect in the next quarter or so we would have much more visibility than we do today around most of this.

[Todd Thomas:]

Got it. Are there any starts or material expenses with any of these projects anticipated in 2021 for these future projects and phases or would you expect them to mostly begin commence in 2022 or beyond?

[Shane Garrison:]

That's a great question. Again, I would ask for another quarter. But, I mean, from an infrastructure standpoint alone, I wouldn't just kind of early start off the ball. Carillon, we have a lot of infrastructure on the ground as we kind of capped the site off early last year. Outside of that, no significant early infrastructure investment that we would need to put into the ground this year to kind of start later in the year, early next year. So long story short, don't see any significant dollars going out over and above the planned investment, which is basically Loudoun and Towson this year.

[Operator:]

Our next question is from Wes Golladay with Baird.

[Wes Golladay:]

I just have a question on how do you think the last, or timing of resolution for the last 4% of tenants that are not paying rent, how do you see that playing out this year? I do see that you have about 1% on abatement right now.

[Shane Garrison:]

Sure. Good morning. I can just tell you that if you look at -- if you kind of dashboard the business right now and triangulate around, I'll call it, collections and retention and comps and volume, the business just gets better and better. It's hard to say what that last 3% in this case looks like. We still had a little over 100 basis points in active bankruptcy in the quarter as well. So it's a little tighter than just 96% or 97%. But all the indicatives, if you look at collections, if you look at our retention, I think it's an interesting pattern, on the last four quarters, it's almost a linear progression. I think we troughed at mid-60s Q3 last year on retention. We quite honestly thought we would be low to mid-70s this quarter. We actually are about 80% for Q1. So retention was better there. And then, if you look at comps and velocity overall in leasing. So again, dashboarding the business, everything points to continued momentum. I think that we've had some attrition around the weaker tenants. We've talked about cash basis. I'm sure we'll get into that on the call. But if you look at our occupancy attrition slowing down in addition to continually tightening on collections, I think it just points to better resolution momentum as the business develops through the year.

[Julie Swinehart:]

And Wes, I would just add to that, that again this quarter, as we've seen in each of the previous quarters, there's growth and improvement in prior amounts collected, right? We called out the approximately $6 million impact from some of those prior period amounts. We reported on Page 19 of our supplemental the 300 basis point improvement looking way back to Q2 of 2020, 100 basis points improvement from Q3 as well as Q4. So we do continue to see tenants pay on those older amounts. So I think, hopefully, a lot of that resolution of the balance that's not yet received of the 96%, so call it the 4% will come in. And just as we enhanced our disclosure, again pointing to Page 19 of our supplemental, the cash-basis tenant population, we're only collecting 70% from those guys, as a component within the 96%. So, absent cash basis, you've got a higher collection rate, and I think it demonstrates why those guys are on the cash basis. But with that said, it's only 11% of our ABR. It's down from year-end. I'm hopeful that we continue to see improvement from that group of tenants. And there's really two ways that those tenants can come off the cash basis, right? They could move out, as we saw in Q1. We saw quite a few move-outs, which is one way to resolve. And then on the other hand, with some continued demonstration of on-time and full payment and monitoring of that tenant health, which we're actively doing for each and every tenant, I'm hopeful that you'll see some of those tenants come off the cash basis. None of that expectation is contemplated in our guidance range, but if it were to happen, it would obviously be good news for the numbers and for all things for the company.

[Wes Golladay:]

Yes, got it. And I love the expanded disclosure. One quick question, it may be on there, I might have missed it. But do you have a spot on the disclosure where you talk about all the rent from cash-based tenants that have not paid which you couldn't accrue for but potentially could be upside?

[Julie Swinehart:]

We don't have it in total, but I appreciate the question. I guess we have elements of the current period, right? So I've got 70% collected on the page. We've even quantified that in terms of dollars. So the 30% not collected is part of expenses recorded as, I guess, as contra revenue technically within uncollectible lease income. But I can tell you the billed-not-yet-collected population from our cash-basis tenants at the end of the quarter was $10.8 million. Now that includes about $2.5 million of deferrals that I call fairway deferrals from last year. Again, none of that $10.8 million is contemplated in our guidance range but history would tell you some of it could come in and I think some of it should come in. And again, our teams are very focused on collecting as many dollars within that bucket as possible.

[Wes Golladay:]

Got it. Well, maybe one last one. On the last call, there was a talk about demand being pretty good with the exception of the space between 5,000 and 10,000 square feet. Are you seeing any up tick in demand for that type of space?

[Shane Garrison:]

It's a bit better. I think generally, demand overall just continues to increase and you see that in our velocity. Especially, kind of Q1 to Q1, we were up 2.5x, right? Just pure velocity. But I think some of our bankruptcy backfills, we had six bankruptcy backfills in the quarter. Two or three of those were Pier 1s that were splits, which also helps from a comp perspective. So a bit better, but I wouldn't call it out exclusively. I think momentum in general is just up overall.

[Operator:]

And our next question is from Katy McConnell with Citi.

[Katy McConnell:]

Could you provide some more color on what drove the stronger new lease spread progress this quarter? And you just touched on it a little bit. But how should we think about mark-to-market upside going forward given this metric has been a bit volatile over the last few quarters?

[Steve Grimes:]

It's hard to paint kind of a linear picture. I think that in this environment, especially in an inflationary environment, we don't expect rents to be untouched either, right? But we certainly see pockets of outsized comps going forward. But we'll see what it kind of looks like in totality. But I think there's a couple of things and I'll just use, really, our baseline ABR from here, right? Our ABR has diluted over the last couple of quarters, especially given the in-line move-outs. But I think the most relevant context here is just the pipeline. So, last quarter, we were at $14 million and just pure dollars, which was a pretty robust number for us on its face. We converted $2.5 million in the quarter to new signed leases. So, really you're kind of a net $11.5 million if you just take the pipeline and don't move it from Q4. But since then, we're at $16 million, so the pipeline, which was fairly robust net-to-net has grown 35%, 40% in just a quarter. I think when you peel it back, it's even more compelling and certainly interesting. Our average rent in that $16 million is over $26. A quarter ago, it was $25. So you can feel kind of not only considerable velocity, its 450 basis points of ABR and 550 to 600 basis points of occupancy in that pipeline but the pricing power of the portfolio and just the general accretion relative to the low 19s we're running at today. So, definitely momentum but also pricing power and we certainly feel like that will play out through the year.

[Katy McConnell:]

Great. Thanks. And then given more thought on the non-anchor side this quarter, can you talk about how you're thinking about small-shop tenant health and whether you're factoring in further fallout going forward?

[Steve Grimes:]

Sure. So again, the pipeline is considerable, I think, is the most important part. Our intent has always been to negotiate down to kind of the last dollar, if you will and try to save every tenant we can, right? Obviously, if you can get a tenant to come back and forego CapEx, especially in a rising CapEx environment, it makes a lot of sense. That being said, We also need to make sure we understand what our actual rent roll looks like. And again, looking at collections at 96%, 97% and a little bit of additional fallout, we continue to tighten that spread. So, the rent roll today is much more tangible than it was pre-COVID and there's been some interim pain. But I think from a long-term perspective, it's much more visible and tangible. As far as fallout from here, we still expect occupancy to trough in the next couple of quarters. I think there's some moderate fallout from here. And with the momentum in the pipeline, we are very focused on replacing any tenants, obviously, especially in this part of the cycle, that we don't feel will make it and really focusing on forward cash flows and merchandising.

[Julie Swinehart:]

And Katy, just real quick in terms of collection from different tenant space sizes, there's not a lot of dispersion. So we collected in the quarter at some subcomponents of the 96% collected in the quarter; anchors, we collected 96%; that mid-space, so, call it, 5,000 to 10,000 square feet, 96%, small shop, 97%. So, small shop actually led the way, technically, this quarter.

[Operator:]

And our next question is from Chris Lucas with Capital One Securities.

[ChrisLucas:]

Hey, Julie, just a couple of questions on the updated guidance just in terms of what's in or what's not in. Is there any contribution from the pads at G & H in One Loudoun to this year's guidance? Or is there any drag associated with the delivery of those two pad sites?

[Julie Swinehart:]

Yes. Good question, Chris. I would say it's minimal in the current year because you've got the elements if you factor in the capitalized interest, that once you bring the space into service and out of CIP that you can't capitalize anymore for that portion along with real estate taxes, operating expenses. There's not much noise up or down in the current year. So, 2022 would be a different story and certainly 2023, the first full year of stabilization. So, would you like some additional guidance spots, I thought you were going to go a different route with what's in or out.

[Chris Lucas:]

Well, I was going to go with what you were assuming with your cash-basis rent collections given you're at about 70% in the first quarter.

[Julie Swinehart:]

Great. Great. Happy to answer. So perhaps, I can start with some brief comments around the midpoint move. So we moved the midpoint of guidance up $0.05 really based, as I said, on our strong performance in Q1. We also benefited from taking a peak at April collection levels and that really helped influence us to move up to the $0.05. So again, very proud of the 96% of billed base rent collected during the quarter. I can share with you we also recovered 95% of recoveries also from the first quarter. And really, we were curious about this deferral layer. I think we talked about that on the last call. For many of our tenants who have deferrals from 2020, we were asking them to start paying in January and we were curious to see how successful those efforts would be as kind of an additional layer. So, the fact that we collected 93% on that layer gave us some additional confidence and optimism. When I think about April, it's looking like billed base rents were already 95% collected and deferrals are trending nicely in the high 80s and cash-basis tenants for April have paid 80%. So, I think you hit the main mover. It's cash-basis tenants. And as you know and appreciate the kind of binary nature of the accounting rules, it doesn't even allow us to benefit from hindsight. So the fact that we collected, I think, $300,000 more in April on Q1 amounts from cash-basis tenants, which would have taken our 70% collected from those guys up to 76%, we can't record that in Q1, although I can think about it when it comes to guidance. So the midpoint move was, again, largely based on strong performance in Q1, a little peak into April. In the range, I think about the low end as being like how would we get there? It would likely take a reversal of the strong collection trends that we're experiencing, coupled with some occupancy declines and, to your point, specifically a kind of moving backwards on the cash-basis collection level of 70%. To get to the high end, occupancy and retention expectations are at least met if not exceeded and we would continue to collect the vast majority of both currently due rent and the deferral. But again, what's not in guidance would be any of that $10.8 million that Wes asked about. So any of the billed but not collected amounts from cash-basis tenants, I am hopeful that we'll get a lot of it. But if we got all of it, it would certainly take us above the high end of the range. The other factor was cash-basis tenants not contemplated in guidance or any changes to the population. So again, I kind of mentioned some folks move out, and I'm hopeful that over time, some of these cash-basis tenants will demonstrate a much healthier position, and we will reassess whether we really feel that they will be able to honor their end of the lease and stay in the space through the term, and that's really kind of the root of the cash basis assessment. Because there's another $15 million of straight line, so this is non-cash but of straight line, that's reserved on these tenants. And so in an extreme example, if we were to move all tenants off the cash basis today, we would record $15 million in straight line and we would have more flexibility to assess collectibility on that $10.8 million that the rules require us to just not record yet. And again, not in any element of guidance.

[Chris Lucas:]

Thank you. That's a lot of good color. Thank you so much. And then Shane, there was a question about acquisitions before. I just was curious as to what you're thinking about potentially on the disposition side, particularly if you were thinking about either future capital needs for development starts or recycling capital to pay for new acquisitions.

[Shane Garrison:]

Sure. So, I think we talked about this on the last quarter's call, but we have, 30 or 40 pads that some are lined up to go and some we continue kind of that last parcelization, whatever would need to be from a full liquidity standpoint. We still have a few other triple-net large assets that we've circled that may happen this year that would certainly trade at very compelling cap rates almost regardless of what the trade would be or use of proceeds. So, we do have a go-to bucket, it's generally non-core. First, triple net in nature, and there's a few other assets, obviously, from an asset management standpoint we could dip into if we thought it was prudent and the market was there. But generally, as you know, Chris, we try to make sure that we have, at any given time, a bucket of assets that are liquid and would certainly kind of attain compelling prices if we need to go to it.

[Operator:]

And our next question is from Derek Johnston with Deutsche Bank.

[Derek Johnston:]

Can we get some further insight on Circle East? How are the broader discussions progressing post Urban? And can you give us a sense of the leasing pipeline there and also how the stabilization timing has changed? And then I guess lastly, on this is any insight how Avalon's residential lease-up is performing since that will only help negotiations?

[Shane Garrison:]

Sure, good morning. So, Towson, we continue to progress. I think we said the last couple of quarters or at least from when we moved it out to 2022 stabilization that we would progress one, two, maybe three leases a quarter and we're definitely running that cadence right now. Urban, obviously, at 8,300 feet moved the needle quite a bit given the denominator there. We've got Urban, Ethan, we've got Madison Reed there now and we've got Shake Shack, which is open. So we've been patient, you can see the merchandising and the quality therein has paid off in that regard and I think maybe to your implied point with that lineup the traction gets better. So we've got LOIs right now, gets us kind of north of 50%. And we certainly have many more active showings that we did even a quarter ago. Kind of as the sun comes out and, to your point, the colleges, everything in that corridor just points to better stabilization, and I think AvalonBay is no different. I think anecdotally, they are 70% or somewhere around there right now from a lease standpoint, so they continue to progress kind of hand in glove with us. I think there is more tenants to be mined in and outside the corridor. So great activity, especially relative to even a couple of quarters ago, and you can feel it in not only the leased but certainly the pipeline.

[Derek Johnston:]

Now, that's very helpful, Shane. And is restarting Carillon somewhat hinged on demonstrating success in derisking Circle East, Towson, especially as One Loudoun has proven to be, in my opinion a success?

[Shane Garrison:]

Yes, it's a great question. Yes, but maybe qualify it a bit. And I'm not diminishing Towson, it's not insignificant. It's $40 million. But with Loudoun at $120 million or $130 million and being, I won't say a runaway success, but already 100% pre-leased in the office and the multifamily at quarter end was 22%, I would say post quarter we're almost 35% in the multifamily already. So, I think what we're looking for is more validation and proving to our investors that not only do we have the dirt and balance sheet, but we have the team to pull this off. And I think Loudoun, given the gravity on a relative basis to our portfolio, proving that concept in conjunction with Towson, I think, is important. So to your point, Carillon is certainly large and certainly has a lot of qualitative and quantitative aspects that say it should be, again, a phenomenal success. But yes, I think some of our thought process is, when do we go and just how much credit, if you will, are we getting at that stage.

[Steve Grimes:]

Derek, I'm going to add on to all that Shane said. This is Steve. From the perspective of the developments, you might recall that we had what we call the big three. So Carillon was every bit a piece of that. The one thing that I'd like to add is, is that I think last year, how unfortunate it was, was a bit of a blessing in disguise because it really has provided a lot of clarity around the real prospects for these projects and it has allowed us to avoid what could have been some mistakes along the way. And Shane has sharpened his pencil, his entire team has and certainly has delivered on everything that we said coming out of the onset of COVID and I think time is going to be on our side here. All that being said, order of operation from a capital perspective continues to be lease-up. And as Shane has pointed out very repeatedly, the momentum is very, very strong. And then, coming into further projects that we know that we can deliver on in good time at good returns, and then, we'll be very opportunistic when it comes to acquisitions dispositions. Julie has made sure that we have the balance sheet to execute on this, we have all the tools in the toolbox to do it, so there's nothing but a clear fairway in front of us right now with a lot of clarity around what we could be doing with these assets and the timing of when we should be doing that. All that being said, not a lot outside of the One Loudoun project this year, as quarters go by, as Shane had pointed out, we might tighten up when we might start some further construction. But I would encourage you to stay close to the supplemental pages that Julie details in terms of what the development pipeline is, what is actually coming on to the front of the page, if you will, and then, more importantly, the results of what we are delivering to-date proving to be very strong. So I just wanted to add that to Shane's commentary.

[Operator:]

And our next question is from Linda Tsai with Jefferies.

[Linda Tsai:]

In terms of moving off cash basis, Julie, you mentioned the main consideration is can they stay through the term. Is the key metric primarily occupancy-cost ratio or what's the process you go through?

[Julie Swinehart:]

Thanks for the question. I would tell you it's a very detailed, granular process and it's sort of, I guess two-pronged. So I ask my accounting teams who are, frankly, not close to our tenants, right? They have a different role to monitor the data. So what are we seeing for these tenants that are on a cash basis? Are they paying in full? Are they paying just their current rent or are they also able to pay their deferral layer if they have one? Or are they paying in full, but they're late payers, which is different than if they're never paying? What trends are we seeing? We're not interested in creating volatility by moving tenants on and off, so I would tell you it's a lower hurdle to go on the cash basis and it's a little bit of a higher hurdle to come off, but there is a tremendous amount of judgment. So, accounting will gather data, kind of present an initial thought about, okay, these guys have been paying for six months on time. That seems like a good candidate to vet with Shane's side of the house. So then we go and consult with the property managers, the asset managers, who are closer to the tenant in terms of any anecdotal conversations or any other intel that they have. And we really value their input because they're close to the tenant and have a very valid opinion on the topic. So it's very much a collaborative approach internally. It's not a categorical approach in terms of tenant use in either direction. So I can just assure you that those conversations will continue to happen each and every quarter and we are committed to continuing to provide the information on the page, if you will. So Pages 19 and 20 of the supplemental is hopefully helpful to investors and as I mentioned, always happy to get on the phone to talk through. There's a lot we said on the call, there's a lot on the pages in the information out there.

[Linda Tsai:]

Thanks for that color. And then, the new tenant concessions in the first quarter, what do the nature of those arrangements look like? Is it forgiveness or a percentage rent component for a period? And is your expectation that concessions continue through the remainder of the year?

[Julie Swinehart:]

Yes. The concessions from Q1 were only 1%, down from I think it was 3% in Q4 and certainly much larger in the earlier quarters and I'll ask Shane to weigh in as well, but this was across very few tenants and the category that we described on Page 19 is that it's either abatements or full lease modifications or combinations of abatement and deferral. I believe the significant one that I'm thinking of was a lease modification that involved abatement with a challenged use category tenant.

[Shane Garrison:]

Yes, thank you. I would say in general, it is a hybrid. These are tenants that are trying to open back up or have shown some merit of success in opening back up here in the late spring. And we're trying to clean up old balances as well as some kind of a temporary percentage rent. So, your kind of statement is correct, there is a blend and we're just trying to understand if they can make it in with a very short time period.

[Linda Tsai:]

Thanks for that. Just one last one. The 1.3 year payback on TIs, how does that compare to history and what's the expectation going forward?

[Shane Garrison:]

Great question. I think the TIs are low, right, especially given the $31 ABR on the new population. So it's hard to really say, Linda, what it looks like going forward, especially in an inflationary environment. I would just tell you with every lease, we try to get the most for the lease. And so in this case, a great real estate, we still have leverage, and given the momentum, we'll continue to try to exercise that leverage, but it's hard to tell you what that payback looks like with any confidence going forward.

[Operator:]

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

[Paulina Rojas-Schmidt:]

Do you have any sense of how much coverage for lifestyle centers changed versus 2019 or maybe more broadly speaking, how do you think the interest in the asset class has changed in the private market in the last months? Any color or updated thoughts on this front would be helpful.

[Shane Garrison:]

Good morning. Sure. In the last month, I don't know if there's any indicative out there that would say interest is better or worse. It's obviously been an asset class in general that with the higher proportion of non-essentials has been hit a bit harder. I would tell you, though, unsurprisingly, lifestyle is thrown around fairly loosely. So in this case, just qualify it, lifestyle with a mixed-use component, true mixed use in this case, which has multifamily and a viable office. Interest is very high, right? If you have an asset with proven sales, COVID aside, which is viewed as kind of a temporary blip, especially given the broader enclosed mall issues and the continued kind of momentum around reconfiguration and retenanting and kind of the proven pricing power, especially in the last really quarter or so, right, which has yet to play out, but the momentum is there, the question it really is just sponsorship. If you have big complex assets that are $500 million-plus, what is the appetite on a one-off basis from a sponsorship standpoint? And I think that has yet to play out. But, I think generally, the best assets get better and I think COVID has only kind of put an exclamation point on that transfer of power. So I would expect more interest to the extent there are sponsors out there that are looking for more expansive retail exposure or, alternatively, need retail exposure at some number but also very much covet very viable multifamily and office that is driven really by the power of a great retail amenity.

[Paulina Rojas-Schmidt:]

Very helpful. And then a little more detailed question, thinking about the tenants you lost this quarter, were most of them not paying rent or were they current on their rent payments?

[Shane Garrison:]

So it's hard to categorize. It's interesting. I think the popular assumption would be restaurants. I would tell you maybe 10% of the total space turned over in the quarter was restaurants. It's very diverse. Some of it was expiration, there was clearly tenants that just really didn't have any interest moving forward, kind of exhausted from the last year. That feels like it's much closer to the end than the beginning at this point. If I look at anchors, we had five anchors move out in the quarter, most of which were welcome to watch list issues. We had an LA Fitness deal that vacated in the quarter which is already leased and we've already had over in the quarter. We had a Bed Bath & Beyond turnover in the quarter which is already leased. We had a Party City turnover in the quarter which is already leased and a build out with a new tenant. So, again, I think it's about momentum and really focusing on the quality of the cash flows and merchandising going forward and really positioning assets to have just a greater overall gravitational pull and footprint on a relative basis and that's exactly what we're focused on right now.

[Julie Swinehart:]

And I can just add in terms of the cash-basis tenant population, it was significant. Within the move-outs, it was nearly half of the GLA and it looks like nearly half of the ABR. So about $3 million of ABR related to cash-basis tenant move-outs in the quarter and some were natural expirations but many of them were these early move-outs and I think I would point back to the cash-basis tenant accounting rules. This is sort of the nice example, I guess, nice isn't the best word, but this is cash-basis tenant accounting working as intended. So these early move-outs, you don't see the noise in a straight-line number or in revenue from these guys because all of that was taken in 2020 when they moved to the cash basis. So to your point, yes, a fair amount of the move-outs were cash-basis tenants, so lower payment levels at least from those guys.

[Operator:]

And our next question is from Hong Zhang with JPMorgan.

[Hong Zhang:]

Hopefully, this is a quick one. But just thinking about guidance in the first quarter report, $0.24 of FFO with $0.03 of non-recurring income, which would seem to imply a run rate of $0.21. Julie, can you talk a little bit about, kind of, what would bring you more closer to the low end or the midpoint of guidance just given that $0.21 seems to imply $0.87 for the year with no material change in the reserve?

[Julie Swinehart:]

Sure, sure. And I think you heard Shane talk about our expectations around occupancy. So there's an element there of a trough in the next couple of quarters. So I think that's a directional negative from Q1. I think, again, the biggest component or the most volatile component is cash-basis tenant collections just even within the current period amounts. And again, we can't use the benefit of hindsight, we can't record in Q2 the dollars that they pay in July. And so fast forward to year-end, we can't record in the year the dollars that they pay in January. So again, I think the low-end would be a combination of a reversal in collection trends, some surprises to the negative in occupancy beyond what we're modeling. So again, I think you can tell from my comments today the midpoint to the high-end feels very much in play to me. And then again, these components that aren't in even the high-end of guidance related to any element of collection on the $10.8 million from cash-basis tenants that were billed and not paid at the end of the quarter. And even on top of that, if some of these folks move off the cash basis of accounting during the year, that's also not in guidance. So again, the mid-to-high feels very comfortable and we will continue to take it quarter-by-quarter and provide the details in the materials and provide updates as we go through the year.

[Hong Zhang:]

Got it. And if I could sneak in another one, just looking at your disclosure on deferred rent collection, I guess what have conversations been like with tenants that you were expecting deferral payments this quarter but haven't received them? Are they tenants that just are asked for a little bit more time or are they tenants that weren't paying for, I guess, the vast or a large portion of last year and still aren't paying now?

[Julie Swinehart:]

And just for the context, and this is why we put the dollars on the page really talking about $327,000 that wasn't repaid in Q1. A portion of those folks are on the cash basis, so it's some of those challenged uses. And again, we've seen over time that people do tend to pay. I don't know that we'll get every dollar, but I know, again, our team is chasing those dollars. And I think with the benefit of additional time, I expect that we'll see a good portion of that come in.

[Operator:]

And we have reached the end of the question-and-answer session. I'll now turn the call over to Steve Grimes for closing remarks.

[Steve Grimes:]

Great. Well, thank you, everybody. As noted, we're very encouraged by our Q1 results and more importantly the outlook for the year and beyond. We do understand that this quarter is going to require many of you to sharpen your pencils on your models. And as Julie had mentioned, we stand ready to help you do that. To the extent you have any questions, certainly reach out to her and/or Mike Gaiden. And then from that perspective, we're also very encouraged about the prospects of traveling again. So, to the extent any of you are interested, we're certainly happy to host some property tours, get you back out in the field a bit if you're interested in doing that. Especially in light of all the great progress that we've made at our One Loudoun asset, I think that certainly would be an encouraging trip for all of you to spend some time thinking about doing. Finally, we do look forward to speaking with many of you at NAREIT, albeit via Zoom, but let's hope that, that's the last Zoom meeting and we're back to in-person meetings soon after that. So thanks again for your time today. We very much appreciate all of your attention and support of RPAI.

[Operator:]

And this concludes today' conference and you may disconnect your lines at this time. Thank you for your participation.