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Federal Realty Investment Trust
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Greetings. Welcome to the Federal Realty Investment Trust Second Quarter 2021 Earnings Call. [Operator Instructions] Please note, this conference is being recorded.
I will now turn the conference over to your host, Leah Brady. Thank you. You may begin.
Good afternoon. Thank you for joining us today for Federal Realty's Second Quarter 2021 Earnings Conference Call. Joining me on the call are Don Wood; Dan G.; Jeff Berkes; Wendy Seher; Dawn Becker; and Melissa Solis. They will be available to take your questions at the conclusion of our prepared remarks.
A reminder that certain matters discussed on this call may be deemed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements include any annualized or projected information as well as statements referring to expected or anticipated events or results, including guidance.
Although Federal Realty believes that expectations reflected in such forward-looking statements are based on reasonable assumptions that our Realty's future operations and its actual performance may differ materially from the information in our forward-looking statements, and we can give no assurance that these expectations can be attained.
The earnings release and supplemental reporting package that we issued tonight, our Annual Report filed on Form 10-K and our other financial disclosure documents provide a more in-depth discussion of risk factors that may affect our financial condition and results of operations. [Operator Instructions]
And with that, I'll turn the call over to Don Wood to begin the discussion of our second quarter results. Don?
Well, thank you, Leah, and good afternoon, everybody. To quote Seinfeld's Frank Costanza, "We're back baby," and it seems to me we're the real estate of choice. Let me just cut to the chase here and summarize where we are in 5 of these points. We killed it in the second quarter at $1.41. We raised our 2021 total year guidance by over 10% at the midpoint. We raised our '22 guidance, the only retail real estate company to get '22 guidance, by the way, by 5% at the midpoint. We covered our dividend on a cash basis in the second quarter and raised it again for the 54th consecutive year. We had record leasing volume, more than we've ever done in any quarter in our 60-year history.
So we'll put more meat on the bone for each of those points and others, but that's where this company is as we sit here in the first week of August of 2021, and we're feeling great about our market position. At $1.41 a share, we exceeded even our most optimistic internal forecast by $0.20 a share and we're up 83% over last year's worst COVID-impacted quarter, of course, it was the second quarter. In a nutshell, we didn't anticipate the bounce back in nearly all facets of our business to be so fast and so strong, and we didn't anticipate some of the onetime deals that we were working on to be executed so quickly.
We talked about the pent-up demand on the last call in the form of strong traffic and leasing demand, and that has continued unabated ever since, no pun intended. The quarterly financial impact of that optimistic consumer meant that we: one, collected more rent in the second quarter from prior periods than we thought; two, we had significantly less unpaid rent in the quarter than we thought; three, we had fewer tenant failures than we thought; and four, we had far higher percentage rent from COVID-modified deals than we thought. And as I said, we covered our dividend on an operating cash basis in the second quarter, way ahead of our expectations.
Of course, all that means that we'll significantly raise 2021 earnings guidance and raise 2022 earnings guidance as well. As we've said all along, visibility toward '22 earnings was ironically better than 2021. That has proven to be the case, and Dan will talk you through guidance details in a few minutes.
And while this quarter's earnings were as strong as they were, in large part, because of the collection of big rent dollars, both past and present, the real story here is the unprecedented amount of leasing that was done and what it means for the value of our real estate into the future. Our properties are in demand across the board. We did 124 comparable deals in the quarter, more than we've ever done in any quarter in our 60-year history for 558,000 square feet at an average rent of $37.34 per foot, 8% more rent than the deals they replaced. We signed another 9 noncomparable deals, mostly in our new developments at an average rent of $44.71 per foot. That's 570,000 square feet of space leased in 1 quarter alone, 25% more than our pre-COVID quarterly average.
You might remember that we did almost as much last quarter 2. So when you put the 2 quarters together, the production in the first half of 2021 is both staggering and unprecedented cost. Big kudos here to our leasing, our legal, our support teams, nearly 1.1 million square feet at an average rent of $37 a foot, 8% more than the previous leases, growing through annual rent bumps over the next 8-plus years.
That's really just the tip of the iceberg here. Another really interesting consideration is the breakdown of all that leasing between deals to renew tenants and deals with new tenants. Traditionally, 2/3 of the deals we do in any 1 period hovers around 2/3 renewals and 1/3 new tenants. Well, not in these post-COVID 6 months. It's actually nearly flipped, roughly 40% renewals and 60% new tenants.
So what does that mean? And why is that important? Well, first, it means that we lost a heck of a lot of tenants during COVID. And since it costs more to put a new tenant in the space rather than renew an existing tenant, our current tenant capital is higher. On the face of it, that seems like bad news, but you got to dig deeper. Because what it also means is that our properties are in high demand from today's relevant and well-capitalized restaurants and retailers that are all trying to improve their sales productivity post-COVID through better real estate locations. We've always been picker than most in terms of the tenants we choose to merchandise our centers. When you couple that with the execution of the broad post-COVID property improvement plans that we've talked about over the last several quarters, that higher capital outlay will result significantly higher asset value tomorrow.
I mean think about it in a post-COVID world. Major market's first-tier high-quality suburban shopping centers with more than a smattering of new post-COVID relevant tenants doing business in revitalized shopping centers and mixed-use properties focused more on outdoor seating, on a curbside pickup, on covered walkways and improved placemaking than ever before. Places that are more fresh, more dominant, more relevant in a myriad of ways in the communities they serve for years and years to come. The value of our real estate, net of capital, is going up, and the prospects appear to be better than they were before COVID.
Also, consider that at quarter end, our portfolio was 92.7% leased, yet only 89.6% occupied. That 310 basis point spread, or nearly 780,000 square feet of space representing roughly $30 million in rent, is the largest spread we've had since 2005. You might remember how 2006 and 2007 turned out, which obviously bodes well for the future, assuming inevitable tenant fallout occurs at historical levels. And by the way, just 3 years ago, we were 95%.
Okay. Onward. I hope that you all saw the major acquisition announcement that we made in the press release on June 7 that laid out the 4 deals that we closed during the quarter. Overall, we have an 80% interest in the combined income stream, Grossmont Shopping Center in Greater San Diego, Camelback Colonade and Hilton Village in Greater Phoenix and Chesterbrook Shopping Center in McLean, Virginia. Gross asset value of $407 million for 1.7 million square feet on 125 acres of land in prime locations in these markets, and we strongly believe that pricing today would far exceed what we negotiated in the middle of COVID.
A presentation that we put out ahead of NAREIT and our investor NAREIT investor meetings in June focused on these acquisitions in depth, including a very unique potential redevelopment opportunity at Grossmont since we control virtually the entire 63-acre parcel from a tenant perspective in less than 5 years from now. Separately, we have another deal under contract currently that we hope to close on in the quarter -- this quarter.
On the development side, residential and office leasing activity is also picking up on both coasts. It's really gratifying to see Pike & Rose quickly maturing, coming into its own and becoming the go-to place for lots of things in the region. In Montgomery County, Maryland, a county that's not doing a lot of office leasing these days, our Phase 3 office building, 909 Rose, is 77% leased with another 11% under executed LOIs. So nearly 90% committed at the point at rents in line with pro forma. That's strong in this office environment with mostly 2022 rent starts there.
Big quarter up at Assembly Row, and now we've received our certificate of occupancy for the retail portion and half of the units in Marcella, the 500-unit residential building that's part of the Phase 3 development. Tenants began moving in, in July and initial leasing pace is exceeding our expectations. 145 units are already currently leased at rates that approximate our lease-up underwriting and that seemed to be getting stronger with each week that passes. Assembly Row is the mixed-use project in our portfolio that got hurt the most during COVID and took the longest to begin to bounce back, but now feels like it's recovering as fast as the others.
Office leasing in the Puma-anchored building is also picking up with serious negotiations underway for the first time in over a year for a large portion of the remaining space. Nothing tangible yet but a good sign nonetheless. Similar situation in San Jose with our 375,000 square foot spec office building under construction and nearing completion remains on lease for the time being. At our CocoWalk in Miami, its all about getting tenants open as we're fully leased on the retail side and mostly leased on the office side. Tenant openings will continue through the remainder of this year. We look forward to hosting an investor tour in Coconut Grove early next month. More to come on that.
In Darien, Connecticut, construction and leasing are moving forward on time and on budget with the newly built Walgreens opening during the second quarter ahead of schedule. That's important because it makes way for the remainder of the demolition of the old shopping center and started a residential over retail component of the project. Goods happening up there, too.
Let me pause there. stop. That's about only half of the prepared comments. I'll turn it over to Dan, and we'll be happy to entertain your questions after that.
Thank you, Don, and good afternoon, everyone.
The unexpectedly strong results of $1.41 per share in the quarter, not only blew way 2020's year-over-year comparison, but was a 20-plus percent sequential gain over first 2 quarter and more than 20% above our forecast and consensus.
Given the big beat for the quarter, let me take a little time to put some color around the broad categories of outperformance that Don outlined. $0.13 of outperformance was driven by collection-related items. $0.06 of upside was from improved operations, with $0.05 for one-timers that were above our forecast, which collectively totaled to $0.24 beat versus our previous quarterly guidance.
First, some detail on the $0.13 of upside from collection. Rent collection for the quarter, net of percentage rent, was almost 200 basis points ahead of expectations. Prior period rent collection was $7 million versus $4 million in our forecast. Our percentage rent for the quarter was almost $3 million above forecast, highlighting the strength in consumer traffic across the portfolio.
Second, the $0.06 of operational outperformance was driven by our occupancy essentially staying flat, which was roughly 50 to 100 basis points better than we had expected. And improved hotel, parking and specialty leasing revenues all exceeded forecast.
The third category of $0.05 of onetime items above forecast were attributable to term fees, bankruptcy payments, loan reserve reversals and other miscellaneous payments all collectively exceeding our expectations. Please note that we do not expect the $1.41 to be the run rate for the balance of the year. Even $0.09 of the results are not expected to be recurring. And as Don mentioned, we are in the midst of delivering 500 units of residential at Assembly Row, which will be dilutive over the next few quarters, amongst other items, but we'll address that later when we get to guidance.
Let's take some time and revisit collections. Our collectibility impact was more than cut in half to $6.4 million versus the $14.8 million we had in the first quarter on the strength of prior and current period collections, net of abatements. Rent collection in the quarter surged to 94% or 4% from the 90% level as reported on our first quarter call. With abatements and deferral agreements totaling 4% of billed rent, our unresolved rent now stands at just 2%. Of the $39 million of deferral agreements negotiated to date, $17 million have been repaid, representing about 90% of the scheduled deferral payments. The remaining repayments of $22 million are set to be paid back over the next few years.
Elections for cash basis tenants improved substantially to roughly 80% for the quarter, up from 66% in the first quarter, a very strong signal. For occupancy, the continued pressure that we expected during the second quarter never really materialized as our tenants remain resilient. With the record-breaking leasing volumes across the portfolio, economic occupancy should steadily climb higher from this point driven by 310 basis points of spread between leased and occupied, that is embedded within the portfolio.
Other strong leasing metrics to note, our small shop leased occupancy grew almost 200 basis points to 85.7% from 83.8%, a huge movement of that metric in a single quarter. And with respect to our lifestyle-oriented retail assets, whose performance was hardest hit during COVID, the spread between leased and occupied has grown to 440 basis points, driven by strong tenant demand and signaling a sustainable acceleration in this segment's recovery.
Comparable property growth rebounded in a big way for the quarter, up 39%, an unprecedented result and obviously a record for Federal. But also no better evidence of the lack of relevance for this metric in the current environment, whether it's positive or negative.
Now let me move over to guidance. We increased our guidance for both 2021 and 2022, taking 2021 up over 10% from a prior range of $4.54 to $4.70, up to a new range of $5.05 to $5.15 per share. This implies 13% year-over-year growth versus 2020 at the midpoint. And we are taking 2022 up 5% from a prior range of $5.05 to $5.25 to a new range of $5.30 to $5.50.
Let's review some of the assumptions behind the improved outlook. For 2021, as I mentioned, the $1.41 per share results for the second quarter will not be a run rate for the balance of the year. As I mentioned, $0.09 of that 2Q results is onetime in nature. Term fees and bankruptcy-related income will not recur at the same level, and note that we have very few term fees in the pipeline currently.
While current period collections should continue to climb modestly higher, prior period collections are forecasted to trail off for the remainder of the year. Also consider the previously mentioned dilution, roughly $0.03 per quarter from the residential and assembly and other developments that we'll be delivering in the second half. We also expect increased G&A and property level expenses of $0.02 per quarter as the cost of doing business has increased post COVID. However, we do expect accretion from the second quarter acquisitions of roughly $0.02 per quarter. So this revised guidance implies an increase in our FFO forecast for the second half of the year of '21 of almost 10%.
For 2022, the improvement in outlook is driven by: One, a faster return to pre-COVID collection levels; two, a stronger occupancy due to the record leasing activity we've seen; three, a full year contribution for Grossmont, Chesterbrook and Phoenix; and then continued improvements and contributions from our development pipeline. Although we continue to await tangible leasing at Santana West, it feels like that will not contribute to FFO until 2023.
Also note that there is a level of pragmatism in these numbers. By all reports, the COVID variants are keeping the virus with us longer than we would like. And we are still anticipating some level of tenant fallout as PPP money and other government subsidies fall away and impact selected tenants' ability to operate profitably. And lastly, getting rents started on our record levels of new leasing activity will be a paramount focus for the operating teams here at Federal.
Please note there is no benefit assumed in our guidance in either year from switching tenants back from a cash basis to accrual basis account.
Finally, let's move to the balance sheet and an update on liquidity and leverage. On the heels of deploying over $325 million on acquisitions and over $100 million on new process development during the quarter, we continue to have ample total available liquidity of $1.3 billion, comprised of $300 million of cash and an undrawn $1 billion revolver. With $125 million of mortgage debt scheduled to be paid over the next 90 days, we will then have no maturing debt until 2023.
And lastly, we continue to be opportunistic selling tactical amounts of common equity through our ATM program. We sold $140 million at a blended share price of about $117.50 for the quarter and a forward sales agreement in order to manage our liquidity over the next year. Our remaining spend on our $1.2 billion in-process development pipeline is down to $270 million with an additional $60 million remaining on our product improvement initiatives across the portfolio.
Given the surge in our EBITDA, our leverage metrics returned to significantly stronger levels as well. Pro forma for our 2Q acquisitions and $175 million of forward equity under contract, our run rate for net debt to EBITDA is down to 6.2x. Our fixed charge coverage is back up to 3.7x. And our total liquidity binds pro forma to $1.5 billion. Our targeted leverage ratios remain in the mid-5x for net debt-to-EBITDA and above 4x for fixed charge coverage.
Now before we get to Q&A, let me quickly mention in the wake of covering the dividend this quarter from AFFO, yesterday, our Board declared an increased quarterly dividend per share of $1.07, given the surge in traffic across the asset base, the resilience and quality of our sector-leading real estate portfolio, the strength of our balance sheet and the sound forward-looking decision-making and management, maintaining the dividend through another challenging economic cycle now looks likely. This should provide federal shareholders with further peace of mind that with an investment in FRT comes a reliable, uninterrupted steady, stable stream of current income as part of their total return.
And with that, operator, please open up the line for questions.
[Operator Instructions] Our first question is from Craig Schmidt of Bank of America.
I guess what I want to focus in on is the small shops. The 190 bps seems really strong. Most of your peers are showing just the reverse. They're showing an increase listing by the anchors, reasoning being they're national and they can move faster than the small shops; and two, sometimes you need these anchors in place to push the small shops. Maybe you could tell what you did differently to drive the small shops? Or what is it indicative of from the small shop side?
Thanks, Craig. Let's just turn that over to Wendy. Let's see Wendy what thinks about that.
Craig, yes, I think that we continue to see kind of that really strong, steady demand from our anchors, whether it's Target and Home Sense and [REN], which was new to market, we continue to make those deals as we always have historically. So really strong strength there. But what I'm -- just as you pointed out, what I'm really excited about is the fact that our small shop leasing has been terrific.
A lot of demand for our properties very broad-based between all of our property levels, and we continue to do deals with those best-in-class partners who have always been on our small shop side, whether it's Nike or Athleta, Starbucks, Ulta, to name a few. What I'm really kind of intrigued about and really speaks to the strength of the real estate is the kind of retailers who maybe have a little bit more of a conservative expansion program and they're selectively choosing best-in-class locations across the country doing very small increments of growth that really differentiate your property types.
And that -- those names like Levain Bakery and Blue Bottle Coffee and Oriana, Room and Board and Simon Peers and I could continue on and on, are really what I'm excited about are the kinds of tenants that are selecting our properties in the neighborhoods and areas that we're in.
So I know Don gave a breakout of 60% new, 40% renewed. Were you seeing a similar ratio? Or was it even higher new tenants in the small shop?
Well, I'm not sure, Craig. We can go back and look at it. I would expect that to be commensurate either way, but I have to go back and look at it. I'll tell you, the new deals on the small shop side have been spectacular. And so that's going to be a good -- that's going to be a big number. I just don't know if it's bigger or smaller than the anchors.
Yes. Craig, it's Jeff. And just to put a pin in it and really this is what Wendy's saying, but a differentiator, obviously, between us and our peer group is the lifestyle and mixed-use properties of -- what's said in the prepared remarks, the leasing in those properties has been exceptionally strong, and the bulk of the leasing in those properties are, by definition, small shop tenants. So we're just very pleased with the level of activity there and the quality of the deals that our leasing teams have been able to get done in that portion of our portfolio.
Okay. I mean I was really surprised to see the lift in small shops.
Our next question is from Mike Mueller of JPMorgan.
I just have a quick question on -- in terms of cash on hand. I mean things have obviously improved quite a bit. It still seems like you're running with about $300 million of cash on hand. I mean how should we be thinking about what's, I don't know, like a normalized level for the current environment of cash? Should we expect that to drop off to something more pre-COVID like? Or do you anticipate running with something more elevated over the longer term?
It's a good question, Mike. Look, we run through COVID with higher levels of cash. I think we're still above kind of the stabilized level of cash that we expect to need and expect to run with. I think over time, we'll run that down. And my expectation is that maybe it's $100 million, maybe $150 million of cash on hand, versus kind of what we used to run, which was kind of more in the $25 million plus/minus.
Got it. And 1 clarification. When you were talking about before the upside in the quarter, you just said $0.05 of onetimers above what you assumed. What was the total amount of what you would consider to be the onetimers in the quarter?
Roughly about $8 million onetimer.
$0.08.
Or $0.08, sorry. I misspoke. $0.08 worth of onetimers in the quarter, and we had forecasted something obviously lower than that. We did expect the -- obviously, the Splunk term fee of the straight line, and we did expect the repayment of our [Indiscernible], but we were surprised by a lot of other activity that came through in the quarter that we don't expect to recur going forward.
Our next question is from Katy McConnell of Citigroup.
I'm wondering if you could comment on, based on your current fundamental outlook, how you're thinking about the opportunity to start additional phases of development in the near term? Or even potentially new ground-up sites as opposed to pursuing more acquisitions? And just how you're thinking about the yield differential there?
I love the question, Katy. I'm not sure if you've been in our senior executive meetings over the past few weeks, if you're spying because those conversations are front and center. And look, the -- it depends, right?
When you look at a place like Pike & Rose, for example, this is a property that we're really, really happy with the office leasing. That's been done in the first building and the building we're standing in, in 909 Rows. Could there be enough demand here to effectively start another building in time? It's possible. So we're talking about that, looking at that. Could we find a big enough tenant that anchor it? I don't know, all that stuff is the kind of thought process that we go through in each of these big projects.
Do we want to start a brand-new ground-up in the next year? I said no, we don't. We frankly have plenty to do on the existing ones that we have. And when you look at the acquisition trade-off, if you will, versus development, I think there was a window. And I think we jumped through that window during COVID, where that difference was really attractive and pointed you toward acquisitions.
That's changed a little bit now. It's still early in the recovery. So we'll have to see how that plays out. But with us, it's not about turning 1 [stick] on and the other one off, it's about adjusting based on what it is that we find. So I hope that's helpful in terms of where we'll be going forward. And obviously, any time we have a deal to announce, we'll certainly announce it on either the acquisition or the development side.
And I know you mentioned you had 1 additional acquisition in the pipeline as of now. Any other comments you can share as far as what's in the pipeline beyond that? Or what you've seen as far as pricing movement since you've closed the last 4?
No, not at this time, Katy.
Our next question is from Steve Sakwa of Evercore ISI.
Don, you talked about the wide spread between the lease and the occupied. I'm wondering: A, how quickly can that close? And maybe if you or Dan could just talk about what is implicit in your 2022 guidance for either an average occupancy or perhaps a year-end occupancy by 2022?
Sure, Steve. I'll take the first piece and Dan, if you can take the numbers on the second grade. But the -- when you see all the leasing that we've done, and it goes back a little bit to Craig's point, a lot of it has been small shop. And the small shop stuff tends to happen quicker effectively than the anchors. So that stuff should be starting to help us later in 2021 and a lot 2022. The anchors have a longer tail. And so there, you should see more benefit coming in '22 and even a few as far out as '23 there. But they are more focused towards -- or more weighted toward those small shop deals that do go faster.
Now look, the difference between, obviously, new deals versus renewals, renewals are there right now and keep that income stream going. The new stuff that's coming in is in a lot of places, too, part and parcel of kind of our property improvement plans and our redevelopment plans. So as a result, you'll really see a really upgraded portfolio over the next few years as a result of this.
And with regard to guidance, what's embedded there is, I think, some modest continued improvement through the end of the year. We should get back up above 90% occupied by year-end, and then probably over the course of 92% to get into probably somewhere above 92%. Will we get to kind of that full spread of 310 basis points? We'll see. But the guidance is roughly kind of 92% to 93% by the end of '22.
Okay. And maybe just as a follow-on for you or for Don. When you think about -- you guys obviously took a lot of pain in the downturn and are starting to see the snapback. When would you sort of guesstimate that your NOI would be back to pre-COVID levels? Is that a '23 number? Is that kind of by the end of '22? How do we sort of think about that pace of recovery?
I don't know what to tell you about that, Steve. It's certainly something that we've talked about a lot. I would hope for it to be there in '23. But let me throw something else out at you that maybe is a little bit thought provoking.
If you took our portfolio today, and you said, all right, historically, this company has certainly been a 95% leased portfolio, and you took all of the capital that we've spent in development projects to date, the acquisitions that have been made et cetera, and other capital that's not yet producing income, and you simply said, "All right. Finish up. Let's get this thing leased back up to 95%, whenever that happens. Let's do all that development with tenants full." We'd be over $7 a share.
So this really comes down to a notion of we're not sitting here trying to focus on getting back to 2019 levels. We're sitting here saying, look, we're putting money out in places we think that are smart. We've certainly been hit by COVID, obviously, delayed in terms of -- and certainly in the markets and the asset types that we have all the way through even more so. But getting back to something that was just okay back in 2019 hardly seems like it should be the goal. So I don't know when we get to what I just said, but that's where we are aiming, man, and we're trying hard.
Our next question is from Alexander Goldfarb of Piper Sandler.
First, congrats on being a Dividend King. I wasn't even aware of that. I knew about a Dividend Aristocrat. So Dividend King is pretty cool.
Don, following up from Steve's question, last quarter when I asked you about '22 and said, you wouldn't put out '22 unless you thought that you could beat it, which is what you've now done. And listening to Dan talk about what's not in the number, meaning like your tenants to a cash basis now, you're not assuming any of those people go back to being a straight line, which means that's a boost, that's an upward bias to earnings, plus you killed it on this quarter, there's no reason to think that you won't outperform on further quarters.
Again, why should we stay within your guidance range for '22? Why wouldn't we do -- be above it? Because what you do is you run the team to always outperform. You don't put something out there unless you think that you can achieve beyond that. And if you're telling Steve that you don't think you'd be back to peak NOI to '23 and you just covered your dividend basically a full year earlier than you thought, again, it sounds like there's some good upsides to '22.
How in the world, my friend, could I possibly answer you the same way I did last time when I have to sit here and say, from last time, Alex was right. I mean that's hard for me to do well. Hard for me --
Can you say that -- Don, Don, Don. Slow down. Say that louder and slower.
Well, now you're getting greedy, Alex, okay? So I said it one time. And do I believe what we were doing was sandbagging? I do not believe that. I believe what we were doing is assessing the situation as best we could at that time. And I believe that things have could have gotten better a whole lot faster in our markets. But at the end of the day, Alex, you are right, dude. And let's do it again. And you didn't use dude back on me, which I thought you should have in that particular spot, but nonetheless.
So with respect to where we are now, I'm going to say the same thing to you. We've done the best we can to kind of lay out where we are, lay out the probabilities of hitting our numbers. I don't know what Delta does. I don't know what the situation -- where the situation goes in the country, the way we are -- the way we move things through. But I do know when you sit and you look at our forecasting and what it is that we see happening, we are clearly improving faster than we thought we were before.
Will that happen again? I don't know. Maybe I got to get you in here to do the forecasting for the company. But that's -- I don't have a good answer beyond that for you.
I mean, to that point, I mean, one, the straight lining is a positive; two, you have your experiential tenants who are coming back; three, there's the improvement in [occupants]. I mean, it just seems like there's a lot of stuff in there that's upward bias in each quarter, everyone exceeds. So I mean that's the point is I think I've answered my own question, but you've answered it.
So the next question is, as far as the new -- the -- you said that 60% of the people coming in to your portfolio are new tenants, are those simply relocations from other centers? Are they new to market? Are they tenants looking to expand? Like just a little bit more color on what that new demand is.
Yes. The new demand is very broad-based. It's all of the things that you said and more. And frankly, Wendy kind of touched it when she was talking about some of these tenants who are well-capitalized tenants that are not -- they're not volume guys. They're not trying to do 250, 300 stores, 500 stores et cetera. They are selectively picking locations to have brick-and-mortar outfits that supplement their online businesses et cetera.
We're getting our fair -- more than our fair share of those type of tenants. That's a real positive thing. They're new to market in a lot of cases. They're effective. They're newly capitalized in a lot of cases. One of the things that is most important here to think through is that obviously, COVID cleaned out weaker tenants, and they did that earlier. That's the April and May and June and July of 2020. And you know that list by heart.
The notion though of what happened over the next year and who you want to have in your centers, particularly if you're spending $10 million and $12 million and $8 million on a center for a property improvement plan, you want new blood in the retails because you can't just have a nice place to sit outside the same old tenants that were pre-COVID and average or are average now because of their sales.
So you're seeing -- we've said it from the beginning that the demand is broad-based and the demand is largely tenants trying to improve the real estate locations that they're in. Why? Because they're trying to improve the sales. That it is that they do, which is why they can pay the rents that we charge. It's all about that relationship.
Our next question is from Michael Goldsmith of UBS.
Just on the guidance, again, what are the assumptions that you have built into the 2021 guidance that would get you to the low end of the range versus what it would take to get you to the high end?
For the most part, I think it's just the range of a lot of the things that we talked about in the numbers, whether it be continued upward surge in collections, how much additional prior period rent we are assuming that rent trails off from, it was -- yes, we've had pretty steady prior period rent collection of $7 million, $8 million and $7 million over the last 3 quarters. We expect it to trail off to -- in the second half of the year to about $3 million and $2 million, respectively. There could be some upside there from that perspective.
We are likely to increase. We are successful with acquisition, we'll bump guidance slightly from that perspective. But it's all the reason -- all the outperformance we had, we're expecting term fees. We had $3.4 million net in the quarter versus $1.8 million net last year. We're now expecting -- we're expecting maybe $1 million this quarter. That's an area of some upside. To the extent we're higher than that, that's up towards the upper end of the range. So that's some of the pieces that get us from the top and the bottom.
That's helpful. And it's really admirable that you put out 2022 guidance. As we think about your prior guidance to the current one, your '20 -- the gap between your '21 and '22 guidance kind of shrank this quarter. And some of that's explained, I think, by some of the onetime charges, but what are the other changes in assumptions next year that are reflected in that?
Well, no, Michael, all I was going to say and may I add to this, like what you're basically seeing is a faster recovery. So all of the things that were assumed are simply happening faster. And so when you look at kind of what we had put out in '22 initially, obviously, there was a run rate from '21 that rolled into '22, to the extent that run rate is better in '21. It inures or some of it accrues to '22 also. And that's basically all it is.
We stay with the methodology that we use in our multiple year forecast. And we make that consistent each quarter that we update those assumptions. That single biggest change is what I'm saying, and that is simply a faster recovery than most here.
Our next question is from Juan Sanabria of BMO Capital Markets.
I was just hoping to spend a little time on the lease spreads. I guess based on current demand and your lease expiration schedule, how do you think spreads will trend into and maybe through '22? There's a slight dip sequentially in the spread in the second quarter despite the strong momentum. So I don't know if that was mix related and your expirations kind of jump up next year in terms of the dollar per square foot. So just curious if you have any context on how those spreads may evolve into and through '22?
I guess what I'd say to you is a couple of things. First of all, we're a relatively small company. And so in any particular quarter, there's always going to be a rather significant variation. I laughed a little bit when you said there was a decrease in the second quarter to first quarter. I think one was 9 and one was 8. To me, that's exactly the same, just so you know.
In terms of the -- and in both of those quarters, there were still deals, obviously, that were rolled down. There were other deals that were rolled up in a more significant way. That's basically what happens in most quarters. There is a mixture of those 2 things. The probability that it will stay in those single-digit numbers is highest. That's where we're most comfortable effectively in kind of running -- pushing rents and seeing what we can do in any 1 period. And again, that definitely, definitely depends on the mix of any particular quarter, which you don't get in a bigger company. If you've got a much bigger company with more of a commodity product to kind of do the same type of deals over and over again, that's a great thing for consistency. But we are trying to bring in more value here.
Great. Sorry, I should have been more clear. I was focused on the new lease rate spreads, but point taken.
Just to understand.
Got it. And then just on the acquisition side, any thought or color you could provide about potentially further expanding into new markets, whether it's the Sunbelt or maybe Texas about how you're thinking about that and conversely what could be used as a source in terms of potential calling or dispositions? Or that's not really the focal point for funding to be more just match funding with equity at this point?
Hey, J.B., do you want to take that to start?
Yes, sure. I mean, we are -- and I think we've talked about this in prior quarters and in NAREIT. We are looking at some new and different markets to expand, I think, as we put it, the number of ponds that we can fish in. And you saw us go into Phoenix, and we're looking at other markets as well right now. We don't really have anything to talk about. When we do, we will.
I think Don said earlier, we're really happy we got the deals done, that we did get done when we got them done. The market has tightened up quite a bit. So as always, we'll be careful and conservative and hopefully get some deals done.
Every time we do a deal, we do a deal on a cash basis that always causes us to look at the existing portfolio and think about disposing of an asset or 2 that maybe doesn't keep up with the rest of the portfolio in terms of its property level NOI growth. And when we have cash acquisitions to -- that will allow us to do that and make those dispositions on a tax neutral basis, we will, but really not a lot to talk about in that regard right now.
With regards to funding, as we always are, we're very balanced and opportunistic in how we'll look at it. And to the extent that the investment sales market offers us an opportunity to sell some assets at really attractive pricing. We'll take advantage of it, and we'll let you know when we do it.
Our next question is from Derek Johnston of Deutsche Bank.
How has office interest materialized, especially for Santana West? And thanks for the color on your HQ and also the traction that you're seeing at PUMA. And I do know that Santana is still a bit away from delivering. But I also believe it was almost fully leased with an LOI prior to the pandemic. Has that potential tenant or other anchors like them perhaps reengaged? Or are you seeing any traction there?
Jeff, this one is all yours, buddy.
Well, to answer the last part of your question directly, the potential tenant that we were close with pre-pandemic, no, they have not materialized, and we don't expect them to now that we're starting to come out of the pandemic. Activity out here in Silicon Valley, the office leasing perspective has definitely picked up in the last 60, 90, 120 days. Tours have started again. You probably all heard about the deal that Apple did a few weeks ago for 700,000 square feet, which is a great sign for the market. There are several other large users that have requirements and are conducting tours, including tours of One Santana West in coming days and weeks. We don't have anything to talk about. And again, we won't until we will. But I can tell you that activities picked up quite a bit.
What's great and what we're really happy about as it relates to One Santana West is there's very, very little supply in Silicon Valley right now, and particularly new supply that's amenitized. So that makes us feel good about our prospects for getting the building ways. There's not a lot that we're competing against right now.
No, it seems like a great asset. And work with me here. So all high-quality retail assets seem to be generating a ton of demand, all right? So this strong of leasing in a post-pandemic environment, I mean, I don't know who could have fully seen this. So okay, Federal, strong leasing, solid spreads and the highest ABRs. Now what's going on here, Don? Like what dynamics or shifts can you share that you're seeing? Because really, I just want to stop talking and listen for another minute, if you would let me.
Yes, Derek, let me go through at least what I think is happening. And Wendy, please feel free to add or anybody that wants that. I mean, look, there is -- if you're just be a retailer for a minute, be a restaurant for a minute and have gone through what just happened in this country over the last 18 months. And frankly, what was happening, the pressures that were on you for the 3 and 4, 5 years before that. And so here you are now, in many cases, recapitalize, in many cases, with a different level of competition than you had before. And you're in a position where you can reset. And effectively, that's what's happening. If you've got the chance -- I mean, I think it’d tell you, man, if you sit on Rockville Pike in 1 of the 4 or 5 shopping centers that all aim for different parts of the consumer on Rockville Pipe that we own, there have been tenants that have been trying to get on the Pike for years and years in the right type of centers. We've been over 95% leased for a Rockville Pipe for much, if not all, of that time, except for the last 15 months. There is an opportunity that has not been here.
So there's an opportunity to improve your real estate in a very, very well-located, first-tier suburb of major cities, and you've got a landlord who is openly and anxiously improving those shopping centers for a post-COVID environment, why would you not choose to go there? Where would you choose to go instead? Because at the end of the day, it's not about the rent. It's about the profit there. And effectively, higher sales, better margins, a more affluent customer in better real estate with a landlord that's investing side-by-side with you, seems to -- and you're in there with a new balance sheet, seems to be a pretty smart choice for a lot of tenants, including and especially those small shop tenants that Craig Schmidt was referring to before and that Wendy went through in detail.
So I hope that's helpful. That's what we see happening in the markets that we're in, at the properties that we're in. That's why the investment in the properties, to be post-COVID investments are so important to a retailer. They've got to be partners with their landlord.
The only thing, Don, I would add to that is that as -- you summed that up so well in terms of how the retailers are thinking. And now think on the flip side of how we're thinking, it gives us the equal opportunity to strengthen our assets and more merchandising with forward thinking of who is well capitalized, who's relevant, who's going to meet that post-COVID world and what -- how should we make our investments in our properties. So it's really a benefit to both sides.
Our next question is from Chris Lucas of Capital One Securities.
Don -- and this kind of follows up on Derek's question, but I appreciate the comments you've made about sort of the demand being pulled forward. But I was curious as to the conversations you're having with your -- the tenants you want to have in your shopping centers, are they expressing interest in thinking about not just this year, next year deals, but the future out years, are you seeing the sustainability of this demand with those kinds of tenants?
That's a good question, man, because, Chris, as you look, I mean, one thing you'll notice is with the volume that we're doing, there's still average term of what...?
8.4 years.
8.4 years, which is about a year more than you kind of used to see from us. And I think what you're trying to -- what they're trying to do is plant flags that effectively get them to the next decade. Now certainly, as a portfolio goes from 89% leased to 92% to 94%, et cetera, it gets harder and harder and harder to be able to do that. So in some respects, it's -- in a lot of respects, it's constrained by the supply that's available to them. And that's kind of why when everything is great in the industry and everything else, a rising tide lifts all boats because you got to find the best spot. But that's also especially at a time like this, when those tenants are trying to take advantage of an opportunity that they have not had for years. So that's kind of what I'm seeing. I don't know, Wendy, if you want to add anything to that or...
I think the only thing I can add is when I -- I don't know how long you're thinking. But when I look at the pipeline, it is still very robust. So I don't see that we've done a lot first and second quarter and when we're just -- it's robust. So right now, it's -- I'm confident.
Yes. I think my comment really relates to anecdotal conversations I've had with tenant rep brokers who have talked about their clients not really thinking about '21 and '22 openings, but thinking about '23 and '24 openings, and that their volume of activity has ramped considerably. But that is really how I was thinking about it.
Yes. Look, Chris, but that is what happens to it. I mean this stuff takes time. I mean, I was thinking before when somebody asked the question, the difference between the high and the low end of the guidance. One of the things that we didn't say once, are we going to be able to get with all this leasing? Are tenants open faster than assumed or slower than assumed? And that's not totally in our control. As cities with permits, there's retailers that have different plans of their timetable, et cetera. So the lag in our business, obviously, between signing a lease -- or signing a lease is not the end of the process, getting that rent started is the end of the process. And that is a complex thing to do. In a lot of ways, it takes some time. So that's part of what you're hearing from those tenants also is the lead time to be able to lock up space for a true post-COVID environment.
Great. And then, Dan, I just wanted to follow up on the collection side. The abatements were down sequentially from $10 million to $7 million. I'm just curious as to whether that thought was driven by -- driven by tenant fallout? Or is that driven by them moving towards paying rent? And then kind of alongside that is also your ABR under cash basis, looks like it went up, call it, $10 million quarter-to-quarter. Is that predominantly new deals? Or are those legacy leases move to cash? Just give me any idea on that?
I'm going to ask you to repeat the question, Chris, and do it one at a time.
Okay. Sorry about that, Dan. So on abatements, you went from $10 million to $7 million. Was most of the drop related to this tenant fallout? Or was it related to tenants primarily moving to paying new rent, so the abatements sort of going away?
Moving towards paying us rent.
Okay. And then the second question is related to the ABR that's under cash basis. The percentage of your commercial leases under cash basis remain the same quarter-to-quarter, but the volume of ABR was up considerably from the first quarter to second quarter. So it generated about a $10 million delta on gross ABR that's under cash basis. And so I wanted to understand whether that was predominantly based on new deals that you had signed or whether there were some legacy leases that sort of contributed to that increase in ABR under cash basis.
That distortion was driven by the acquisitions. Obviously, we acquired $325 million or $400 million worth of assets that had 1.75 million square feet. Obviously, that's going to skew some of the data there.
Our next question is from Greg McGinniss of Scotiabank.
So Don, on development, I believe I saw entitlement request that Pike & Rose to potentially add lab or R&D space there. Can you provide some color on how potential construction costs and investment yields compare between traditional office and lab space near major developments and whether that's an asset type you may pursue in other locations as well?
Greg, first of all, I love that you're looking at that stuff and seeing what's going on around here. What we're doing is trying to make sure that we uncover -- we're real estate guys. So we're trying to uncover the highest and best use for the real estate that's here at Pike & Rose and certainly up at Assembly Row and other places. And certainly, when you look at life sciences and you think about Montgomery County, Maryland, it's an important business that's here, that with a little bit of luck expands, and by the way, expands to places where the tenants value the amenity base that other office type tenants value in these locations. And the same applies to Assembly Row.
Now at Pike & Rose, are we anywhere near being able to answer your specific questions in terms of the economics on it, whether it's viable, does it make any sense? No, we're not. We're in that early exploratory phase, but we're in the early exploratory phase because we believe there are assumptions potentially there. I've got nothing more to say about that at this point other than the entitlements in this -- on this 27 acres could certainly be used for that use and similarly at Assembly Row.
So an Assembly Row could be closer because that business is -- that business, in terms of Boston and Cambridge and Somerville, is even closer to fruition than it is here. But in neither case, am I really ready to talk to you about the economics because we're not sure what we got yet.
Okay. That's fair. And then you also mentioned that lifestyle centers are having a bit of a resurgence in tenant demand. Could you also discuss the level and type of demand you're seeing among the other asset types? And if there's any noteworthy trends by geography, that color would be appreciated as well.
No. I don't -- I wouldn't do it necessarily, but I can't really do it between power centers or grocery-anchored centers or regional centers because it really does, it does depend on the geography. There is no question that even in the second quarter, we were operating in markets which were still -- I wouldn't say locked down like they were in January and February, but only coming back and coming up and building in terms of their resurgence. But that -- it was so strong in all of them, that, that we had to -- we just feel really good about talking about it.
The only thing I would say is during that period of time, this second quarter, weather had a lot to do with it. So Boston felt like it was a few weeks behind New York, which felt like it was a few weeks behind Washington, D.C., et cetera. That's the -- as that weather changed and as those restrictions came off, holy cap, was there pent-up demand.
And that has -- that's continued. It's interesting. We're talking a little bit -- I'm going off on a little bit of tangent, but you gave me an opportunity, so I'll do it. When you think about the Delta variant itself and what's going to happen with respect to it. Obviously, we don't know. But we do know a few things. The open-air format is fantastic. And in the markets where we're at, which has been a big disadvantage as they all closed down in 2020, these are markets where the vaccine rates are among the highest in the country. They are also the markets, and this is important, where mask wearing is accepted. There's not a stigma to it otherwise. So the notion, like we see a lot of people wearing masks at our shopping centers and our properties, but they're shopping just fine because they're comfortable with that.
So I don't know how it's going to play out, but I do like the fact that really in these markets, both East and West Coast, that the vaccine rates are among the highest in the country because I think that's an important thing for the long term of this mess we're in.
Okay. And just a quick follow-up because you mentioned pent-up demand. And I'm curious on guidance. How are you guys thinking about this level of leasing activity and how much of that might be pent-up demand versus more continued and sustainable tenant demand?
Yes. There's certainly some. But as Wendy has said a couple of times here, the pipeline is full. We've got a bunch of deals to do yet. Will it be as robust as that second quarter or the first quarter? I doubt it. I mean it's hard to maintain that level of activity, plus I think half the people with Twist, they've been working on their asses off. But nonetheless, the ability to see elevated levels based on historical levels for the foreseeable future is real.
Our next question is from Floris Van Dijkum of Compass Point.
I know it's a long evening here for everyone. Just making sure I understand the singed not open pipeline, the 320 basis points, you said is around $30 million of ABR. Is that correct?
Correct.
So it's about 5% of your POI?
Of total rent.
Total rents, yes. So is that about 5% of your POI, ballpark figure?
Yes. That's right.
Yes. Yes. So look, it's a solid number, but it looks like you've pulled forward a lot of your NOI pickup already in this past quarter. So you got another 5% to go. Just making sure, you've also indicated, Don, I think you said you hope to get back to 94%, 95% occupancy, that suggests another 3% or 300 basis point pickup from the current levels. So is that another 5% potential NOI impact going forward?
Yes, of course, Floris. I mean at the end of the day, this is a 95% lease portfolio, and as I said earlier, with the development filled and the capital that we've spent fully performing, I don't know when that would be, you're talking about over $7 a share in earnings for the place.
So yes, you bet you. Now ask me the day we get to 95% occupancy. I'm not sure I can give it to you, or when we're fully leased up on the development that's happening obviously. But yes, your model makes sense as to the way you're looking at it.
So let me ask you the follow- on that. So obviously, your NOI goes up, your NAV should be going up as well. Does that make you think, wait a second, maybe I should hold off on tapping the ATM until my stock price gets up a little bit more? Or would you still be comfortable raising more capital at $1.17 level -- at these -- with these results behind you?
So you know the answer, what it's going to be for me. This is a balanced plan and the ability to effectively raise a little bit of capital in most markets along the way is something that doesn't surprise investors. It keeps everybody, it matches beautifully the money that's spent out. The idea of letting leverage get way up because there may be that day that you can do it and then you do a big overnight, that's not our model. And so we need those investors, and I think we have them we need more of them who basically appreciate that steady, balanced approach toward equity raising, debt raising, dividend payment, what you get when you get the high-quality assets.
Our next question is from Linda Tsai of Jefferies.
I just had 1 question. In terms of the tenants that have a payback plan beyond 2021, what percentage of your ABR is that? And then when do the plans finally conclude?
Linda, you've got people moving papers around all over the place around here. Just give us a second.
Beyond -- what we have outstanding, roughly half of that should be paid back by the end of the year. And beyond that, it's another chunk in '22, with the balance -- with the balance in '23 and in '24. So you're probably looking about a half in the balance of the year, a quarter in '22 and then the balance beyond that.
But what percentage of your ABR is on that kind of plan?
I don't have that right at my fingertips. We can provide that to you offline.
Our next question is from Paulina Rojas-Schmidt of Green Street.
There is clearly a lot of interest -- investor interest in the open-air center these days. How do you think investors are looking at lifestyle centers? And how has the level of comfort with the category change in recent months, in your opinion?
I don't know. The -- when you look at retail real estate, the big investors that we talk to are very interested, obviously, in the cash flow prospects of that particular asset, the particular real estate. When you look at lifestyle, I think what has become very clear during this -- during these last 6 or 8 months is that those type of assets -- and I don't know what we really mean by lifestyle in my mind that we are talking about largely our mixed-use properties and larger assets set that also include a residential or office component associated with it. I know that demand that we're seeing from tenants and therefore, the understanding of that from investors is very strong. The notion that -- the notion that we all know that grocery-anchored centers are very popular right now to effectively look at based on how they worked out through COVID. But in terms of when you sit and you say, where is your growth over the next 5 years or 6 years or 7 years, I know how we feel, and I believe the investors in this company appreciate the higher growth potential of those types of centers.
Yes. Your portfolio, of course, has a mix of some property types. But if you could break up your portfolio, how far from pre-COVID is the NOI from the 30% of your portfolio comprised by lifestyle centers?
It's still 15%, 18% of it, I think.
Our final question is from Katy McConnell of Citigroup.
It's Michael Bilerman here with Katy. Don, I guess as you listen to all your peer calls and review there, leasing stats, pretty much every public company has been reporting pretty record leasing, strong pipelines. And I wanted to know whether you and your team have noticed any shift in the marketplace between public and private landlords in their share of sort of leasing that's going on, if there is a market share shift that is occurring to the better quality assets of the retail and the better capitalization that the REITs are -- and whether that shift is real or it's just sort of on the margin? And if it's real, does that alter the landscape at all and then provide -- I don't know what happens to all those centers that are not getting the leasing. Do those become acquisition opportunities or redevelopment opportunities? I didn't know whether this is a thing that's happening or not?
Boy, Michael, that's a great question. And I wish I had more than anecdotal evidence by it, but let me give you the anecdotal stuff that I see. I mean it kind of ties back to what I was saying before in terms of retailers making longer-term investments. They're trying to set themselves up for the next decade post COVID, and they want to be with landlords who are with them. And what that means with them is care about who they're merchandising next to care about whether they're investing in the properties to effectively attract customers with a place-making perspective, a curbside pickup. And I mean curbside pickup, I cannot tell you how many tenants ask about it. Whether they use it or not, that's another question. But it's a critical thing to figure out whether the landlord is in it with them in trying to make them successful as businesses. If you're a private company that is undercapitalized, and I've got to make that distinction because the well-capitalized private company, and there's a bunch of them that you and I know that are not disadvantaged at all, and then darn good at what they do. But if you are a private company who is undercapitalized and trying to kind of milk the cash flow from the existing shopping center, I think you're in a serious disadvantage post COVID. And so that -- depending upon the marketplace, who's in the marketplace, who's willing to invest or not. I do think that is a sustainable trend that will widen the gap, if you will, between better real estate and less invested real estate.
Do you think that there's a shift like your example on the Pike & Rose -- on the Pike example, are tenants just signing leases because it is available now and they know they want to get into the better space with better quality landlords but they haven't let their other lease expire. And so macro retail statistics are going to start eventually showing this depressed level of overall occupancy just because it's more of a tenant moving around with maybe a slight uptick given some of the new tenants coming into the marketplace?
I don't have an opinion on that. Do either of you, guys? Because they -- when they're signing leases, it is for a move generally. It's not to milk the old store that they had in the market and add another one. So it is -- now I will say that we'll try to incentivize them to leave early and effectively use this period of time to create an economic deal that makes sense for them to leave earlier or something, but it's not -- no, I don't -- I don't see it being extra deals, if you will, that are going to wind up with closeouts in the old places down the road in any significant way, at least I don't see it that way. I don't know, Wendy's shaking her head.
I agree. I agree. It's more strategic. It's more timing, but I don't see tenants just leaving their other stores and having 2 years left on their lease. It's just -- it needs to match up most of the time with the quality of tenants that we're dealing with. I mean...
Yes. Now historically, Publix was a good example of a company in Florida that would do that. Publix would leave a store, go dark in a store and open 1 -- open 1 across the street, if it was better it was better real estate, better landlord, et cetera. So I mean, there's always exception, I guess. There's always one-offs, but I do not see that or we don't see that as a trend.
I mean, like it's just such an unusual market to go through, right? Sorry, Jeff, you were saying?
Yes, to answer kind of the second part of your question, Michael. If you look at the acquisitions we got done in the second quarter, one of the common threads across those deals was the owner, for whatever reason, was unwilling or unable to invest capital in the property going forward. And those are perfect, well-located shopping centers where that's the owner's mentality. Those are perfect acquisitions for us. We like those because we will come in and put in the capital in a great location and show virtually immediate results, and leasing are very strong results in the short term in leasing. So yes, to the extent the pandemic causes more of that to happen, that will put more properties on our radar screen, for sure.
Great. Well, I appreciate the color, even if the tenant, I know we're not going to have perfect answers as yet as we transition to the next phase of this pandemic.
Our next question is from Tammi Fique of Wells Fargo Securities.
Great. Sort of given all the leasing activity that you did in the quarter, I guess I'm curious what annual contractual rent bumps look like on the new leases signed relative to what you were negotiating pre-COVID? And then maybe as a follow-up to that, I'm wondering if you are seeing any retailers backing away from openings or closing stores due to an inability to find labor today?
I guess the first part of your question, Tammi, on average, you'll still see plenty of deals at 3% bumps, 2.5% bumps. The anchors will still be flat for 5 and then up 10. And I don't see a difference in the deals we're doing compared to pre-COVID, I guess, is the big point there. And then the second part of your question was what?
I'm just curious, I guess, given we've heard some -- there are some challenges in some of those smaller retailers in particular, finding labor. And I guess I'm curious if you're seeing any retailers backing away from openings or closing stores as a result of that?
I don't think so. I mean, there is no question that is a current issue, especially when you're talking about the service businesses and the restaurants and other service businesses like that. But in terms of not doing deals because of that, no, I don't see that today. I don't see that actually happening now. Ask me that again every quarter and figure out what's going on with that labor situation because I do think that has to give a little bit. And I think it will just, by the natural -- in the natural course as we go. But no, not that you’ll see it today.
Okay. And then maybe just one more. As you think about future development opportunities and just as we first sit here and reflect on the approaching stabilizations in the current underway pipeline, I guess I'm curious what projects either in the big 3 or in the shadow pipeline, you view as most compelling today. And our higher construction costs, having any impact on how you're thinking about future development.
Yes. Well, the costs always do and what we do. And on the big 3, what we want to make sure we do as best we can because these are planned for 15 years in 20 years in terms of their execution on those things, just to have a good mix of both retail, which brings people to the asset; residential, which we do love to do in terms of that night and weekend traffic; and a component of office, which adds that daytime. So we still want to be able to do all of those on our big projects. We're working those numbers all the time. Construction costs seem to have stabilized a little bit at this at this point in time. I think that's a general good sign.
We do need to get comfortable with where rents are and whether we're able to make some money. I think I said earlier in the remarks that there are a number of opportunities potentially at Pike & Rose or Assembly that we see now. I can't wait to be telling you that there's other opportunities at Santana Row once we get that big building lease, which I would love to be able to tell you but I'm not ready to do that yet. And the existing projects that are still being built like Darien and income yet to start like CocoWalk in full measure, we'll also provide -- be providing growth over the next couple of years.
We have reached the end of the question-and-answer session. I will now turn the call back over to Leah Brady for closing remarks.
Thanks, everyone, for joining us. Have a great night.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great evening.