Greetings, and welcome to Regency Centers Corporation first quarter 2021 earnings conference call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Christy McElroy. Please, thank you. You may begin.
Good morning, and welcome to Regency Centers' first quarter 2021 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Jim Thompson, Chief Operating Officer, and J. Christian Leavitt, SVP and Treasurer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future and business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It is possible that actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent 10-K.
In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our investor relations website. Please note that we have also posted a presentation on our website with additional information, including additional disclosures related to forward earnings guidance and the impact of COVID-19 on the company's business. Lisa?
Thank you, Christy McElroy. Good morning, everyone. Thank you so much for joining us at the end of what I know has been a long week in earnings season. It's also been a long and oftentimes difficult past year. As a company and an industry, we've really come so far. First, as always, I'd like to thank the entire team here at Regency Centers. I'm really proud and appreciative of what we've been able to accomplish over the last year. A quarter ago, when we spoke to you, we were facing rising restrictions in parts of the country, contributing to continued uncertainty about the future. We were gaining ground, but still playing defense. As I sit here today, I'm really pleased to report that we've turned a corner over the last three months. We are encouraged by continued improvement in the retail environment and in the health of our tenants.
You can see the evidence of that in our first quarter results, as well as in our revised forward earnings guidance. We've seen a continued trend towards easing tenant restrictions, which is especially impactful to our California properties. Some categories and geographies still continue to lag, but overall, we are on an improving trajectory. These lifting restrictions that allow our tenants to open and operate are having the waterfall effect of improving foot traffic and tenant sales as consumers are re-engaging when they're able to. In turn, we are collecting more rent and have seen an improving trend of rent collection. Mike will discuss this in greater detail, but the main drivers of our earnings guidance increase results from this improvement. We expect higher collections on cash basis tenants, as well as some additional recovery of 2020 rent that we had previously reserved.
We are also encouraged by continued demand with regards to leasing. Thinking a bit longer term, we believe there are clear tailwinds for our company and our sector, as the pandemic has shined a spotlight on our business in a positive way. As we all have experienced the world with e-commerce retail sales spiking meaningfully, our tenants will clearly see and appreciate the value of the last-mile distribution capabilities that their stores and our centers offer. After spending months at home facing restrictions on interaction, consumers have a new appreciation for the environment and convenience of our open-air neighborhood and community centers. All that said, our heads aren't here in the Jacksonville sands . We acknowledge and appreciate that real challenges in brick-and-mortar retail still exist, and there will continue to be shrinking of retail GLA in the U.S.
Well-located, well-operated centers, like we own, will still be a critical component of the retail ecosystem, meeting the demands of retailers, service providers, and consumers. This renewed appreciation from both sides fortifies the long-term need for physical locations close to consumers' homes. The micro-migration that's occurring. With more people moving into the suburbs, this should provide a long-term benefit to our suburban shopping center portfolio. As should a more permanent shift toward part-time remote work, increasing daytime population foot traffic close to the consumer's homes. Finally, as the macroeconomic and retail environment has shifted toward a definitive trajectory of improvement, as a company, we have pivoted from defense to offense. We are on our front foot. We are focusing on growth, not just organically, but putting capital to work externally. We are well-positioned to take advantage of opportunities.
We continue to have one of the best balance sheets in the sector, with low leverage, full revolver capacity, and access to low-cost capital. As you know I like to remind you, even with no reduction in our dividend throughout the pandemic, we are generating solid free cash flow, which we expect will only continue to grow with our revised outlook. From this position of strength, we continue to focus on value creation within our development and redevelopment pipeline. Recall that we added two new ground-up projects to our in-process pipeline a quarter ago. In the near future, we expect to add a couple more. With the success we've seen with phase one of Carytown, we plan to move forward with phase two. We also plan to move our mixed-use, multi-phase Westbard project in Bethesda, Maryland into the in-process pipeline.
To finish up, we are still on the recovery path back to our 2019 NOI, but the pace on that path feels better. The environment is healthier and more certain today, and as a result, we have greater conviction and are more positive in our outlook. We are pivoting to offense. We remain bullish on open air, grocery anchored, neighborhood, and community centers. As I've heard several times over the past month or so, today is better than yesterday, and I'm confident that tomorrow will be better than today. Jim?
Thanks, Lisa. Good morning, everyone. I echo Lisa's comments and thank our Regency team for the successes we've been able to achieve during this difficult period. When the vaccine news was first announced last November, we began to see a light at the end of the tunnel in regards to the pandemic. As we sit here today, the tunnel is shorter, and the light is getting brighter. We're not completely out of the woods yet. Governmental capacity restrictions remain in some of our markets, particularly on the West Coast, and just last week, we saw rollbacks announced in Oregon and Washington in response to increasing levels of cases. Overall, we're moving in the right direction. As stay-at-home orders and restrictions have been lifting on the West Coast in recent months, we are seeing that translate into higher foot traffic and rent collection.
This is similar to what we saw during 2020 in other markets across the country as they reopened. Speaking of foot traffic, as evidenced in the chart on page four of our slide deck, foot traffic in our portfolio as a whole has recovered to 90% of 2019 levels in April, while in some regions, it's close to 100%. Rent collections on current period billings have continued to improve at 93% in the first quarter and 94% for April. The west region still lags on foot traffic and collections, but is gradually catching up to the other regions and remains our greatest opportunity to drive future upside. As we've discussed on prior calls, we've taken a patient approach with the deferral agreements, not pushing tenants into an agreement until they are open and operating.
That strategy has proved to be the right one financially and created a lot of goodwill with our retailers. Our goal is, and always has been, to get our tenants back to rent-paying status and to avoid space turning into vacancy, which leads to downtime and capital to lease it back up. As I've stated in the past, we liked our merchandising and tenant mix pre-pandemic, and working with these savvy operators is the best and quickest way to get their spaces stabilized and generating revenue again at or near pre-pandemic levels. Turning to leasing, we are encouraged by the solid interest and activity that we are seeing. Active new leasing categories include grocers, medical, QSRs, health and beauty, fast food, home improvement, fitness, and personal services.
We've also seen increased interest from traditional mall tenants moving to the open air formats, including home concepts, specialty athletic retailers, eyewear, and cosmetic retailers. Our new leasing volume in the first quarter was higher compared to Q1 2020, and in fact, was the highest first quarter new leasing volume we've seen in the last five years due to greater economic optimism, as well as some likely pent-up demand from 2020. Renewal leasing volumes have remained consistent throughout the pandemic, though the first quarter pace was also ahead of historical trends for both shop and anchor space. Our leasing pipeline is healthy, and we are seeing this growth in retailer activity across all regions, providing confidence in the sustainability of deal volume. Our recent spreads remain muted, a function of the current environment and the mix of leases we're signing today.
We've continued to have success pushing rents higher on essential tenants and QSRs, but we're also making certain shorter-term concessions for non-essential tenants and table service restaurants to help bridge them through this more difficult period, putting pressure on our initial cash spreads. We don't see this as a long term or reflective of the direction of market rents. Our properties have always been able to command market leading rents over time, and we don't see this changing. Additionally, the strong embedded contractual rent growth that we've consistently achieved over the last several years generally brings our tenants' rents closer to market ahead of lease expiration, compressing those initial spreads. Encouragingly, we are still having a lot of success negotiating rent steps in our leases consistent with historical averages. Lastly, on occupancy, our commenced rate is down 30 basis points sequentially.
We normally see this seasonal occupancy decline in the first quarter, but move-outs were actually lower than we anticipated. Some of the tenant fallout that we had expected may still occur in coming quarters, but more tenants also renewed their leases than we expected. In summary, while this past year has been one of the most difficult and challenging of my career, it has also been incredibly rewarding to see our team rise to the challenge and successfully navigate this unique environment. We're on a definite road to recovery, and our visibility and conviction levels have only improved as the country continues to open back up. Mike?
Thanks, Jim. Good morning, happy Friday, everyone. I'll begin by addressing first quarter results and then walk through the changes in our full-year guidance. First quarter Nareit FFO was $0.90 per share. Uncollectible lease income was positive in the quarter, as reserves on current quarter billings of approximately $18 million were more than offset by the collection of over $20 million of prior period reserved revenues from cash basis tenants, including those contractually deferred. You can see the breakout of our uncollectible leasing income on our COVID disclosure page 32 of the supplemental, which also shows that excluding prior period collections, we recognized as revenue 94% of our first quarter billings. Our cash basis tenant pool stands at 28% of ABR today. That compares to 29% a quarter ago, slightly lower due to move-out activity.
We've not yet moved any tenants back to accrual basis accounting from cash basis at this stage of our recovery. Our same property commenced occupancy rate declined 30 basis points sequentially. More importantly, as we were able to collect more from our cash basis tenants, our net effective rent paying occupancy, which we've spoken about on previous calls, was actually up over 50 basis points through the first quarter. Same property NOI, excluding lease termination fees, declined 1.6% in the first quarter compared to prior year. As a reminder, the first quarter of 2021 is the last quarter that we will be up against the more difficult pre-COVID comparisons. Our balance sheet remains in great shape. As mentioned a quarter ago, in mid-January, we used cash on hand to pay down our term loan.
In early February, we recast our $1.25 billion line of credit, extending our term by another four years. We finished the quarter with a more normal cash balance and full revolver capacity and have no meaningful unsecured debt maturities until 2024. The secured mortgage lending markets, which were tough last year for retail in general, have continued to open back up and show demand for high-quality grocery anchor shopping centers, especially those owned by stronger sponsors. Just at the quarter end, we closed on a $200 million refinancing of a portfolio of secured mortgage loans on 10 assets held in one of our JVs. The blended rate was a very compelling 2.9%. From a leverage perspective, our net debt to EBITDA remains at a very comfortable 5.9 times, even with the impacts of the pandemic on our trailing earnings.
We see a clear path back to the low to mid 5 times range as our NOI continues to recover. Turning to guidance, we point you to pages 13 through 15 of our earnings investor presentation. Recall that a quarter ago, amid continued rollbacks and restrictions in certain markets and general uncertainty in the overall environment, we provided our earnings guidance under three distinct macroeconomic scenarios: reverse course, status quo, and continued improvement. From a macro perspective, we now feel comfortable and confident that we are firmly in a continued improvement environment, and as such, we feel that we can comfortably rule out the first two scenarios from our guidance analysis, which supported the lower and midpoint levels of our previous range. We are moving to a more traditional guidance framework around that more positive outlook with a narrower range.
There are three additional major drivers that bridge us from our previous upper end of $3.14 per share for Nareit FFO to our new range of $3.33 to $3.43 per share. The first two drivers directly impact same property NOI. I refer you to the visual on slide 15 of the presentation to help articulate the change. The first is higher collections of prior period reserved revenues. When we provided guidance back in February, we had already collected almost $9 million of prior period revenues. As such, this amount was included in our previous guidance range, impacting our full-year same property NOI growth forecast by about 125 basis points. Our new guidance range now reflects an impact from prior period collections of about 425 basis points at the midpoint, of which we've already collected about 80% through April.
The remaining 20% is forecast to be collected through the balance of the year. Secondly, we now expect a higher collection rate on current year billings from cash basis tenants. In other words, the conversion of more cash basis tenants from non-rent paying to rent paying. We saw our cash basis collection rate rise from January through April, and roughly a third of our cash basis tenants are now current on rent. That's up from about 15% a quarter ago. This gives us added confidence in higher collection forecasts on current period billings. The third major driver is a reduction in G&A forecast, which we have guided lower for the full year by approximately $5 million at the midpoint. With greater certainty and firmer timing around the starts at Westbard and the second phase of Carytown, we now expect higher overhead capitalization.
Additionally, we've incorporated savings from the first quarter departure of Mac Chandler, a large portion of which was one time in nature, resulting from the unwind of previously expensed share grants. To wrap it up, we are greatly encouraged by our first quarter results and are pleased to be revising our outlook higher today, as we believe we've gained more visibility into the economic environment and the recovery of our cash flows. As we look ahead, our priorities continue to be First, converting non-paying cash basis tenants back to rent paying. Second, backfilling space lost to vacancy. Third, returning leverage to pre-pandemic levels through organic growth. Fourth, shifting back to an opportunistic mindset from a capital allocation perspective. With that, we'd be happy to take your questions.
Our first question comes from Katy McConnell with Citi. Please proceed with your question.
Great. Thanks. Good morning, everyone. Can you talk a little bit more about how cash basis collection levels trended this quarter, and what's driving the improvement over 4Q? For the outstanding balance, how much more upside are you assuming in collections as opposed to potential occupancy fallout?
Hey, Katy McConnell. It's Mike Mas. I'll take that one. Appreciate the question. Maybe just let me color up some stats around our cash basis pool and the collection rate, and I think that'll get you where you need to go. For the first quarter of 2021, we collected 78% of rents from our cash basis tenants. That is up from 75% a quarter ago. Interestingly, if you recast the fourth quarter, we have now collected 79%, so kind of flat. What's most interesting to us and what's driving a lot of the improvement in our guidance range is the trajectory in the current year. Let me just throw these out at you sequentially month-over-month. January cash pool, 67%, to February, 73%, to March, 77%. In April, we're at 81%.
It's this reality in the numbers that's not necessarily presenting itself in the Q1 report, in the numbers, but it's what's giving us the confidence to increase our cash collection rate going forward. It's really that March and April success as compared to January and February. Last time we spoke to everyone, early February, the times were a little darker than they are today. We were experiencing more rollbacks on the West Coast. All of that has changed, and it's the March and April performance that's giving us the confidence to move our numbers forward. As you think about our range on a same property basis, it's really about uncollectible lease income more than it is about move-out activity. When you think about the fungibility of those two numbers, we can have move-outs, but it's already incorporated into our uncollectible lease income projections.
For us, we like to talk about net effective rent-paying occupancy. Right now, we're in the mid 86%, 87% range. As I mentioned on the prepared remarks, that's up 50 basis points sequentially in the first quarter. For us, we think from a net effective perspective, we've troughed in our occupancy rate, and we're starting to move forward. We're converting tenants to cash basis from non-rent-paying status. That is, again, the tailwind behind that improvement. As you think about the ends of the ranges, basically the midpoint is we'll call for gradual improvement through the year from the first quarter, and then more or higher rates of collection on cash basis tenants supporting the upper end, and lower percentage of cash basis tenants paying us on the bottom end. Just a little nugget, which I find helpful, and I think you will.
1% collection rate on cash basis tenants is about $3 million of total revenues to Regency Centers. When you think about the range of our same property growth, that's roughly $10 million up or down from the midpoint. That'll help you frame out that within our guidance range, we don't have to get to 100% collection to hit the upper end of our range. It's about roughly a 3% tolerance on either end. I threw a lot out at you, Katy. I hope that's helpful. If you have any follow-ups, I'd be happy to take them.
That's really helpful. Thanks so much for all that detail. Just to switch topics, given the outperformance in your shares year to date, what's your appetite to issue equity at this point? Is there anything embedded in guidance for that?
Katy, Lisa, I'll take that. We do not have anything embedded in guidance for an equity raise. We view equity, it is a capital source to fund our growth. To the extent that we are able to issue equity and put it to work accretively on a long-term earnings growth basis, we will do that. I think we have a really great track record in doing so. It's tied to opportunities, and compelling opportunities, acquisitions. Free cash flow is still funding our development pipeline. Always an arrow in the quiver and one that we will use when we can use it accretively.
Okay, great. Thanks, everyone.
Our next question comes from Craig Schmidt with Bank of America. Please proceed with your question.
Great. Thank you. As the country continues to open up, are you seeing more curbside BOPUS activity, the same, or less?
Craig, this is Jim. I'll take that. As you'd expect, we're seeing a lot more, actually. An interesting anecdote, as I talked to Kroger, they indicated their click and collect program is 4x
Of historical. We're seeing all the major brands look at some form of BOPUS or collection arrangement. It's clearly here to stay. I think it's an additional leg of getting product to the consumer. Driving traffic at the store is still obviously getting people in the store is the best method for a grocer, but second best is being able to have it picked up or delivered to the car at curbside. I think it's a definite trend that's here to stay.
We like that, Craig. I mean, any additional traffic into our centers will benefit us. It is more eyes on our shop space. They may be different trips, but it still becomes the shopping center of choice and where the consumers that are close to their homes look to go to when they need something. Whether it is goods, services, or food. We think that it really is a benefit to our shopping centers, and we like that we are in close proximity to people's homes.
No, I agree. I see the benefit and, thanks for the early confirmation that it is here to stay. I guess my follow-up question would be, what are the retailers' appetite for opening in new developments and, particularly beyond the grocers?
Jim, again, we're seeing, as evidenced by our Q1 leasing, real strong activity out there. The 266,000 feet we did in new leasing in Q1 is highest in five years, as I indicated in the prepared remarks. Our pipelines are strong. Mike mentioned Carytown phase 2. That's a current development that we're 85% leased on phase 1, took a pause during the pandemic and have very good pre-leasing and appetite for space. We're obviously diving into phase 2 to get that product online. We're seeing good activity in new leasing as well as existing portfolio.
Really focused on continuing to build that development pipeline, so that we can get back to kind of pre-COVID levels in terms of our starts and spend on an annual basis.
Great. Thank you.
Our next question is from Derek Johnson with Deutsche Bank. Please proceed with your question.
Hi, everybody. Good morning. Are you seeing changes in the lease structures given the pandemic? Any changes like co-tenancy clauses? Anything related to the methodology for assessing percentage rent, especially since it seems hard to capture in omni-channel sales? The dedicated parking that you discussed for click and collect, is that an opportunity to push rents a bit?
Derek, good question. I guess the short answer on changes to lease structure is on the margin, but really no real change. I think the one thing we are seeing from a leasing standpoint is the time from negotiation to RCD. I think permitting's taking longer, decision trees are taking longer. Other than that front-end time extension, deal terms are generally holding. The % rent is a tricky one. That used to be everybody's metric of how well a tenant is performing is based upon their sales and their ability to pay rent, et cetera. That's become very muddy with the internet sales. Each tenant does it differently. Placer.ai data has become a really helpful tool for us to, in addition to sales, compare trips to help us evaluate real volume and potential sales, at least at a location.
We don't do a whole lot of % rent work. It's generally in our grocers, which is a little cleaner, or has been cleaner. Now with some of the online, I'm not sure how that is going to get reported. We don't have that much exposure to percentage rent, but that's a tricky area, I think, going forward. Dedicated parking, I think at this point, we're very accommodating to our tenants to help them distribute their product. We're not looking at that as necessarily a rental stream impact as much as continuing to drive traffic and their ability to be as successful as they can as our anchor.
All right. Thank you. How about the Serramonte? Is it still expected to deliver in the second half 2021, given the NoCal location and shutdowns? It's a pretty large-scale project. Can you give some color as to the buzz around leasing and excitement in the development?
I'll start with a disclosure and let Jim Thompson talk about the project. Derek Johnson, it's a multi-phase project. The phases will expand over multiple years for us. I think what we'll see is that there is some visibility to delivering on the first phase of that project, which will include the large scale investment we're making into the interior portion of the mall, together with the new pads we're building out on the exterior, replacing some defunct previous retail sites. That we have a lot of confidence we'll finish and deliver in 2021. The rest, the multi-phased approach to the project will span over multiple years from this point forward.
Yeah. As far as leasing activity today within the mall, we've just executed a real high-end quality restaurateur. We've got good activity with some name brand, recognizable, I won't call them junior anchors, but larger interior mall tenants that I think will really enhance our merchandising mix. We continue to work on opportunity with the JCPenney box. More to come on that, but we are getting some good traction on that anchor space. Overall, we love the real estate. It's fantastic. We're very happy. We're open for business. The tenants and the consumers are happy that we're back at it, and there's definitely a buzz as that marketplace continues to regain some consumer confidence in getting back out in the environment.
Thanks a lot, guys.
Thank you.
Our next question comes from Richard Hill with Morgan Stanley. Please proceed with your question.
Good morning, guys. Congrats on the nice quarter, thanks for the transparency in your various different numbers. They're very helpful. Look, as we think about this, it seems like tenant health itself is a lot better than maybe you and we feared in 2020, as evidenced by the leasing volume and the cash collections. What I'm trying to get my arms around is what does that mean for a new normal environment going forward? Said another way, not trying to straight line out the accounting reversals of some of the things that maybe should have been in 2020 if we had perfect knowledge. Two questions. One is just a factual question about same-store NOI. What would have same-store NOI have been in 1Q, x the cash collection benefit? Number two, could you maybe just talk us through the leasing environment?
I fully appreciate how strong the leasing was, but if you can maybe give us an idea about what the rents look like relative to 2020 and relative to the past five years and how those negotiations are going, I think that would be helpful.
Sure. Really quickly on the impact to Q1, Richard Hill, and then I'll hand it off to Jim Thompson. Prior period collections was a 950 basis point boost to our same property growth rate in the quarter.
Thank you. That's really helpful.
Sure.
Yeah. Rich, as I indicated, I think leasing in general, the terms and appetite and types of uses we're seeing really across the board, all uses kind of coming back to the table, even the ones that have been impacted the most, which gives me comfort when you see the fitness and personal services folks coming back into the marketplace when they have been the most impacted with new locations. It indicates to me that there is a place for them in the future, and there are obviously going to be failures, but there are people ready with new capital to step in in those places. Overall, again, for essential, we're seeing really good activity as well as rent growth. I think in those more non-essential and more difficult challenged spaces, we're being more creative and selective in helping those folks build back their business with help.
As far as overall rent spreads go, as you know, we're heavily dependent on a mix between anchor and shops, and anchor re-leasing is generally where we have our biggest impact to mark-to-market opportunities. In this particular quarter, we had an outlier anchor deal that was, quite frankly, was driving some negative spreads. Having said that, give you a little color on that deal, it was a well-capitalized fitness franchisee who was moving down from the northeast, I think because of COVID, and he backfilled a space in South Florida that had been vacant four plus years. It was previously occupied by an education facility. We structured a low rent start to help him build his business with a 60% kick in rent bump in year three, zero landlord capital for TI or white box.
Long term, it's a great addition to the center because it's going to drive some traffic in that location. It's been vacant, like I said, for over four years. The deal structure from our perspective, is extremely appropriate for the long-term good of the center. We really continue to maintain a very high conviction that our centers have always been able to command market leading rents over time.
We don't see that changing. That's kind of a long way around.
If I may just add, just in just a little bit bigger picture, when I think if we spoke a year ago, at Nareit, we talked about what the impact we thought might be. Gosh, we had very little information at that time, so much uncertainty. I know that I spoke to many of you about, we would expect that we would see some decline in market rents. I can sit here today and say, we're not seeing that. That is because number one, we all performed so much better, I think, than we all feared that we may have. It also speaks to the tailwinds in our sector.
The fact that we own quality shopping centers close to consumers' homes, and where our retailers and our service providers know that they're going to have highly productive stores, they are willing to pay, as Jim just said, those market leading rents to be in the best locations. We're really well-positioned to capture that. There still remains limited new supply, and limited new competitive supply. What I mean by that is supply that is equal in terms of the quality of what we offer. I like looking forward and believe that we will continue to command those market leading rents and grow NOI from this point forward.
Yeah. Hey, Lisa, that's really helpful. Just one follow-up question. If you would've asked me three months ago, six months ago, certainly 12 months ago, I would've told you I thought it was unlikely that tenants were going to be able to pay back rent and current rent. I think that's a pretty bullish outlook for the future if they can pay double rent. Does that mean that you're getting rents that are above 1Q20 levels or similar to 1Q20 levels at this point? How should we think about that as I'm just thinking about modeling core growth?
Yeah. I'd be a little bit careful with the ability to pay double rent, because a lot of that is being driven by a lot of the stimulus that is being provided by our government. Without that, I'm not certain that many tenants would be able to pay double rent, because if they were, then we weren't charging rents high enough. I believe that we push rents to where we can. I would think that, again, I think about that we are returning to a healthy kind of pre-COVID environment with even more support and conviction that we own the right retail. We are in the right sector in terms of the retail offering, for where tenants want to be and for where consumers want to shop.
Got it. Helpful. Look, I'll reiterate what I said at the beginning. I think your disclosure's best in class, so kudos to Christy for making you guys do that.
Kudos to the whole team. Thank you all. Thank you.
Thanks, guys.
Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.
Hey, everyone. Lisa, I'm gonna visit my mother this weekend, who lives by Westbard, and I'm sure she'll be glad to hear that asset is finally getting a facelift. I also think she'd want to know about potential NOI disruption there, and that of the relevant development starts. Any details you can provide there, would be appreciated.
Your mother sounds like she might want to come work for Regency. I'll let Jim or Mike talk to the NOI disruption at Westbard.
Yeah, beyond Westbard, to facilitate an active redevelopment pipeline, there's going to be some disruption in NOI, Greg, as you know. I think we have about $2 million of decline baked into our plan for 2021. We would bring that back up, starting in 2022 and beyond in the accretion from those redevelopments.
All right. Thanks. Then, Jim, I had a couple questions touching on the rent spreads again. First, could you perhaps disclose what the spreads were if you exclude the non-essential tenants, where you had to cut some deals or maybe excluding that fitness tenant that was mentioned? Second, when do you expect that you'll have finished addressing leases from the more stressed tenants?
As far as addressing the leases, obviously that continues to be a work in progress, primarily out west today, because if you look at the openings in foot traffic, most of the depressed product is still coming from the West Coast, where they're just now starting to really hit reopen.
I'm sorry, the other question?
Excluding the negative yield.
Oh.
I don't think we have that number at our fingertips.
Let me get back to you, Greg.
I know this, the lease that Jim talked about on the anchor side of the new rent with the fitness center, if you were to use the full rent at the end of year three, that basically wipes out the negative impact on new lease spreads and brings us to flat. Generally, I think the mix this quarter is basically a flat type of story.
Yeah.
Okay. Thank you very much.
Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Hi, good morning. Just a question on the balance sheet and turning more offensive, which you touched on in your prepared remarks. Do you foresee that being more ramping up developments and redevelopments that were maybe postponed as a result of COVID, or are you seeing interesting external acquisitions? If so, are those more for stabilized assets or redevelopment opportunities where maybe the yield is a bit juicier, kind of once you think about the long-term prospects for that asset?
Yes, yes, and yes. More seriously, we still believe that the best use of our capital is on our redevelopment opportunities and development opportunities. We will continue to try to rebuild that pipeline, if you will, and increase that spend. We're also canvassing the market for acquisition opportunities, and we will pursue those that align well with our strategy. We've typically been successful where we have been able to leverage that same redevelopment or development expertise that allows us perhaps to underwrite slightly better growth or leasing or some value creation. We are looking at all, and we do have the capacity to do that. We will, again, pivoting to grow from here.
A question kind of following up on Craig Schmidt's earlier one, and just to play devil's advocate. If traffic could be up, if people are just kind of going there, opening their trunk and kind of driving out, it may not be so good for the non-anchor grocery tenants that are dominating the BOPUS activity. Do you have a sense of how much time people are spending at the centers kind of pre-COVID? Any thoughts more return about just what BOPUS does to the whole center, not just that one tenant?
We do not have the data to measure dwell time. We just have the visits. What we do, we are able to measure where the people that are visiting our center, what other centers they're visiting. We are able to do comparative measures for that. Again, I have said this, even pre-COVID, that every shopper can essentially do what they need to do really from their homes. The reason to come to the center is going to be value, convenience, and then also for entertainment, if you will, or a place. It's a place to go. I think that over the past 12 months, one thing again that has really been solidified, that human beings generally are social beings, and they want interaction, and they want to get out of their homes, and they want to shop. They don't just want to buy.
I do believe the benefit of if you have anchors that are very good at BOPUS, that offers these same shoppers the value and the convenience at the same time, it becomes their neighborhood shopping center. It is where they will then go when they do have other needs, and other wants, if you will, to shop. That's the benefit. I also believe that data will get better in time. We will be measuring dwell time at our shopping centers. We are not there yet.
I love going to my center, so I agree with you. One ask is we need more salad places in the Chicago suburbs.
Thank you.
Thanks for the time.
Our next question comes from Ki Bin Kim with Truist Securities. Please proceed with your question.
Thanks. Maybe a little bit more of an open-ended question, but I thought it was interesting that you guys made a pretty clear commitment to spend $175 million in development annually for the next five years. Obviously, that language wasn't in there last quarter. It looks like you even re-increased the scope of Serramonte. Like I said, a little bit of open-ended question, but this is pretty long-term commitment, I think carries a lot more weight. I'm not sure if I'm overreaching, but just help us walk through what you're seeing and thinking.
Hey, Ki Bin Kim, let me start with a little bit of disclosure response, maybe, and then I know Lisa Palmer will jump in from just a capital allocation perspective. We did make a change and a tweak to the Serramonte number, really just to include the GLA of the entire center as we do for all other redevelopments. We had realized that we weren't including all the GLA on site, that's not really a scope change. We do remain bullish on the redevelopment project at Serramonte. From a forward-looking perspective, you did pick up on the $175 million of forward capital spend. Really kind of just a placeholder, our intent has been pretty consistent. We would like to put to work anywhere from ±$1 billion over the next five years.
We want to put that capital to work in the form of new development, ground up, as well as redevelopment of our existing shopping centers. We are looking forward to getting back on our front foot and making progress and building those pipelines from here, starting with Carytown Phase 2 and Westbard.
I don't know that I have much to add because I think Mike said it really well. Just that we remain committed to development. It is a core competency of Regency. I believe we have one of, if not the best teams in the business. That development expertise benefits our ability to maximize and optimize the value of our operating assets in addition to ground-up developments. We are always looking to expand that, and it enhances our future growth rate. With that $100 million of free cash flow that we're generating, to the extent that we put that to work in developments at approximately 7% returns, that benefits all of us.
Okay, switching topics. We cover other sectors as well, obviously, and there's incredibly tight cap rates and a lot of capital chasing returns in industrial and self-storage and even triple net, which is still retail, but I guess treated differently. Is there a scenario building where you are starting to see some private equity money finding renewed interest in retail?
As we've been speaking to you over the past year, cap rates remain pretty sticky for the neighborhood grocery anchored shopping centers. They may have moved very marginally up. I would say that's been wiped out, and they've come back down to where they were. We are seeing some new money coming into the sector, but it's chasing more of, as you just said, chasing more yield versus the alternative investment opportunities for them. I think that the capital flowing into the neighborhood grocery anchored shopping centers, it was already pretty substantial. That hasn't changed much. Where we are seeing the notable new capital is more in the higher yield, larger unconventional centers, but where there is distress. That would be typically in areas where Regency really wouldn't play.
Got it. Okay. Thank you.
Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hi. Thanks for taking my question. Given the year-to-date success of cash basis tenants paying back rents, can you tell us about the process that's entailed in moving cash basis back onto accrual? Maybe a sense of how much earnings could still benefit from straight line rent receivables coming back that had been written off?
Sure. The process will be very careful. Linda, the standard is much more of an assessment about the future rent paying ability than the past. While the past is oftentimes reflective of that tenant's ability to pay rent, it won't simply be a light switch where you've come current, therefore you're back to accrual basis. We're going to need to build a track record. We're going to need to hit some thresholds on our ability to project the forward rent paying ability of those tenants. That assessment likely isn't going to occur at Regency until later this year. We have included no change on straight line rent into our guidance. You'll see that in our revised ranges as still ±$30 million. We've incorporated no change in moving tenants back to accrual.
Got it. On Northborough Crossing, realize you've entered into a purchase agreement. Why did it make sense to part with it? Maybe where it fits in your asset quality DNA of premier plus premier and quality core?
I'll take the beginning of that. I may punt it over to Mike for the DNA category. Northborough, it's an unwind of a JV that we inherited with the Equity One merger. That is part of the reason for the disposition. Also that when we look at that, when we think about prioritizing assets for disposition, it's the lower growth non-strategic asset. That would fit in this category. I'm not sure I know exactly.
It fits into the quality core. That 3rd tier, Linda, is how it graded out.
It is more about t he future NOI growth potential at that asset.
Thank you.
Our next question is from Michael Mueller with JPMorgan. Please proceed with your question.
Yeah. Hi. Lisa, I know you mentioned stimulus checks when you were talking about prior period collections, but are there any other category differences, regional versus local, categories that we should think of in terms of where the collections have been coming from?
I'll take that. Stimulus did have a lot to do with it, we think. The categories driving our prior period rent collections, it's the same that were driving our reserves last year, right? Local bias, small shop bias, West Coast bias, generally. When you think about categories, it's fitness, restaurants, personal services, entertainment. Those have been the more variable type of revenue streams, and that's what we're seeing come in the door now.
Got it. Okay. That was it. Thank you.
Thanks, Mike.
Our next question is from Wes Golladay with Baird. Please proceed with your question.
Hi, everyone. Can you comment on why the reserves were $17 million, largely comparable to the fourth quarter, I guess, against the backdrop of tenants paying more on a cash basis? I guess, could this be an upside reversal later in the year?
Sure. Let me get a little bit technical to help. Then we'll kind of bring it up bigger picture.
Okay.
The fourth quarter, it's a little bit apples and oranges, so let's try to make it apples to apples. Fourth quarter had about a $500,000 positive impact from prior period in that number. The first quarter of 2021 had about $1 million additive related to CAM reconciliations. There's a bit of a seasonal component to it, right? We bill CAM recs to cash basis tenants , so that amplifies the bad debt expense. The apples-to-apples change is really about $1.5 million of improvement. You don't see that on the surface. I go back to my earlier comments, and really, we're seeing the improvement in our cash basis tenant collection rate so late in the quarter of March, and then extending beyond the quarter into April. That's what's giving us the confidence to increase our outlook moving forward.
Wes, even if you think about it, just big picture collection rate on the top, it's basically unchanged, right, quarter-over-quarter. It's 93% ± the same. I think that helps frame out that sequential question you had.
Got you. I might've missed it, but did you talk about the, I guess, for the balance of the year, 2Q through 4Q, the amount of 2020 rent that you will, I guess, expect to unreserve for going forward?
Yeah. No, I appreciate you asking because we didn't get to that point. Beyond just an increase in current year collection rate, we have also included an increase in the collection of the 2020 reserve rent. We had 125 basis points in our original guidance. We now have 425 basis points positive impact in our guidance range. That's an incremental 300 basis points. Let's think about that in dollars. That's roughly $30 million at the midpoint in our new range. As you can see in the results, we've already collected $20 million of that. In fact, through April, we collected another $4 million. We're 80% through our guidance range on 2020 reserves collections.
Got you. Mike, can you just clarify, I think you said occupancy trough, is that paying occupancy or the occupancy that you show on the statistics? Or maybe it's both.
It's net effective rent paying occupancy. It's not a number that we report on. It's basically commenced occupancy adjusted for uncollectible lease income. That's in the 86%-87% range today. We could lose more occupancy on a percent leased or commenced basis in the second, third quarters even. What we think matters financially is the fungibility, again, of move-outs and uncollectible. We have increased our effective rent-paying occupancy in the first quarter by about 50 basis points, and we're moving in the right direction. I think the leasing activity that Jim and the team got done in the first quarter is, again, another kind of confidence builder as we think about moving occupancy forward through the balance of 2021.
Yeah, makes sense. Thanks a lot.
Sure.
Our next question comes from Floris van Dijkum with Compass Point. Please proceed with your question.
Thanks for taking my question, guys. Lisa, you guys have a lot of dry powder, an enviable balance sheets. Obviously, earnings are on the upswing. Things are looking good. Maybe your thoughts on as you deploy, you've talked about the redevelopment, which is an attractive capital source or capital use and some of your ground up development opportunities as well. As you look at acquisitions, has the pandemic changed your thinking about what you want to acquire and buy? Maybe talk about the types of assets and both in terms of types of asset and maybe in terms of region and regional exposure as well.
I wouldn't say that the pandemic in isolation, if you think about the impacts on tenants, has necessarily changed how we're thinking about where we may want to deploy capital. Some of perhaps the more permanent trends that we are seeing from the pandemic have influenced how we're thinking about where we may deploy capital. What I mean by that is a lot of the migration trends in terms of potentially opening or widening the fairway for us with regards to markets where we may invest. I don't necessarily mean that we're going to go to brand new markets, but if you take a market that we're in, like Atlanta, for example, we have been very focused in the Y, if you will, like the first ring of Atlanta.
Now with the more permanent, more remote work, we're seeing migrations pattern of people moving a little bit further away from the city. That may open up more opportunities for us in markets that we already know, we are already in, we already have scale, we already have critical mass, where we may be able to kind of expand that reach, if you will. That's probably the largest influence in terms of where we're looking to deploy capital. Beyond that, our strategy has not changed. We still will develop, redevelop, acquire high quality, well-located, grocery-anchored neighborhood and community shopping centers.
Thanks, Lisa.
Our next question comes from Paulina Rojas Schmidt with Green Street Advisors. Please proceed with your question.
Good morning. How different is the interest today in the private market for smaller grocery-anchored neighborhood centers versus bigger centers with maybe one or two boxes in addition to a grocer? I think you said before that cap rates have not changed much versus pre-pandemic. Were you referring to these two property types that I just described, or just for the smaller neighborhood centers?
Thanks for the question. I would say that generally speaking, prior to the last three months where we've really seen the transaction market open up a lot more, prior to that, the properties that were trading and centers that were trading were on the much smaller size. Really grocery anchor with small shops, that were easier to underwrite because of the essential tenants that were in the shopping center. It's just a smaller bite size. With the improved retail environment, the improvement just overall of our economy, we have seen the transaction market open more. Now there are properties that are trading that wouldn't have even traded before. This goes back to what I said about new capital coming in, looking for higher yields. Those wouldn't even have traded. That's the larger, more unconventional, more entertainment. With regards to boxes, there is definitely a premium.
Cap rates are higher for where there are additional boxes. While in the short term, you've seen higher collection rates because they're typically occupied by national tenants that are paying rents, there's still the risk that over the long term, as there continues to be shrinking GLA and consolidation, especially with the impact from e-commerce, that is where we're going to see the greatest fallout, and also what requires the greatest amount of capital to re-lease. There is a premium or higher cap rates for those types of centers.
Has that premium widened or not?
I don't know that it's much different than it was pre-COVID-19. It's always a depends in our sector and in real estate generally. More boxes and centers generally will push up cap rates due to the long-term risks, anywhere from 50 to 100 basis points, depending on what market that shopping center is in. That's really not that different from pre-COVID-19. The difference is they weren't trading prior to the past three months.
Yes. Then I think you have mentioned before that you expected to return to pre-pandemic levels by 2023. Given your guidance raised and generally the more optimism there is, it seems that this could be achieved earlier. I know I'm asking a lot, but what are the odds that you are back to pre-pandemic in 2022?
I'm going to toss that to Mike so I don't get in trouble for providing 2022 or 2023 guidance.
Paulina. Really no change from what we said previously. Late 2022, certainly on a full year 2023 is what we're talking about internally as a recovery type of period. It's important to remember there's a lot of crossover going on between 2020 and 2021, right? It's producing a lot of growth, quote unquote, in 2021. We have lost 200 basis points of commenced occupancy, and that recovery period will take longer, as it always has. Finding the tenant, negotiating the lease, building out the space, commencing rent is a process. That's really what's going to, at the end of the day, result in where we end and how that relates to 2019 and how quickly we can get there. What's happening with the uncollectible lease income between 2020 and 2021 is, it's a shallower trough, but it's not necessarily changing the end point.
That's where this vacancy number matters. It all matters because it's all cash, but that vacancy number is going to influence where we end and how in relation to 2019.
Thank you very much.
Sure.
As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment, please, while we poll for questions. Our next question comes from Tammi Fique with Wells Fargo. Please proceed with your question.
Great. Thank you. I guess I'm curious, as you think about new development starts, are you at all concerned about the impact of rising construction costs on yields relative to sort of historical yields?
Yeah, Tammi. We historically have done really a pretty good job of embedding growth in our underwriting so that we don't get caught flat-footed. Looking over our shoulder, we've done a pretty nice job of that in existing pipeline deals. Obviously underwriting, it's a fact out there. Construction is a challenge. Pricing's tough. Deliverables are very difficult right now. All of those factors would go into the mixer in our thought process as we look at our underwriting and pipeline.
Okay, thanks. Then maybe a bigger picture question. I guess as with any downturn, there are obviously lessons learned that lead companies to better position for the next downturn. I think in the great financial crisis, the lesson was how important liquidity and low leverage were. Curious, in a year from now, when you look back on this downturn, what lessons do you think Regency and other owners of retail real estate will have learned?
I think that interestingly, the first thing that came to mind as you started to answer that was the same thing about liquidity and financial strength. Since we did learn that so well in past downturns, I would just have to say that it really solidifies how important it is to keep that balance sheet extremely strong and how you enter that downturn is so important. That is what has enabled us to provide the support to our tenants that we're providing. It enabled us to maintain our dividend. It also, coming out of it's still strong enough that we're able to act on opportunities as they come to fruition. That's the biggest lesson learned. Remain true, remain disciplined, even when times are booming, and you will be in a position to take advantage of any disruption or distress when that downturn does happen.
Lisa, I can sneak that in for Mike. I'm sorry if I missed this, what was the nature of the termination expense in the first quarter?
Sure, Tammi. We bought out a lease in connection with the sale of a former shopping center called Pleasanton. It was the last lease remaining. We had to buy that out to deliver that site to the buyer. The buyer is building basically an office building and corporate headquarters.
Okay. Thank you.
Sure.
Our next question is from Chris Lucas with Capital One Securities. Please proceed with your question.
Hey, good afternoon, everybody. Just a couple of quick ones on my end. I think when you guys were going through the pandemic, you had a number of projects that were sort of set to deliver or nearly ready to deliver, and you made accommodations with tenants for that by allowing them to open up. I'm thinking specifically about Point 50, but are you seeing tenants that maybe had gone through that negotiated sort of delayed openings now pushing to accelerate those openings, or is the timing pretty much set and that's just how they're going to be?
Chris, I think at this point, that's kind of behind us. The hesitation to open is much like the foot traffic. As people have come back in most of our assets that were in that predicament, we're seeing either the tenant that chose not to go forward has been replaced by, in a lot of cases, similar use, because it was the right merchandising mix. It may have been partially built out along those lines. It was almost a natural that those same uses kind of backfill. We're seeing people move forward with the opportunities today.
Maybe the flip of that question is, I don't know if it's just in my neighborhood, but we're seeing more hours getting cut by shops and retailers based on a lack of staff. Are you finding retailers hesitant to sign leases in low labor pool availability markets because of that, or is that not impacting their decision processes at this point?
I wouldn't say it's impacting decision process right now, but it certainly is a reality out in the workplace. We hear it from retailers, restaurateurs to soft goods, just across the gamut. It's a real issue trying to find labor. More to come. Hopefully, there'll be some changes from the legislative changes that may be impactful to get folks interested in coming back to work, but there's definitely a lack of supply for the most part.
Last question. Just last question from me. On the development, when I look at your redevelopment development page today, it's overwhelmingly oriented to redevelopment. If I look at that page 18 months from now, does it still look overemphasized on the redevelopment, or does development have a larger play in your outlook?
I think that the mix of that's going to change because, again, I'll just bring it back to the core competency, the best team in the business. The way that we are even structured regionally versus functionally, right? Not a development team and an operations team. We bring that expertise to bear on our existing portfolio as well, and really maximizing the value of those properties is going to continue to be an important part of our strategy. At the same time, last quarter, we had two new starts. They're both ground-up developments. We are continuing to pursue and look for those opportunities also. I believe we'll have success in both.
Thank you.
Our next question is from Linda Tsai with Jefferies. Please proceed with your question.
Hi. Sorry. Thanks. Just one follow-up. On the 3Q call, you noted that the Pacific Coast comprised nearly half of uncollected rent due to tighter lockdowns. Is the escalated receipt of prior period rents in 1Q21 and from fiscal year 2020 weighted towards the West Coast?
Yeah. It's nearly 40% West Coast on the prior period collections, and about a third coming from the Southeast.
Is there any sense that the West Coast markets are more impaired now from a leasing activity rents or tenants' ability to pay, or are you just seeing more recovery overall?
The latter, recovery overall. It's been exciting to see the level of activity in a market that's been very difficult to operate in over the last year. We are seeing that same leasing activity and volume in the West Coast as we are across the country.
Thanks for taking my follow-up.
Sure. Thanks, Linda.
We have reached the end of the question and answer session. At this time, I'd like to turn the call back over to Lisa Palmer for closing comments.
Thank you again to the Regency team, but also thank you all for being on the call with us today. As I opened in my remarks, I know it's been a long week and a long earnings season, and appreciate you being with us on a Friday afternoon. Have a great weekend.
This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.