Retail Opportunity Investments Corp (ROIC) Q4 2020 Earnings Call Transcript

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Retail Opportunity Investments Corp (ROIC -1.04%)
Q4 2020 Earnings Call
Feb 24, 2021, 12:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Retail Opportunity Investments' 2020 Fourth Quarter and Year End Conference Call. [Operator Instructions]

Please note that certain matters discussed in this call today constitute forward-looking statements within the meaning of federal securities laws. Although, the Company believes that the expectations reflected in such forward-looking statements are based upon reasonable assumptions, the Company can give no assurance that these expectations will be achieved. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results to differ materially from future results expressed or implied by such forward-looking statements and expectations.

Information regarding such risks and factors is described in the Company's filings with Securities and Exchange Commission, including its most recent annual report on Form 10-K. Participants are encouraged to refer to the Company's filings with the SEC regarding such risks and factors, as well as for more information regarding the Company's financial and operational results. The Company's filings can be found on its website.

Now, I would like to introduce Stuart Tanz, the Company's Chief Executive Officer. Sir, the floor is yours.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you, and good day, everyone. Here with me today is Michael Haines, our Chief Financial Officer; and Rich Schoebel, our Chief Operating Officer. We greatly appreciate everyone taking the time to join us today, and we hope that you and your families are doing well and continue to be safe. A year ago, as the new decade was just getting under way on our earnings call, we expressed excitement at that time and confidence that 2020 could prove to be one of the best years on record for ROIC. However, within just a few short weeks following our call, COVID-19 took hold, and we all found ourselves faced with extraordinary circumstances.

Today, almost a year since the pandemic began we are pleased to report that through it all, our portfolio has proven to be remarkably resilient. Our portfolio lease rate has held firm throughout the pandemic finishing the year at a strong 96.8%, which is the eighth year in a row that we have finished the year above 96%. In fact, we've been above 96% for a record 27 consecutive quarters. Additionally, during the fourth quarter in the midst of another lockdown, we actually achieved positive absorption.

Along with our portfolio lease rate holding strong, demand for space across our portfolio also remained consistently strong throughout the year. While the actual execution of leases slowed several times during the year, specifically at the beginning of the pandemic and again in the fourth quarter, when lockdowns were reinstated, our leasing activity for the year totaled over 1.2 million square feet, which is the tenth year in a row dating back to when we first commenced operations at ROIC that we have leased approximately two times the amount of space originally scheduled to expire.

In step with the ongoing demand for space, we again achieved solid rent growth in terms of our releasing spreads. For the year, we achieved a 12.5% increase in same-space cash-based rents on new leases representing our eighth consecutive year of achieving double-digit rent growth. We also posted another solid year in terms of our renewal activity as well with many tenants exercising their renewal options early.

Our ability to achieve another year of solid leasing results, despite tremendous economic turmoil and uncertainty speaks to the fundamental strength of our long-standing strategy of focusing on owning and offering grocery-anchored shopping centers located in demographically strong highly protected markets. Our success also speaks to our long-standing strategy of maintaining a strong and diverse tenant base, featuring essential tenants, providing daily necessity-based goods and services, which has always been the cornerstone of our business. While retail store closures reached a historic all-time high in 2020, we hardly experienced any such closures across our portfolio and the very limited handful that we did have we quickly released the space.

Along with achieving solid leasing results, we also made good progress toward our long-term goal of enhancing the intrinsic value of our portfolio, most notably through our densification program. During 2020, we steadily advanced the entitlement process in all three projects that are currently under way. Importantly throughout the pandemic the local municipalities and city planners have continued to be very supportive and actively engaged in moving the process forward.

Additionally in light of the increasing demand for housing, state legislatures on the West Coast are now becoming increasingly engaged and supportive of densification initiatives as well. In addition to our three ongoing densification projects where we will be adding a multifamily component that's carefully integrated within our properties at four other shopping centers we are currently working with adjacent property owners and municipalities who are seeking to develop medium to high-density housing within our centers serving as the gateway to their master plan developments.

Needless to say, as these various projects come to fruition over time, it bodes well in terms of the underlying value and appeal of our shopping centers. Lastly in the fourth quarter we issued our first environmental social and governance report which formalizes what has been our long-standing commitment of operating our business and portfolio in a sustainable ethical and responsible manner. The report highlights our ESG strategy and achievements to date, as well as establishing goals for property and corporate initiatives going forward.

In summary while working very hard throughout the year implementing a number of the crucial initiatives aimed at keeping our portfolio running efficiently during the pandemic through it all we were able to achieve a number of strategic objectives, as we established at the beginning of 2020 prior to the pandemic and successfully advanced our business.

Now I'll turn the call over to Michael Haines to take you through our 2020 financial results and the balance sheet initiatives, as well as our initial guidance for 2021. Mike?

Michael B. Haines -- Chief Financial Officer

Thanks, Stuart. GAAP net income attributable to common shareholders for the year ended 2020 totaled $32 million equating to $0.27 per diluted share. For the fourth quarter net income totaled $8.9 million equating to $0.08 per diluted share. In terms of funds from operations FFO for the full year 2020 totaled $132.5 million equating to $1.05 per diluted share and FFO for the fourth quarter totaled $34.3 million or $0.27 per diluted share.

Our financial results included $4.7 million non-cash to our market rental revenue recognition in the fourth quarter in connection with a large anchor space that we recaptured early and released to a new grocery operator achieving a 33% increase in base rent. Conversely the pandemic weighed meaningfully on our results. To date since the pandemic began which was essentially at the start of the second quarter, we have received 91% of billed base rent in total to-date including receiving 87% for the second quarter, 91% for the third quarter and 92% for the fourth quarter. Our overall blended collection rate of 91% is rather remarkable particularly considering that the West Coast have been shutdown three separate times since the pandemic started.

With respect to the remaining 9% of billed base rent that we have not yet received which totals about $15.5 million, of that approximately $6.8 million has been deferred and approximately $8.7 million equating to 5.6% of total billed base rent was a bad debt reserve for current tenants. We also reserved approximately $1.6 million of bad debt relating to past tenants, so our total bad debt from the beginning of the pandemic meaning starting in the second quarter through year end was approximately $10.3 million. For the full year, bad debt totaled $11 million which includes about $700,000 of bad debt in the first quarter before the pandemic and lockdown started which was in line with our historical bad debt.

Turning to our balance sheet. At the outset of the pandemic back in April out of an abundance of caution we drew $130 million on our credit line as a liquidity safeguard. As the year progressed and our business stabilized, we repaid $130 million in the third quarter. In the fourth quarter we reduced our credit line balance even further by another $56 million utilizing operational cash flow that we carefully conserved during the past nine months.

Accordingly the outstanding balance on our $600 million unsecured credit line was down to only $48 million at year-end which is our lowest year-end balance dating as far back as 2010 which was our first full year operating as a REIT. In terms of our overall debt composition at year-end, the Company had approximately $1.4 billion of total principal debt outstanding with just about all that being effectively fixed rate with only the $48 million outstanding on our credit line being floating rate. Additionally, approximately 94% of our total debt is unsecured and approximately 95% of our total portfolio GLA is unencumbered.

Conserving operational cash flow throughout the year and paying down debt were instrumental in maintaining our financial ratios. In fact, our fourth quarter ratios were essentially on par across the board with our ratios from a year ago prior to the pandemic. Looking ahead in terms of our debt maturities, we have no unsecured debt maturing for nearly the next three years until the end of 2023. Beyond 2023, our debt maturities are well laddered. With respect to secured debt, we have no mortgages maturing this year only $23.1 million maturing in 2022 and no secured debt maturing in 2023. In fact at over $1.4 billion of total debt, we have less than $87 million in mortgage debt currently outstanding encumbering only four of our 88 shopping centers.

Turning now to guidance for 2021. Historically our guidance has always been rooted in detailed reliable property-level estimates, which we then build upon its corporate level estimates and finally factor in external growth components. This year however, given that the pandemic remains ongoing it's very difficult to establish definitive property estimates as well as potential external growth opportunities as so much of it is contingent on how long the pandemic will continue to impact our markets and our business specifically.

With that in mind, we are initiating FFO guidance for 2021 with a fairly wide range of $0.95 to $1.02 per diluted share. Generally speaking the low end of our range is based on the pandemic continuing to impact our business through much of 2021 whereas the high end of our range assumes that our business returns to normal operations by early summer.

Specifically, the low end of our range assumes bad debt for 2021 of about $7 million. Additionally, the low end of the range assumes that same-center NOI growth was flat for the year as compared to 2020. In terms of external growth at the low end of the range it assumes that we do not acquire any properties in 2021.

Lastly the low end of the range assumes we pay down approximately $40 million of debt in 2021 through a combination of free cash flow and proceeds from one property disposition which is currently under contract. The high end of our range assumes that the bad debt is approximately $3 million for the year. For perspective, our actual debt for 2019 was roughly $2 million and in 2018 our bad debt was $1.7 million.

The high end of our guidance also assumes that same-center NOI grows by 3% in 2021 over 2020. Additionally, the high end of our range of our guidance assumes that the acquisition market begins to open back up as the year progresses and that we acquire $40 million properties during the second half of the year funded by the loan property disposition and free cash flow.

Lastly, while our initial guidance doesn't factor in raising additional equity assuming market conditions continue to improve during 2020 -- 2021 I should say we would look to raise equity opportunistically and pay down our debt further with the goal of bringing our net debt ratio back down to below 7 times.

Now I'll turn the call over to Rich Schoebel our COO. Rich?

Richard K. Schoebel -- Chief Operating Officer

Thanks, Mike. While many retail properties up and down the West Coast as well as nationwide experienced a year of unprecedented tenant turnover and store closures, our portfolio in stark contrast and our tenant base led by our core supermarket anchor tenants who posted record sales in 2020 prove to be remarkably resilient.

As Stuart highlighted, our overall portfolio lease rate has held firm throughout the pandemic. In fact, our anchor spaces remained rock-solid at 100% leased. And while our shop space lease rate did experience a slight decrease in the second quarter at the outset of the pandemic, it has remained steadfast since finishing the year at 93% bringing our overall lease rate at year end to 96.8% which as Stuart indicated is our eighth consecutive year finishing above 96%. In terms of our leasing activity during 2020, for the full year we leased 1.2 million square feet in total. The majority of our leasing activity centered around tenant renewals. For the year, we renewed a total of 831,000 square feet which is generally consistent with our historical renewal activity.

And as Stuart mentioned, a good number of our renewals were situations where tenants exercise their renewal options early despite all of the uncertainty in the marketplace, which we think is indicative of the long-term strength and appeal of our shopping centers. With respect to new leasing activity, while demand and interest remained consistently strong throughout the year, the execution of new lease deals ebbed and flowed as we went through multiple shutdowns.

That said, each time the lockdowns were eased prospective tenants quickly came to the table to finalize deals such that we signed upwards of 400,000 square feet of new leases in total for the year. In terms of releasing spreads, for the year we achieved a 12.5% increase on same-space new leases signed and a 7.9% increase on renewals. During the fourth quarter, the mandated shutdowns in November and December did take a bit of a toll in terms of impacting our releasing rent growth for the quarter, most notably as related to renewals, which was the majority of our leasing activity in the fourth quarter. A number of long-standing tenants, whose businesses have been slowed by the shutdowns requested to have the renewal rent remain flat during the first year of the renewal term. While we didn't agree to many of these on the ones that we did as part of the agreement, the contractual rent increases in subsequent years of the renewal were ratably adjusted to make up for the flat rent in year one and certain restrictive lease provisions were removed to our benefit as well.

With respect to new leases that were signed in the fourth quarter, which totaled 110,000 square feet, all of which being shop space we achieved a 9.1% increase on a same-space basis. Similar to renewals for a number of new leases we agreed to ramp up the contractual increases more so on the back end of the new leases.

In addition to the lockdowns in the fourth quarter impacting our leasing activity, it also impacted the ability of certain new tenants to take occupancy and commence paying rent. Accordingly, the economic spread between leased and billed space increased during the fourth quarter.

At the beginning of the fourth quarter, the spread stood at 3.4% representing approximately $6.9 million in additional incremental annual rent on a cash basis. During the fourth quarter, new tenants representing only about $929,000 of the $6.9 million took occupancy and commenced paying rent. Additionally, new leasing activity during the fourth quarter added about $2.7 million in annual incremental cash rent. As a result, the spread between leased and billed space increased to 4% as of year-end, representing approximately $8.6 million of incremental annual cash rent, which is the largest dollar amount spread between leased and billed on record for the Company. As the $8.6 million of incremental cash rent comes online, it will help propel our same-center cash NOI growth going forward.

Safe to say, we are highly focused on getting these tenants up and running as quickly as possible in 2021. And speaking of 2021, we currently have only four anchor leases scheduled to expire, all of which are essential tenants that have remained open and performed well during the pandemic. Two of them are scheduled to expire in the first half of the year, both of which are grocery operators, and both are seeking long-term extensions, and one is also looking to expand their space in light of their store being one of the best performers in their chain.

The other two anchor leases expire in the second half of the year, one of which is a pharmacy. We currently expect that both will look to renew their leases. Lastly, we have about 573,000 square feet of shop space scheduled to expire in 2021, the bulk of which are again essential tenants. While it's early in the year and there's still a lot of uncertainty in the marketplace based on the level of inquiries for space that we are receiving particularly from new opportunistic tenants seeking to lease highly desirable space, we think that there is considerable pent-up demand across our portfolio such that we are reasonably confident in our ability to quickly release the rolling shop space and post another solid year. Additionally, we intend to continue proactively seeking opportunities to recapture underperforming space early and quickly release the space to stronger necessity-based and service-based tenants.

Now I'll turn the call back over to Stuart.

Stuart A. Tanz -- President and Chief Executive Officer

Thanks, Rich. Given the current demand for space across our portfolio together with the lockdowns starting to be eased again on the West Coast, we are cautiously optimistic of our business returning to full operations in the coming months. That said, in terms of rent received thus far in the first quarter given the latest lockdowns have only just begun to be lifted and reduced capacity mandates are still in place for many businesses, our collection rate has been a bit slower at the start of 2021 currently at about 88% for January to-date.

We expect that by the end of the first quarter assuming conditions continue to improve that our collection rate will be back up around 90% and will steadily increase from there as the year progresses. In terms of the acquisition market on the West Coast, we are starting to see some limited activity returning. Thus far, cap rates are in line with pre-pandemic pricing. A good example of that would be the property that we currently have under contract to sell, which is located here in San Diego. The buyer approached us last year just before the pandemic started, but had to pull back given all of the uncertainty. The buyer came back to us recently essentially at the same price that they had offered a year ago.

Looking ahead, while we don't have additional property dispositions in our guidance at this time if activity in the acquisition market continues to favorably ramp up, we would look to move forward again with selling our last two properties in the Sacramento market and perhaps a few other properties as well.

In terms of us pursuing new acquisitions, we continue to keep a careful eye out for interesting off-market opportunities, focusing primarily on privately owned well-located shopping centers that have become undercapitalized and less equipped to address releasing and rollover issues as a result of the pandemic. With respect to the Company's dividend, back at the beginning of the pandemic out of an abundance of caution and to preserve our liquidity position, the Board temporarily suspended quarterly dividends.

Today in light of our steadfast portfolio performance throughout the pandemic, the Board has reinstated our dividend declared an initial cash dividend of $0.11 a share, which is based in part on the estimated minimum payout as it relates to our projected taxable income for 2021 as well as being able to continue to conserve ample cash.

Finally, while this past year has been incredibly challenging on so many different fronts both as it relates to our business and as it relates to our personal lives, I am humbled and inspired by the extraordinary, collaborative efforts that the entire team at ROIC has exhibited over the past year. It is their collaborative unwavering commitment and dedication to our business that has and will continue to be the driving force behind our success.

Now we will open up the call for your questions. Operator?

Questions and Answers:

Operator

Thank you, sir. [Operator Instructions] Our first question comes from the line of Craig Schmidt from Bank of America. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Craig.

Craig Schmidt -- Bank of America -- Analyst

Hello. Thank you. What were the drivers of the higher G&A expense in the 2021 guidance?

Michael B. Haines -- Chief Financial Officer

Well, Craig, during 2020, our G&A dropped by about $1 million versus G&A in 2019. The increase in 2021 is largely attributable to a bit more compensation costs as well as the added ongoing costs associated with our new ESG program.

Craig Schmidt -- Bank of America -- Analyst

Okay. And then I'm just wondering if you could comment on how you're noticing the West Coast municipalities becoming increasingly supportive of the densification efforts?

Richard K. Schoebel -- Chief Operating Officer

Sure. Hey Craig, it's Rich. They believe that these projects will bring a lot of value to the communities and address the housing shortages that they're all experiencing. And while most of our meetings have turned virtual this year, at some level it's actually made the process more efficient by being able to bring a variety of people together very quickly. So I think as many companies have discovered during this pandemic, there's new ways of doing business that have become much more effective. And the cities have stepped up and are very excited about the projects moving forward.

Craig Schmidt -- Bank of America -- Analyst

Are they showing more cooperation in terms of giving you the entitlements?

Richard K. Schoebel -- Chief Operating Officer

Yes. I mean, in one circumstance, they've required no additional retail. We're allowed to do 100% residential. And in others, they are working with us on zoning changes that are necessary and actually taking the lead in terms of guiding us down the correct path to make it as efficient as possible.

Craig Schmidt -- Bank of America -- Analyst

Okay. Thank you.

Richard K. Schoebel -- Chief Operating Officer

Thanks, Craig.

Michael B. Haines -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Katy McConnell from Citi. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Katy.

Katy McConnell -- Citigroup -- Analyst

Good morning, everyone. Can you update us on your expectations for total leasing capex spend this year? And maybe walk through any other moving pieces that could be impactful on 2021 AFFO just to help us understand where the dividend payout ratio could end up?

Stuart A. Tanz -- President and Chief Executive Officer

You want to talk about capex, Rich?

Richard K. Schoebel -- Chief Operating Officer

Yeah. I mean, I think that obviously it really is dependent on the deal that's in front of us in terms of the level of capex required, but I wouldn't say that we've seen a measure -- we have not seen a measurable increase in the overall cost depending again on the type of space. And the prior user as well can be quite inexpensive if you're going restaurant to restaurant, but it can be quite expensive if you're going retail to restaurant. But on average, we're expecting that those costs will be in line with historic numbers.

Stuart A. Tanz -- President and Chief Executive Officer

And the other thing in terms of capex, I think as we articulated in our last call is we've got four very exciting pads under construction that will begin to deliver NOI something we started last year of course, but that will deliver some nice NOI as we move through the second half of the year. Those projects -- those pads are 100% pre-leased with essential retailers. And we're very excited that we were able to get all of those out of the ground and will really would be nice to see that incremental bump in terms of NOI. And that's where I think if I'm correct Mike some of that capex will come from as well.

Michael B. Haines -- Chief Financial Officer

Correct. That's correct.

Michael Bilerman -- Citigroup -- Analyst

Hey, Stuart, it's Michael Bilerman speaking.

Stuart A. Tanz -- President and Chief Executive Officer

Hey, Michael. How are you?

Michael Bilerman -- Citigroup -- Analyst

Good. So, I was going to ask about sort of leverage. And I think you guys talked in the opening comments about the desire to delever but that was going to be something maybe out further in the future when the equity was at a better price for you to do that. Stock's at $16 Fox pre-pandemic you were $18 to $20, so you're not too far off of where the shares were pre COVID.

How should we think about tapping equity either through sale of stock or through future sales of assets? And how should we think about sort of the leverage target which is both a debt to EBITDA, which obviously has two components, the debt load and growing EBITDA after the pandemic. But also debt to gross asset value. How should we think about the ranges that you want to be in and how you're going to get there?

Stuart A. Tanz -- President and Chief Executive Officer

Sure. Well, look we are going to continue to sell assets. We've got one in San Diego under contract. And depending on how the -- right now, we're seeing some nice -- the market is beginning to unfreeze. And from a demand perspective it's all about grocery drug in terms of buyer demand. So, as that demand continues to pick up we will accelerate sales of a number of assets Sacramento potentially other assets within our portfolio. So, that will help the delevering aspect of our portfolio and we're focused very much on that.

In terms of stock I mean obviously when the opportunity arises we will look at potentially hopefully sell -- get some equity in terms of selling some stock. But as you articulated we're not yet back to where we're at but our ATM is active. And if the right opportunity arises depending on the other side of the pipeline in terms of buying we may accelerate some of that as well. In terms of a range we're comfortable in the mid-6s from a net debt to EBITDA perspective and I think we're making good headway there.

We're anticipating that with the sale of assets and with the fundamentals on the West Coast getting better which hopefully increases that collection rate now into the mid-90s we think we'll probably be in a pretty good shape given our payout ratio that we'll be able to conserve more cash and that we'll get to that target much quicker as we get through the year. So, I hope that answers your question.

Michael Bilerman -- Citigroup -- Analyst

Yeah, it sounds like you put the payout ratio deliberately low to raise that cash today rather than paying it to shareholders to delever the balance sheet even though the yield is going to be below peers maintaining that free cash flow to delever versus raising equity was a better source. Is that fair?

Stuart A. Tanz -- President and Chief Executive Officer

Absolutely Mike. You hit it right on the button.

Michael Bilerman -- Citigroup -- Analyst

Thanks.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Todd Thomas from KeyBanc Capital. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Hi thanks. Good afternoon, good morning. Just following up real quick on some of the commentary around the disposition. Stuart, curious who are the buyers of assets the buyer profile for the San Diego asset under contract? And also what you're seeing on the market now are you seeing institutional capital step-in high net worth? What's the buyer profile look like?

Stuart A. Tanz -- President and Chief Executive Officer

It's both. It's 1031 and it is Institutional Capital. The San Diego property is being purchased by Institutional Capital. But it's really a combination of both that is becoming very active. And the only place we're really seeing it active because there's no -- because the financing market really isn't there for anything, but grocery drug-anchored assets is that segment of retail. That's where the activity is right now.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. All right. And then, Rich and Stuart, I guess appreciate the commentary around collections and the portfolio's lease rate. As restrictions are eased and we move further into reopening, do you have a sense for how much fallout or at-risk occupancy there is embedded in the portfolio in the near term relative to the 92.8% year-end billed rate?

Richard K. Schoebel -- Chief Operating Officer

I think we're -- this is Rich. We're expecting that we're going to be able to keep the portfolio lease rate reasonably steady throughout the year. We're estimating around the 96% range. There will be some continued fallout here probably into the end of the first quarter. But as I think we've talked about in the prepared remarks the leasing team is very excited about the level of inquiries they're receiving and the number of people looking to secure space.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And Rich, do you expect the releasing rent spreads throughout 2021 to continue to be impacted by tenants looking for flattish renewals? And it sounded like in exchange for flat renewals on some deals you've been able to get stronger annual rent escalators later in the lease. Is that expected to continue? Do you anticipate those trends to continue?

Richard K. Schoebel -- Chief Operating Officer

Yeah. I mean, I think that obviously every situation is unique, which is what we tried to touch on in the prepared remarks and every operator's impact from shutdowns and the rest are different. But on average, we're expecting that our releasing rent growth will remain in the 10% range.

Stuart A. Tanz -- President and Chief Executive Officer

I mean, historically as you probably know, most of our assets have been 100% occupied historically. And what we have found is as we -- a little vacancy has popped up in some of these assets due to the pandemic. The overall demand has really been strong. If we come out of this pandemic a bit earlier than anticipated, by summer, I think that the pent-up demand on the ground for that space is going to pick up at historical levels than maybe we haven't seen. And if that occurs Todd, then releasing rates will move in a much higher direction very quickly.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Okay. And just one last one. Can you just describe some of the demand that you're seeing the tenant demand and provide some color I guess on the new opens and the leasing pipeline in general in terms of the types of tenants, the categories that you're seeing show up?

Richard K. Schoebel -- Chief Operating Officer

Sure. So I mean, again it's very broad-based. And even given all the negative press out there about certain categories, we still have strong demand across the board. And that's coming from restaurant, tenants, fitness medical is still a very large -- pet. Across the board, we're seeing tenants that are ready to step up and backfill these spaces because they're looking toward the future. They're not looking back.

Todd Thomas -- KeyBanc Capital Markets -- Analyst

All right. Thank you.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Juan Sanabria from BMO Capital. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Juan.

Juan Sanabria -- BMO Capital Markets -- Analyst

Good morning, gentlemen. Just hoping to piggyback on Michael's question earlier around the dividend, so just want to make sure I understand. So the dividend is going to be kind of at this level which you're assuming is equivalent to your -- the tax threshold for the year? Or is it something that you're going to reassess quarterly?

Stuart A. Tanz -- President and Chief Executive Officer

We will reassess this quarterly. Depending on how strong the fundamentals get and how fast we come out of the pandemic, we will then -- obviously the Board makes that decision. But if things do start to look much better, as we move through and into the summer, then obviously we will look at readjusting that dividend.

Juan Sanabria -- BMO Capital Markets -- Analyst

Okay. But the goal would still be to keep it low to retain cash to help deleverage that. Is that fair?

Stuart A. Tanz -- President and Chief Executive Officer

Yeah, that is fair. And currently in terms of with the -- the time element that we're in right now. But if things do change, we have that flexibility if we need it.

Juan Sanabria -- BMO Capital Markets -- Analyst

Okay great. And then I was just hoping you could talk to a little bit to January rent collections to start. Maybe help us give some context in terms of where you were at this point in December to start that month. Or if that -- on the same relative timing basis. And just is there any increased distress or something that -- it sounds like the collection maybe dipped a little bit temporarily in January. Is that fair?

Stuart A. Tanz -- President and Chief Executive Officer

Yeah. I mean look, as you probably know or maybe you don't, California shut down its economy mid-December. And so that had a bit of an impact in terms of collections in January. The good news is that our governor reopened up California. It's really coming from California more than the Pacific Northwest. And that's what really had an impact. But the good news is that as we move through the balance of this month and into the last month of the quarter, we're seeing that accelerate.

And as we've seen throughout the year because deferrals and sitting down with tenants takes time, those dollars typically flow in a bit later than usual. So I'm expecting and we're expecting that collection rate will continue to build as we go through the quarter. And I'm hopeful that by the time we get to our next earnings call that number certainly should be in line with where we left off in the fourth quarter.

Juan Sanabria -- BMO Capital Markets -- Analyst

And just one last one for me. On the densification efforts, any color on potential spend that you're marking for 2021?

Stuart A. Tanz -- President and Chief Executive Officer

Rich, do you want to talk about any capex?

Richard K. Schoebel -- Chief Operating Officer

This is why we're not expecting to break ground, so the spend is relatively modest in terms of the entitlement process. I don't have the specific number here in front of me but it's -- the big capital spend will be coming in 2022 into 2023.

Stuart A. Tanz -- President and Chief Executive Officer

Yeah. I think last year Mike, if I'm correct, it was about $1 million, if I'm correct just over $1 million in terms of spend. And now that most of that spend is done at this point, it's really moving into the next phase which is permitting. And that's why there won't be much capital spend from that perspective.

Michael B. Haines -- Chief Financial Officer

Correct. Yeah, that's right.

Juan Sanabria -- BMO Capital Markets -- Analyst

Thank you.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Mike Mueller from J.P. Morgan. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Hey, good morning, Mike.

Mike Mueller -- J.P. Morgan -- Analyst

Hey, good morning. So a couple of questions. First, where do you think the 92.8% occupancy trends in the first half of the year? And Stuart, I think you've used this term kind of getting back to normal operations by mid-year. What exactly does that mean? Does that mean so by mid-year, your occupancy troughs and everybody is in place today all of a sudden starts paying rent. So the bad debt reserve evaporates? Or just how should we get our arms around normal operations by mid-year?

Richard K. Schoebel -- Chief Operating Officer

Well, yeah, as it relates to occupancy, we still feel pretty good about maintaining our range of 96% plus or minus quarter-by-quarter this year.

Mike Mueller -- J.P. Morgan -- Analyst

Okay. And on the 92.8%, on the actual occupied level, do you see that drifting down in the first half of the year?

Stuart A. Tanz -- President and Chief Executive Officer

I think it will dip down a touch in the first quarter. But as long as we don't go back into another lockdown Mike, I truly believe what we're seeing right now on the ground that will accelerate as we move into the second quarter, if there isn't another lockdown. I mean, it's amazing. When they turn things off things stop. But when they turn things on, it's amazing how fast and how much demand accelerates. And what we're hearing on the ground from our leasing staff right now is things are -- have accelerated a lot over the last several weeks. So it's just really all about staying, where we are and opening up the markets further. And we feel pretty good in terms of what we're seeing out there right now.

Richard K. Schoebel -- Chief Operating Officer

And there are several tenants that were hoping to open last year that are basically teed up and ready to go, so we do think that those will open fairly quickly as these restrictions are lifted because they've really just been waiting for those restrictions to be lifted.

Mike Mueller -- J.P. Morgan -- Analyst

Got it. Okay. I think that's it. Thank you.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Operator

Our next question comes from the line of Paulina Rojas Schmidt from Green Street. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning.

Paulina Rojas Schmidt -- Green Street -- Analyst

Good morning. Hi, Rich.

Richard K. Schoebel -- Chief Operating Officer

Hi.

Paulina Rojas Schmidt -- Green Street -- Analyst

Hi. Your base rent for the quarter showed a greater decline both year-over-year and sequentially than what your occupancy losses would suggest. Was it due to low rent collections from your tenants on a cash basis? Can you please provide a brief update in terms of composition as percent of rent collections, how they are trending for this group please?

Stuart A. Tanz -- President and Chief Executive Officer

Well, I'll let Mike talk about the base rent. In terms of the tenant base, we actually have a very detailed page on that in our supplemental package. It's broken down by tenant category and it gives you the trends from the start of the pandemic all the way through to where we're almost at today. And primarily, what we see there, it's just the -- it's the lockdown. It's still the tenants in our portfolio, a couple of theaters, some fitness, a couple of hair salons, nail salons and full restaurants. That's really where the impact is coming from in terms of composition. In terms of the base rents, Mike?

Michael B. Haines -- Chief Financial Officer

Yeah. I think if I understood your question is that the Q4 base rent declined greater than the occupancy. And I think that's probably due to timing of when abatement agreements were actually entered into. So, there were some abatements that were recorded in the fourth quarter, which pulled in some periods prior to that. So it looks like fourth quarter is artificially depressed because of that. It's a time issue when those agreements are actually entered into.

And then, as far -- I think you had a question about any tenants on a cash basis. And then given that we've been consistently collecting about 90% of billed base rents through the pandemic and that the bulk of our tenants make up that 10% are opening back up, we don't expect that there'll be a need to shift any tenants to a cash basis at least not in any significant way.

Paulina Rojas Schmidt -- Green Street -- Analyst

Thank you very much. That explains it. And then, if I look at the -- your percent of billed rents collected by category, I see that sporting goods stores there the collections declined quite significantly between 3Q and 4Q. And was that explained by a particular tenant? Or if you could share any detail about that it would be helpful.

Stuart A. Tanz -- President and Chief Executive Officer

Go ahead, Rich.

Richard K. Schoebel -- Chief Operating Officer

So that was driven by actually just one national sporting good anchor tenant that we have that because of the shutdown in the fourth quarter hadn't paid their rent yet. We expect to have that resolved with that tenant very soon.

Paulina Rojas Schmidt -- Green Street -- Analyst

Thank you very much.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you.

Richard K. Schoebel -- Chief Operating Officer

Thank you.

Operator

Your next question comes from the line of Linda Tsai from Jefferies. Your line is open.

Stuart A. Tanz -- President and Chief Executive Officer

Good morning, Linda.

Linda Tsai -- Jefferies -- Analyst

Good morning. In terms of acquisitions, you're looking to exit Sacramento, but of the other markets you're in already all else equal, which...

Michael B. Haines -- Chief Financial Officer

You broke up a little.

Stuart A. Tanz -- President and Chief Executive Officer

You broke up Linda, a bit there. We didn't get the actual question. Can you just repeat that please?

Linda Tsai -- Jefferies -- Analyst

Sure. Sorry about that. Just in terms of that -- want to leave Sacramento, but of the other markets you're in all else equal which are you most interested in?

Stuart A. Tanz -- President and Chief Executive Officer

Well, it's not so much the markets. It's really the shopping centers themselves. I mean it's really looking at the internal growth going forward in these assets and how much growth there is. I mean if we see assets that are fully leased stabilized and don't have much growth going forward those would be a candidate to sell. So it really has to do with internal growth as it relates to selling these assets and then redeploying that into assets where we can see a growth rate that would be much higher. And in terms of Sacramento, we're down to only two shopping centers there and we believe we'll be able to get -- finally dispose of those depending on the market of course, but that's the top of our list this year in terms of selling those assets and taking that use of proceeds and paying down debt on our balance sheet

Linda Tsai -- Jefferies -- Analyst

And then just in terms of overall demand from what sectors are you seeing increased tenant?

Richard K. Schoebel -- Chief Operating Officer

So it's pretty broad-based, again as I mentioned a bit earlier the -- it's coming from restaurants and fitness and medical and including veterinarian. So it's -- the whole gamut of operators that are looking to secure these highly desirable locations within our centers.

Operator

Our next question comes from the line of Chris Lucas from Capital One. Your line is open.

Chris Lucas -- Capital One -- Analyst

Hi, good morning everybody.

Stuart A. Tanz -- President and Chief Executive Officer

Hey, good morning, Chris.

Chris Lucas -- Capital One -- Analyst

So, I guess Stuart encouraged that the municipalities you're working with are kind of moving at a better pace as it relates to some of the work you need to do for the densification. I guess, you guys have built a very large book-to-build level of revenue. I'm just curious as to how you're thinking about how quickly the municipalities you work with will be able to get the appropriate permitting done and get those tenants in. Is it going to be better than it was pre-pandemic? Or do you think consistent with what you guys were seeing pre pandemic?

Stuart A. Tanz -- President and Chief Executive Officer

It will be better because for two reasons, number 1, the amount of activity in these cities have slowed down considerably because of the pandemic. And although we find that staff may be working off-site, they seem to have a lot more time in terms of getting on the phone with Rich and I and others than before the pandemic. So building permitting is certainly giving more -- because that has slowed down substantially it's certainly helping a lot.

And then I think in terms of demand what we're also seeing is I think some of these cities are losing tax revenue. And I think that's also playing a role here that they really are trying to do everything they can to generate revenue going forward given the impact from the pandemic. So and that's what's really adding to this overall environment that we have found to be very favorable in terms of moving the entitlement process a lot quicker than we ever had anticipated.

Chris Lucas -- Capital One -- Analyst

Okay. Thanks. And then, hey, Rich on your tenants that are not open, are there any tenants that could open but don't because of capacity limits? Is there much of that in the portfolio right now?

Richard K. Schoebel -- Chief Operating Officer

Yeah. There's definitely a few tenants there that have been ready to open, but have either not opened due to hesitancy about shutdowns or they're just not allowed to open given the restrictions. So I think as Stuart touched on that is loosening up across the West Coast and the tenants are gearing up to open. Many of them are sitting there ready to go just waiting for the ability to open.

Chris Lucas -- Capital One -- Analyst

But is capacity limits being a limiting factor to that? In other words if you're only able to run at 25% of their businesses tenants that you have that are saying that's just not good enough we need to get to something north of that?

Richard K. Schoebel -- Chief Operating Officer

Yes and no. I mean, a lot of the tenants like the restaurants and even some of the personal services are -- and through our initiative, we've made exterior opportunities available to them in the common areas, so that while they may be limited to 25% inside, they're able to make up the difference outside. But there certainly are some other tenants and the ones I'm thinking of would be like movie theaters, where it just really from their perspective isn't economical to open at 25%. But again, as that's loosened up, we're expecting them to open up. Luckily, we have very little exposure to movie theaters and some of these other categories like that.

Chris Lucas -- Capital One -- Analyst

Okay. And then last question for me. Just maybe sticking with you, Rich. When you guys look at new tenants, one of the things that's sort of been happening a little bit is, wage pressures have certainly been being led on the West Coast. Are you looking at concerns or do you underwrite for future wage pressure on some of the tenants that you're looking at? Or is that not a concern for you guys, when you're underwriting new tenants?

Richard K. Schoebel -- Chief Operating Officer

Obviously, it is a concern for the tenants themselves. We're not seeing that translate into the rent. And for the most part on the West Coast, the minimum wage is already at those levels or very close to them.

Stuart A. Tanz -- President and Chief Executive Officer

Yeah and have been for some time.

Chris Lucas -- Capital One -- Analyst

No understood. What you've seen some sort of temporary $4 increases in some municipalities and you've seen some grocers close because of that...

Richard K. Schoebel -- Chief Operating Officer

You're thinking about the hazard pay and the rest. Yes, we've not heard from the tenant base that that's an issue. Obviously, we've seen the press that's out there, but it has not impacted us.

Chris Lucas -- Capital One -- Analyst

Okay. Thank you for that. That's all I have. Appreciate it.

Richard K. Schoebel -- Chief Operating Officer

Great. Thank you.

Operator

We have no further questions at this time. I will now turn the call over back to Mr. Stuart Tanz, Chief Executive Officer.

Stuart A. Tanz -- President and Chief Executive Officer

Thank you. In closing, I'd like to thank all of you for joining us today. We truly appreciate your interest in ROIC. If you have any additional questions, please contact Mike, Rich or me directly. You could also find additional information in the Company's quarterly supplemental package, which is posted on our website as well as our new ESG report. Thanks again, and have a great day everyone and be safe.

Operator

[Operator Closing Remarks]

Duration: 51 minutes

Call participants:

Stuart A. Tanz -- President and Chief Executive Officer

Michael B. Haines -- Chief Financial Officer

Richard K. Schoebel -- Chief Operating Officer

Craig Schmidt -- Bank of America -- Analyst

Katy McConnell -- Citigroup -- Analyst

Michael Bilerman -- Citigroup -- Analyst

Todd Thomas -- KeyBanc Capital Markets -- Analyst

Juan Sanabria -- BMO Capital Markets -- Analyst

Mike Mueller -- J.P. Morgan -- Analyst

Paulina Rojas Schmidt -- Green Street -- Analyst

Linda Tsai -- Jefferies -- Analyst

Chris Lucas -- Capital One -- Analyst

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