Kimco Realty Corporation (HC)

Good morning and welcome to Kimco's first quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to David Brudnicki, Senior Vice President, Investor Relations and Strategy. Please go ahead.

Good morning, and thank you for joining KINCO's first quarter 2020 earnings call from wherever you find yourselves following social distancing guidelines. Obviously, hosting this call remotely from our homes is a new dynamic, and we hope to make the best of it, even with the occasional dog barking and kids yelling in the background. The Kimco management team participating on the call today include Connor Flynn, Kimco CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO, Dave Jameson, Kimco's Chief Operating Officer, as well as other members of our executive team that are available to answer questions during this call. As a reminder, statements made during the course of this call may be deemed forward-looking. It is important to note that the company's actual results could differ materially from those projecting such forward-looking statements due to a variety of risks, uncertainties, and other factors. Please refer to the company's SEC filings that address such factors. During this presentation, management may make reference to certain non-GAAP financial measures that we believe help investors better understand Kimco's operating results. Reconciliations of these non-GAAP financial measures can be found in the investor relations area of our website. And with that, I'll turn the call over to Conor.

Good morning, and thanks for joining us. Today, we will take a bit of a modified approach to our quarterly call. I will give you an overview of how we have confronted the challenges posed by COVID-19 and how we plan to move forward as the country begins to reemerge. Glenn will follow with a recap of the numbers for Q1 and our desirable liquidity position. First, on behalf of the entire Kimco team, I want to thank all the first responders, medical professionals, volunteers, grocery store workers, and essential retailers that risk their own personal safety to serve and help all of us. They are the true heroes, and their efforts should not be forgotten. And on a personal note, I also want to thank all of you for your support in my personal bout with the virus. Your emails, texts, and thoughts were as powerful as any vaccination and were a big part of my recovery. I would also like to recognize the entire Kimco team for their tireless efforts to ensure our centers continue to provide essential goods and services to our local community. All of our centers are open and operating, and we will continue to provide our shoppers, our vendors, our employees, and our extended Kinco family with a safe experience. Our best health and safety practices have been shared with companies, both small and large, so that we can help those with less resources and more critical needs. As an organization, we are battle tested, having successfully weathered both industry-specific cycles and macroeconomic downturns. That said, this current situation is unprecedented. and poses new challenges. We have been working seamlessly and remotely since mid-March, focusing all our efforts, as Milton reminds us, to survive so we can thrive. Our strategy is focused on exactly that, managing through the current environment with an eye to positioning ourselves to thrive when the economy opens back up. Our strategy for dealing with COVID-19 was one we implemented quickly to try and help those most in need. Time was of the essence on all fronts. and a wait-and-see approach was never considered. First, we prioritized liquidity. Glenn will give the details on how we bolstered our balance sheet, which included securing a well-timed term loan at very advantageous rates with extension rates. With a well-heeled balance sheet and cash position, Kempco will not only survive but is in a strong position to prosper. Moreover, we wanted to have available resources not only for our own use but to help our retailers. many of whom don't have the same access to capital. Next, we refocused our operations by shifting more resources to the front lines. Our team has worked tirelessly to develop new approaches and launch new programs that address the numerous tenant requests. Our significant investment in cloud-hosted technologies from companies like Salesforce, MRI, Microsoft, and Zoom have streamlined our operations and created efficiencies across the organizations. These investments have allowed us to roll out programs of size and scale rapidly across the country. In addition, we deployed custom-developed tools to help us manage and quickly address tenant communications related to COVID-19 concerns. All of this has provided us tremendous real-time data that allows us to react quickly and be proactive. We have led by example as a number of our peers are following our lead in technology, website architecture, and tenant assistance programs. Our Tenant Assistance Program, or TAP, is a multi-pronged approach to give our tenants the valuable resources in a time of need, free of charge. At the end of March, we encouraged our small shop mom and pops to embrace TAP, which provides them with a free legal advisor to navigate the numerous state and federal programs available for small businesses to help them weather this storm. We also engaged quickly to give these small businesses the opportunity to know that the rent for April was not hanging over their heads. so they can focus on the government assistance programs and try and keep as many employees as possible. In addition to legal advisors, we have helped identify lenders to work with our small shop tenants applying for the PPP loans. By our last count, just under 600 tenants have participated in the program. For the month of April, we have collected cash rent totaling 60% of our billed rent. We fielded rent deferral requests for 35% of scheduled rent from tenants and have worked out deferral plans that equal approximately 14% of the April rent. For the month of May, we are still in the grace period for a number of leases that allow our retailers to pay over the first few weeks of the month. To date, May rent collections are tracking near the same level as April through the first week of the month. Each of our deferral programs is confidential and cater directly to the needs of the tenant. We are in a very fluid environment, and we plan to proactively address the challenges ahead by quickly implementing any required changes while keeping an eye on the long term. As such, we don't want to speculate and instead focus on the facts and provide accurate information as the situation continues to unfold. We are working to maintain occupancy and bridge our tenants to the other side of the pandemic. We are also on the alert for dislocation opportunities. We have not seen any assets of quality trade in this environment yet, but we are ready if and when they present themselves. At the same time, until we get a clearer picture of the landscape, we have hit the pause button on assets we were considering adding to the portfolio before the COVID-19 crisis hit. Our development and redevelopment pipeline remains largely on track, and we're in the fortuitous position of having limited projects in the active phase. Our two main projects, Dania in Florida and Highland in Staten Island, are very close to completion and will be tremendous assets for Kimco long-term. After a temporary delay, we received approvals to continue construction at the boulevard at the former Highland Shopping Center, as it was determined to be essential due to the ShopRite grocery anchor. We are hopeful that this Signature Series asset will open later this year. At gaining a point, construction has been ongoing with urban outfitters and anthropology, beginning to build out their newly leased spaces. While we recognize that the pandemic may pose challenges surrounding the schedule of inspections and achieving final sign-offs, we remain optimistic that we're able to complete these two projects on schedule. As previously noted, we have postponed nearly $100 million of capital expenditures originally planned for this year as a way to further our already strong liquidity position. Our strategy of focusing on grocery-anchored centers and mixed-use assets continues to validate our approach as these assets are outperforming, especially in this current environment. Our first two Class A multifamily projects, Lincoln Square in the heart of Philadelphia and the Whitmer in Washington, D.C., are both operational, and despite the recent shelter-in-place orders, we've been able to continue leasing activity at both with virtual tours. Based on the success of both the Lincoln Square and the Whitmer, we are continuing to expand upon our existing 4,500 multifamily units that are currently entitled, and our new goal over the next five years is to have over 10,000 units entitled. Perhaps never before has the local grocery pharmacy and the central physical brick-and-mortar retail been more important. And while I anticipate e-commerce will continue to accelerate in this stay-at-home period of the pandemic, it is important to note that the lion's share of e-commerce deliveries are originating at the store base. We anticipate curbside pickup combined with click-and-collect to be another trend that will accelerate both during the current pandemic and on the other side. We have launched the Kimco curbside pickup program, and we are already working with our tenants to implement a proprietary system to provide for curbside pickup in our parking lot. We want to help our retailers embrace the new normal of retail and help them ramp back up sales upon reopening with a full suite of services that are now expected by our shoppers. We know the road ahead is not going to be easy, but with persistence and a laser focus on what we can control, we will be positioned to thrive over time. Glenn?

Thanks, Connor, and good morning. Clearly, we are all experiencing an unprecedented health crisis that is causing a global financial recession, or what some may view as a global depression. It is times like these that bring out the best in all of us. I echo Connor's sentiments in that we salute all the workers on the front lines who are caring for the sick and ensuring that we have the most vital essentials, such as groceries, medicine, and medical, office, and pet supplies. And I cannot be prouder of how the entire Kinko organization is handling this crisis. We are fortunate to have significantly invested in our technology infrastructure, which has enabled us to quickly convert from a multi-office setting to a work-at-home environment for 500 associates within 24 hours. What is truly amazing is we have never skipped a beat. As a matter of fact, communication and productivity across the entire organization is at the highest level. We've positioned the company to withstand the severity of the current situation and come out stronger on the other side, of which I will elaborate on shortly. 2020 was off to a solid start, as the first quarter results will demonstrate. Let me provide some color on the first quarter and spend some time on our balance sheet strength and significant liquidity positions. As a reminder, beginning in 2020, we are reporting only on NAREIT-defined FFO. If we recognize a unique transactional gain or charge, we'll definitely be sure to point it out. NAREIT FFO came in at 160.5 million, or 37 cents, per diluted share for the first quarter of 2020. This compares to 158.4 million, or 38 cents, per diluted share for the first quarter of 2019. Our first quarter results include a decrease in NOI of $7.5 million. This decrease was driven by net disposition activity during 2019, lowering NOI by $11.4 million and higher credit loss of $2.8 million, due in part from the bankruptcy filings of Pier 1, Models, and Fairway. NOI benefited from $3.1 million of incremental development NOI from our Lincoln Square, Dania Point, Mill Station, and Grant Parkway projects, and organic rental growth of $6.1 million. FFO for the first quarter of 2020 also benefited from lower G&A expense of $4.8 million and reduced financing costs of $5.8 million, with the latter resulting from the redemption of $575 million of perpetual preferred stock last year. We issued a $350 million 3.7% 30-year bond and 9.5 million shares of common stock at $21.03 per share to fund the preferred redemptions during 2019. The successful transformation of our operating portfolio has put us in a strong position to weather the COVID-19 impact, but we realize there remain challenges ahead. Pro-rata occupancy stands at 96%, down 40 basis points from a year ago, but flat to 331.19 results. Anchor occupancy is at an impressive 98.6%, down 30 basis points from year end, but up 80 basis points from a year ago. Small shop occupancy is at 88.8%, down 50 basis points from year end, primarily due to the vacates from Dress Barn and Pier 1. Pro rata leasing spreads remain strong during the quarter at 7.3%, comprised of new leasing spreads of positive 13.3% and renewals and options of a positive 6.8%. Same-site NOI growth was positive 1.5% for the first quarter of 2020 versus a comp of 3.7% in the same quarter last year, primarily driven by minimum rent increases, which contributed 230 basis points, and increased percentage rent, which added 30 basis points. Offsetting these increases in same-site NOI is higher credit loss from the bankruptcies previously mentioned. All in all, a solid first quarter. Now let's spend some time on our balance sheet and sizable liquidity position. During the first four months of 2020, we have significantly fortified our liquidity position with the execution of four key transactions. In January, we completed the $225 million refinancing for our Kier joint venture, comprised of a $75 million five-year unsecured term loan used to pay off maturing mortgage debt, and a new $150 million four-year plus one-year option unsecured revolving credit facility with zero drawn on it. The pricing for the term loan is at LIBOR plus 135, with the revolver pricing at LIBOR plus 120 basis points. In February, we completed a new $2 billion revolving credit facility priced at LIBOR plus 77.5 basis points. It's due in 2025, including options. and replaced our previous $2.25 billion revolver, which was scheduled to mature in March of 21. We ended the first quarter with $675 million drawn, including $300 million drawn in mid-March as a precautionary measure as the COVID-19 crisis was unfolding. Earlier this month, we subsequently repaid this $300 million. In April, we closed on a new $75 million mortgage on a joint venture property, replacing a $66 million secured loan that was the largest individual joint venture debt that was scheduled to mature in 2020. The new seven-year loan has a fixed rate coupon of 3.13%. And then lastly, in April, we completed a new $590 million term loan priced at LIBOR plus 140 basis points with 15 banks participating. This loan has a final maturity date in April of 2022. As of today, we have nearly $600 million of cash on the balance sheet, $1.6 billion of availability on our revolving credit facility, and over 320 unencumbered assets, which represents approximately 80% of our total NOI. Combined, we have the most liquidity by far of any REIT in the open-air sector, and it puts us in excellent shape to withstand the crisis, assist our tenants who need the most help, and provide maximum flexibility to be opportunistic should suitable transactions arise. Our weighted average debt maturity profile is 10.1 years, one of the longest in the entire REIT industry, and we only have $114 million of prorated debt maturing for the remainder of 2020. In addition, we have significant cushion with respect to our bank and bond covenants and are confident that we could access the unsecured bond market if we deemed it desirable. As previously announced, as a result of the uncertainty and lack of visibility regarding the extent of the COVID-19 impact, we have withdrawn guidance for 2020. In addition, out of abundance of caution, the Board has decided to temporarily suspend the common dividend. The Board will monitor our performance and economic outlook on a monthly basis and intend at a later date to reinstate the common dividend during 2020 to an amount at least equal to our re-taxable income. Certainly there are many unknowns, including the timing of the country reopening, the pace of getting back to some semblance of a new normal, and the financial health of specific companies. But we remain confident that with our abundant liquidity position, long debt maturity profile, superior portfolio, and incredible team, we will, as Milton says, not only survive, but thrive. And with that, we'd be happy to take your questions.

Before we start the Q&A, I just want to offer a reminder that you may ask a question with an additional follow-up. If you have further questions, you're more than welcome to rejoin the queue. Grant, you may take the first caller in the Q&A.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Christine McElroy with Citigroup. Please go ahead.

Hi, good morning and thank you. So, Connor, I guess this is for you. We've seen April collection rates from you and all of your peers. The variance among the group is not that wide, but it's there. How should the investment community be looking at April collections in the context of what the most important thing is, which is ultimately the entire collectability of these rents? So some national tenants are playing hardball but should ultimately be in a position to pay. you know, while local and maybe regionals are getting a little bit more support from the government and landlords? What are sort of the most important factors we should be considering ultimately?

Hi, Christy. It's a good question. I think, you know, it's so early on in the pandemic that the first month of collections that everybody's tracking should be taken with a grain of salt, I think, because the real question mark is how long this will last and how deep it will go. And so we're still sort of in the early innings of it. And you're spot on in terms of the lion's share of what we did early on was to help our small shop tenants. Because we felt, you know, we've been pretty clear from the get-go that we think our large national retailers who have the balance sheets and the cash on hand positions to pay their rent should pay their rent. So we can use our balance sheets to go and help the small shops, the ones that don't have the balance sheet or the cash positions to weather the storm. And so the first month that you're seeing being reported is, I would say that the lion's share of the numbers that are reported probably capture something similar where the bigger players are paying a portion or all of their rent, and then the smaller mom and pops are probably working through this to try and make sure that they survive and get to the other side of it. So as it progresses, I think obviously May will be important in June, and the reopening will be critical, right? So you've started to see now a few states start to reopen. And anecdotally, we've heard a few of our retailers say, from store managers say that, you know, so far so good. They've been pleasantly surprised. So we continue to monitor the situation. But, again, take it with a grain of salt that it is extremely early.

Okay. And then about half of your projected CapEx reduction is in leasing CapEx products. How much of this is a function of just you expect lower leasing volume in this environment versus a concerted effort to pull back on leasing incentives? And in that context, how much is the current environment where many tenants are not respecting that long-term lease contract? How does that change your view on the economics and the risk associated with some of these upfront leasing costs and how much you're willing to invest?

Hey, Christy, it's Dave. So it's a... bit of a layered question, so let me just try to break it down a little bit to make sure I address everything that you did ask. As it relates to the leasing CapEx right now, a lot of that is deferred CapEx that not necessarily we won't be doing, but will probably be pushed into 21. We are anticipating that there will be some delays in terms of RCD commencements and or the leasing volume itself may be accelerated in the back half of this year as we start to get better visibility into the situation with COVID and the reopening of markets and then targeting those retailers that are actively looking to expand because there are a number of them that are looking at this as a real opportunity to continue to strengthen their own brick-and-mortar portfolios. So that's where we'll typically see it. As it relates to sourcing the deals and how we evaluate new deals going forward, You know, we've always taken a very hard look at the quality of the tenant and their balance sheet, and that will continue throughout this. It's always been a historic focus, and it will remain a focus because it's really at these times is where that matters most. And those with the strong balance sheet and great operating fundamentals will be the ones that continue to thrive, you know, during this time and then on the back end of it as well. Thank you.

Our next question will come from Greg McGinnis with Scotia. Please go ahead.

Hey, good morning. Glenn, Kenco's done a really good job in making sure that liquidity survives. This is not necessarily a unique position for Kenco operating in this difficult environment, but how are you thinking about managing leverage throughout the shutdown once we get onto the other side of this pandemic? And then, Ross, if you wouldn't mind commenting on the transaction environment, your ability to help fund any expenses with dispositions that be appreciated as well.

Thanks. Hi, Greg. I mean, look, leverage has always continued to be a focus for us. The liquidity that we have right now has not had an impact on leverage because you have – it's really net debt, right? You have cash that we've put on the balance sheet or debt that we've repaid with some of that liquidity. So we really haven't moved, leverage really hasn't moved, and you see that both in the numbers at the end of the first quarter and where I would expect it to be even at the end of the second quarter. Again, leverage is an important thing. We keep a very close eye on it. You know, we are a strong BBB plus BAA1 rated company, which is important to us. We still have desires to get us to a positive outlook, and I think we're doing really all the right things around that where the rating agents will see a difference. I mean, they're, you know, tapping the bank market and having 15 banks participate in this environment is fairly unique. I do feel, as I mentioned in my prepared remarks, that we have clear access to the bond market if we wanted to do it. So, and, you know, again, we feel like we're in pretty good shape on that standpoint, and leverage will continue to be a focus of trying to reduce it further.

Yeah, as it relates to the second part of the question, I would just say that the current market is really taking a bit of a wait-and-see approach to really better determine the longer-term impacts to cash flow, to tenancy. We have seen a few smaller deals trying to structure around the situation with master leases, escrows, or holdbacks, but it's really a pretty de minimis component of the overall transaction market. In terms of our own portfolio and utilizing dispositions, I mean, we are extremely confident in the portfolio transformation that we've undertaken over the last, you know, five to seven years. As you know, our intent coming into this year pre-COVID was to have a very modest level of dispositions, and really that hasn't changed even in the midst of this. You'll see a very light second and third quarter from a disposition and transaction overall. As we get into the fourth quarter, we may evaluate a couple of deals if the market, you know, defrosts to a certain extent, but we do not anticipate utilizing dispositions as a major funding mechanism in any, you know, meaningful way.

Great. Thanks. And Connor, you've shown a clear focus on helping out those smaller shop tenants, and I'm just curious how successful Your tenants have been at obtaining the PPP funds with guidance from the tenant assistant program. Do you have any stats on maybe how many tenants have applied for and received funds?

Yeah, it's obviously something we focus on. And I'll tell you that the first round was uninspiring because, you know, typically as you've seen some of those stats come out, it sort of reflected exactly what we saw in our small shop tenants, that around 5% of them were only successful tenants. in the first round. But the good news is we've seen quite a few be very successful in the rounds following it. And we think that since they've made tweaks to the program and it's been more focused on the small shop and the small restaurant and the mom and pop, we think that they have the tools now to get through the window and be successful on obtaining those funds. So we're cautiously optimistic that obviously they did it extremely fast and had to get it out there, and there were some loopholes in there that people took advantage of. But now we think that the small shops that we have have the right tools in place and are ready to go and hopefully get the PPP loan so that they can make it to the other side of this. So we're cautiously optimistic that they've made the changes needed.

All right.

Thanks for the call, guys.

My next question will come from Alexander Goldberg with Piper Sandler. Please go ahead.

Hey, good morning and thank you. First, just on the dividend, you guys suspended the common dividend, but it sounds like you're still going to pay the preferred. So based on where you've paid the common so far and presumably you're going to pay preferred the rest of the year, do you guys need to pay a common dividend to balance the year to satisfy tax compliance with REIT status?

Hi, Alex. It's Glenn. Based on where we are currently and based on our own internal forecast, the answer is yes. We would still need to pay a further dividend to cover taxable income.

Can you share how much? Are you close to the line or are you still on the tee box? We can't share that, Alex.

Honestly, Alex, again, it's too early. There's a lot of moving parts that go into it, but as I mentioned, we would still need, based on the current forecast, there would be a need for further dividend to make our distributions equal 100% of our taxable income.

Okay, great. And then the second question is, you know, just in speaking to, you know, REITs, you know, other REITs out there, it sounds like tenants have credit as part of their bank lending They have to be, you know, current on all of their leases, et cetera. But some of the tenants have been seeking waivers from their creditors so that if they don't pay their leases, they're not in default of their credit. Do you know how many of your tenants have sought those waivers out from their banks?

We don't. We haven't really had that discussion with the retailers, and they haven't brought it up to my attention.

Okay. Thank you.

Our next question will come from Rich Hill with Morgan's Family. Please go ahead.

Hey, good morning. And, Connor, I'm glad to hear you're feeling better. I want to come back to – to start off coming back to a question Christy asked about maybe ability to defer expenses. I'm thinking back to, you know, how much CapEx you were able to reduce during the GFC period. But maybe, Connor, if you're thinking about fully loaded CapEx, both reoccurring and then development and redevelopment CapEx, how much do you think you could reduce that from your run rate in 2019?

Thanks for that. It's nice to be back in the saddle, that's for sure. Look, we look at our CapEx and our OpEx really on a site-by-site basis, and we have multi-year CapEx and OpEx plans. And so what we do is we go through that in detail to figure out what is required to be sure that the operating plan keeps the shopping center as safe as possible, making sure that the required upgrades are done and that the needs and the wants, I guess, are separated. So we obviously prioritize the needs and then we push out the wants. And that's just on the capital plan for each and every asset. On the offensive CapEx, where we look at our development and redevelopment plan, you know, we continue to think that our asset base is ripe for redevelopment. And as I mentioned in my comments, we think we're really only in the early innings of the entitlement plans that we've played these last few years. We've been successful with gaining traction on the multifamily entitlement plan. We think that we're, again, probably going to double the amount of entitlements in the next few years, mainly because we see the path ahead. Now, the question is, is how much of that can we activate and how much would we put in the active pipeline? In this environment, we're probably going to hit the pause button on taking on projects ourselves. But we may look at ground leasing or doing some other projects that way that limit the amount of capital that we would have to implement to the project. But look at the value creation over the long term. And again, it's all about the long term here. We know that we're in an unprecedented situation. But Typically, what we've seen in the past, at least when I was out west when we went through the last crisis, we were very, very successful on the entitlement plans during the downturn. Many times, cities and states are in desperate need of raising taxes and capital, and they loosen up their grip a little bit on the entitlement plan. So, we might be actually even more successful on our entitlements in a situation like this than we even expected. The key for us is securing the entitlements. And then, as we've talked about before, it's that decision tree of where our cost of capital is. And do we elect to sell the entitlement rights? Do we elect to ground lease the entitlement rights? Do we elect to joint venture the entitlement rights? Or do we elect to self-develop? And I think in this current situation, the likelihood of doing self-development is very slim. But we do think that long-term value creation on entitlements is critical to our success and critical to our shareholders.

I think that's a pretty helpful color. I wanted to talk about your negotiations with tenants, maybe not just what you're hearing currently, but I think what I'm certainly trying to understand and what I think a lot of us are trying to understand is, you know, does the structural dynamic change over the medium to long term? So I'm curious, are you hearing about any tenants wanting to stay in your properties but maybe go to more of a percentage rent structure or any tenants asking for lower rents? I would think that there was a fair amount of tenants that still are very viable and want to be involved but are maybe needing a little bit more cushion than they did previously. So I'm curious, are you engaging in any of those discussions yet or is it still too early days?

Yeah, this is Dave. Great question. It is very much still the early days. I mean, when despite it feeling like almost a decade that we've been through this, it's really only been about six weeks. So keeping that in context, you know, the way we've approached this is really wanting to take a very methodical and measured approach one month at a time, have those discussions as needed as they arise, and then we continue to get more visibility into you know, through the course of the summer and then into the fall to better understand exactly what the outcome and the long-term implications will be. From the retailer side, you know, they, a lot of our retailers, again, as I mentioned earlier, see this long-term as an opportunity to continue to strengthen their portfolio and will be wanting to expand, and they are starting to reopen their locations as markets start to open as well. So You know, for us, it's going to be a very measured approach. And as we get further along, we'll have better visibility into the longer-term outcome.

Okay, one point just to add to that. I think it's important to know, and retailers are prioritizing this, is they look at their opportunity set and they see their boxes. And the differentiator for Kimco is that we have third parties validate that our market rents on our anchor boxes are 55% below market. And so when they look at their fleet of stores, they recognize which stores they need to protect because they're not going to be able to replace that type of economic deal. And so I think one thing you're probably going to see is there's going to be a limited amount of landlords through this, as well as on the other side of this, that have the capital to invest in some of the larger and the junior box type of deals that are out there. So I would anticipate that you're going to see those anchor tenants, those junior anchors, that are successful, prioritize the spaces that they have that are either on ground leases or significantly below market rents. And we think that's a differentiator for Kimco.

Got it. Very helpful, guys.

Thanks again. Our next question will come from Craig Schmidt with Bank of America. Please go ahead. Thank you.

On the deferred rental agreements issue, When are you generally targeting for the payback of the deferred rent? And are you getting any other control rights as you enter into these deferral agreements?

Yeah, this is Dave. Hey, Craig. It really is a case-by-case analysis. We treat each retailer on its own in those discussions. And so, you know, they will vary based on needs and wants on both sides. And, again, we wanted to take a very measured approach. approach here, just addressing it one month at a time.

Okay.

We have seen opportunities, Craig, to recapture control areas and things like that that would open up some redevelopment entitlement opportunities. But as Dave says, it really is every individual tenant, every site, every lease is a little bit different. So you have to go, you know, one by one.

Okay, great. And then just Turning to the Kimco's curbside pickup program, I wondered how you're monitoring it, and does the national rollout seem to be imminent?

Yeah, yeah. So we first launched it in Texas. Now, in Texas, it's going to be one of the first markets to open and require curbsides. So Grand Parkway is actually fully deployed at this point. with stalls in play. And as those retailers have started to open, we've seen both local and nationals utilize it. We anticipated curbside to be a trend into the future at some point. It's been an ongoing dialogue for years now at various events and in our conversations with our retail partners. COVID, what that did was really just accelerate this trend that was imminent. And so for us, we were able to get out in front of it very, very quickly because we were already working on plans to deploy. And our system being centralized, we're able to offer those retailers specific zones in which they can utilize for their curbside pickup, and then they communicate directly with their shoppers on what zones to go to, and then those shoppers call the retailer to identify exactly what stall they're in. So, you know, thus far it's early, right? We're about a week or two into our initial deployment in Texas, but the response right now has been very favorable. And as it relates to the balance of the national program, we've been already in process with that, and we'll have, again, a very measured approach on that rollout. But, you know, the way the trend is going is that curbside will just be one of those other tools that retailers and landlords will be working collectively to ensure that we service the customer in the best way possible.

Yeah, Craig, I think it's a way to get customers more comfortable coming back to the shopping center as well. So, you know, one of the key challenges that we focused on is helping our small shop tenants as well as getting the customer to a level of comfort so that they can go back to their daily needs and services when the states are allowed to open back up. And we feel that because most of our grocery stores, our big box tenants and our home improvement centers have been open through this that the customer is actually comfortable with that program that they've been very successful. Our retailers have reported a 200% plus growth in curbside pickup. So we figured why not take the best practices of our largest national tenants and share that with our small shop tenants so that they can hopefully rebound quickly. and that we also invite the customer back to the shopping center in a way that gives them the comfort level that I think is going to be required to make sure that we rebound as quickly as possible.

Yeah, it does seem like a good way to facilitate towards the reopening. Thank you for your comments.

Our next question will come from Samir Connell with Evercore ISI. Please go ahead.

Good morning, guys. So, Connor, I guess the question I had was on co-tenancy risks. I mean, how should we think about that? I guess in the portfolio, especially as it relates to some of the bigger, you know, the voucher centers or the newer developments that you had, I assume there are leases that are tied to some of these non-essentials, right? The gyms, the theaters, I mean, if they were to potentially restructure or even close doors, I mean, how does that trickle through, I guess, the the rents of the other tenants there.

Yeah, co-tenancy risk for us is pretty minimal. When you think about the way that co-tenancy has been drafted in a lot of these leases, it does vary case by case. But predominantly across our portfolio, a co-tenancy clause has a number of tenants having to go dark in order for it to be triggered. And so if you think about that typically a shopping center has maybe three to five anchors typically a co-tenancy clause in our portfolio needs at least two to three of those anchors to be dark in order for it to be triggered. And we do come into this, you know, from a position of strength. If you think about the multi-year repositioning that we've gone through, if you think about the balance sheet and how we position this to go along, and if you think about our occupancy from an anchor perspective at over 98%, you know, in a lot of ways we've been preparing for this. Now, we knew that the cycle was going to end. We never would have guessed it was going to end this way. But in a lot of ways, we've been preparing for this. And a lot of the deferral programs that we've been talking to tenants as well are allowing us to sort of water down those co-tenancy clauses or give us even a little bit more strength on the other side of it. So hopefully that helps.

Thanks for that. I guess my second one is on the grosses, right? I mean, can you provide an update on maybe even Albertsons here? What's the potential to even monetize that? That investment at this point, I mean, clearly the grocery sector has been pretty solid here during the pandemic. And then, you know, Albertsons has certainly reduced their debt position here. So how should we think about that?

Hi, good morning. It's Ray Edwards. How are you? I hope you and your family are safe and healthy. For Albertsons, I think you might have seen on Tuesday night they refiled and updated their S-1 based on the fiscal year end for them, which was in February. And they really have performed extremely well. Their comp store sales were up in March like 47%. And I think over the first two months, over 30%. And they've done a great job, as you mentioned, on the balance sheet in improving their debt profile. So they feel in a great position. you know, potentially on an IPO, but, you know, markets are the market. So we have to work with the underwriters, see what the right thing is to do on that front, and it will execute at the right time. But they're really focused right now on running the business, and it's much more complicated today for them than it was two months ago. So, you know, we want to, as owners, make sure they execute correctly and make the company as strong as it can be.

Thanks, guys. Appreciate the call.

Our next question will come from Mike Muller with JP Morgan. Please go ahead.

Yeah, hi. I know the game plan is for deferrals, but how are you thinking about the risk that, you know, with so many people out of work that this could turn into cuts and permanent closures if sales are slow to come back?

Yeah, hi. It's Dave again. So, again, it's so early in the cycle now. to really make any real forecast on what the longer-term outcome will be. So, you know, for us with the deferment program, we've been wanting to take it one month at a time, gain better visibility into the program, into, you know, how COVID is going to have these impacts on the retailers and employment, et cetera, longer term, and then in which case we'll be able to address that. But, you know, our focus has always been on the retention out of the gate as COVID started, and we're exhausting all of our resources to ensure that they have the appropriate support to survive and thrive through this, you know, long term.

Got it. Are you operating with the view, though, that this is worse than the GFC or better or just similar?

It's unprecedented in a lot of ways, and it's a very different outcome. You know, this was a You know, I think the Great Recession was a financial crisis. You know, this was a social crisis initially. And now, you know, we're starting to see how it evolves and how it plays. But it's still early days. So I'd hate to forecast exactly what the expectation would be longer term here until we start to see a little bit more in the future.

Hey, Glenn, I'll talk a little bit more, you know, to his point. Again, this is a health crisis that is turning into a financial crisis. A lot of these companies, you know, like really the strong retailers that many of them that are closed today, they're not closed because their business was bad or they had bad inventory. They're closed because of the pandemic that we're in. So it's very difficult to compare it to the great financial crisis. I mean, look at unemployment. Unemployment is at 14.7%. You know, you have 30 million people that are out of work temporarily or on furlough. But different than the great financial crisis, the government has been incredibly positive about pumping liquidity, helping the consumer, giving them $600 checks on top of the unemployment. So it is very different. Again, the end, though, is it's too early to really tell where we're going to come out. So we just take it a day at a time, a week at a time, and a month at a time.

Got it. Okay. Thank you.

Our next question will come from Derek Johnson with Deutsche Bank. Please go ahead.

Hi. Good morning, everybody. I wanted to go back to the tenant assistant program real quickly. How can it become more substance versus PR? And I say that respectfully, right? So how have you invested in tweaking the approach to filing for the program so that more tenants actually see relief in round two? And or, you know, is it a buy-in issue with local tenants? So bottom line, what can you do to generate a higher success rate going forward?

Yeah, hi, this is Dave. Sorry. And so, yeah, so with the program to start, the, you know, we had, as Connor mentioned in his prepared remarks, we have over 600 tenants already through the program itself or are participating currently in the program. To ensure that we bolster the effectiveness of it, too, we also aligned ourselves with local banks that seemed to have the greatest success early on in terms of getting the loans to the end customer, which was our retailer. When we look at the program to date, I think it has been very effective. We have over $20 million either approved and or submitted for loans. So when you think about substance, I think that's very substantive. And we continue to work through this. And if the program, as it relates to the government in terms of government assistance, continues to expand, we have the infrastructure in place to continue to support that and to provide further assistance to those retailers as they navigate the PPP process and the other submittal processes for assistance.

Okay, great. And then just secondly, you know, with respect to Albertsons, you know, if an IPO is successful, could you just remind us how your stake would be treated and or taxed?

Yeah, hi, it's Glenn. So, yeah, If something was to get done, you have to step back and look at where we are. We have a basis of about $140 million. A portion of the investment was previously held in the REIT. And then there's another portion that was in our TRS, which has now been merged back into the REIT. We know that based on the studies that we've done and where we stand, that the max tax is roughly $50 million in total on everything, irrespective of how big, how much capital you would get from a transaction. So what's going to happen is if it was to go public, the investment that we have today, which is on the cost method, would then turn into a marketable security, and you would mark to market the unsold shares on your balance sheet, and then the cash you're getting It's basically like a free equity offering. You get all this cash with no impact to NOI because we're not generating any NOI from the investment.

Thank you, guys.

Our next question comes from Jeremy Metz with BMO Capital Markets. Please go ahead.

Hey, morning. Hey, Connor, I was just hoping to get a little more color on the dividend here and the decision to suspend it versus possibly cut it. You know, you still have a decent amount of CapEx needs, even with the slight reduction you outlined. ASFO coverage was pretty tight before this. So was there a thought at all to use this opportunity to just set a right-sided now? And is that something, you know, maybe we should be looking at in the coming quarters? and therefore suspending was just the right first step, or how should we think about that? Hey, Jeremy.

It's a good question. Look, I think we're all very much in the early innings of this pandemic, and we want to get more color on how May plays out, how June plays out, and really see the amount of rent we're collecting before we can really get an understanding of hopefully how the economy opens back up and how our retailers respond. And so it's all about clarity. And I think the board has discussed a number of different scenarios of what may or may not happen. And the tricky part is nobody has a perfect crystal ball with what we're dealing with today. And so the suspension is exactly that. And we did comment that it will be reviewed monthly because we do want to keep the board in constant communication to understand all the ins and outs that we are seeing and the different scenarios that may play out. and the taxable income piece that's going to be critically important as well. So there's a lot of different scenarios that may play out. We think suspending it is the right move today. We think reviewing it monthly is the right move going forward, and that way we can move quickly if and when we need to, and we know we need to reinstate it. We made that comment before. We made it in the press release. We made it in our remarks. And so it will be reinstated in 2020, and we just have to understand what that level at the right point is going to be as things clear up a little bit more.

Yeah, that's helpful. And second one for me, in terms of the deferrals that were granted, the 14% that was mentioned, did this cover some tenants that were in the paying camp for April? And if so, how much is from that group that actually paid in April versus coming from that bucket that didn't?

Could you just, I guess, clarify the question? Just wanting to better understand what was asked.

Yeah, I think these deferrals get thought of as being granted towards the 40% that didn't pay you April rent, where in reality, I think some of the tenants that have paid did so to gain more favorable standing. And so I guess I'm trying to figure out if the deferrals that were granted, if some of those come from that tenant base that paid in April versus the bucket that didn't. Got it.

Yeah, it varies. It's really case by case. Sometimes in the early discussions, as all this started to unfold, some retailers tried to take a very hard position early on, and then that position evolved and changed, acknowledging that they had financial obligations to meet, and so they paid April rent with nothing tied to that. But it really is always a case by case, so it's hard to I'd say contextualize exactly, you know, it being one thing or another.

So just, I guess, so can we assume that there possibly were some tenants that paid as well that might get rent deferred for May or June? I guess that's where I was going with it is, are there potential future expectations we need to be thinking about from tenants that paid and not just so clean as this is a group that didn't pay and those are the only ones getting deferrals?

Yeah, yeah. I mean, that can very much be part of the discussion, as well as, as Connor mentioned earlier, you know, other considerations in terms of loosening restrictions within leases and providing more favorable terms to ourselves and the landlord that will enable us to do other things in the future. So, it's – all of those points are discussions and negotiating points on the table. Thanks, Jason.

Our next question will come from Vince Tabone with Green Street Advisors. Please go ahead.

Hey, good morning. Ross, could you provide a little more color on the conversations taking place in the transactions market today? How are people thinking about stabilized NOI and cap rates in this environment? Sure.

Good morning. I know it's early for you. You know, that really is the challenge today is that the lack of clarity that the retailers have, in terms of the opening, it's very difficult for an acquisition to take place when the NOI is so uncertain. So, as I mentioned previously, there are opportunities or attempts to try and box in what that risk may be. So, you have seen some conversations related to trying to understand which tenants are paying, which tenants are not paying, who you may want to try to box in an escrow agreement for or to cover some rent for a period of time. But I would say right now the vast majority of investors or owners that have capital are really a bit on the sidelines right now, just waiting to see how it unfolds. If there becomes a period of more distress or dislocation, I think we and some others are ready to take advantage of it. But right now, it's really been a situation where, you know, I heard a quote that I like that in the first quarter, the planes that were in the air landed and not a lot of planes have taken off since. So we're waiting to see when there's clearance to fly again.

Makes sense. I mean, in your mind, what needs to change maybe to unfreeze the transaction market? I mean, is it just more of, you know, country reopening, rent payment, you know, rent collection levels getting back to, you know, normal-ish levels? Or what's the biggest criteria in your mind to kind of get things moving again?

Yeah, first and foremost, there needs to be a comfort level in the country that it's safe to reemerge and to start shopping again and for these retailers to open. Even in some of the states and the counties where reopening plans have started to exist, not all the retailers have opened yet, even if they're capable or allowed to legally. So, We're still a little bit early in people getting comfortable, whether it be in testing capacity or ultimately a vaccine. So as soon as I think there's a return to normalcy and there's a better understanding of which retailers and which categories of retail will open and what that looks like. Are there capacity issues? Are F&B, you know, theaters, fitness going to be able to return back to 100% capacity? As soon as we have more clarity in that scenario – I think both investors and lenders will become a little bit more comfortable in loosening the purse strings and starting to invest again.

That makes sense. That's helpful, Keller. One more just quick one for me, if I could. What is the pre-leasing level at the boulevard? Has that impacted at all in recent months due to the pandemic?

Yeah, right now we're close to 90% on the pre-leasing with the boulevards. And nothing's changed at this point. So, you know, we continue to do our fit-out work with all the retail tenants, as Connor mentioned earlier. It was indecential. We got the waiver. ShopRite is underway. We're going through the inspections. And then for the balance of the shopping center, we continue to do our fit-out work.

Huge kudos to our team that went above and beyond to get those waivers because it was not easy to get it. expeditiously and get it, you know, back to having, you know, the construction workers on site was not easy. So I thank all the team that's been working on that because it's been pretty incredible to see how a site that was closed down in essence from the shutdown to quickly ramp back up was pretty impressive.

Thanks, Vince. We'll take the next question. The next question will come from Flores Van Jinkum with Compass Point. Please go ahead.

Hey, thanks, guys. Thanks for taking my question. Can you remind us, again, what your break-even rent collection is to cover your ongoing expenses? Hi, Flor.

If you look at like, you know, run rate, you know, total expenses, G&A, operating expenses at property level, interest expense, all that kind of stuff, it runs about 150 million a quarter. So, you know, somewhere roughly in around 50 million a month.

So what percentage of the cash rents would you need to collect it to get to that level?

Well, we're above that with our 60%, so we're more than where we are.

Is that in the, okay, but is that in the mid-50s?

It's probably around the 50% level. I don't have to do the math specifically, but it's around that.

Okay. Another question maybe for you, Glenn, as well. Your straight-line receivables, it doesn't appear like you've taken any write-downs on any of that. Could you walk us through how you think about some of your riskier tenancies and also maybe talk about that in terms of the bad debt, which was $4 million relative to the $1.7 million last year? How much of that? How much has the COVID impacted your thinking about your tenants?

Let me just talk generally about this AR reserves as it relates to us. We as a practice have always had reserves against straight lines. So the number that appears in our supplemental, that is net of reserves. So we have reserves up already. and pretty robust policies and procedures and how we analyze tenants as we go forward. Now, the pandemic makes us review those procedures and policies to make sure they're sufficient for the current environment. But we have always had, and we may be a little different than others, we've always had reserves against straight line, good times and bad. So, you don't see a whole lot of movement there because that actually is a netted number. So there is a sizable reserve, again, straight line today. On the AR, the billed AR, and what we call unbilled AR, which is our, you know, the CAM, the tax that you're accruing as you go along, we have very significant reserves there as well. And again, what we believe are extremely very robust policies about how we look at it, and we go tenant by tenant, lease by lease, in making determinations about the appropriate level of reserves. Now, do I think the reserves will go up in the second quarter? I do. But I think as of 3-31, the reserves are very adequate and clear about where things are. So you'll see movement, but I'm not expecting drastic movement as it relates to RAR. The $4 million that you saw for the quarter, which is, you know, it's roughly 138 basis points. As you know, we carry in our forecasts and our budget around 100 basis points for a year. So that at 138 basis points is roughly 35 basis points for the quarter. So even relative to our original plan, we still have 65 basis points available to us. And I would also tell you that a portion of the reserve taken was really related to one tenant that's still operating. And that was really the fairway grocer in Plainview for us. That was about a million dollars of the reserve. They're still operating. So that may come back to us, too.

Thanks, Grant. Appreciate it.

Our next question will come from Handle CHS with Mizuho. Please go ahead.

Yes, good morning. I'm glad to hear everyone's doing well, especially you, Connor. So, my first question is on the nonessential rent on your COVID update slide. That bucket comprises just under half of your rent, 43%, it looks like. And it looks like you collected 42% from that group in April. and received deferral requests for another 21%. So I'm trying to get a sense of how we should understand that. What do you expect from the 37% who have not requested deferrals? And then maybe you could share some thoughts on how you see the probability collection for this group overall versus, say, the essential, and if we could see a narrowing of the gap between that and the 86% you collected in the essential bucket. Thanks.

Sure. So I'll try to break this down a little bit and make sure I address all parts of your question. So for those that have not requested any deferrals at this time, you know, it could be for a variety of reasons. One, they're continuing to operate or they're still paying. They could be closed and paying. It also means that they just have been going through the loan process and wanting to wait to see, gain more visibility into what type of assistance they can secure to meet their financial obligations with us and our lease. Now, we have seen that actually happen a couple times for those that have requested deferrals, had since called us back and said that they're willing to pay rent because they just got the PPP loan. So they're able to meet that obligation. So it really does vary. In terms of collectability on the back end, again, it is still too early to tell. We're only six, seven weeks into this. So you're going to have to play that out a little bit further to understand the Exactly, you know, as markets start to reopen and these retailers start to get back in the swing, you know, what that looks like. And I do apologize, but I think you have one last part to your question.

I was just looking for some perspective on, you know, the two buckets, if we could see some narrowing. And I think you somewhat addressed it. But, you know, the crux of my question was there's a big chunk here that hasn't, either paid or requested deferrals and was really trying to get some clarity on what the nature of conversations or what you understood to be the current situation.

Okay. Yeah, I think what I just mentioned probably answers that best.

Yeah, that's helpful. Thank you. And then maybe a question for you, Glenn. I just want to clarify on the collection numbers we're seeing here. It looks like it's based on ADR, in other words, total occupied – total potential – A rep not necessarily based on an occupancy-based number in a sense that if you had lower occupancy, you would benefit because you have less rep to collect. I just wanted to make sure because there's a lot of numbers being thrown out there in the industry right now. Some are based on total potential ABR, assuming 100% occupancy. Some are based on current occupied numbers. AVR, some are putting Canon, I figure, so it's important. I just want to make sure we understand what's being reflected here.

It's strictly based on BuildAR. Okay. It's simple. It's not complicated. It's the BuildAR for the month of April.

And I think if you're talking about what would it be if you included the the CAN and the other recoveries, it's comparable to what we collected. Got it. Okay. Thank you, guys.

Our next question will come from Chris Lucas with Capital One. Please go ahead.

Good morning, guys. I guess two quick ones for me. As it relates to the deferrals, do you guys have, like, a weighted average duration by AVR that you could provide just in terms of how long the deferrals are across the 14%?

Right now, I mean, similar to how I think I addressed this earlier, it really is a case-by-case situation. And, you know, as – As I also stated earlier, some of these deferments that were issued to some of these retailers have started to get paid back just because they've secured the loan. So it is still very fluid. We'll have better visibility as we progress through this, you know, over the next couple months.

Okay. And then, Glenn, earlier in your comments, you mentioned something about a mortgage. I think you did. It looks like there was a JV mortgage that you pushed out 90 days. I guess I'm just curious as to what you're seeing in the direct lending market in terms of how people are underwriting or if they're not, if they pull back, just, you know, maybe some commentary about what's going on in the mortgage market would be really helpful.

Yeah, so we have a property in the Bronx, Concourse Plaza, right near Yankee Stadium, that was really a development project over time with our partner. We're 50-50 partners. So we had a loan that was maturing in 2020. And we sourced a new loan for higher proceeds, actually, at $75 million and closed on it in early April. So it's a new seven-year loan at a 3.13%. So it actually is a plus savings for the partnership and extended the term out much longer. Look, the mortgage market is very, very specific as to the, you know, the property that you're looking to finance. You know, for a while the CMBS market froze for a bit. Bank lending has its level of challenges, I would say, more at the big money-centered banks than it is at the regional banks. I think the regional banks are still very active. The other thing I could give you just some visibility on is, again, on the residential side, the Fannie and Freddie market is completely operating and functioning. And for the right assets, you can still clearly get mortgages and financing for term at incredibly low rates.

On the multifamily side, construction financing, have you guys looked at that in terms of what's available and how that's being underpriced?

We really haven't. We don't have actually any construction financing. As a matter of fact, the one construction loan that we did have, which was on Dania, which was $67 million, we paid off during the first quarter. So we actually have no construction financing. We haven't been outsourcing it. I believe if we wanted to, quite candidly, if we wanted to get construction financing, I think with the banking relationships that we have, we could obtain it. But it's not something that we are doing at the moment.

Okay, great. Thank you.

Our next question will come from Colin Mains with Raymond James. Please go ahead.

Thanks, and good morning. I just wanted to go back to the transaction market, and you touched on Albertson specifically a bit. But if we just reflect on Kimco's history and the Plus business, can you maybe just expand on your potential appetite for any similar opportunistic investments as this cycle plays out? And how would you balance these types of investments versus, obviously, the near-term focus on liquidity or potentially ramping back up some of the development opportunities you've discussed?

Sure. I think when you look at the strategy of Timco, we've always had the opportunity bucket where we look at retailers that are real estate rich. And that's how close to 10 years ago, we wound up with the Albertsons investment of owning close to 10% of that grocery chain. They still own and control close to 50% of their real estate. And, you know, the original thesis there was that the real estate alone was so valuable that it would make sense long term. And clearly the operations now have been a shining star in the grocery sector. We still believe that there's going to be opportunities for what we call the plus business going forward. We have been focused on making sure that we try and harvest our existing plus business investments before we go and start to make new investments, just, again, so we can build on the wonderful track record that we've had over the decades of investing in those types of opportunities. That being said, we think it's a differentiator for Timco. We think there's going to be opportunities ahead of us where the plus business will be utilized and come in handy to really create opportunities because we do think there's going to be a significant amount of dislocation. And if we're one of the few that have the capability to underwrite, the capability to invest, we think it will reward our shareholders.

Okay. Okay, so it sounds like that does remain, again, more of an intermediate to longer-term priority.

We always have it as part of our differentiated strategy. You know, we obviously have a very solid Tier 1 portfolio where we are laser-focused on executing our 2020 vision strategy. You know, if you think about it over the past two years, how we've transformed the asset base, how we've gone long on the balance sheet, a lot of the effort that we've made has really positioned ourselves to be ready for this type of environment so that the mothership can continue to hopefully outperform. But the bucket that we have for the plus business is always unique and opportunistic when those opportunities present themselves. And so we're ready. We think it's a differentiator for us, and we think it will really reward our shareholders in the long term.

Okay. And then, Dave, you spent some time discussing the curbside program, but to the extent social distancing becomes more of a focus going forward, are there any other longer-term changes you've already started to work on with tenants in terms of expanding outdoor seating for restaurants or anything else along that line as you just think about the actual physical location or the physical layout of your properties?

Yeah, great question, and you absolutely nailed it with your example. The outdoor seating is something that we're already talking to our restaurant operators with, and we've actually been surveying each of them to analyze those that already have outdoor seating, those that want to expand capacity, areas in the shopping center that we can support that capacity. How do we manage it in a centralized fashion with the appropriate social distancing measures? Do we support the individual restaurant's and the outdoor seating that they need. So all of that is very much on the table and under consideration. You know, between our development team, property management team, construction team, and leasing folks, everyone is really directly engaged in best understanding how we can best serve our tenant base and the needs going forward. Obviously, the situation will evolve. Different municipalities and counties have different restrictions, and You know, that's what we've seen, you know, through the outset is you really have to take this case by case. But we take all 400 of our assets and have been doing very much a deep dive on how do we reformat both for the short term and then what are more longer-term solutions that will be more permanent.

All right. Thanks, guys.

Our next question will come from Kibinka with SunTrust. Please go ahead.

Thanks. Good morning. I hope you're all doing well. You see, you have about 3.5% of rent expiring this year. You have about another 1% that's month to month. What is the kind of current game plan to address those? And how will those negotiations go in this type of environment?

Sure. Yeah, this is Dave. So in terms of the current renewals and the discussions pre-COVID, those have been ongoing. They're happening pre-COVID. And even as we're going through the first six weeks here, those discussions continue. Again, the quality of our real estate has vastly improved over the years. And so our 400 locations really service you know, the community well and service to retailers extremely well. I think what this has proven is that being close to your customer in these markets is really essential, and we've been able to service that, and the brick-and-mortar strategy will be critical long-term to service all these different options to the customer, whether it be curbside, focus, you know, which has been an evolving trend that will be in play for you know, the long term here and has really been growing over the last couple of years. So we feel good about that. And then in terms of those that are month to month and how we address those, we are really looking at, you know, in a very measured way. You know, we don't want to get too far out in front of it. Similar to what we did with the Great Recession is we can do shorter term renewals for the time being. Let's get more visibility to how this looks long term and then we can address a longer term renewal on the back end there.

So I guess what I was asking for about

Similar to what we've done in the past. Sorry, keep in. Similar to what we've done in the past recession, in the past great recession is, you know, we adopted the phrase love the one you're with. And we recognize that, you know, the existing tenant base is your best friend right about now. And so we're working with making sure that we love the one you're with and bridge them to the other side of this.

Okay. Does that translate into perhaps shorter-term leases for now? for the longer term uses that are expiring?

Not necessarily. Again, it's case by case. It's hard to paint a broad brush on it because each situation is different. And, you know, when you look at, you know, the majority of our retail shopping centers have essential components to it with grocery. You know, over 77% of our ABR is associated with shopping centers that have a grocery component to it. Those are the areas that people want to be in. I mean, it's been proven that through this pandemic that having the essential component is really key. And for those other retailers that can co-tenant across that or alongside it, they really do want to stay in those centers longer term. But it's really hard to paint a broad brush over questions like that.

Yeah, I appreciate that. And Glenn, was there a change in the least spread definition? If I look at the supplemental, is there some language that suggested that?

No. No, our least spread definition hasn't changed.

Okay. Yeah, we just changed the format in the presentation the way it looks.

Okay. I just noticed that the 4Q number changed versus what you reported for 4Q. Okay. Last quarter, that's right.

No, the definition didn't change. It's just the presentation change.

All right. Thank you, guys.

Our next question comes from Tammy Frick with Wells Fargo. Please go ahead.

Good morning. I'm glad you're feeling well, Connor. Just following up on the commentary you made about loving the one you're with, certainly there are a number of tenants that you may not love quite as much as others. I guess is this also an opportunity to address lower credit tenancy where you may want to re-merchandise longer term or is occupancy preservation at such a critical level that maybe that's not a consideration at this point?

No, that's a good question. And I think you look at each and every situation and each and every site individually to make the best business plan for the long term. And so we're always looking to upgrade tenancy. We're always looking to improve the credit quality as well as the potentially, you know, I personally think there's going to be a lot of opportunity to add a lot of grocers to our sites that don't currently have a grocery anchor. And we're working on that right now. You know, we're already close to 80% grocery anchored. I think we're going to be up over 80%. That's a challenge that we've laid out for ourselves. But that being said, we recognize that a lot of retailers are going to have their expansion plans put on pause. except for those that maybe have been operating through this pandemic. And so we do want to take it case by case. And, you know, the small shops to me are critically important because I think they're the secret sauce in terms of connecting with the community. You know, every shopping center has sort of the major national credit tenants that people are used to shopping and love. But I think the real important part of the shopping center is that secret sauce, the local mom and pop, because it's typically a generational owner or someone from the community or someone that they really connect with. And I think that's where we really want to shine in this type of environment is helping those folks get to the other side of it.

Okay, got it. Thanks. And then I guess some of your peers are looking to extend loans to their small shop tenants. I'm curious if you've given any thoughts to doing that.

Yeah, it's actually something we talked about when we were rolling out the TAP program and looked at doing ourselves. But then we realized we should probably prioritize the government programs that are in place because, in essence, they're there for a reason. And we figured let's make sure the tenants that we have access those programs first and take advantage of those programs. And then as, you know, we watched the PPP program closely, and see how it's playing out. If we need to, we have the ability, obviously, with our balance sheet to step in and help those in need. But right now the priority is to focus on the PPP.

Okay, great. Thanks. And then if I could sneak one more in. I'm curious if you are seeing any differences in collectability based upon geography.

We really haven't seen much difference. You know, right now it's pretty consistent across the board.

Okay, thank you.

Our next question will come from Linda Ty with Jefferies. Please go ahead.

Hi. Thanks for taking my question. Any sense of the breakdown in April rent collection for anchors versus the small shops?

It's in the supplemental. Chris, you'll find that in the supplemental in our COVID business update render.

Okay. I think by and large, the anchors were paid and then it just varied a lot across the small shops, right?

Yeah, 73% of our anchors paid and 44% of our non-anchors paid for April.

Thanks for that. And then when you look at the pipeline of retailers announcing restructurings, you know, are there any strategies to best mitigate the impact of upcoming increases? You know, maybe anything you can do to maintain occupancy on a short or medium term basis and then You know, do you think your scale helps you in this context?

Our scale and our diversity definitely helps. I mean, when you look at the diversity of tenant base across the portfolio, it's pretty incredible how diverse we are, especially when you take into the geographic diversity on top of the tenant diversity. Clearly, we're watching the credit markets closely. Our tenants are some of the, you know, our top 50. We have the highest investment grade credits of our peer group. But we're watching closely how that plays out. Clearly, there's been a lot of reorganizations, a lot of debt for equity swaps that we've been watching in other sectors. But we're going to monitor that closely and continue to evaluate the opportunities.

Our last question today comes from Christine McElroy with Citigroup. Please go ahead. Hey, it's Michael Millerman with Christie.

Connor, it's great to hear that you're doing better. I wanted to sort of ask you, and I think obviously you're doing a lot of stuff on the deferral and working with your tenants. I assume you're paying a royalty fee to Stephen Stills for the one you're with as well. But how do you think about providing equity and stepping into retailers? It's obviously been a hallmark of Kimco for a long time where he's been leading retail those initiatives, do you view that as an opportunity today to invest into retos, put aside the deferrals and the loans, but try to make commitments and roll out a much more significant program on that end?

Hey, Michael, thanks for those comments. Yeah, no, we look at it the same way we've always looked at it. We want to be opportunistic when those events create dislocations. where retailers that are real estate rich need a partner to come in and unlock the value of that real estate. So we're very careful on who we invest in and why. You can sort of look at our track record back to decades of all the investments we've made, and it's a pretty consistent theme across the board. We like retailers that are real estate rich. We typically think we have the capacity to underwrite it. We have the capacity, if we need to, to take back the real estate and help unlock the value there. And so that's what we've been focused on over the years. It's been a good track record for us. We want to see the current plus investments pay off. We anticipate them to continue to perform. And hopefully there'll be some more dislocation in the near term that'll create opportunities for us so that we believe as a differentiator can really shine and create a lot of value for our shareholders.

I guess is that an initiative right now? You obviously have had relationships with private equity firms. I'm just trying to get a sense of Obviously, a lot of these retailers are struggling. Chapter 11 filings are rising pretty dramatically. So I just don't know whether that's an active dialogue.

It is. It is. Yep. No, it is. It's part of our strategy. It's always been, you know, a Kimco differentiator. It always will be. And we've been looking at that. You know, it's lumpy, as you know. It's not the easiest thing to model, which I know sometimes causes you a lot of angst. But we do think it's an opportunity for us at the right time. And we haven't seen it happen yet, but we think the window is going to be opening here shortly for us to take advantage of it.

And then on the dividend and, you know, so it's a suspension and you're going to review it monthly. What happens when you do reinstate? Do you view that as a – that you'll want to catch up and pay the, you know, whatever dividends didn't get paid in a quarter? Is it just then when you reinstate it's just going to be on a go-forward basis at whatever new rate? you will feel comfortable with from a payout ratio perspective? How should the market think about the suspension?

Yeah, it's a good question, Michael. It is very, very early. We're going to take it month by month. We use that monthly review specifically because we do think we're going to have to have these updated calls monthly with our board to give them where we sit from May, from June, from July, and then reinstate it where we think we'll have confidence, obviously, in covering it and have it be sustainable for the long term. We know that the dividend is critically important to the investment thesis of PIMCO shareholders, and we want it to be tied to taxable income and to our cash flow. And as we get more information, as the board digests the information that's coming in daily, weekly, monthly, we'll be in a position to reinstate it where we believe that for the long term, it'll be in a good spot, not only for the existing, but to grow over time.

Right, so in this case, you may have a pop-up dividend to meet taxable income and then a new run rate quarterly dividend that you'll feel comfortable going into the future.

It'll really depend, obviously, on the situation that's transpiring in front of us. A lot of options are available to us, a lot of levers that we can use, but that is one of the optionality that we have that we can look at when we get a little deeper into it.

And you feel from paying it in stock, you know, with having the ability to go 90% in stock, that the idea of just suspending was a better outcome than giving script to your shareholders.

We felt like suspension was the right approach at this point just because there's such a lack of clarity. You know, obviously with the change from 80 to 90% of the stock issuance of a dividend, that's an interesting option as well. And again, it's a board discussion that we've been having regularly. They'll continue to monitor the situation. And I believe that as this gets a little bit deeper and we get the ability to see a little bit more clarity, then we'll have more information at our hands to put it back in place at the right level.

And the last thing, with some of the states and municipalities that have reopened, do you have any tenant sales from the stores, the restaurants that have opened in your portfolio? Is there any anecdotes that you can share about the pent-up demand that's going on in the economy when things do reopen?

We don't have any specific sales yet, obviously, since it's only been a couple of days. But we have seen, you know, we do have conversations with store managers that we have relationships with, and obviously the curbside pickup program that we've launched, we have a lot of dialogue surrounding that. They've been very pleasantly surprised with the curbside pickup and the accessibility and the use of it. They've been happy so far. So we're continuing to monitor that closely, but we don't have any sales data yet.

Thank you. This concludes our question and answer session. I would like to turn the conference back over to David Budzienki for any closing remarks.

Thank you for participating in our call today. I'm available to answer any follow-up questions you may have. I hope you and your families are staying safe and healthy during this crisis, and hopefully by next call we can do this in a more normalized setting. Thank you, everybody.

Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.