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Operator
Good day and welcome to the KINCO Realty second quarter 2021 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, press star then one on your touchtone phone. To withdraw your question, press star then two. Please note this event is being recorded. I would now like to turn the conference over to Dave Bucznicki. Please go ahead.
Dave Bucznicki
Good morning, and thank you for joining Kimco's second quarter 2021 earnings call. The Kimco management team participating on the call today include Connor Flynn, Kimco's CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO, Dave Jamison, Kimco's Chief Operating Officer, as well as other members of Kimco's executive team that are also available to answer questions during the call. As a reminder, statements made during the course of this call may be deemed forward-looking, and it is important to note that the company's actual results could differ materially from those projected in 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. Also, in the event our call was to incur technical difficulties, we'll try to resolve as quickly as possible, and if the need arises, we'll post additional information to our IR website. And with that, I'll turn the call over to Connor.
Connor Flynn
Good morning, and thanks for joining us. Today, I'll focus my remarks on our operating results, the supply and demand dynamics surrounding those results, the strategic direction we are taking the organization, and the powerful position Kimco will have upon the closing of our merger with Weingarten. Ross will then provide some perspective on the transaction market, and Glenn will provide additional financial insight on the quarter, along with our updated guidance. As I have often mentioned, our core focus has been and will continue to be on leasing, leasing, leasing. It fuels our growth, validates the quality of our portfolio, strengthens our balance sheet, reduces risk, and is a catalyst to overcome pandemic-induced disruption. Our second quarter leasing activity and overall results continue to build upon the success that began earlier this year, as we leased 1.8 million square feet and signed 333 leases. This leasing included 139 new leases of GLA exceeding the prior sequential quarter. Overall occupancy finished at 93.9%, up 40 basis points, while our new leasing spreads of 9.2% and renewal spreads of 4.7% resulted in a record 42 quarters or 10 years in a row of positive spreads. The combination of record leasing demand and a five-year low of new vacancies continue to drive the earlier-than-anticipated occupancy recovery for Kimco. Traffic at our properties is back to 2019 levels. and the healthy leasing market reflects the reopening of the economy and the rush by tenants to capture market share is apparent as they pursue our high-quality locations. Moreover, in our attractive and strategically selected markets, we do not anticipate any material new supply in the near term to impact our pricing power. Robust demand for Anchor Space continues across our portfolio. Centers with a grocery component have outperformed during the pandemic and continue to lead the rebound. We're also seeing data on restaurants that show people are eager to go out and eat again, but the Sun Belt states outperformance. Similar trends with fitness, where traffic is coming back quickly. On the store openings, off-price continues to be a leading source of demand, but we're also seeing solid demand from furniture, home goods, pet supply, hobby, health and wellness, including discount fitness, just to name a few. Our anchor occupancy finished the quarter at 96.9%, up 70 basis points. which is the single largest quarterly gain since we started reporting anchor occupancy 10 years ago. Small shop demand also continues to recover, albeit at a slower pace. The small shop demand that's now building is coming from franchise quick service restaurants, beauty, hair and nail salons, medical, and other services. While small shop occupancy did finish down 30 basis points to end at 85.5%, it was impacted from the inclusion of Dania phases two and three into occupancy. If not for this, small shop occupancy would have actually increased sequentially by 30 basis points during the second quarter, and we remain confident that the smaller tenants will gradually accelerate their demand for space as they gain comfort that the recovery from last year's severe disruption is sustainable. Further, the importance of being located as a last mile solution for a multitude of potential tenants continues to grow. Our mission critical last mile brick and mortar locations will prove to be durable solutions for consumers, retailers, and many other businesses that want scale and reach to serve the end consumer. One silver lining of the last year and a half is that it showcased the strength of our repositioned grocery-anchored portfolio, the resiliency of our cash flows, and the strength and diversity of our strong mix of high-credit tenants. As our occupancy recovers, we anticipate EBITDA and FFO growth will follow and bolster our balance sheet metrics. We are also in a unique position to drive earnings results with multiple levers for growth, led by our continued emphasis on leasing and attractive redevelopment opportunities. On the strategic front, the completion of our accretive merger with Weingarten is fast approaching and ahead of schedule. The shareholder votes are scheduled for August 3rd and subject to customary closing conditions. The closing should occur shortly thereafter. With Weingarten's portfolio combined with Kimco's, Following the merger, we will be even more confident in our ability to drive significant and sustained value from this concentrated platform of open-air, grocery-anchored, and mixed-use assets in the leading MSAs across the country. Touching further on the power of the merger, the combined company will continue to focus on operating a dynamic and well-diversified portfolio in these markets, but with greater scale, resources, and embedded opportunities. We expect that the complementary business operations will allow us to extract annualized cost efficiencies while deleveraging our balance sheet. I think it is important to reiterate the scale and reach we will have with our targeted first-ring suburbs of core markets across the Sunbelt. Together, we'll have approximately 550 open-air grocery-anchored shopping centers and mixed-use assets comprising more than 100 million square feet of gross leaseable area. At closing, approximately 82% of the company's total annual base rent will be derived from strategic Sunbelt growth markets and high barrier-to-entry top coastal markets. The combined platform will also have a highly diversified, strong credit tenant base, with the top 10 tenants all essential, industry-leading grocers and best-in-class retailers, with no single tenant representing more than 4% of ABR. And given that we are not completely out of the pandemic woods yet, with the reality and threat of new strains, we believe the combined portfolio, strong balance sheet, and battle-tested team puts us in an even better position to withstand any disruptions to the ongoing recovery. Looking beyond the closing, the Weingarten portfolio brings a largely funded and de-risked development pipeline and presents vast potential in the form of embedded, untapped redevelopment from which we believe we can extract incremental value. Ultimately, we believe this accretive combination will result in enhanced financial strength with the flexibility and resources to efficiently capitalize on the value creation opportunities ahead. While we won't be quantifying the impact until after the transaction is closed, We are highly energized by the opportunities in front of us to maximize value for shareholders. In closing, our team is motivated and executing. As we look forward, our ability to create value will be enhanced in the coming years by our last mile fulfillment opportunities with high growth, high quality, open air grocery anchored shopping centers and mixed use properties that will enable us to realize substantial operating benefits. With that, I will turn the call over to Ross.
Kimco
Good morning and thank you, Connor. As the recovery from the pandemic continues to take shape and the essential nature of our open-air shopping center locations become more apparent, the capital flowing into the space also continues to significantly increase. A well-capitalized private equity investor recently told me, there's only so much sub-4% cap rate industrial and multifamily products we can buy. The risk-adjusted return for high-quality open-air retail products has become increasingly evident. We have seen this sentiment play out in the transactions market this quarter, and the momentum continues to build. We have seen it on portfolios and one-off centers alike. Leasing velocity and renewal rates have given investors confidence in both the stability and future upside of existing cash flows and rent rolls. With capital abundant on both the equity and debt side, and with interest rates declining even lower recently, a very accommodative environment for deal flow exists. This includes a recently closed grocery portfolio in the Philadelphia MSA, a diversified portfolio of retail assets in Phoenix, one-off grocery deals in South Florida, New Jersey, and several in Southern California and Atlanta, to give a few examples. As we see brokers starting to report results, it is clear 2021 is on track to be one of the highest production years for the industry. There is no question that appetite for open-air retail is voracious. We continue to be opportunistic, yet selective and disciplined in the investments we make. In the second quarter, as an addition to our structured investments program, we invested approximately $55 million in a preferred equity position into the RIM, a dominant retail, entertainment, and mixed-use district having over 1 million square feet of GLA located in the fast-growing San Antonio market. The property has consistently been the number one most heavily trafficked center in all of Texas, with exceptional tenant sales to support the property. We are extremely excited for the upside of this investment, which was made at an attractive current yield and reasonable basis, along with a right of first refusal to buy the center in the future. Another recent success is the sale of two Rite Aid California-based distribution centers closed in the second quarter that were acquired by our taxable REIT subsidiary earlier this year in a sale leaseback transaction. When we completed the sale of these two properties at a price of 108 million, it represented a significant increase from the 84 million paid just five months earlier and generated a 72% IRR for Kimco on this investment. As we carefully consider capital allocation and disciplined investment opportunities, we believe that selective acquisitions structured investments, and partnership buyouts will continue to present themselves at the appropriate times. Now to Glenn for the financial results for the quarter.
Kimco
Thanks, Russ, and good morning. Our solid second quarter growth was fueled by continued improvement in rent collections, lower credit loss, and very strong same-site NOI. Our strong leasing efforts combined with an improving economy produced a sequential uptick in occupancy and another quarter of positive leasing spreads. In addition, as EBITDA has increased, our debt metrics have also improved. Now for some details on second quarter results. Nareed FFO was $148.8 million, or $0.34 per diluted share for the second quarter 2021, which includes merger-related charges of $3.2 million, or $0.01 per diluted share, in connection with the anticipated merger with Weingarten. This compares to $103.5 million or $0.24 per diluted share for the second quarter of the prior year. The significant growth was mainly driven by increased pro rata NOI of $44.7 million, comprised of lower credit loss from potentially uncollectible accounts and straight line rents of $50.9 million and higher lease termination income of $2.7 million. These increases were offset by lower minimum rents and reduced CAM and real estate tax recoveries due to lower occupancy compared to the same quarter last year. The improvement in credit loss is attributable to our increased cash collections as we are approaching pre-pandemic rent collection levels. During the second quarter, we collected over 96% of pro rata based rents bills. We also collected over 77% of rents due from cash basis tenants during the second quarter, up from 70% collected in the first quarter. Further, collections of prior period amounts from cash basis tenants totaled $7 million during the second quarter of 2021 versus $1.8 million collected during the same period in 2020. Our cash basis tenants comprise 8.8% of total annualized base rent. In addition, we collected almost 90% of the deferred rents billed during the second quarter. At the end of June, we have approximately $25.4 million of deferred rents, which remain to be billed over the next 12 months, and 64% of this amount is reserved. As Connor mentioned, the operating portfolio delivered significant improvement in the second quarter, with a sequential increase in occupancy and positive leasing spread. Our same-site NOI growth, including redevelopments, was 16.7%, including a 30 basis point uplift from redevelopments. This is the first positive quarter of same-site NOI growth since first quarter 2020, and should be the start of a recurring trend. Another positive indicator is the increase in the spread of leased versus economic occupancy, which now stands at approximately 300 basis points. up from 230 basis points last quarter and represents 33.4 million of pro rata ABR. This spread bodes well for future cash flow growth. Turning to the balance sheet, at the end of the second quarter, consolidated net debt to EBITDA was 6.3 times. On a look through basis, including pro rata share of JV debt and pro rata and preferred stock outstanding, the metric was 7.1 times. These metrics are better than the pre-pandemic levels at the end of 2019. From a liquidity standpoint, we ended the second quarter with over $230 million of cash and full availability on our $2 billion revolving credit facility. We will be using cash on hand and a portion of the revolver to fund the cash component of the Weingarten merger consideration and transaction part. In addition, our Albertsons marketable security investment was valued at close to 800 million at the end of June, and there are no plans to monetize any portion of this investment during 2021. During the second quarter, we repaid 120 million of mortgage debt, unencumbering an additional 23 assets. We have no consolidated debt maturing for the balance of the year, and our next bond maturity is not until November of 2022. Our weighted average consolidated debt maturity profile stands at 10.7 years, one of the longest in the REIT industry. As for JV debt, we have only 53 million maturing for the remainder of the year, with refinancing alternatives already identified. With respect to outlook for the balance of the year, based on our first half 2021 operating results and expectations that include ongoing improvement in credit loss and same-site NOI growth, we are again raising our NAERI FFO per share guidance range to $1.29 to $1.33 from the previous range of $1.22 to $1.26. This new range is presented on a standalone basis and does not incorporate any impact of the pending merger with Weingarten other than the 3.2 million or one penny per diluted share of merger related charges incurred during the second quarter of 2021. Assuming the merger is completed during the third quarter as anticipated, we will provide updated guidance on a combined basis on our next earnings. Lastly, with respect to our common dividend, shortly after the merger is completed, the Board of Directors expect to declare a regular quarterly cash dividend, which will be payable during the third quarter. And now we'll be ready to take your questions.
Dave Bucznicki
We've been advised to keep this call focused on Kimco's second quarter results and the outlook as a standalone company. More information will be forthcoming once this transaction closes, which we anticipate will be shortly after the completion of the respective meetings of stockholders, which is on August 3rd. In terms of the Q&A, we want to make this an efficient process. You may ask a question with an additional follow-up. If you have additional questions, you're more than welcome to rejoin the queue. Tom, you can take the first caller.
Operator
Thank you, and just again to remind, star one to join the queue, star two to remove yourself from the queue. The first question comes from Craig Schmidt with Bank of America. Please go ahead.
Craig Schmidt
Thank you. Obviously enjoying the improved results, but I want to know if the recent spike in COVID-19 cases and some of the breakthrough cases are giving any of your tenants or retailers hesitancy regarding longer-term leasing decisions?
spk21
Yeah, Craig, it's a great question. Obviously, top of mind for all of us right now. The Delta variant, as we know, is running across the country, but we haven't seen any meaningful change in terms of our outlook or views. Right now, obviously, all markets are open, and a lot of lessons have been learned over the last 16 months of how people have adapted to to sort of a new normal and how you shop and access those retailers. And the retailers themselves, as evidenced by our occupancy gains this quarter, continue to look for new opportunities to expand as they prepare for the new normal within 21, 22, and 23. Great.
Craig Schmidt
And then a follow-up question, which is probably for Ross. Regarding the increased transaction market, you know, neighborhood, community, lifestyle, or power centers, which are you seeing the biggest pickup in activity in transactions and which are seeing the lowest rise in transactions?
Kimco
Yeah, I mean, there's no doubt that grocery-anchored infill shopping centers are very much in demand right now. As I mentioned in the prepared remarks, I mean, you think about the risk-adjusted return spread on high-quality grocery-anchored centers in the high fours of the low fives. and you're still getting a good 125 basis point spread compared to some of the other asset classes. So we're starting to see a lot of both private and some of our public peers getting much more aggressive on that product type. And we think that will just continue. We are seeing more activity on power and lifestyle. There's not as much that we've seen transact as of yet, but with the improvement in the economy, with the improvement in the retailer sales, we are seeing much more conviction on some of those categories that you see in lifestyle centers such as restaurants, entertainment, fitness, really coming back and solidifying themselves. So I think that there's just a lot of demand for all product types right now within open-air retail.
Handel
Thank you.
Operator
The next question comes from Juan Samagria with DMO Capital Markets. Please go ahead.
Juan Samagria
Hi, good morning. Just hoping you could spend a little time talking about the assumptions behind collections of past due rents and or reversals of bad debt for the balance of the year. And if you could just go over what was in the second quarter as the numbers you went through in your prepared remarks were pretty quick paced.
Kimco
So in terms of what we collected 7 million from our tenants, our cash basis tenants from the prior periods during the second quarter. In terms of the outlook for the balance of the year, again, it's still going to be a wait and see how it all goes, but collections, as I've mentioned, have improved. We collected close to 96% of our base rents. We collected 77% of the cash basis tenants that were billed during the quarter. So we're going to have to wait and see, though, for the balance of the year. We do have in guidance, there is credit loss that's still built into the numbers. The low end still has about 20 million of credit loss built in. The high end of our range has about 5 million. So based on where things are today, we're more comfortable when we look at our guidance towards the upper end of the range.
Dave Bucznicki
Is there a follow-up one, or we could go to the next caller?
Juan Samagria
I apologize. I was on mute. Surprise, surprise. Just if you could give a little color on Danny and how leasing is tracking there for the small shop space and where the demand is coming from and how you're feeling about your underwriting there. Thank you.
spk21
Yeah, and we actually feel very good about the direction that Danny is going with the new openings earlier this year with Urban Outfitters and Anthropologie. Later this summer, we have several other new openings that are on the horizon. You have American Eagle towards the end of the year, Regal. You have the two Marriott flag hotels that will be opening this fall, as well as including some of the additional restaurant spaces. So there's tremendous change and growth that's coming from Dania as we start to get these other retailers open. And we have Sprouts that's scheduled to open towards November, December of this year as well. Then followed by that, obviously, is the strong leasing demand. As the economies have started to recover and people have really appreciated the location of this site along I-95 and all the growth that's happening in the Fort Lauderdale market, we're very encouraged by the direction of Daniel Longterm.
Connor Flynn
So the only point I'd add is Spirit Airlines is in for permit on their piece of the project, which is their headquarters. That I think should be a nice component of the live-work-play environment that we're building there.
spk21
And I'll add one on top of that to Connor's, and it's that the second residential tower is also in permits and ready to break ground shortly.
Connor
Thank you.
Operator
The next question comes from Rich Hill with Morgan Stanley.
Rich
Please go ahead. Hey, good morning, guys. I wanted to come back to occupancy for a second. By all indications, and I think you're prepared to mark support this, the leasing market feels pretty good. But I think a lot of the recovery depends upon how long it takes to get occupancy back to normal. I think your peak prior to COVID, and correct me if I'm wrong, was just a little bit higher than 96%. So while the trends look really good, I'm wondering if you can just comment on the path to getting back to pre-COVID levels. How long do you think that takes and what does that mean for a recovery in total NOI? Is that still a mid-23 event or do you think after this quarter that's pulled forward to maybe late 22?
spk21
Yeah, it's a great question. Well, the path is really dependent on demand. So I think you have to start there and understand where the retailers are today and what we anticipate going forward. I think for a few reasons, we'll continue to see this demand uh stay pace you know for maintain pace from what we've seen in the last two quarters one you still are the retailers are still working through their their open to buy numbers that they're trying to achieve in 20 and now in 21 so there's a bit of a bottleneck there that they're actively trying to expand and upgrade the quality of their portfolio into a quality sites um with the new supply that's obviously come online not the new supply but the the vacancy as a result of the pandemic uh that's given them the opportunity Second to that, other retailers were able to raise additional capital or right size or balance sheets through the pandemic. So when you look at brochures such as Fresh Market that may have not been necessarily on an expansion mode pre-pandemic, they're now starting to look at new stores and new locations to add grocery and new markets. So you now have some new demand drivers on top of the pent-up demand from the existing retailers. And then third, you have others that are really testing new formats. You know, we've learned so much in the last 16 months of how consumers respond to retailers, how they want to shop. And so you do have, you know, retailers like Container Store that had been fairly set in their way about their store format, but now looking at, you know, smaller formats and penetrating other markets as well. So you'll continue to see that as a demand factor. And then new concepts, new concepts like choice markets, which is trying to reinvent the C-store trend. and adapt to more millennial trends. DoorDash has come out with Dashmart. And so you're starting to add some new categories on top of what we've historically seen. So I think as long as you maintain those demand drivers, we'll be able to make good progress in recovering our occupancy and get back to what was our peak.
Connor Flynn
Yeah, Rich, the only thing I would add is just the Kimco differentiator, I think, is Our team, obviously, first and foremost, but then we've optimized the entire portfolio with the curbside pickup program. And I think retailers are really resonating with that program. They've come to us and said it's best in class. They want to do more sites with us. And I think when you combine that with our team, it leads us to believe that the occupancy is going to continue to trend in the right direction. Now, we might see a pause next quarter because of some of the eviction moratoriums that are burning off. But we think there's enough demand, obviously, there to backfill that. And it's led by the anchors. And then we think that's going to follow with the small shops. The anchor demand is diverse, which is great to see. And then the small shops should follow along after that.
Rich
Got it. Connor, just to push a little bit more on this. What I'm trying to get at is, is the trough just higher than what we anticipated, but the endpoint is the same. And if I'm looking at, you know, sort of your prepared remarks in your press release where you talk about, you know, maybe stronger portfolio occupancy gains than what you were previously anticipating, that leads me to believe that the trough is higher, but the recovery is also a little bit steeper. So, you know, if I can push this here a little bit, you know, I'm sorry for putting words in your mouth, but I think you've said mid-23 for recovery in the past. Does that, do you feel better about that recovery endpoint post 2Q, or is 2Q just a sugar high that leads to a higher trough?
Connor Flynn
It's, you know, really obviously, Rich, it's It's hard to predict the future, especially with the Delta variant out there. But what we've seen so far is the demand is not subsiding. I think that that timeline still holds true. And I think we've got to obviously execute, let the numbers speak for themselves. And right now with this quarter, you know, it's not a sugar high quarter. We see the occurring through the leasing pipeline that we've built up and believe that we can continue the momentum. But clearly there's a lot of various factors out there that we can't anticipate the future with. But right now where we sit, we like what we see.
Rich
Okay. Great, guys. Nice quarter. Thank you for the additional color. That's it for me.
Operator
The next question comes from Michael Goldsmith with UBS. Please go ahead.
Michael Goldsmith
Good morning. Thanks a lot for taking my question. Rent spreads on new leases accelerated further during the period. How much pricing power do you have right now, and can that continue to accelerate from here?
spk21
Yeah, so leasing spreads are always, you know, it's quarter independent about the population that's within that on any given quarter. But, you know, the supply demand balance right now where retailers are really looking to upgrade the quality of their portfolio, you know, our efforts to right size our portfolio to make sure that we really own a quality asset enables us to maintain that supply demand balance. And so we're able to push rents on the below market leases that we have. And when you look at the lease expiration schedule that's on the horizon in the next couple of years, those leases and those rents are below what our corporate average is right now. So we still see that there's opportunity to push those rents further as those leases roll.
Connor Flynn
The demand for last mile retail has just come roaring back. And when you look at some of the tidbits that we're hearing from tenants that are typically, I would say, penny pinching, that are saying that they'll pay up for the locations that fit their needs. Clearly, the supply and demand dynamic has shifted in our favor. And with no new supply on the horizon, we do feel like we're going to have pricing power continue in our favor.
Michael Goldsmith
That's really helpful. And as a follow-up, when retailers are looking to expand, what are they looking for specifically in their new locations? Are they they focused on certain geographies are they focused more on first-ring suburbs or maybe more suburban uh areas like how are how does the expansion look and where are you seeing that demand yeah it's retailer dependent based on on their on their corporate strategy so it's what are the voids that they see uh in their program and how are they trying to fill it uh for example
spk21
You could have a grocery store that's either modified their format. Sprouts did that a couple years ago between 30,000 square feet now down to around that 22,000 to 24,000 square foot range. So they're looking at new box opportunities that are more prototypical to what historically they had targeted. While others are looking to potentially expand the box to incorporate more last mile distribution, as Connor mentioned earlier, or some other form of fulfillment, the first ring suburb that's really where we're focused and and obviously there's been a huge value add in being closest to the customer where they live uh and now with sort of what the the world will look like with the hybrid back to work model there's definitely much more of a balance between urban and first ring suburban markets and so we'll continue to see that that demand pick up on on the first ring suburbs so it's a really hard and uh answer to give that that specific in one general in one specific way, because every retailer is looking at it a little bit differently based on historically what they've done and where they see these voids and how they want to achieve that.
Connor Flynn
You know the retailers today have more data on their customer than they've ever had before, and so really where they're focused is how do they best serve that customer. And now with the data that they have of how important that last mile store is to not only the floor wall, but the actual halo effect of buy online, pick up in store, curbside pickup, the ease of returns. A lot of the feedback that we're hearing from our retailers is the spaces that we may have passed on before, we want to look at again. And I think that's sort of the tidbits that we're taking away from this is, you know, there's a lot of pent up demand. There's a lot of voids that need to be filled. And last mile retail has become more valuable due to the pandemic.
Michael Goldsmith
Appreciate it. Good luck in the back half.
Dave Bucznicki
Next caller.
Katie
the next question comes from katie mcconnell with city please go ahead great thanks good morning everyone so wondering if you can provide a little more background on the writing transactions and the market dynamics that led to the quick monetization of that investment sure yeah i mean when we started the the conversation with right aid back in may of 2020
Kimco
Obviously, it was a bit of a different environment. We stated publicly around that time that we were looking to be opportunistic. We felt that the balance sheet and our liquidity position enabled us to do that. So we were fortunate enough to have those conversations directly with one of our retailers. We felt very good about the leases that we were able to negotiate with them in terms of the rent versus market, having annual increases that we felt were very attractive and obviously seeing the demand for single tenant products particularly in the industrial space, we knew that there was a lot of value that was created on that acquisition. So we wanted to maintain as much flexibility as possible, which was why we bought it into the TRS and the market spoke and clearly there was some good upside rather quickly that we wanted to capitalize and we were able to do that with the monetization of it. So it was a bit of a unique transaction, but We were excited about it, of course, and we'll continue to look for those diamonds in the rough where they come.
Connor Flynn
Yeah, Katie, you know, but others may not, that this really falls into our plus business, which we believe is a real differentiator for Kimco. We focus on retailers that are real estate rich and have the ability to come in and hopefully unlock a lot of value for our shareholders through a differentiated strategy. So it's one that you know, is unique to Kimco. We're very proud of it. Obviously, we own a lot of Albertsons shares because of this strategy, and this is just another data point of why we think it's a nice differentiator for Kimco to unlock value from retailers that are real estate rich.
Katie
Okay, great. And then bigger picture, can you provide some more commentary around what you're seeing from an institutional capital perspective and the appetite to put capital to work in strips today? and maybe touch on your appetite to monetize assets if approached by your capital partners for more JV deals today.
Kimco
Yeah, I missed the beginning of the question. I'm sorry. Do you mind just repeating that?
Katie
Yeah, just looking for some more commentary around what you're seeing from institutional capital and the demand to put capital to work in strips today.
Kimco
Sure. Yeah, I mean, it's voracious, as I mentioned in the opening remarks. I mean, There is a significant amount of capital that was raised during this pandemic. Everybody was looking for distress. It really did not materialize. And now what you're seeing is that a lot of that capital is really focused on core. So we're in a pretty unique position that there's a lot of investors that want to invest in retail, but maybe lack the operational expertise. So we are fielding a lot of questions, a lot of comments, a lot of inquiries from institutional capital that want to invest in retail want to take advantage see that there is clearly a need and utility of our open air space but how do they actually go about investing in that so we're having a lot of those conversations there's plenty of capital that's looking for it and now it's just being very selective as to where we put our capital and who we invest alongside that being said there are other investors that have substantial legacy retail investments, many of which are not necessarily in open air retail that are looking to maybe reduce that exposure. And that also becomes an opportunity for us if they're looking for what component of their retail investments are liquid in this market. It's clearly the open air neighborhood grocery shopping centers that are attractive, you know, are attracting a lot of capital that they know that they can monetize. And we're there to discuss that with them as well.
Katie
Okay, great. Thanks.
Operator
The next question comes from Greg McInnis with Scotiabank. Please go ahead.
Greg McInnis
Hey, good morning. So just noticed that renewal lease volumes were down from last quarter, but I assume that bucket is primarily driven by expiring leases and somewhat out of your control. Now that said, have you noticed any changes or trends with regard to tenant retention?
spk21
Yeah, so Q1, you tend to have a higher renewal rate because that's when more leases roll over. So you're spot on there. It's really related to the population on a given quarter about when their leases roll. But as it relates to retention trends, they've been very strong. Retailers that have made it through the pandemic at this point I think feel good about the position they're in. For us, as Connor mentioned earlier with Curbside, we've done an extraordinary amount in working with our tenants and trying to provide a true Kimco advantage to be a retail partner within a Kimco center. And I think what retailers have come to learn is that your landlord matters. If you're well capitalized, you have vision, you're willing to test, experiment, and be a true partner and good steward of not only the retailer but of the of the community itself it makes a big big difference for a lot of these small shops this is their livelihood and they're investing a tremendous amount of sweat equity and their own money into the business and so they want to make sure that whoever they're aligned with is also in partnership with them i think that's been a big eye-opening experience for a lot of those retailers so that's definitely helped us with the with retention levels
Greg McInnis
So does that maintain retention then, or is it increased versus pre-pandemic?
spk21
Well, I think our renewals have always been quite strong, and so I think it's sustaining and not improving.
Connor Flynn
Greg, I think most retailers today are looking at their spaces and recognizing that the leases might be below market, and it might be very difficult to replace that location. So We feel like we're confident in the portfolio and knowing that with the supply and demand dynamic, we don't see that changing.
Greg McInnis
Okay, thanks. And then Juan partially covered this question earlier. But Glenn, just curious how you're thinking about switching tenants back to accrual-based accounting. Are you kind of waiting to see what happens with the potential rising COVID cases right now? Or could we start to see some of those reversals?
Juan
Hi, Greg. It's Kathleen. Actually, I'll take this one for you. So you're right. There's always a thought of what's to come with the pandemic. And as you probably know, cash basis isn't the kind of category where tenants can pop in and out of it from a GAAP perspective. So there's criteria that you need to set. So generally, we look to see that the tenant remains current on their base rent for six to nine months. And so we'll continue to monitor that trend. I do anticipate that in the second half of the year, there will be some of our tenants that make up that 8.8% of AVR that Glenn mentioned that will be coming out of cash basis. But just something to keep in mind when thinking about that, just because a tenant comes out of cash basis, obviously, as I said, they need to be current on their rent. So the impact that you're going to see on credit loss is very minimal, right? Because they're actually paying. Where you may see some sort of FFO impact is really on the straight line side. which although I wish that was cash, it's not, but there could be an FFO impact from that.
Greg McInnis
Thank you so much for the clarity.
Operator
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Caitlin Burrows
Hi, good morning. In the beginning in the prepared remarks, I think you touched briefly on the redevelopment opportunity that Kimco has, so I was wondering if you could give more detail on kind of the depth of that opportunity. And I know you're working on a number of large mixed-use projects, but even just the smaller ones, how much of that activity do you expect you could complete each year and what types of projects are most appealing?
Connor Flynn
Sure. Hey, Caitlin. So on the redevelopment side, we continue to see a lot of opportunity. We continue to look for what's the highest and best use of our real estate. And what we've seen is we've been averaging around 700 to 1,000 multifamily units a year of entitlements. And so we continue to think that's a great use of our sweat equity to create opportunity for future value creation on the asset and then activate that when it's the best time to do so. on the smaller redevelopment side clearly those are ones we get our the best bang for our buck where we're on average returning over 10 on invested capital so we continue to monitor and mine the portfolio for those typically it's adding a pad out in front with a drive-through or expanding a shopping center in some way shape or form and those continue to be right around, I would say, between $8 million to $100 million a year of capital investment. Now, we'd love to do more of that. Clearly, it's some great returns on capital, and we'll continue to try and look for those opportunities going forward. And then on the larger scale redevelopment projects, We continue to look through our portfolio and say, what's the best way to activate these projects? And we want to be mindful of the fact that we have a lot of opportunity, but there's different ways to structure those opportunities. And so you've seen us do it in the past where we've sold entitlements, typically office entitlements. We've ground leased entitlements. You know, those sometimes are multifamily projects or we've joint ventured and done projects that add, you know, a nice live-work-play experience to the shopping center. So we'll continue to do that. As you know, we've done a lot of work on entitlements already. We're up to 5,000 apartment units entitled and continue to think that's a great use of our time and effort going forward.
Caitlin Burrows
Just to clarify, you mentioned on the smaller ones, was that 80 to 100 million per year?
Chris
That's correct.
Caitlin Burrows
Okay, and then maybe a question just on leasing volume. You guys pointed out that for the second quarter, historically, 2Q21 was 11% higher than that historical level. So I was just wondering if you expect the above historical average leasing activity could continue through like mid-23 as occupancy comes back, or do you think the current strength is more of that like a quick bounce back, and then it could slow to more historical levels?
spk21
Yeah, I mean, obviously, when you hit a peak, it's a peak, right? I mean, we've never achieved that level, so we're very proud of that effort in Q2. You know, to meet or exceed that on any given quarter will obviously be a big effort, and so we'd anticipated, you know, probably being a little bit less, but, you know, with the demand side, as we've mentioned earlier in some of our other remarks, you know, it's very, very strong, so we still anticipate good growth, you know, over the next year and a half to two years. with the retailer demand in place.
Connor Flynn
Yeah, Caitlin, I think the way we continue to think about it is you'll see anchors lead the way until it hits that sort of historical high occupancy levels. And then once that hits that, you'll see the small shops actually start to pick up the slack. And so that's the way we think about it. Typically, the small shops around an anchor lease up once the anchor has been leased. And so that's what we continue to think will play out.
Caitlin Burrows
Thanks.
Operator
The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Alexander Goldfarb
Good morning. Morning out there. So two questions. First, on the cap rate side, you guys did the prep deal in San Antonio. And just curious, as you guys see the acquisition market, are you seeing sellers may be reluctant to sell because either they want to stabilize their noi or they view the cap rates or sell in which case we should expect to see more sort of partial investments like prep deals or jb stakes with the option to buy out eventually or do you see that sellers are willing to just outright transact even though there's a view that you know fundamentals are getting better and that cap rates are going to continue to compress i think it's it's
Kimco
Every circumstance is a little bit different. So as evidenced by the amount of transactions that have occurred, there are plenty of owners that are willing and have been executing on dispositions. They see that the market continues to work in their favor. The financeability of these assets has never been greater with interest rates where they are. So it is a very good time if you're a seller to take advantage of all-time low interest rates and thus cap rates. At the same time, there is an opportunity for owners that have the capital and the financial wherewithal to reinvest in assets to try to stabilize cash flows if they were beat down a little bit during the COVID, depending on what type of tenancy they had. So you're seeing certain decisions potentially being delayed for a period of time. And you always have to you know, compete with the opportunity for an owner to refinance their assets because, as I mentioned, the financeability of those assets is very much available. So every circumstance is unique, but we're finding plenty of opportunities. We do think that we'll continue to see structured investments with the preferred equity and the MES financing present themselves. We'll continue to be very disciplined and only look to invest in those assets where we feel very good about the basis our current return, and then, of course, it has to check the box as to an asset that we would potentially look to own in the future, and that's where we secure our right of first refusal or right of first offer. So we've intentionally not put out any sort of mandate on the amount that we're going to invest in that program, but to the extent that those opportunities present themselves, we're ready and excited to do that.
Alexander Goldfarb
Okay. And then the next one is for – oh, sorry, go. No.
Rich
Go ahead, Alex.
Alexander Goldfarb
Okay, thanks. Sorry. Next question is for Glenn. Just, you know, sorry for all the confusion. I didn't go to CPA school, so apologize on accounts receivable and reserved rents. But big picture, you're collecting north of 96% of the rents, and yet you have 51% of your AR reserved. So big picture. What it sounds like is that basically almost all your tenants are healthy operating. It's just a matter of when you can get paid up for past bills. And then that comes down to, you know, I guess either a payment plan or if you guys were going to say, look, for a tenant who just doesn't have the wherewithal to pay the back stuff, just wash that clean, pay the rent going forward. So just trying to reconcile sort of north of 96% collected, but you have 50% reserved?
Kimco
No, it's a good question, Alex. To help you a little bit, 36% of it, of the AR, are their cash basis tenants that haven't paid yet. So a big portion of the reserve is really related to the cash basis tenants. The other portion of the reserve just comes down to timing and our own policies around CAM and tax bills and disputes. So those are really the two big pieces that make up what the reserve is.
Alexander Goldfarb
So the 36% of AR, that is part of that little 4% of rent that hasn't been collected?
Kimco
Well, again, when you look at total AR, it's a culmination month after month of what hasn't been collected. Some of it It's fully reserved. Remember, all cash basis tenants that haven't paid, they're 100% reserved. So it's a buildup of total.
Alexander Goldfarb
Right, but basically some of those tenants are still in the portfolio. They may be paying you now. So, I mean, when you say 96% collected in the second quarter, that includes, that's what I'm just trying to understand.
Kimco
Yes, that includes the cash basis tenants that paid. So as we mentioned, 8.8% of the tenants or the ABR that we have is on a cash basis. Of that amount, 77% of those tenants paid during the quarter. It was about, I think the numbers, I think it was about $9 million that wasn't paid by those cash basis tenants during the quarter, and they're fully reserved in the number. Okay, so that's the 36%, in other words. In total, when you look at the total AR number, 36% is related to cash basis tenants. So we're still accruing them. They're just fully reserved.
Juan
Okay. That 36% is a cumulative number. So during, you know, when COVID was really high back in Q2 and Q3 of 2020, that AR wasn't at the 96%. You know, it's still in the high 90s and the high 80s. So that balance is still sitting in that AR, so you're putting a reserve on that old balance as well. And then to your point, that big between the 96 continues to get a reserve on it.
Alexander Goldfarb
Okay, awesome, awesome. Listen, thank you very much.
Operator
The next question comes from Wes Galladay with Baird. Please go ahead.
Wes Galladay
Hey, good morning, everyone. I just had a question on when do you think paying occupancy will bottom and how much of an impact will the eviction moratoriums have on occupancy? And then one last one there would be you still have a lot of abatements, about $5 million. When will those start to burn off?
spk21
Sorry, I just missed the very first part about it was award and then occupancy.
Wes Galladay
Oh, yeah, I'm looking for one. Yeah, paying occupancy. When do you think that will bottom? I understand that you have some people that may still be in the occupancy number, but there could be an eviction moratorium. Just trying to quantify the impact of that.
spk21
Yeah, sure. At this point, the impact of that should be fairly small if not immaterial. There are obviously moratoriums on the West Coast that are still in place that I believe California lifts towards the end of September, so we would anticipate that there's some modest impact of that, but nothing that would be leave too meaningful on a go-forward basis. And what was the second question? Second part of your question.
Wes Galladay
Yeah, the second one was regarding the abatements. You still have some abatements running through the numbers, just seeing when those will end.
spk21
Yeah, we anticipate that those will start to trail through Q3 and Q4, I mean, as we've gotten through the majority of the impacts of the pandemic at this point.
Kimco
Yeah, just to give you a little bit further color, The abatements that were booked during the quarter were $5 million, but only about $2 million of that related to second quarter rent. So to Dave's point, it's really starting to whittle down, and we expect it to be lower as we go through the balance of the year.
Wes Galladay
Okay, got it. Yeah, thanks for the color on that. And then I guess one more big picture question. Do you have a sense of what percent of the new leasing is being driven by demand that emerged during the pandemic, such as the last mile, the first ring suburbs? And is it more concentrated in shops or anchors at the moment?
spk21
Well, our demand obviously increased in the occupancy of the anchors. You could see it more on the demand side with the anchors, which was anticipated. They usually have a quicker recovery rate than will be trailed by the small shops. It's really hard to narrow it down to whether or not it was as a result of one specific category of last mile distribution and general growth and revision or adjustment to their retail strategy. But it's really a culmination of all these things, you know, referencing back to a few of the points I made earlier between identifying lessons learned to historic, you know, growth opportunities to expansion to new markets. It sort of all culminates into higher demand.
Wes Galladay
Got it. Thanks, everyone.
Operator
The next question comes from Handel St. Just with Mizuho. Please go ahead.
Handel St.
Hey, thank you. So I appreciated the comments earlier about your desire to pursue more preferred investments as they present themselves, but I haven't heard any mention of the returns there. So maybe can you share more on the return on the investment in the RIM asset, the $55 million there? What are the returns you're targeting there, and how do they compare versus comparable asset quality acquisition yields? Thanks.
Kimco
Sure. Yeah, and each deal obviously is an individual negotiation, but I would say from a more macro level, the difference between preferred and mezzanine, in the preferred investments, we typically look for a high single-digit current return on our investment, but we do participate in the back-end profit, assuming that the asset performs the way that we've underwritten. There's usually back-end participation that can juice that return somewhere into the teens from an IRR perspective. On the mezzanine financing, oftentimes those are higher coupons, but don't necessarily have the backend participation. So we're getting double digits current or sometimes even into the teens. But it very much depends on each asset. As it relates to the RIM, that one is a preferred equity investment. So like I said, we got very high single digits current. But when we look at the opportunity on that asset and some of the things that we think can occur in terms of occupancy increases and maybe some repositioning, and just the general strength of that asset in the market, we think that we will certainly see some participation on the profit on the back end. So typically looking for, at a minimum, you know, teens IRRs.
Handel St.
Great, great. That's helpful. Appreciate that. And just going back to Albertsons for a second, I'm curious, I understand there's no need to tap into the stock here given the lack of new term debt maturities, the liquidity you talked about before, but I guess I'm Curious under what scenarios that thinking could change. Are you waiting more for opportunistic deals to perhaps fall in your lap, or is it waiting maybe another year or two out as you start to approach some of those debt maturities? Just curious, as you have this liquidity, how the available options that you're considering could perhaps drive a change in thinking there. Thanks.
Kimco
That's a great question, Handel. I mean, the good part, as you point out, is there is very little in terms of debt maturities in the near term. So there's no emergency or real need necessarily today to monetize it. Two, we still have to manage our re-taxable income position. The good news is, and I think we talked about this previously, the built-in gain actually burns off next month. So the federal income tax piece of it will no longer be an issue, but we still have to manage our retaxable income. In addition, there still are certain lockups related to our investment with our partners. So in order to monetize it today, it would be subject to a marketed sale in agreement with the rest of our partners. Come June of 22, there are no further restrictions on the investment. And then we'll also, when we look into 2022, we know we have two preferreds that are callable. We have a bond that will come due. So there's lots of opportunities to use that capital to further deleverage balance sheet.
Handel
Got it. Got it. That sounds like it's more of a 2022 event at this point based on what you're looking at. Okay. Thank you.
Operator
The next question comes from Flores Van Dyken with Compass Point. Please go ahead.
Flores Van Dyken
Thanks, guys. Quick, I guess, a follow-up question in terms of cap rates. I understand, you know, this big institutional portfolio from Bentle Kennedy, I think it's just trading or about to trade, you know, 800 million price tag, sub-5.5 cap rates from market sources. um as you look at obviously wine garden you're buying at a higher cap rate uh do you think there's you know the the disconnect between private and public um real estate can you maybe give some some comments on that also um what kind of implied cap rate are you uh valuing the the the rim transaction at and maybe you mentioned something else about um JVs, obviously, you know your JV assets better than others. As you look forward, is there an opportunity to buy out JV stakes in your portfolio, and for that matter, in the Weingarten portfolio, which has, I think, something like 39 or 31 or somewhere in that neighborhood of JV assets? And if you can comment on that, and do you have provisions in there, whether you have the right of first offer in your JVs typically? Sure. Happy to address some of that.
Kimco
And I'm going to kind of keep it at a high level rather than commenting directly on the Weingarten specific questions. But, you know, there's no doubt that we think that there's still a disconnect between public and private pricing when we look at NAVs of ourselves and some other peers versus, like you said, some of the transactions that are happening in the low fives. And we're also starting to see them dipping into the high fours. there is still very much a spread between those two. But the Bentall Green Oak portfolio, very high quality grocery anchored product, and was not surprising to see a very strong demand and many bidders and multiple rounds of bidding before that deal was ultimately awarded. And I think we're going to continue to see more of that. In terms of partnership buyouts, I mean, that is something that, you know, we have taken advantage of in the past. Oftentimes, it's difficult to model or forecast or predict when those opportunities present themselves. All of our partners have different investment horizons and reasons for why they may look to exit. But we do stay ready. We stay in very close communication with our partners, and we have a pretty good sense as to when they may look to exit or what might trigger that. And as I mentioned in the prepared remarks, we do think that there's going to be some of that in the relatively near future. And as it relates to our ability to have sort of a right of first offer, right of first refusal, there's no doubt that for these assets that we're managing and that we're operating day in and day out, we are the logical buyer. We can move quicker than any other third party can, given the fact that we know the assets inside and out. So typically it's a win-win. If it's an asset that we view as a long-term hold and for one reason or another, our partner is looking to exit, It's a great chance for us to buy out the remainder and for our partners to have a very smooth and quick execution. So, again, we'll see more of that as time goes on over the next year or so.
Flores Van Dyken
Thanks, Ross. Do you see anything imminent happening in any of these potentially in your JVs over the next 12 months? I think that's very possible.
Wes Galladay
Great. Thanks.
Operator
The next question comes from Mike Mueller with JP Morgan. Please go ahead.
Connor
Yeah. Hi. Just a quick one on guidance. So it looks like X, the Weingarten charge, the midpoint of guidance went up around $0.08. I'm assuming about $0.02 of that is tied to the prior period collections. But can you walk through the major components of that increase?
Kimco
Sure, Mike. The bulk of it really is coming from just the improvement in credit loss. That is really the driver. So we had credit loss built in in our guidance all along. Credit loss in total, including the impact on straight line rents for the quarter, was about $800,000 versus what we had been budgeting. So the bulk of it really is coming from credit loss improvement. That's the driver.
Connor
Got it. Okay, that was it. Thank you.
Operator
The next question comes from Chris Lucas with Capital One. Please go ahead.
Chris
Good morning, everybody. Hey, just two follow-up questions. Glenn, just going back to the guidance, as it relates to the bad debt number you provided earlier of a range of $5 to $20 million for the back half of the year, are there any offsets to that, meaning like prior period rent or deferral payments that are included in that sort of, you know, that offset that number, or is that a gross number?
Kimco
So it's all built into that, Chris. We've been, as we mentioned, we collected $7 million of rents from prior periods, but also during the current quarter, there are cash basis tenants that didn't pay. So that, as I mentioned, we collected 77% from the cash basis tenants. That other 23% was not collected. So we'll have to see how that goes during the third and fourth quarters. But the expectation in guidance is that At the high end of our range, we would incur a total of about $5 million of credit loss. And towards the lower end of the range, it could be as much as $20 million. But again, based on where things are headed today, we feel more comfortable towards the upper end of the range.
Chris
Okay. And then just on the move from cash to accrual, the straight line impact that was mentioned earlier is a possible tailwind. Do you have an assumption built in on that as it relates to your guidance as well?
Kimco
That, no, we really haven't, because we haven't, to date, we really don't know exactly who we're going to move and when we're going to move them, so we have not built that in. So should we start moving some in in their straight line, there would be some uplift from straight line rent.
Chris
Okay, and then last question for me, Connor, you've talked about the tenant demand, and I guess I'm just trying to think through the whole process of how much insight you have, how much sort of visibility you have in terms of demand, given that I'm assuming that retailers are making their open to buys this year for store openings in 23, 24, and given what you're hearing from them, what's your confidence level that you know, this demand remains as strong as it has been so far, first half of 2021.
Connor Flynn
Yeah, that's right, Chris. We have, you know, since we've been virtual for most of this pandemic, we've been able to do more virtual portfolio reviews and talk with more tenants, you know, on the regular on, you know, expansion plans and looking for space throughout the portfolio. One thing, you're right about the cadence there, but one thing we've found is that Many of our retailers that are well capitalized have actually come to us and say, hey, you know, we actually need a few more deals for this year or we need, you know, so there's actually a bit of that going on as well. So it's broad based, which I like to see. Clearly, grocery continues to expand and is white hot. But then you've got the other categories that we like to see that complement the cross shopping, which typically is led by off price. And then you've got the home improvement, home goods section. continues to be very, very strong. And it goes on from there. And the interesting part, I think, is the pent-up demand for probably the most impacted categories that we're seeing. So the entertainment, the fitness, and the restaurant side of it have really come back strong faster than we anticipated. And we think that that bodes well for the recovery of those sectors. And obviously, we're not out of the woods yet. As I mentioned in my prepared remarks, And we want to be careful about how we talk about the future because we've still got the Delta variant that's causing a lot of issues. But we have a playbook now. We have, you know, the Kimco branded curbside pickup program that's on the entire portfolio. And we have a battle tested team that I think can really manage through this. And the customer is more aware of how to go about, you know, utilizing last mile retail in more ways than one. So I think our portfolio is well positioned to whether the whatever storm comes our way.
Chris
Thank you.
Operator
The next question comes from Linda Sy with Jefferies. Please go ahead.
Linda
Hi. Good morning. Based on your earlier comments, it seems like there's a pull forward of demand for core assets given the validation of necessity-based and grocery-anchored retail and then still low interest rates. How does that impact your view on potentially increasing disposition activity in this favorable environment?
Kimco
It doesn't really move the needle for us in that regard. We look at the portfolio every day, every week. We look at where there's risk, where there's opportunity, where there's concern, where demographics may be shifting. And that's really what motivates our decision. The good news is that we've done a tremendous amount of heavy lifts over the last five to seven years to put the portfolio in the position that it's in. And when you look at the numbers that we were able to put out this quarter, I think it speaks to the fact that the portfolio is in very good shape. It's performing well. And we'll continue to prune here and there where we see specific assets that don't necessarily make sense from a long-term hold scenario. But when we think of it from a macro level, it doesn't move our decision-making in feeling very confident in the portfolio that we own today.
Connor Flynn
And Linda, I would just add that we're in a very fortunate position, right? We've gone through a massive transformation in the portfolio. We've de-risked the portfolio. Now we're at, I think, a sweet spot where we can look and see across the portfolio that what sites are flattish in terms of growth and use those for recycling capital. And they're not necessarily low quality because some of those might be single tenant type ground leases or some of those might be assets that we've squeezed all the juice out of. But we're in a very fortunate position to be where we are as our disposition strategy can be used for incremental growth.
Linda
Thanks for that. And then when you think about last mile distribution, it seems like most retailers start with making changes within the four walls of their existing boxes to accommodate on-site fulfillment. That said, are you seeing more instances of retailers making physical changes to existing boxes, you know, vis-a-vis physical expansions?
spk21
Yeah, it's either... expansion or modification of utilizing, you know, the square footage within the four walls. Some examples are those that create a pickup point, obviously, in front of the store. We've all seen it, you know, if you go to a restaurant, chopped or otherwise, you know, they've just, you know, a couple shelves to do the curbside pickup or just to walk in and pick up. But on the back of house with some of the The bigger formats, you know, they've repurposed some of their back of house for distribution and fulfillment, while others are still doing pick and pack within the stores. So, again, each retailer is trying to do what's best for them based on how they logistically are set up. And I think we'll just continue to see this trend evolve. Layer on technology and the efficiencies there to manage stocking and inventory levels is going to be, I think, a hyper-efficient system as we progress through the coming years.
Connor Flynn
We've started to see some tenants, and this is early, but started to see them lease adjacent space for almost like sortation centers. So that's an incremental net new demand factor, and we're watching that closely to see if that's going to have an impact, and hopefully it's a new demand source for us.
Linda
Thank you.
Operator
This concludes our question and answer session. I would now like to turn the conference back over to Dave Lushnicki for any closing remarks.
Dave Bucznicki
We just want to thank everybody that participated on the call. We hope you enjoy the rest of your day. Take care.
Operator
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
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