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spk13: Greetings and welcome to the Kimco Realty Corporation's first quarter 2022 earnings call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded and will be limited to 60 minutes. It is now my pleasure to introduce your host, Mr. David Bushnicki. Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bushnicki. You may begin.
spk15: Good morning, and thank you for joining Kimco's quarterly 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 Jameson, Kimco's Chief Operating Officer, as well as other members of our 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 were 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 investor relations website. And with that, I'll turn the call over to Connor.
spk16: Good morning, and thanks for joining us today. I'm going to lead off the call with a brief review of the current retail environment, highlight a few of our Q1 accomplishments, and provide an update on our overall strategy. Ross will describe the transaction market and the high demand for our open-air and mixed-use products. And as usual, Glenn will cover our financial metrics and provide updated guidance for the year ahead. 2022 is off to a very good start. The integration of the Weingarten merger is now complete, and as anticipated, our scale, geographic clustering, and operational platform is stronger than ever. This success is occurring at the same time that retailers are taking a fresh look at their real estate portfolios and concluding that the physical store has proven to be the linchpin of retail. To put that in perspective, it wasn't long ago when many people thought that the physical store was on the verge of extinction and that e-commerce was the be-all, end-all for retail. Now retailers are looking at the physical store through a new lens, a lens that is focused on optimizing the store for retail, e-commerce, and distribution. Tenants are revising their capital spending budgets to address the omnichannel revolution and e-commerce platforms. They are readily investing capital on refurbishment, expansion, fulfillment, and last mile distribution. When retailers evaluate their real estate, they no longer separate their warehouse and distribution needs from their sales requirements. Today, leading retailers are taking a holistic approach to determine the best locations to ultimately serve their customers. Indeed, this integrative approach is the dominant recurring theme during our portfolio reviews with retailers and is creating more demand for optimal locations. We are seeing renewal and new deal demand for well-located space that is not only suitable for generating in-store sales, but is also conducive to last-mile distribution and fulfillment. Target Stores is a bellwether for this new approach. with more than 95% of their total sales, physical and online, being fulfilled through their store base. The result is a tremendous halo and value add to their existing and growing store fleet. This trend of increased capital spending by retailers and the renewed focus on and demand for quality locations is good news for Kimco. Higher retention, lack of new supply, quality real estate, and a well-coordinated team effort are strengthening pricing power and accelerating the speed of recovery throughout our portfolio. The result is higher cash flow, greater leasing velocity, improved net effective rent, and growth in recurring FFO. Our incredible team produced a record 475 renewals, totaling 3.9 million square feet, and the renewal and option spreads of 6.4% continue to underscore the supply and demand dynamic I just described. Specifically, New first quarter leasing was strong, producing 178 new deals, totaling 719,000 square feet, and our pricing power is reflected by a solid new leasing spread of 18.6%. Retention levels remain high, with lack of new supply putting more value on existing stores and resulting in more remodels and lease extensions with minimal capital required from Kimco. It is worth noting that positive net absorption in the first quarter historically has been a rarity, And yet our superb leasing team generated a 30 basis point increase in our pro rata occupancy, which now stands at 94.7%. This is our highest first quarter sequential occupancy gain in over 10 years. Year over year occupancy is off 120 basis points. Strategically, we continue to focus on enhancing our already strong open air grocery anchored and mixed use portfolio in our top markets. Ross and his team are constantly analyzing new potential acquisitions as we look for the best fit for our portfolio. We've also made excellent progress on entitlements. In the first quarter, we entitled 1,300 apartment units in three of our core markets, Denver, Fort Lauderdale, and Washington, D.C. Our mixed-use assets are benefiting from the dual recovery in both the apartment and retail sectors. All this activity gives us flexibility and optionality to create FFO growth and shareholder value. While we are proud of our results, we recognize it is not all smooth sailing. The war in Ukraine, the lockdowns in China, the rise in COVID numbers, and the reemergence of mask mandates in certain areas present real challenges. The consumer is being stretched by a record inflationary environment at the gas pump and at the grocery store. Despite these headwinds, traffic continues to flow to our grocery-anchored neighborhood and necessity-based centers. Traffic in the first quarter of 2022 was 108.9% relative to the same period in 2021, as the value provided by our essential based retailers remains as important as ever. In closing, I want to thank our entire organization. They respond to every challenge. We tirelessly maintain our do the right thing culture. Their collective drive has enabled us to push our recovery faster than we anticipated and execute our strategy with precision. It feels like we are just getting started, which makes it so exciting to be a part of this great team. And with that, I'll turn it over to Ross.
spk06: Thank you, Connor, and good morning. It has been an exciting start to the year, and while our first quarter transactions were somewhat limited, we remain encouraged by the acquisition pipeline we're actively building. As we have mentioned in previous quarters, our transaction activity remains very selective and focused on a combination of third-party acquisitions, structured investments, and partnership buyouts. Thus far, almost four months into the year, we have deal flow for all three categories in our acquisitions pipeline. In terms of first quarter transaction activity, we acquired a couple of adjacent land parcels highlighted by a junior anchor box located within our Columbia Crossing Center in Columbia, Maryland. We expect the pace and frequency of closings to ramp up as we move through the balance of the year and we are eager to capitalize on the external growth we can deliver as these transactions are completed. As we indicated last quarter, we have taken the opportunity to prune several joint venture assets that we felt had maximized value with limited future growth. We sold three shopping centers from joint ventures for a gross value of $81.9 million and Kim's share of $17.5 million. In the second quarter, we expect to complete additional JV dispositions from both Legacy Chimco and recent Weingarten partnerships. We are at a very interesting time in the marketplace today. Even with the recent rise in interest rates, we have not yet seen any impact on pricing or demand for the product. Equity capital is abundant, which is creating further competition for quality open air centers. Sub 5% cap rates for the best of the best is now the norm, and we are seeing these comps throughout the country. Portfolios are back to commanding a premium if the composition of the assets checks the boxes for institutional investors. Bidding wars are commonplace for not only grocery anchored assets, but for the better quality power and lifestyle assets as well. This comes at a point in time where rates are rising rather quickly, and lenders are taking a closer look at quality of sponsorship and disciplined loan-to-values. It is worth noting that there is a strong advantage in the marketplace today for the all-cash buyer, which gives a balance sheet and liquidity position like Kimco's a major benefit. We intend on utilizing this privileged position wisely and protecting it while selectively adding unique core properties and structured investments into the portfolio. Another Kimco differentiator in this market is creativity and structuring, specifically the ability to offer a tax deferred structure. For certain tax sensitive owners of property, this is the best way to optimize net value for a seller in an uncertain regulatory environment. Given the various paths we have to prudently deploy capital, we are confident in our ability to unlock accretive investment opportunities for the company in all three phases of our external growth strategy. And now to Glenn for the financial results for the quarter.
spk03: Thanks, Ross, and good morning. We are encouraged by our strong first quarter results driven by increased occupancy, strong leasing volume, and continued positive leasing spreads. In addition, our same-site NOI growth benefited from higher collection levels and lower credit loss as compared to the same period last year. NAREID FFO was $240.6 million, or $0.39 per diluted share, and includes a $7.2 million charge, or one penny per diluted share, for the early extinguishment of our $500 million bond, which was scheduled to mature in November of this year. This compares favorably to our reported first quarter 2021 NAREID FFO of $144.3 million, or $0.33 per share. The increase in FFO was primarily driven by higher consolidated NOI of 104.7 million, of which the Weingarten acquisition contributed 88.6 million. NOI also benefited from improvements in credit loss and growth from our rent commencements at our signature series projects. FFO from our joint ventures also increased by 14.4 million, comprised of 8.6 million from the Weingarten acquisition, and 5.8 million from our other joint ventures. These increases were offset by debt prepayment charges of 7.2 million and higher interest expense of 9.3 million, mostly attributable to the 1.8 billion of debt assumed in connection with the Weingarten acquisition. Also, our G&A expense was higher by 5.5 million associated with the increased size of the operating portfolio and new associates we brought on from Weingarten. However, our G&A as a percentage of our revenues significantly improved by approximately 100 basis points, further showcasing the cost-saving synergies from the Weingarten acquisition. Our operating portfolio delivered robust same-site NOI growth of 8.9% over the same quarter last year. The growth was comprised of 3.9% from increased minimum rents and 90 basis points from increased CAM and tax recoveries resulting from higher occupancy. Lower abatements contributed another 2.5% and lower credit loss, including collections from cash basis tenants, contributed 80 basis points. As we look forward, our same-site NOI for the next three quarters will be more challenging given the prior year comp range of 12.1% to 16.7%, driven by the large reversals in credit loss realized in 2021. Our guidance for the remainder of 2022 doesn't anticipate additional reversals of bad debt or collections from cash basis tenants for prior period rents. It is worth noting that today only 5.2% of our ABR comes from cash basis tenants, which is essentially back to pre-pandemic levels. All that said, we expect same-site NOI growth for the full year 2022 to be positive. Our balance sheet remains strong with liquidity of approximately $2.4 billion, comprised of $370 million in cash and full availability of our $2 billion revolving credit facility. Our look through net debt to EBITDA, which includes our pro rata share of joint venture debt and NOI and our perpetual preferred issuances, has improved to 6.4 times. This is the best level achieved since we began disclosing the metric over 10 years ago. and does not include the potential benefit of monetizing our Albertsons investment, which had a current market value of over $1.3 billion as of March 31st. During the first quarter, we opportunistically issued a new $600 million 10-year unsecured bond at a coupon of 3.2% and used the bulk of the proceeds to repay early $500 million of 3.4% bonds scheduled to mature later in the year. Of note, The 10-year Treasury has increased over 80 basis points since this issuance. Also, as of today, we have repaid all our consolidated mortgage debt due in 2022, totaling $115 million. Our only remaining consolidated maturity for 2022 is a $299.4 million, 3.375% note due in October. We also have two perpetual preferred issuances totaling $489.5 million that become callable later in the year with a weighted average coupon of 5.2%. This should present an opportunity to further reduce our fixed charge costs. Subsequent to quarter end, we renewed and increased the unsecured credit facility for our care joint venture with the New York State Common Retirement Fund. This new unsecured facility has a total term of five years and has been upsized to $425 million, comprised of a $275 million fully drawn term loan and a $150 million revolving credit facility with zero outstanding. The pricing grid includes a sustainability component, which can reduce the borrowing spread by up to two basis points based on reductions in greenhouse gas emissions from the CARE portfolio. Turning to guidance, based on our strong first quarter results, we are increasing our 2022 NAREID FFO per share guidance range to $1.50 to $1.53 from the previous range of $1.46 to $1.50. The increased range is based on the following assumptions. Positive same-site NOI growth for the full year, approximately $13 million of credit loss for the remainder of the year, no additional charges associated with debt prepayment or the redemption of the callable preferred issuances that are outstanding, as well as no monetization of our Albertsons investments. As a result of our strong first quarter results and the increased guidance range, our board of directors has raised the quarterly cash dividends to 20 cents per common share from the previous level of 19 cents. Even with this increase, we still expect to generate over 200 million of free cash flow after the payment of dividends and maintain a dividend distribution level which is in line with the estimated taxable income. We truly appreciate and thank the entire Kimco team for all of their efforts, commitment, and focus on creating shareholder value. And now we are ready to take your questions.
spk13: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that participants limit themselves to one question and then re-queue by pressing star 1 to ask a follow-up.
spk10: One moment, please, while we poll for questions. Thank you. Our first question is from Craig Schmidt with Bank of America.
spk21: Please proceed with your question. Great. Thank you. I just wondered, are there any anticipated changes or enhancements to your curbside pickup installation or bulbous procedures?
spk23: Hey, Craig. Dave Jamieson. Great question. It's something that we are actively trying to better understand now and explore what the curbside 2.0 version will be. As you know, we have curbside at all of our properties where it's warranted. And we're expanding that into the wine garden sites. But it is interesting as we start to talk to retailers of what the next iteration will be. So it's really incumbent upon us to continue building the conversation with them and seeing what their needs are and how their needs are changing. And then we will adjust accordingly. But we're very much in that learning phase right now to understand what's next to come. But assuming that something will be
spk10: different tomorrow than what it is today. Thank you.
spk13: Our next question comes from Greg McGinnis with Scotiabank. Please pursue your question.
spk07: Hey, good morning. So, Connor, it seems like with a portfolio of your size, development could easily play a bigger role than it currently is. I'm just curious what is maybe holding you back from greater development investments and what size you anticipate to are some of those kind of mixed-use entitlements, ground leases that we're starting to see enter the pipeline?
spk16: Thanks for the question, Greg. I think when you look at the pipeline of opportunity for us, we do have, as you've been seeing, a war chest of entitlements. And so we really want to focus on giving ourselves optionality and flexibility for the future. And we've determined that the best use of our time and our capital is really focusing on unlocking the our own real estate rather than taking on development and land banking certain development parcels for future because we really do believe that the assets that we own and control are better master plan for future and then we can activate them at our so choosing we do have a couple that are getting close to being shovel ready that you'll see add to our supplemental in the back half of the year but we want to be mindful the fact that you know the structure that we think is best suited for FFO growth going forward is is to, again, really focus on the internal growth of the organization and how do we add to that internal growth by layering in some of these mixed-use redevelopment opportunities in the future. So I don't see us going back to adding some large-scale ground-up development projects, but I do like the fact that we continue to stockpile entitlements and then activate those entitlements that are so choosing in the future. We have done it a number of different ways, as you know, taking a little bit less risk with ground leasing parcels or entering into joint ventures with best-in-class multifamily developers by contributing the land at a marked-up basis with the entitlements in place.
spk10: We like that approach. Thank you.
spk13: Our next question comes from Rich Hill with Morgan Stanley. Please contribute your questions.
spk26: Hey, good morning, guys. First of all, congrats on a really nice start to the year. I did want to talk about what looks to be a pretty attractive leasing opportunity over the next couple of years. But specifically, do you think this is becoming more of a renewal business than a new lease rate business? And I guess it's a two-part question. You know, where do you think you can take occupancies versus where they are today and And do you think that just means more stable renewal business, which is a great predictable cash flow? So how should we think about that?
spk23: Yeah, it is a multi-part question. So let me try to break it down. First, this quarter, we saw historically low vacates, about 25% less than what we've typically seen in Q1. So when you think about our base, it's very, very solid. And I think, obviously, that's was cleaned up a lot through the pandemic. A lot of high-risk tenants moved out of our portfolio. So we start with a much more solid foundation. Then when you look at the rollover, as you mentioned, the retention, the retention levels are at the highest point that we've seen too in the last five years. Tad Piper- throw up over that that 90 plus percent range so you're now retaining those quality tenants for longer when they have that opportunity to punch out either what an option comes up or the renewal renewal notice comes up, so. Tad Piper- I think it's showing validation of the property validation of the sector and the strength of the retailer themselves about what they're doing within our centers. But then you look at the new lease activity, 178 new leases, which is also one of the high watermarks for us. You see all those points of demand that we've been talking about over several months coming from all sectors. So you are seeing, you know, real growth come in and you're seeing other retailers say like a boot bar for us this quarter was very active in that smaller midsize, you know, junior box category, really wanting to expand and grow their market share across the country. So you're having all of these forces combined, which is helping either sustain our occupancy and or grow it. When I look at where we can go, I go back in time and say, where have we come from? And when I look back at the Great Recession, we averaged around a 10 to 30 basis point gain through several years to recover our occupancy. This quarter, Q1, which is historically a bit of a dip in occupancy, we did gain 30 basis points. So we are moving in the right direction, and I think it's real growth components that are helped driving that. Again, where it goes from here, we'll continue this. We see good momentum through 22. There's obviously a lot of macro forces out there that we can't control, but for now we're managing with what we have and feel cautiously optimistic of the direction we're headed.
spk03: I would just add on that point, the renewals and options for the quarter I mean, the tenants are staying. And the other benefit we have is renewals and options, for the most part, there's a lot less capital required to go in to those boxes when they're staying like that.
spk02: So it's really very, very beneficial.
spk13: Thank you. Our next question is from Juan Sanabria with BMO Capital Markets.
spk20: Please proceed with your question. Hi, good morning. Just wanted to ask about the Albertsons stake that you guys have, obviously tremendous value, but I'm curious if their strategic review influences your thoughts on the timetable about monetizing shares or how you're thinking about harvesting that value.
spk03: Yeah, it's a great question. Again, they're doing their own thing with their strategic reviews. We're not aware of anything specific at this point. As I think you're aware, our lockup expires or is scheduled to expire at the end of June. So we're just going to continue to monitor how the investment is performing at that point, and then we'll make decisions after that about the appropriate timing for monetization or beginning the monetization of it. Again, keep in mind we can't monetize the entire thing all at once due to wanting to retain our REIT status. as we've talked about on some previous calls, we could have a gain of around somewhere in the 350 million-ish range and maintain our REIT status within the REIT. If there was a larger transaction, and I'm making this up, but if there was a total take private of the company and it was monetized all at once, we would have to shift the remaining portion of our investment into our TRS. We would then have obviously all the cash available And over time, we would dividend that money back up to our REIT over a period of time to maintain our REIT status.
spk10: Thank you. Our next question comes from Samir Kunal with Evercore ISI.
spk13: Please proceed with your question.
spk02: Good morning, everybody. I guess, Connor, I was a little surprised that guidance did not move up more here, considering how strong the tailwinds are. You've talked about the record leasing volumes. You've got the rent growth, occupancy moving up here. It sounds like you have acquisitions in the pipeline. I guess, what's the offset here? Is it higher rates that could impact earnings growth related to the wine guard debt? Just trying to make sure I'm not missing anything here. Maybe it walked us through sort of the swing factors. tailwinds and potential headwinds to earnings growth this year? Thanks.
spk16: Sure. So I did outline in my earlier remarks that it's not all smooth sailing, right? You've got mask mandates back in Philadelphia. You've got obviously record inflation going on. You've got supply chain issues still being resolved. So the lockdowns in China, you got the war in Ukraine. So there's plenty of headwinds out there that we recognize we have to deal with and continue to monitor. In terms of the earnings guidance, we do have a few one-timers and some things that impacted the first quarter. Do you want to walk through sort of the breakdown?
spk03: I mean, keep in mind, we did raise the lower end of our guidance by $0.04 and the upper end of the guidance by $0.03. So today's guidance, the low end of the guidance was the previous high end. So we have incorporated all that in. As I mentioned in my prepared remarks, we do have $13 million in the remainder of the year of credit loss that's in the numbers. So that's about two cents a share. We'll have to see where that falls out. But that, you know, again, that, you know, some may say that's a little conservative and that's fine. We'll play it out because we are still dealing with some of the pandemic issues that are there. And, you know, we did during the first quarter, we had about $2 million of LTAs, so a little bit of one-timer stuff. But overall, I mean, again, we're focused on where the credit loss is, and we want to continue to put ourselves in a position to feel comfortable that we can meet the guidance that we put out and do it on a conservative basis.
spk10: Thank you. Our next question comes from Alexander Goldfarb with Piper Samuel.
spk13: Please proceed with your question.
spk22: Good morning, and thank you. And thank you. The queue is much more efficient this quarter than last quarter. Connor, just a question on the cash buyers and Kimco's advantage. Certainly can appreciate your lot of credit availability, your access to the debt markets. But when it comes to equity, you know, in our numbers, you're trading at sort of just a tick under an implied six cap versus the, you know, the sub fives that you described. Second, you guys have been pruning a lot of your legacy JVs. So it doesn't sound like joint venturing is in order. You already addressed potential proceeds from Albertson. So where does Timco get the equity advantage to compete with, you know, especially the non-traded REITs and the other private market REITs that are raising money, you know, basically at NAV versus where you guys are, which is a discount to NAV?
spk16: I think when you look at, Alex, when you look at the amount of cash we have sitting on our balance sheet, start there. You know, we're sitting with records amounts of cash that's not earning anything on our balance sheet. We have tremendous access to capital. So start there. Then you look at, you know, the $200-plus million of free cash flow we have after dividends. So you combine those two factors, and obviously we're sitting pretty with the amount of cash we have there. And that doesn't account for any monetization of Albertsons, which Glenn mentioned earlier, which is an additional, I'll call it, $300- to $400-million-plus cash. So we do feel like we are in a good position to accretively invest our cash that's sitting on the sidelines right now. Now, we do look at our cost of capital every day and make sure that we focus on investing accretively there. And we do feel like when you look at the opportunity set of how Ross outlaid all of our investment opportunities and blend those returns together, we do feel like we actually are in a unique position to invest accretively, even in these competitive markets where we're trying to add to our scale and our concentration.
spk06: Yeah, Alex, I would just add, you know, there's no doubt when you look at the cap rates that some of these assets are trading at that we're going to be, you know, passing on a lot more deals than we're going to be winning. But we also factor into our analysis a variety of different metrics. So, you know, the going in cap rate is one metric, but the If there's an asset or a portfolio that has substantial growth, substantial below-market leases, redevelopment opportunity, the year one cap rate and NOI is really just one of many factors that we're taking into consideration when evaluating our strategy. And as Connor mentioned, it really is a blend of the structured investments, the acquisitions, the partnership buyouts. So when you put it all together, it does blend out to a return that's well in excess of our cost of capital.
spk13: Thank you. Our next question comes from Michael Bilerman with Citi. Please proceed with your question.
spk09: Thanks. Connor, I want to talk about the spread between leased and occupancy, which has continued to grow. I wanted you to unpack it a little bit. It sounds like the leasing activity, in terms of driving the lease rate up, is a big driver for that. I just didn't know if the tenants not taking occupancy, is that due to any sort of labor? Is it construction? Is there just a delay in getting these stores open for that rent to start commencing? Or is it just that the leasing environment is so strong so you're pushing the headline lease number faster than you're able to get the stores open? And how do you sort of see that trending as we move throughout the year?
spk16: Sure. Thanks, Michael. I'll start, and then Dave, you can jump in. It is a combination of right now we're seeing leasing volume continue to be at robust levels where it's taking that spread up, and that's sort of the driver of it in the first quarter. Now, we are laser focused on trying to get our tenants open and paying rent as quickly as possible. For many, many years, we even have internal expediters that are just focused on the process of as soon as the ink hits the paper on lease, we take that tenant and hand walk them through the process of getting their permits and getting open and operating as quickly as possible because the sophistication of tenants vary greatly in that process. And we felt like it's a priority of ours every day is a day that we can be collecting more rent. So that is a big focus of ours. Now, there are Supply chain issues, as I mentioned earlier, are still a factor. We have pre-ordered a lot of HVAC units, roofing materials, those types of items that we know we use a certain amount on an annual basis to try and expedite the process. Labor is still an issue, as you've seen, the tight labor markets. Now, our scale does come in handy when we are doing multiple projects in areas. We do have the ability to use multiple crews on assets that are clustered together. So we do have some scale advantages there and some efficiencies of scale. So that's, again, one of the ways that we continue to try and use our platform to our advantage.
spk23: Yeah, and then just to speak a little bit about the numbers. So our lease economic did grow from 270 to 310 basis points this quarter. That annualized rent amount of that delta spread is now equal to $46 million, whereas previously it was $40 million when we talked about it last quarter. We did have a number of tenants commence rent this quarter. In the quarter, it's about $1.3 million. On an annualized basis, that represents just over $8 million. We do anticipate another $10 to $15 million to come through the balance of this year through tenant openings. Specifically to your question, Michael, the new lease activity did outpace any impact that we have seen as a result of tenant delays. That is still relatively modest when you look at the larger sum. So we're still on track for the year, but the pool is growing as a result of the demand that we've seen on the new lease activity.
spk10: Thank you.
spk13: Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
spk01: Hi, good morning. This question on, I guess, prior collections. They were also strong in this quarter. How are discussions with tenants that had prior debt collection issues and just generally where are you in terms of the potential pool of prior year receivables that you could collect?
spk00: So in terms of prior collections, to answer that part of your question, we did have about $6.4 million in collections that related to prior period receivables. And then just also to note, our cash basis tenants for the quarter, we did collect 76% on those receivables for the quarter. If you're looking at, you know, what's the potential, of course, we would love to know truly what it is we're going to get paid on our uncollected, but I think it's helpful to break it down in this way. If you look at our reserve, about 70% of the reserve relates to cash basis tenants, which is about $30.6 million. And then inside that number, I'll break it down a little bit further for you. $9.6 million of that is related to tenants that vacated the space. So, of course, when a tenant vacates, the probability of collecting gets a little bit harder as they're not a current tenant. And then the last piece, too, to keep in mind is of that cash basis number, $4.5 million of it is related to deferred receivables. So they have a longer period of time to pay those receivables. So I think with all those pieces, it kind of lays out what you have potentially on the high rise. But again, we don't really know exactly what it is we're gonna collect. We're hopeful that we will collect something, but that's why we do reserve it, just to be conservative in that aspect.
spk10: Thank you.
spk13: Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.
spk05: Hi, good morning, everyone. Ross, given the rise in the 10-year You know, the cap rate spread is pretty compressed versus historicals. You know, we know there is ample investor capital focused on retail, but are you starting to see any real-time upside pressure to cap rates, perhaps fewer bidders? I mean, so far, you know, I agree, they do seem pretty firm. But either in future potential deals or if not yet, how is private market investor sentiment trending?
spk06: Yeah, no, it's a great question, and we're watching it very closely. And what I can tell you is we have not seen any slowdown as of yet for our product type. And I think it's a variety of factors. You named a couple. There is a substantial amount of capital. The fundamentals of our business continue to showcase the strength. And when you look at the spread that we have still to some of the other asset classes, it is a very compelling case for investors to buy high-quality open-air shopping centers. So again, we're watching it very closely. We have not seen any slowdown on bidding on both assets that we're trying to acquire, as well as some of the assets in our joint ventures that are on the market for sale. We have an asset right now that is in the best and final that we're selling. And there's three or four groups that are really neck and neck trying to win the deal. So I think if there was any sign that there was concern about that, we would start to see it in some of these processes, and it's just not there yet. But we'll continue to be very disciplined with our capital, and we watch the capital markets closely.
spk10: Thank you. Our next question comes from Handel St.
spk13: Just with Maduro. Please proceed with your question.
spk25: Hey, guys. Good morning. And I apologize in advance for a multi-parter here. But I wanted to Asked you about spreads. Spreads were up big in the first quarter. I guess I'm curious, are we looking at a new norm here, a new level of norm in that, you know, small shop is becoming a bigger piece of your leasing here? And with small shop occupancy at 88%, what's in the guide for year-end small shop? And then can you clarify what is the same for NOI guide? I think last quarter you mentioned around 3%, just want to get some clarity on if that's been updated at all. Thank you.
spk23: I will take the first two, and then I'll kick it over to my colleague, Glenn Cohen, to take the third. As it relates to spreads, I tend to say every quarter, spreads are lumpy. Spreads are all dependent on the population of that given quarter. This quarter, obviously, we were encouraged by the spread count of achieving that 18%. Last quarter was a little bit less, but still in the double-digit range. So it is really just dependent on a quarter over quarter, but Generally speaking, when you look at the trend line, we look at the net effective rents. The net effective rents, when we look at the trailing four quarters, is still growing at a modest pace, going in the right direction. So we're encouraged by that as the new rents are helping offset some of the, obviously, the increase in costs that we've seen due to inflation, supply chain issues, et cetera. So we're still very much encouraged by that trend. As it relates to small shop occupancy, yes, it is at 88.4%. When you look at a year-over-year comparable, you know, it's up 260 basis points. Weingarten did, you know, have an impact to that, you know, to the positive, which is good. But even on the Kimco Legacy stuff, we're up substantially year-over-year. So it is moving in the right direction. In terms of credit, we're seeing, you know, 60% of our small shop deals come from national and regional players. So you are building a stronger credit base with these new deals. going to go for, which is a good sign in terms of sustained cash flows in the future. But we don't pose guidance for occupancy at year end. But again, to my earlier remarks, we tend to see a 10 to 30 basis point recovery during the Great Recession. We're trending well now. We have a 30 basis point overall gain this quarter. So we're encouraged by the signs and the direction we're going. Glenn?
spk03: So as it relates to your question regarding same-site NOI, as we've mentioned a few times already, 2022 same-site NOI guidance is a little tricky. You have so much reversal of credit loss in the prior year, which is why you saw incredibly strong same-site NOI last year. You're looking at very, very difficult or challenging comps for the next three quarters because of that. Having said that, if you want to pull out all the credit loss just look at it and where the growth is coming from, it is in that 3% range. And the real encouraging point is because of the increased occupancy, we're seeing the minimum rent composition of it really improve. So during the first quarter, the minimum rent component of same-site NOI growth made up 3.9% of that total growth number. So that, to me, is really the driving factor. And again, at the end of the day, we still think
spk10: put it all together, even with the credit loss, that will be positive. Thank you.
spk13: Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
spk19: Hi, good morning. Maybe just a follow-up question on the Albertsons plan, given that late June is just two months away at this point. So could you confirm, probably again, whether any monetization is currently assumed in guidance, and if it's not, why is that? Is it just that at this point you aren't sure what the use of proceeds would be, so choose not to, or is there a possibility that you don't monetize some this year?
spk03: So it's not in guidance except for the fact that the dividends that we earn from the investment are in our guidance numbers. Again, we monitor the investment very, very closely. And until we get to the end of the lockout period, it's very, very hard to predict what we're going to be able to do. And they're still in the middle of their own strategic alternative. So it's somewhat fluid, but come the end of June, we see that we'll have our opportunities and our options available to us.
spk10: But again, not in the guidance except for the dividend component. Thank you. Our next question comes from Mike Mueller with JP Morgan.
spk13: Please proceed with your question.
spk11: Yeah, hi. I'm wondering, did any parts of the portfolio disproportionately add to the quarter's sequential occupancy gain, whether it was something geographical or wine garden or something else?
spk23: So, overall occupancy actually was gains were made across the entire company. So that was actually a really encouraging sign when you saw, you know, both east to west, north to south, all see positive gains in momentum in terms of occupancy. Obviously, when we look at the Sunbelt and coastal markets, you know, it's representative of over 95% of our activity. That's where we're seeing sizable momentum. I think it's no surprise to anybody. Obviously, Florida is doing quite well, as is Texas and other markets down there. And so you are seeing some stronger rent growth coming from the Sunbelt slash coastal markets versus our non-coastal, non-Sunbelt markets.
spk10: But overall, everyone had positive gains. Thank you. Our next question comes from Keebin Kim with Truist Securities.
spk13: Please proceed with your question.
spk04: Thanks, John. Good morning. So given the strong leasing environment, I'm curious about your strategy. when it comes to perhaps proactively engaging some of the weaker credit tenants that may have gotten a boost from COVID demand? Any kind of insights into your mental approach that you can share?
spk23: Sure. I mean, we're in touch with our entire tenant base on a regular basis. For any of those that continue to struggle, that feel like the end is in sight, we want to be proactive in trying to recapture that space and create an opportunity to release it and enable them to move on and do something else. That pool, I think, is relatively small. Again, a lot of it was purged through the pandemic. But we're always, normal course of business, stay very, very close to your tenant base and assist those that need help that you feel like have a longer run rate and then work out an agreement for those that you don't think will make it.
spk16: We did see a few tenants renew that we anticipated vacating this quarter, which we found to be interesting because we didn't see sort of the same move-outs as we had budgeted or anticipated. There was a much higher retention rate, even on some of the tenants that we thought were going to give back their space. They did not. So, again, that reflects in earlier comments that we made.
spk13: Thank you. Our next question comes from Flores Van Dykem. with Compass Point. Please proceed with your question.
spk24: Thanks. Good morning, guys. I was going to ask you something about getting a green light from the market because you're trading in line with consensus NAV, but Alex sort of asked that one already. So I'm going to move on and maybe talk a little bit about leasing strategy. And maybe, Dave, you can comment on when you're signing new leases, uh obviously the majority of of your space is anchor space as it is for most strip uh owners um and you know those anchor tenants tend to have longer rents but when they come up you you have bigger bigger uh spreads potentially but if you can talk about the the bumps that you're getting and particularly also the bumps on the small shop space uh has that gone up are you getting or or or negotiating higher fixed bumps in your rents as a result of either the market strength or the higher inflation environment today? And maybe if you can sort of comment on your profile and how that is shifting potentially going forward with the lack of new supply in the market in the last decade in the shopping center space, does that give you more confidence going forward on some of your some of your growth prospects?
spk23: Sure. Yeah, of course. A lot there, so I'll try to unpack it a little bit. When economics are really driven by the markets, right, and each of the sub-markets, supply-demand dynamic is your number one driver to help determine where you have pricing power. Obviously, with our spreads and what we've been showing, we feel good about the position that we're in, that we have the pricing power to push rents north. across the majority of all the markets that we operate in. As it relates to bumps and escalations, when you look at the anchors, we typically say 10% to 12% on average is what you're pushing for. Again, you might get a higher rent, maybe an adjustment in the out-of-year increases. Maybe there's some consideration to cost, so it all goes into the soup there. to determine the final economic deal. But, you know, we try to push those as much as we can. On the small shop side, you know, we've averaged around 3% to 4% historically. There are some markets, you know, in the Sunbelt area that pricing power is such that we can push it further north than that at times. And our teams are tasked and know the markets best about when they can do that and when they can leverage that opportunity as our occupancy starts to tick up. as well but really yeah it's a multi-dimensional negotiation I'm in a place and what's available and in the rest of the economic structure that goes into the deal but that net you know we're seeing encouraging signs where we need to be or the other thing I would add is that we're in the very early innings of trying to understand the dynamic of how much occupancy costs
spk16: changing due to the fact of e-commerce being a halo to the physical store and we don't really have perfect data on that yet but I think that's part of the reason why our renewals and our retention rates are much higher because that occupancy cost is dramatically different than the traditional occupancy cost that reflects sort of the four walls so I think that's a trend where we're actively trying to unpack as Dave mentioned it really is all market driven but I think the retention rates are going to be higher and due to the fact that this additional benefits occupancy cost is flowing through to the retailer.
spk13: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. The confirmation tone will indicate your line is in the question queue. Our next question comes from Chris Lucas with Capital One Security. One, my mistake. Our next question comes from Linda Sai with Jeffrey. Please proceed with your question.
spk12: Hi, good morning. When your smaller peers discuss the capacity to buy non-anchored centers, given the ability to pursue centers with a higher percentage of credit tenants, I know your bread and butter is grocery anchored, but is this something you would pursue, maybe given the opportunity to achieve better yields?
spk06: That's a good question. We do look at a lot of different formats of retail. At the end of the day, for us, it's a very local business that comes down to the real estate. So if we determine that there is value creation or upside with below market leases, with redevelopment potential, then we would consider any format of open air retail. What we tend to see in the marketplace today is the strength of the grocery anchor and the amount of visits that it creates, the traffic that it creates being a real benefit to the overall asset and the cash flow of that asset. So we continue to focus on maybe some larger format centers and grocery anchor, but that's not to say that for the right piece of real estate, we wouldn't consider alternative formats.
spk13: Thank you. Our next question comes from Chris Lucas with Capital One Security. Please proceed with your question.
spk08: Hey, good morning, everybody. Just wanted to follow up sort of, Connor, on your comments about the importance of last mile. And I guess I was really trying to understand if there's any relationship in rent pricing between last mile industrial, particularly in selected, you know, maybe coastal or very urban markets, and what you're seeing in terms of what you're able to get out of some of your anchor and junior anchor markets. Chris Proctor, Tenants for you know, in terms of rents just trying to understand if there's any relationship there between the industrial markets and the in the box anchor retail space.
spk16: Chris Proctor, yeah Chris it's a really good question, because I think we're starting to see that that line being blurred dramatically, and it is you know tenant by tenant specific of. What does their coverage look like in a certain trade area to service the customer? And how do they go about utilizing both their industrial footprint and their retailer footprint to solve that equation? And I think it really just comes down to the specifics of that retailer and that geographic area and how difficult it is. to penetrate that trade area. So that's where I continue to think we have a pretty unique situation where this ongoing trend that's gaining momentum is starting to blur those lines. And again, the occupancy costs that I mentioned earlier is starting to change the dynamics, I think, of the economics of retailers and how much value they put on their physical retail brick and mortar space as it can operate in multiple different capacities. So it is early, but I do think that's a trend worth watching.
spk10: Thank you. Our next question is from Paulina Rojas with Green Street.
spk13: Please proceed with your question.
spk18: Good morning. I am intrigued. Does the higher interest rate environment lead you to use higher hurdle rates for acquisitions? I'm thinking that independent of whether you use or not debt financing, in theory, keeping all other things constant, the attractiveness of the real estate investment is costs, right, relative to other fixed income vehicles?
spk06: Yeah, it very much is a factor, and really it factors into our cost of capital. So when we look at our cost of capital on a daily basis, it is a blend between our cost of equity and our cost of debt, and the volatility there does have an impact on that metric. So in theory, it does play into our mindset and our thought process and the hurdle of what we're looking to acquire. You know, that being said, the cost of capital doesn't necessarily move in tandem with interest rates. And what we've seen in our program and our external growth is that the combination of the structured investments, which have a very high yield, you know, combined with some of the third-party acquisitions and partnership buyouts does still provide us the opportunity to invest at a meaningful spread to that cost of capital, even in an environment where interest rates are moving rapidly. upwards today. So we watch it very closely. We'll continue to see how it impacts pricing in the marketplace. But with the pipeline that we've created thus far, we're very confident in our ability to invest in it creatively.
spk13: Thank you. We have reached the end of our question and answer session for today. I would like to turn the floor back over to management for any closing comments.
spk14: Just like to thank everybody that participated in the call today. We hope you enjoy the rest of your day. Thank you so much.
spk13: This concludes today's conference. You may disconnect your lines at this time.
spk14: Thank you for your participation.
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