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spk08: Greetings and welcome to the Kimco Realty Corporation's fourth 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. If you'd like to ask a question, please press star one on your telephone keypad. Confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd 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 keys. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Bujnicki, Senior Vice President of Investor Relations and Strategy. Thank you, Mr. Bujnicki. You may begin.
spk03: 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 Jamison, 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 our quarterly supplemental financial information on the Kimco Investor Relations 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.
spk04: Thanks, Dave. Good morning, everyone, and thanks for joining us. Today, I will provide a quick recap of our major accomplishments for 2022 and share some of the progress we have made on our longer-term strategic goals. Ross will follow with an update on the transaction market, and Glenn will report on our earnings results for Q4 and our guidance for 2023. At Kimco, we believe a winning strategy is one that can be successful in any economic environment. It needs to be opportunistic, have multiple growth drivers, and be resilient during downturns. A winning strategy also needs to be easy to understand and be supported by a best-in-class team to implement and execute on it. The Kimco Strategic Plan meets all these criteria, and that is why we are so proud of our 2022 results and excited about our longer-term prospects. If the ultimate measure of evaluating a strategic plan is results, then it is abundantly clear that we are on the right track. 2022 was a banner year, and the fourth quarter was again outstanding from a leasing perspective, as our team achieved some recent and all-time highs across many of our key metrics. This includes strong overall occupancy that finished up 40 basis points per rata to 95.7%. This represents a recovery of nearly 90% of the COVID inventory we experienced and only 70 basis points below our all-time high. Year-over-year, overall occupancy was up 130 basis points, which is one of the highest year-over-year gains we've experienced. Contributing to our strong results was a 20 basis point sequential and a 90 basis point year-over-year rise in anchor occupancy to 98%. Small shop occupancy increased 80 basis points sequentially to 90% and was up 230 basis points year-over-year. In 2022, we leased over 11.5 million square feet, which is the highest level on record. Specifically, we ended the quarter with 152 new leases, totaling 795,000 square feet, exceeding the five-year average new lease GLA for the fourth quarter. Our new lease spread was very strong, 30.4%, and includes new grocery leases with Whole Foods and Albertsons. We closed the quarter with 340 renewals and options, totaling 1.7 million square feet, exceeding the five-year average for renewals and options GLA for fourth quarter. The spread on renewals and options was 4.6% during the quarter, with options ending at 8.5% and renewals at 2.7%. Total fourth quarter 2022 leasing volume was 492 deals, totaling 2.5 million square feet at a combined spread of 8.7%. We experienced only 99 vacates, totaling just 305,000 square feet in the fourth quarter, which is 37% lower than the prior five-year historical average for the fourth quarter. Our mixed-use entitlement initiatives reached new highs in 2022 as we continued to unlock the highest and best use of our real estate. We set another Kimco record by entitling 2,805 apartment units in 2022, bringing our current total entitlements to 5,461 units. Combined with the 2,218 apartment units we have already built and 1,139 units that are under construction, This brings our overall total to 8,818 units, and we are well on our way to our upsized target of 12,000 by the end of 2025. Our percent of ABR for mixed-use assets is now up to 13%, and we continue to use a CapEx Lite strategy to activate projects by either ground leasing or joint venturing with best-in-class apartment developers. Turning to 2023 and beyond, we believe our platform advantage is just beginning to demonstrate its potential. Efficiencies of scale often take time and multiple cycles to play out, but thus far, it is clear from our performance throughout the pandemic and during 2022 that both our strategy and efforts are being validated. Our unmatched diversification, our access to capital, our internal and external growth profile, our large-scale M&A experience, Our CapEx Lite mixed-use redevelopment strategy and our opportunistic investment record are just some of the differentiators that characterize Kimco. That said, we can't rest on our 2022 accomplishments. We know 2023 will require a full team effort to produce another year of sector-leading results. We are also encouraged by the fundamental strength of our operating business. Limited new supply, high retention levels, and robust retailer demand for quality space such as ours makes for a healthy leasing environment. While we anticipate leasing velocity and retention rates to continue at elevated levels, we can't ignore the macro environment and the potential for credit defaults to revert to the mean. That is why our 2023 priorities include additional focus on controlling expenses, upgrading the credit and merchandise mix of our tenant base, and attracting recurring customers. One of the keys for Kimco in 2023 will be to expedite tenant openings and compress the leased economic occupancy spread of 260 basis points. That represents approximately $43 million of annual base rent that is not yet contributing to cash flow. While our size and diversification have significantly reduced our exposure to weaker credit tenants, we still need to be vigilant and proactive. We need to closely monitor our tenant watch lists, anticipate changes, and turn them into opportunities. Bed Bath & Beyond is a case in point. Subsequent to year-end, we sold the shopping center with one bed bath, reducing our exposure to 25 bed bath, one cost-plus sublease, and four buy-by-baby locations. At this point, we know that Bed Bath is planning to close six stores. Of those locations, we already have two leases executed, two ready for execution, and two with active LOI negotiations, with a combined potential spread of over 12%. we are also in active negotiations with retailers on the balance of the portfolio, representing 60 basis points of Kim's share, ABR, of which 10 basis points relates to Bye Bye Baby. This level of activity proves we continue to see strong demand from a diverse set of retailers for the vast majority of these well-located boxes, which are primarily in desirable demographic areas where there is virtually no new supply. Leasing, leasing, leasing will continue to be our mantra in 2023. And together with a solid balance sheet, strong free cash flow, and ample liquidity, including further potential monetization of our Albertsons stake, we are poised to take advantage of any dislocation and ready to pounce as opportunities present themselves. We have made meaningful progress towards our stated 2025 goals, both on the operating and earnings front, along with further strengthening our balance sheet. Specifically, we have improved our debt maturity profile and increased our portfolio of unencumbered assets, while minimizing exposure to floating rate debt. At Kimco, we are never satisfied with the status quo and our entrepreneurial team is laser focused on building upon our past achievements and advancing what we believe to be as our best in class platform and portfolio. You will see the continued evolution of our portfolio composition Through a mix of our unique leasing strategies, including adding grocery anchors where feasible, entitlements, redevelopments, and data analytics and tools that give our platform a unique advantage. With our focus on owning and operating the last mile open-air grocery anchored shopping centers, along with a growing portfolio of mixed-use assets, Kimco has come a long way in a short period of time, and we all collectively believe that the best is yet to come in our efforts to maximize long-term shareholder value.
spk07: ross good morning i hope everyone is having a great start to their year i will quickly touch upon a few additional details on the fourth quarter and year end before getting into the current environment and our external growth expectations for 2023 as previously mentioned in the fourth quarter we closed on the 375.8 million dollar acquisition of eight open-air retail centers from a privately held portfolio based in the high barrier-to-entry Long Island, New York market. With five of the centers grocery anchored, this acquisition is well aligned with our long-term investment approach. Utilizing a combination of cash, the assumption of below-market fixed-rate debt, and tax-deferred down-rate units, we were able to structure in a creative transaction for this generational portfolio. We are very excited about the potential to create incremental long-term value on these properties with our leasing and our operating platform. Also in the fourth quarter, we closed on another unique opportunity for our structured investment program. We had previously mentioned the $22 million participating loan on a three property grocery anchored portfolio in Pennsylvania. In just over four months, our borrower sold the assets for a sizable gain. As such, our loan was repaid and we received a $4 million participating interest. On an annualized basis, our investment yielded a 76% IRR. These two transactions served to reinforce our already strong operating results. Subsequent to the fourth quarter, we kicked off the year by disposing of two slower growth commodity power centers located in Georgia, which included several watch list tenants, including a Bed Bath and Beyond. We recycled the capital from the sale of these two properties into a 1031 exchange on two high quality open air grocery anchored shopping centers in Southern California that were previously held in one of our institutional joint ventures in which Kimco owned a 15% interest. We were successful in securing and purchasing our partner's 85% stake of these two last-mile centers located in Huntington Beach in Tustin, anchored by a Vons grocer and a soon-to-open 99 Ranch grocer. The demographic profile for the area includes a combined average three-mile population approaching 200,000 people and average household income in excess of 120,000. In the coming years, we anticipate the growth profile on the two acquired assets will far outpace that of the sole properties in Georgia, a trade-off we continually seek as our portfolio enhancement efforts continue to generate outperformance. We also expect partnership buyouts to yield additional opportunities for us as we move ahead. As far as the transaction outlook for 2023, we believe Kimco has an enviable position in a market marked by uncertainty and inefficiency. For 18 months through mid to late 22, liquidity in the sector was abundant and capital was relatively inexpensive. We saw open-air necessity-based retail rise to the forefront of investors' minds and appetites, with other sectors such as industrial, multifamily, and self-storage setting all-time low cap rates, and sectors such as office and enclosed malls experiencing operational challenges. Fast forward to today, The conviction in our focused asset class, open-air, grocery-anchored, last-mile, necessity-based retail, remains strong. However, access to capital has certainly tightened with elevated borrowing costs. Institutions such as private REITs, opportunity funds, and pensions have seen redemption requests and withdrawals. This has created additional uncertainty on pricing, and a once extremely efficient market has become much less predictable. We view this as opportunity. Kimco has the strongest liquidity in the company's history with over $2.1 billion from cash on hand and our line of credit and our unique access to additional low yielding capital in the form of Albertson stock, which we expect to continue to monetize in 2023. We plan to take advantage of our position with a combination of select open air grocery anchored acquisitions, continued partnership buyouts where appropriate, and mixing in opportune structured investments that present themselves in an environment with substantial dislocation. Dispositions will be modest in 2023 as our portfolio has proven to be in very healthy shape with only a select level of pruning and sales of non-income producing land parcels and holdings. We are excited about the new opportunities that 2023 will bring, and while we anticipate that there will always be challenges, we believe we have positioned Kimco to take advantage of the uncertainty to create additional long-term value. I will now pass it off to Glenn to talk about the financial results and forecast for the year ahead.
spk09: Thanks, Ross, and good morning. We finished 2022 with solid fourth quarter results, highlighted by strong leasing activity, which produced an increase in occupancy, positive leasing spreads, and same-site NOI growth. In addition, we further enhanced our liquidity position with the partial monetization of our Albertsons investment. Now for some details on our fourth quarter results. FFO was $234.9 million, or $0.38 per diluted share. This compares to fourth quarter 2021 of $240.1 million, or $0.39 per diluted share. which includes about one cent per diluted share related to the valuation adjustment of the Weingarten pension plan. Worth noting, this is the first quarter with the full impact of the Weingarten merger included in the year-ago comparison. The key reasons for the penny per share decrease are higher consolidated NOI of $6.5 million, offset by higher pro rata interest expense of $5.6 million. Other items included higher G&A expense of $2.9 million from the increased personnel levels as part of the Weingarten merger, and costs associated with the upgrade conversion, and a $3.2 million change in the Weingarten pension valuation I just mentioned. The growth in consolidated NOI is comprised of higher minimum rent of $12.1 million, higher lease termination income, percentage rent income, and other rental property income totaling $2.5 million, offset by higher credit loss of $10 million. with $3 million of credit loss in the fourth quarter 2022 as compared to $7 million of credit loss income in the comparable quarter. Our operating portfolio continues to deliver positive results. Same-site NOI growth was 1.9% for the fourth quarter 2022, comping against 12.9% for the fourth quarter last year. bringing full-year 2022 same-site NOI growth to 4.4 percent. During the fourth quarter, same-site NOI benefited from higher minimum rents and lower abatements of 13.7 million, as well as higher percentage rent of 0.8 million compared to the same quarter last year. These increases were offset by higher credit loss of 9.5 million, primarily related to reversals of reserves in the prior year quarter and a normalized level of credit loss for the current period. The minimum rent component contributed 3.9% to the same-site NOI growth, while credit loss was negative 3%. Turning to the balance sheet, during the fourth quarter, we monetized 11.5 million shares of our Albertson stock, receiving proceeds of $301 million. This sale generated a capital gain for tax purposes of about $250 million. In order to maximize the amount of proceeds we were able to retain from the sale for future investment and debt reduction, we elected to pay the income tax on the capital gain of approximately $57 million, allowing us to retain $244 million. Further, our shareholders are eligible for a pro rata credit of the federal income tax we paid. We've added a FAQ on our investor relations website that provides further detail on this. We ended 2022 with a very strong liquidity position comprised of $150 million in cash and full availability from our $2 billion revolving credit facility. Additionally, after year end, we received a $194 million special dividend from our Albertsons investments. and continue to own 28.3 million shares currently valued at over $600 million. As of year end 2022, our look through net debt to EBITDA, which includes our pro rata share of joint venture debt and preferred stock outstanding was 6.4 times and represents an improvement of 0.2 times from the 6.6 times level at the end of 2021. Our weighted average debt maturity profile is nine and a half years, and we have only 50 million of mortgage debt maturing in 2023. Now for our 2023 outlook. We remain confident about the growth prospects of our operating portfolio, but as we mentioned on our last call, we anticipate earnings headwinds due to higher levels of credit loss, more consistent with pre-pandemic levels, as well as higher interest expense compared to last year. Also, as I touched on, in 2022, we benefited from credit loss income of 7.4 million, which amounted to about a penny per share for the year. Our initial 2023 FFO per share guidance range is $1.53 to $1.57. The guidance range is based on the following assumptions. Positive same-site NOI growth of 1% to 2%. Included in the same property NOI guidance range is a credit loss assumption of 75 basis points to 125 basis points, representing a credit loss ranging from $15 million to $22 million. No income attributable to the collection of prior period accounts receivable from cash basis tenants. Lease termination income between $14 million to $16 million, with a substantial portion being received in the first quarter of 2023. An increase in pro rata interest expense of $20 million to $28 million, most of which is attributable to lower fair market value amortization to the Weingarten bonds paid off during 2022, and higher interest rates on the floating rate debt in our joint venture. Total acquisitions, including structured investments, net of dispositions of 100 million, subject to timing. Monetization of approximately 300 million of Albertson shares, subject to timing. Also, the $194 million special dividend received in January will not be included in FFO. Annual G&A expense of 123 million to 129 million, with the first quarter higher due to the timing of annual equity grants. No redemption charges or prepayment charges associated with callable preferred stock outstanding or early repayment of debt obligations, and no planned issuance of common equity. And with that, we are ready to take your questions.
spk08: We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Please note, callers will be limited to one question, and you will need to rejoin the queue to ask a follow-up. At this time, we'll pause momentarily to assemble our roster. Our first question comes from Michael Goldsmith from UBS. Please go ahead.
spk18: Good morning. Thanks a lot for taking my question. Last quarter, you talked about reverting to an initial credit loss expectation of 75 to 100 basis points, kind of in line with the historical levels. Your guidance is 75 to 125 basis points, so a little bit higher at the top end. So what are you seeing in the market? What is the scenario reflected by the high end of the range? And do your concerns extend beyond the usual suspects that we've been talking about? Thanks.
spk09: Hi, Michael. It's Glenn. Again, we took a hard look at just the overall portfolio and looked at really the environment that we're in today, and there's a little bit more risk. We've started to see some more bankruptcies than we have in the past years, and we felt it prudent to just widen the range a little bit, and that's just baked into the guidance, and it takes into account really the scenarios that we see both top and bottom.
spk08: Our next question comes from Samir Kenal from Evercore ISI. Please go ahead.
spk10: Good morning, everybody. I guess, Connor, can you provide a little bit of color on the timing of the monetization of the $300 million of Albertson shares, which you mentioned in the guidance? Just trying to think through the allocation of that capital proceeds. And maybe along that, just expand on the opportunities that you talked about, right, in your opening remarks as well. Thank you.
spk04: Happy to. Thanks, Samir, for the question. Look, we think that the capital coming from the Albertsons investment is a big differentiator for Kimco. We've already received the special dividend, as we talked about in our opening remarks. We do have the opportunity to monetize another portion of our Albertsons shares, similar to what we did last year in the same type of a range of value. The expiration of the lockout is end of May. So that really sort of showcases when we have full potential to take advantage of that. Ross can talk a little bit about the menu of options we have to reinvest those proceeds. It's a real opportunistic investment that is going to actually really reward our shareholders because when you think about it, you don't have to issue any equity this year. You have this investment that's really coming back to us now to redeploy into our core business, which should generate significant earnings growth, not necessarily in this year, but obviously in the out years. That's where the long-term value creation is really going to shine.
spk07: Yeah, in terms of the opportunity set, I mean, we've talked about our different acquisition verticals, and we're having lots of conversations in all three components of that. But as I mentioned in the remarks, we do anticipate that there'll be continued partnership buyouts. We were able to execute on the acquisition of two assets from a partnership at the beginning of the year. We're focused on potential additional structured investments as we start to see some additional dislocation in the market. And then depending on where pricing is and if we see a thong of the market to a certain extent, we'll be active on acquiring open-air grocery, anchor, and shopping centers. So we like the fact that we have all three opportunity sets that we can be nimble when they present themselves.
spk08: The next question comes from Juan Sanabria from BMO Capital Markets. Please go ahead.
spk17: Hi, good morning. Thanks for the time. Just curious, Glenn, if you could lay out a little bit more some of the assumptions behind the guidance, mainly what's assumed, I guess, for bed, bath and party city and the bad debt. And is that the driver of the lease term fees that you noted something chunky in the first quarter? And if you could just provide any expectations where you think occupancy will end the year at, please.
spk09: Yeah, so as far as the credit loss, again, we know that there are several bankruptcies. You know, Party City obviously filed already. Bed Bath & Beyond obviously seems to have found a lifeline for the moment. But we have taken into account really all the scenarios around Bed Bath & Beyond in our overall guidance. And again, as I mentioned, as it relates to the credit loss, again, we did widen the range a little bit to just deal with what we're seeing in the current marketplace today.
spk02: And as it relates to the LTA that you mentioned, income in the first quarter, it's associated, the majority of it is associated with the deal structure that we did with Kohl's. As consideration to the LTA, we helped restructure a lease with them for two locations where we were able to recapture those opportunities, just in one being just in northeast Philly and the other one just outside of Philadelphia across the border in New Jersey. And then third to that, we're also able to recapture fee title of an operating box that's a shadow of one of our centers as well. So net-net, there is a positive on both sides there. As it relates to occupancy, you know, it is always fluid throughout the course of the year. Depending on the outcomes of Bed Bath and Party City, there could be some, you know, volatility in the anchor side of it. Small shop is extremely robust right now. Tremendous amount of activity there as you see us now cresting over 90%, which is great. So we'll continue on our stride and hope to meet and exceed our goals.
spk04: We do anticipate a little bit of Q1 normalcy of potential, what we call jingle mail of tenants closing after the holidays and seeing a little bit of a dip in occupancy in Q1, which is traditional seasonality for us. So we think that that's, again, reverting back to the pre-pandemic ways of the historical averages.
spk03: And just a reminder that LTA income is not included in our same site guidance as well.
spk08: Our next question comes from Greg McInnis from Scotiabank. Please go ahead.
spk14: Hey, good morning. Glenn, just a quick point of clarification. the corporate financing disclosure in the SUP, which looks to be about $9 to $20 million higher for 2023. What's that delta between the pro-rata interest expense that's $20 to $28 million higher?
spk09: Right, so that's a great question. So the corporate financing line that you see is really the consolidated portfolio, so that's our interest expense and the cost of our preferreds. Included in the portfolio contribution above is the pro rata share of the joint venture interest expense. And that's about $9 to $10 million higher than it was last year. And again, that's attributable to the rise in rates. There was more floating rate there in the joint ventures. We have actually swapped out about a half a billion dollars of debt in the upper 5% range. So we've fixed it, a good portion of it. But that's what's causing the $9 to $10 million increase over last year.
spk08: Our next question comes from Floris Van Dykem from Compass Point. Please go ahead.
spk24: Morning, guys. Thanks for taking my question. I had a question on your small shop. Obviously, the very nice pickup in occupancy there. Maybe if you can talk about the spread between occupied and leased and also maybe where your peak small shop occupancy was previously and where do you think you can get it to this cycle?
spk02: Sure, Flores, happy to take that. So just to reconcile first, on the lease economic overall, we're at 260 basis points. That was compressed down from 280, so we're down 20 basis points there, which shows two things. One, we're able to get these tenants open and operating, which was a huge achievement considering some of the activity in the environment right now. So we had a lot of openings in Q4. Outside of that, too, with all the gains in occupancy that you saw, as well as in Q4, gaining 40 basis points overall and then bringing our small shops up to 90%. As it relates to small shops specifically, we're at 340 basis point lease economic spread, just around $23 million or so baked into that. So there is a huge opportunity there to actually bring those tenants online, obviously, and see that growth in the coming quarters, which we're excited about. as we move forward, so feel pretty good about that. And then finally, oh yeah, and then our high water mark on small shops was at 91.1. That was in Q4, I believe, of 19. So our goal is always to meet and exceed our high water mark levels, and we'll continue to do our best to achieve that.
spk08: Our next question comes from Craig Mailman from Citi. Please go ahead.
spk15: Good morning. Just a question on the leasing environment here. I know everyone's pretty focused on the sustainability of it. As we look at the economic weakness coming relative to previous cycles, it's a little bit more telegraphed maybe and maybe expected to be more garden variety. So I'm just kind of curious as you think about tenant behavior, maybe we could anchor in small shop, right, and the timing of where we are today versus maybe the coming weakness at the end of the year, and how these tenants look at when they need to lease stores for store openings. I mean, is there any thoughts around whether just the timing of a potential recession relative to when people need to open stores that the leasing demand could continue at a level maybe above expectations just because The space needs for 23 were already leased previously, and if the recession is not so deep, people are going to look out for 24 and 25 openings. I'm just kind of curious your thoughts there and whether there's any big difference between anchor and small shop behavior.
spk02: Yeah, it's a great set of questions all rolled into one. So I think you first start with the fundamentals, right? And the fundamentals here, there's no new developments. apply on the horizon in the coming years. The COVID inventory that we've talked about in past quarters and continue to talk about now is really the inventory that's available. So that inventory may increase as a result of pending bankruptcies, already city bath being the two obvious ones right now as potentials to get some space back. But that still is representing a very limited amount of inventory to actually backfill. When you look at us, we're at 98% on the anchors, 90% on the small shops. For high-quality retail, it's really, really hard to find. So the retailers, I think what they're doing is they're seeing through this and saying, hey, where do I find growth? Not just next year, but years two, three, four, and five. If there's no new supply, I really have to take advantage of what opportunities I see today to set myself up or growth potential going forward to hit my own targets. And so I think you continue to see that. And some lessons learned from past cycles is that it's really hard to ramp up a program to find new stores and to grow and to open them and then to shut it down and then try to re-ramp it again. You're always kind of playing a game of catch up and you tend to miss the better opportunities early. So I think for some of those well-capitalized retailers, they've sort of seen through that and said, let's continue on our plan continue to source and find new opportunities, knowing that if we sign a lease, say mid-year 23, we can be looking at a 24, maybe in some cases a little bit further out as that opening. And as you've seen these market cycles compress in terms of its cycle through the program of dipping and then recovering, the time of recovery seems to be compressing much quicker. So by the time you get these doors open, the intent hopefully is that you're we do go through a bit of a dip that you're on the backside of that and you're opening during a growth cycle again. So those are a lot of the conversations that we continue to see. On the small shop side, you know, you're seeing, you know, service-based tenants, restaurants, et cetera, continue to open and find opportunities. There's still some of that COVID inventory out there that had, you know, fully fixurized units that operators can go in and start to operate quickly. We will continue to watch that closely. Obviously, the discretionary side, maybe the full-service restaurants and some entertainment, see how that plays out, you know, in this coming year, if there's any disruption in terms of the broader markets. But, you know, people are really kind of looking through it right now.
spk08: Our next question comes from Handel St. Juiced from Mizuho. Please go ahead.
spk13: Hey there. Sorry about that. So just wanted to follow up, if I could, Ross, on the transaction market comments you made. Things obviously are a bit stalled out there. Retail volumes, transactions were down 60%, I think, in the fourth quarter, and we're still here with a pretty wide bid-ask spread out there. So I guess I'm curious what you're seeing in terms of maybe cap rates for the quality of open-air centers you'd like to own, and given your cost of capital, what's your hurdle rate, or maybe where would asset price need to be for you to get more active? Thanks.
spk07: Yeah, it's a good observation. And to your point, it is still somewhat wide in terms of the bid-ask spread. You know, it's a nuanced market. So every deal is a little bit unique. I would say historically and in most cycles, it's a pretty efficient market. But right now, it's fairly inconsistent. So you are seeing select deals getting done. But it really depends on, you know, having two motivated parties to do so. I would say that we're in a position where we're not forced to do anything. So when the market comes to us, we're happy to continue to invest and to put our capital to work. On the acquisition side, and I would say the partnership buyout side that are pretty closely aligned, you know, we're seeing pricing where deals make sense to us, you know, somewhere in that low six cap range. Now, certain sellers are, in many cases, are still looking for pricing from 12 months ago in the low fives, and that's where you're seeing a lot of the deals stalling out. But to the extent that we can, you know, obtain assets that are 100 basis points higher than where they were a year ago with very strong fundamentals that really haven't changed based upon all the comments that you heard from Dave and the team here, we feel really good about putting to work in that range. And then when you factor in or layer in our structured investment program, which has a higher yield currently in the high single digits or low double digits, that sort of blends together to get us above our hurdle rate and make our acquisition pipeline and our program accretive from an overall standpoint. So we'll continue to look to put money to work if we find those. Otherwise, we'll continue to stay patient as the year progresses.
spk08: Our next question comes from Craig Schmidt from Bank of America. Please go ahead.
spk11: Thank you. What is your expected expectation on consumer sales and or traffic at your properties in 23 versus 22?
spk04: Hey, Greg, great question. So we're off to a good start on 2023. The traffic that we've experienced thus far has been above 2022 levels. I think the consumer continues to gravitate towards the shopping center, towards the grocery anchors that we have. towards the off-price users that are getting great value and convenience. So that continues to show well. The future is still a little unclear. That's why I think from a guidance standpoint and from what we're talking about, we're not necessarily sure what the second half of the year looks like. And so as we've all been talking about so far so good. The retailer demand is robust. The consumer continues to gravitate towards our product, and we see a virtually no new supply on the horizon. So as we continue to monitor the situation, we feel like the business is on very strong footing, allows us to really see into the consumer and their habits. And so far, it looks like we're really delivering on what the consumer is looking for.
spk08: Our next question comes from Keebin Kim from Truist.
spk23: Please go ahead. Thanks, good morning. So you guys have done a great job increasing your entitlements across a lot of your different sites. Can you provide a kind of high-level path for the next couple of years of how you're thinking about monetizing it? And second, when I look at your supplemental, the development section for some of these ground leases, multifamily ground leases, Can you help me understand that a little better? Because if I look at the value that it's contributing at and the yield, it doesn't seem to make sense because the land contribution value should be much higher, even after taking account for the higher yield. So just if you can help me understand that a little better.
spk04: Sure, happy to. Good question, Kevan. So it's a long-term strategy for us, as I mentioned in my prepared remarks. We want to activate these entitlements using a CapEx light strategy, meaning that we really want to increase the value of the asset, unlock that highest and best use without putting a tremendous amount of capital out that doesn't necessarily return a high yield during the construction and development process. So what we've done is tried to entitle as much as we possibly can across the portfolio, layering in projects each year so that we can activate We've been running around 1,000 units a year of how much we have in the active pipeline. We've built over 2,000. We've got a little over 1,000 in the pipeline today. We continue to want to set this up for long-term value creation. So it gives us optionality and flexibility to look at each asset and look at those entitlements and say, which should we monetize, which should we ground lease, and which should we contribute to a joint venture? And so the way we've been doing it is we've been monetizing the office entitlements. We've been ground leasing assets where we have multifamily rights filled, but we think that that market may need a little time to mature. So in essence, the ground lease gives us time to activate the project without having a lot of capital at risk, but then having a right of first refusal on it to bring it into the core upon the right time and place. or the contribution to a joint venture where we see that the project is ripe to participate in the economics and the cash flow growth. So that's the way we've set up the program. We continue to think that long term, it's a great way to create value on the asset. And we'll continue to monitor what's the right time to monetize those if we see fit. But that's the way the projects continue to evolve. And we've seen great results in terms being able to actually create an environment, a mixed-use environment, where the multifamily feeds the retail and the retail feeds the multifamily. And that's the flywheel you're trying to create, is you're actually generating higher than market rents on the retail and even higher than market rents on the residential when the environment is complementary.
spk08: Our next question comes from Ronald Camden from Morgan Stanley. Please go ahead.
spk06: Great, thanks. Let me try to seek in two really quickly. Really appreciate the cash flow statement you put in the supplement. I think you guys are one of the only ones that do that, so it's really helpful. So I see cash from operations here at $861 million, and presumably that's being held back by the large tax bill that you sort of incurred this year, so you can maybe get to a $900 million number. When I'm thinking about sort of sources and uses, you know, you've got a dividend. that you've got to pay out $550 million, maybe another $150 million to $200 million for CapEx. Am I thinking about it right that presumably next year you're in the $150 million to $200 million range of just free cash flow that you could use for whatever? Is that the right thinking is number one. And then the second was just I would love an update on your thoughts on Albertson's Kroger. Thanks.
spk09: Yes, I'll take the first part for sure. Yeah, the free cash flow expectation is around $150 million for 2024. And again, you kind of hit on all the points. I'm sorry, for 2023. You kind of hit on all the points, right? We have really the free cash flow after dividends, FFs, TIs, and leasing commissions. And that's based on the current dividend level at $0.23 You're right on track with that.
spk04: And then your question about the Kroger-Albertsons merger, we're watching it just like you are. It's an interesting process that they have to go through. Clearly, there's still some hurdles to get over, but it seems to be tracking and continues to move forward. We'll watch it as closely as we possibly can. You've seen the earnings results from both. They're very strong. They both have very complementary portfolios. So it's one that if the merger were to go through, I think it's a net-net win for Kimco and our shareholders. But if it doesn't go through, obviously they're both very well-capitalized, strong performers, good grocery operators. So we're watching it closely, and it's not necessarily clear yet what's going to happen there.
spk08: The next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
spk21: Morning, morning out there. And if I could just give an end of towards the end of a twofer. So two part one, Connor, I think you mentioned 12% rent spreads on the bed bath. I think some of your peers have been more like 25 or 30. So didn't know if that's mixed. Second, Glenn, what gets you to the bottom end of the range? Because it seems like you guys have baked in a ton of bad stuff into your guidance already, which I'm assuming is more the midpoint. So I'm just sort of curious what gets to the bottom end of the range.
spk04: Hey, Alex. So on the first question on the 12%, that's on the sixth that we have visibility where we are lining up leases to backfill all of those individual users to take the entire box. On the entire Bed Bath portfolio, you're right, it's a bit higher. We have a 15% to 20% type of range. And again, some of those
spk09: can reposition those boxes yeah i mean in terms of getting to the bottom end of the range again uh more credit loss uh above what we've baked in could potentially get you there i mean you know the high end of that credit loss range of being in that 22 million dollar range um you also have some timing issues right you know timing of when we would monetize our albertsons investment and the redeployment of that cash comes into play uh the you also have the retention of tenants versus vacates. So there's a whole assortment of potential timing issues that kind of come into play. So if everything happened later or vacates happened faster, you could wind up more towards that bottom end of the range. That's kind of how you'd get there.
spk08: The next question comes from Wes Garletay from Baird. Please go ahead.
spk22: Hey, good morning, everyone. I usually have a follow-up on that Bed Bath question on the 12% spreads. Is there any box splits on that? Is that a reason why they're potentially a little bit lower spread?
spk02: No, not right now. There's no box splits on those. Spreads are a product, too, of the vintage of the box, right? Maybe some of the older boxes that we have in the balance of the portfolio. Our older leases started at lower rents. Some of them are slightly newer. So it does range. So I think you have to take a broader view on spreads in general on where you see opportunities. And I think, you know, turning back to Connor's comment about that, you know, 15 to 20 percent over the entire portfolio. This is just a small subset of that.
spk08: Our next question comes from Anthony Powell from Barclays. Please go ahead.
spk01: Hi, good morning. Question about your 2025, I guess, goal of 2.5% same-site NOI growth. You're doing a minimum rent growth of 4% and higher given kind of the strong lease spreads and whatnot. What gets you from that 4 plus to 2.5? It seems a bit conservative now given the strength of the business.
spk04: To your point, you know, we've actually been running ahead of that goal. You know, traditionally, this business has run around a 2% growth profile. And, you know, clearly, obviously, with the transformed portfolio and a lot of the last mile retail reinventing itself using online as a way to connect to more customers and getting more value out of the last mile store, I think is the game changer. So your point is well put. I mean, we've been obviously running ahead of that. It's one that we thought at 2.5% plus. That's the target, not 2.5, 2.5 plus. And so, again, exceeding that is our goal. And that's what we've been doing so far. So cycles are constant in real estate. And so you've got to make sure that you recognize that over a longer term. We obviously experienced a COVID rebound recently. that really generated outsized results. And so, as we go through another cycle, it'll be, you know, in my opinion, we should probably reset the bar a little higher, but we'll have to wait and see and see how things play out. But so far, so good on that.
spk08: Our next question comes from Mike Moeller from JP Morgan. Please go ahead.
spk05: Yeah, I'm curious. Are you seeing any opportunities at this point or was the, I guess, the change just some longer-term planning?
spk07: Yeah, so in terms of the upgrade conversion, it really is intended to be an additional tool in our toolbox. So it's a bit early in terms of finding opportunities to utilize it as we just recently converted. But as you saw with the Long Island portfolio that we acquired last year, we have utilized tax strategy and tax deferred units as a way to differentiate ourselves in a competitive marketplace. So we do anticipate that There will be opportunity to utilize it. We'll be selective with it because it is still a form of capital that needs to be accretive when we utilize it. It is something that we've considered for quite some time now. It was previously a bit cost prohibitive, but things have changed in terms of some of the transfer taxes in certain states, and so we felt the appropriate time to do it now versus in years past.
spk08: Our next question comes from Paulina Rojas Schmidt from Green Street. Please go ahead.
spk19: Good morning. Can you please remind us where the capex per square foot of a box stands today? I understand that every situation is different, but if you could provide some ranges, maybe framing it as either a single tenant
spk02: replacement or a box split it would be very helpful thank you yeah I mean unfortunately it is it is every case is different and whether or not it's doing an as-is and you're handing it over issuing them a TI GI check or if you're actually doing a bill to shoot it's going to range vastly between a you know a single tenant use a box split or an expansion to actually combine two boxes together for a larger tenant all has implications and then related to you know, electrical roofing, facade renovations and whatnot. So I would, what I would say is that, you know, it's been consistent, you know, over the course of several years. Obviously, we've had inflationary pressures that we've had to navigate through issues with switchgear, HVAC, et cetera, that adds some pricing to your overall conversion of a box. But fundamentally, it hasn't changed all that much.
spk08: Our next question comes from Tayu Okasanya from Credit Suisse. Please go ahead.
spk12: Yes, good morning. I just wanted to go back to a question that Handel asked just about the transactions market. Again, the color you provided about looking at deals at sub-6 cap rates is helpful, but just trying to understand the $100 million of net investment that you guys do have in guidance, exactly what does that comprise of, you know, and how How do you kind of come up with that number within the context of how you're thinking about the transactions market on your current liquidity?
spk07: Sure. Yeah, the 100 million net acquisitions, it's a baseline number that we're starting the year with. As I mentioned in the response to Handel's question, we feel that we're in a wonderful position where we're not forced to do anything. We're waiting for the market to really come to us. And when you have a motivated seller that we can move ahead on that transaction. So we started with a modest guidance that we think that we can certainly achieve. And as we see further opportunity as the year progresses, as we showcase our ability to monetize the Albertsons investment and reap the benefits of that additional cash, we're confident that we'll be able to use it. But for now, we've kept a relatively modest guidance range that we'll look to update as things progress over the course of the year.
spk08: Our next question comes from Linda Tsai from Jefferies. Please go ahead.
spk16: Hi, thanks for taking my question. Ross, can you give us color or anecdotal data regarding private REITs, opportunity funds, and pensions being redemption requests and withdrawals? Are opportunities coming to market? And from past cycles, is there a tipping point where you'd start to see a wave of opportunities?
spk07: That's a great question. It's well publicized, as we've all been reading about. I would say that it's a bit more nuanced in the sense that each individual company has their own strategy as to how to obtain that liquidity that they're seeking. We do anticipate in having conversations with a lot of these different groups that there will be some assets that get shaken loose in the process. But you have to realize that a lot of these companies are generalist investors that own all asset classes. So I think they're going through their own internal analysis as to where they deem most appropriate to look to move certain assets, whether open-air grocery sort of aligns with that strategy is yet to be seen. As I mentioned in my prepared remarks, there are certain asset classes that have been extremely aggressive in terms of the cap rates that they've commanded. So for those companies that have recently acquired multifamily or industrial or self-storage, Chances are that they're not looking to move those assets today at a price that is lower than what they obtained those assets just in the last 12 or 24 months. On the opposite end of the spectrum, there's other asset classes that are much more challenged in terms of an investment profile and the ability to move those assets. So we do expect that open air grocery is a asset class that has retained its value as well as any. So, that's what we're sort of waiting for, and those are the conversations that we're actively having each and every day.
spk08: That is all the time we have for today's question and answer session. I would like to turn the floor back over to David Bushnicki for closing remarks.
spk20: I'd just like to thank everybody who joined our call today. Otherwise, enjoy the rest of your day. Thank you.
spk08: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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