Q3 2020 Kimco Realty Corp Earnings Call

[music].

Good morning, and welcome to Kimcos third quarter 2020 earnings Conference call.

All participants will be in listen only mode.

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After todays presentation, there will be an opportunity to ask questions.

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Please note this event is being recorded.

I would now like to turn the conference over to Mr., David Finicky, Senior Vice President Investor Relations and strategy. Please go ahead.

Good morning, and thank you for joining Kimcos third quarter 2020 earnings call. The Kimco management team participating on that to call. Today include airplane Immco CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, Our CFO, David Jamieson Kimcos Chief operating officer.

As well as other members of our executive team are also available to answer questions during the call.

Retailers want to be and consumers want to go we see it in our traffic data our leasing pipeline and highlighted as the product of choice by retailers on their respective earnings calls. This reality has become even more pronounced during the pandemic, where as I will discuss shortly the open air format is still conducive to both online and.

Physical that look delivery.

Second, but no less important is that the last mile store is more critical than ever to the retailer supply chain acting as a hub for profitable distribution and fulfillment as the demands and needs of the consumer continue to evolve.

With these core principles in mind, our short term strategy is simple block and tackle collect and lease assist our tenants and tenaciously stay on top of our costs. The good news is that we have been focused on this strategy for quite some time well before the onset of the pandemic.

So our team has been ready tireless and efficient in executing on it.

And our results reflect these efforts while Glenn will provide more detail our portfolio has remained resilient during the pandemic with occupancy currently at 94.6%. We are seeing a pickup in leasing demand and our leasing pipeline is starting to build to a level, we experienced pre covance, we anticipate a faster recovery for anchor occupancy versus small.

Drops and for essential retailers versus non essential ones.

Particular note our strategy to focus on grocers has been spot on as grocery anchored demand for space is surging over the past five years, we have upgraded kimcos portfolio from 64% to 77% grocery anchored and have outlined a strategic plan to reach 85% to 90% grocery anchored over the next five.

Five years with over 10, new grocery opportunities currently in negotiations.

In addition to growth in grocery demand ecommerce sales across our retailer rolodex has exploded and created a powerful halo effect on our existing store locations driven.

Driven by changing consumer demand the need to improve margins and data analytics. Our tenants are transforming their store operations and expansion plans to include shipping and fulfillment tenants.

Tenants like target Costco, Walmart best buy home depot, Lowe's, Dick's and many others continue to expand omnichannel programs like buy online pickup in store and curbside pickup. These programs have proven the most cost efficient way to deliver goods to consumers while satisfying the customers desire for quick.

Safe access to products. This is worth emphasizing we.

We don't believe there is a one size fits all solution to the last mile challenged and we need to recognize how each retailer determines how best to serve their customer base.

For kimco, helping our tenants the last mile is one of our highest priorities and that's why our portfolio and our team are well positioned to retain tenants by helping them optimize their stores to provide for shopping shipping and pickup. Our dedicated team is also focused on identifying new opportunities and location voice.

As for certain retailers and redevelopment potential.

These experienced personnel in plan mix of old school networking and market research and New school data analytics to help tenants find opportunities for profitability and growth.

Our overriding philosophy is that retailers are our partners are listening to their concerns engaging with them and helping them maximize the profitability of their space Kimco continues to be their partner of choice for.

Perhaps hit the hardest our small shop tenants, who often simply do not have the resources to hang on.

Thats, where kimco continues to step up.

Unwilling to wait to see who will stay or go we are in daily dialogue with our retailers to listen to their needs and challenges and to see how we can partner to help them navigate the situation. Our tap tenant assistance program initiatives have been a welcome sight for these tenants, whether we helped tenants pay for legal costs provide health and financial information on our website.

Located vendors to facilitate tenant acquisitions of outdoor heaters or expand our national Curbside pickup program. We are letting our tenants no. We are in this together as they fight to continue for success.

We can't save every tenant, but we can do our part to make sure. We help those that want or need a fighting chance as the world learned how to live with the virus. Our 10. Our team is working tirelessly to welcome tenants and customers back to our centers, while making them feel safe in a new shopping environment in times of crisis, we want to make sure our retailer.

As no, which landlords picked up their call in which landlord called them.

We are confident in our portfolio our team are improving rent collections, our liquidity position and our balance sheet at a time when many are looking for rescue capital to help carry them through this disruption or to bolster their balance sheet kimco sector, leading liquidity puts us in a unique position our ability to monetize a portion of our investment in albertsons.

Which currently sits as a marketable security with over $550 million is a clear differentiator and gives us tremendous optionality in the future.

I continue to be humbled and impressed with how our team at Kimco has rallied around our strategy to navigate the covert challenge and how they are also able to focus on the long term as we position kimco for the future.

Pricing for high quality, primarily grocery anchored product, albeit at a much lower transaction volume multiple.

Multiple trades occurred in the third quarter throughout the country at sub 6% cap rates in Pennsylvania, Northern California, Northern California, and Florida with another high quality asset trading in Los Angeles at a sub 5% cap rate for the right location and tenancy there is still strong demand and an abundance of capital available.

Or CMBS and.

In this environment finding that additional financing is not as easy and we have sourced a few great assets, where we can provide assistance.

As part of our investment approach in this area, we seek a right of first offer or right of first refusal in the event the owner looks to sell the property. If the asset performed as expected we collect a double digit return and get paid off in a relatively short hold period.

One or 2020 credit loss of 51.7 million.

Our third quarter F. F. O also includes a one time seven charge of eight 6 million or two cents per share related to a voluntary early retirement program offered in the organizational efficiencies for merging our southern and mid Atlantic regions.

You also incurred a charge of seven 5 million or two per share from the early redemption of 485 million of three 2% unsecured bonds, which was scheduled to mature in 2021 year.

Here earlier in the third quarter of 2019, we had a preferred stock redemption charge of $11.4 million per share.

Although not included in NAREIT SFO, we did record a 77 $1 million unrealized loss on the mark to market of our marketable securities, which was primarily driven by the change in our albertson stock.

We also sold a significant portion of our preferred equity investments with generated proceeds of over $70 million in net gains of eight 4 million, which will also not included in NAREIT SFO.

With regard to the operating portfolio all our shopping centres remain open and over 98% of our tenants are open and operating.

Order, 51% of rent due from cash basis tenants was collected. In addition, we also have a reserve of $25.8 million or 15% against the straight line rent receivables.

Okay, and your bond trading more than 40 basis points Tither.

As of September 30th 2020, we had no consolidated debt maturing for the balance of the year and only $141 million a consolidated mortgage debt maturing 2021.

Our next unsecured bond does not mature until November of 2022 are consolidated weighted average maturity profile stood at 11.1 years, one of the longest and read industry.

Regarding our common dividends during 2020, so far we have paid 66 per common share, including a reinstated common dividend and per common share during the third quarter of 2020.

It remains our expectations a cash dividends at least equal to 2020 week Actable income as such we expect our board of directors will most likely consider declaring an an an additional common dividend during the fourth quarter and with that we'd be happy to take your questions.

Thank you.

So some of this there are some timing things that come into play also you know the timing of when you are paying bonds and things like that so you have payables and that move around a little bit but the bulk of the increase is really driven by really the rent collection increase there was gonna deferrals. There wasn't much deferral collection in Q3, you will see that ramping in Q4.

Got it and just one question on the deferral and then I have one more final final question did you say, 87% of deferrals granted in October have already been collected did I hear that right yeah, 87% of what we've built so the deferrals that we build in October 87% of those deferrals have been paid.

The fact that rent collections are improving and reserves are decreasing so if the trend continues into the fourth quarter, we expect to see further improvement from there okay.

Thank you guys again, I really appreciate the transparency on cashflow.

Yeah.

Thank you and the next question comes from one Santa Maria with BMO Capital. Please go ahead.

Hi, good morning. Thanks for the time I was just hoping you could spend a little time on the bad debt and kind of help us think about how that's trendy what's been the the key variable in decreasing I've received it the amount of collections have improved but.

I I I think in particular with district would be interested in any kind of expectations for the fourth quarter.

Increase your exposure to the grocers over time.

Yeah sure I think one thing you have to remember is the lion's share of our rents are fixed rents. So we don't really have the percentage rent clauses that some of more of the mall type landlords would be accustomed to so even though we are focused on helping our tenants maximize.

They're they're they're sales within the four walls.

Even though we'd love for them to be able to count the omnichannel sales as part of the four wall profits, which they're starting to do in many cases, we wouldn't necessarily participate in that upside. It just gives more value to the lease that they have with us because they're more profitable out of that box and so what we have done is focused on curbside pickup focused on making.

The the front runners in that expansion, they're utilizing this opportunity similar to the great recession to expand their market share upgrade the quality of their portfolio.

And really double down in locations, where they have seen.

Great production in realizing as well that being closer to the customer is a value to them and so we've seen that with off price we've seen that with grocery.

Chronically actually discount.

So our lower cost fitness has taken this opportunity despite the distress of that sector too.

To look at opportunities to expand as well on a geographic basis, it's pretty well evenly spread.

We've seen we've seen both the northeast the south and the West coast start to really accelerate their deal flow even on the small shop side with the well capitalized tenants a corporate tenants in some of the franchisees.

That are looking to expand so it's pretty well balanced as it relates to spreads it's only the.

Quarter by quarter.

Item related to what's deals qualify for comp spreads so you're always going to see some movement related to that and a spread number could be driven by one or two individual deals either up or down so but generally speaking when we look out and we saw that the high levels of.

Retention this past quarter as well between renewals and options.

Which are very much in line with our historic rates.

We felt really confident that the quality of our portfolio is clearly a benefit to these retailers again. This is the opportunity where a retailer has a choice they can either renew exercise our option or look elsewhere and Fortunately they have chosen to stay and they stayed and when you look at our spreads related to renewals and options are in the high single.

And thank you for the opening caller on private market still being somewhat frozen and likely persisting into 2021. So when it comes to capital priorities for Kim How're you favoring the mezzanine loans Connor mentioned ramping redevelopment continued deal deleveraging or <unk>.

Sensually buybacks.

Sure. We can conquer that question I think there was a lot in there so look for as we outlined earlier on our capital allocation strategy, we we get our daily cost capital and obviously our cost of capital is extremely elevated in this time it makes buying our traditional product type R. R.

Grocery anchored shopping center in our top 20th metal markets almost off the table in many ways because it just doesn't even come close to meeting our cost of capital requirements. So what we've found is that there are opportunities to provide rescue capital or transformational capital where high quality.

Scenario comes into play for the senior lender they very much welcome kimco participation. So we found it to be a very nice fit while also hitting our elevated yield hurdles. So it's a very nice balance that we think could be a great place for us to put out accretive capital and 21.

Okay, great great color. Thanks, and then leasing leasing yes, so it's been a real bright spot. So I'll just continue with that and and you know not just for Kim but even for other peers that have reported so it's obviously encouraging and really ahead of you know what our internal plans and <unk> ouch.

Work that that effort. So I think we'll just continue to see.

The emergence of a lot of the trends that have been sort of in its infancy.

We continue to expand and grow.

For us that's really encouraging that's exciting to be part of that process. How do we continue to work with them to to innovate and change and now more than ever the retail partnership between us and them and then the retailers to retailers is so important because we're all servicing the same end customer which is that Shaw.

Upper and how to create the best experience for them.

Just as we enter this new world of new leasing I sort of want to see how different where it is versus the past or have similar to melt.

Relative to the past.

The Kroger is the albertsons of the world and what they're doing there.

Theres still there's still very much in that larger format, the 40% to 60000 square foot range dependent on the brand and they're really accelerating the use of distribution and fulfillment out of the store. So in terms of having a modified the shopping center to accommodate those needs there is not a.

Massive change your transformation in the dialogue, because we're able to accommodate curbside today as we were as we were yesterday.

There may be some modifications to expansion or contraction of the footprint dependent on the grocery themselves in terms of deal structure.

It can vary between a ground lease scenario lower rent lower across the company Thats more capital intensive.

And we just look at the economics to determine what makes the most sense, but it.

I wouldn't say there has been anything that.

Didnt materially different mix aside from just obviously the growing demand and when you think of the grocers.

To their benefit they've had this surplus of cash that they've received as a result of coven and the necessity of grocery and the stay at home.

As paid current and there is plenty of cash flow currently within those assets to support that with the remainder of that that will accrue and be paid pick when we look at these deals and why the borrowers are the partners are willing to pay that return is really because they are not in a position where they need to are really wants to sell the.

Asset today.

It is much more challenging to negotiate an acquisition price and see the capitulation between buyer and seller to acquire the site outright versus them expressing a willingness to pay a somewhat elevated interest rate on a small piece of the capital stack that they viewed to be short term and as I mentioned.

This is the appointment for this.

Michael It's really too early to tell because we're not sure the size of the opportunity set and so what we've done is we've aligned ourselves with a number of partners that would like to align themselves with kimco because of our underwriting and capabilities to manage the property in the worst case scenario, but we're starting to see a drip in and we thought it'd.

Actually would come sooner, but we're being patient and we're waiting for these opportunities. So for now anyway, it's sort of a case by case scenario, where we're being disciplined and looking at what could this look like we're not sure yeah. Yeah, I think that the the word that really does come to mind and kind of interested in discipline. We're working on two of these deals right.

Now we've passed on dozens so at the end of the day. It it doesn't differ from our core acquisition strategy in the sense that we are going to be very focused on the underlying real estate very focused on the downside scenario and if we have to come in and step in as an operator in on this that we're very comfortable having that.

Become a part of the kimco portfolio, it's not a program to chase yield it's a program to get it very attractive yield, but get our foot in the door on high quality real estate that we would be very comfortable and happy to own if that scenario played out.

Okay. Thanks.

Yeah. The next question comes Shan Alexander called time with papers Stanley. Please go ahead.

Hey morning in the morning out there, they're just yeah sort of following up that the line of questioning Quatre you guys had spent a lot of time in a lot of hours mental time to simplify kimco to get it back to sort of a pure play shopping center company with.

Straight up direct ownership unwinding, all the B a U M and all the stuff that went on the prior preceding cycle. As you guys think about whether it's acquisitions directly which I don't know if you. If you would consider bringing J V capital or you know doing medicine preferred how.

Do you view that versus you know the the all the effort that you guys have done to make kimco, a a a simple business model. It would seem like some of this would add complexity back that you guys spent a lotta time to make get them you're more of a pure black.

This is a great question, Alex I think when you look at the current portfolio of assets and you look at Kimco strategy going forward you recognize how simplified the strategy is how transformed the portfolio is and that will continue to be really the lion's share of the cash flow growth and where the execution is focused.

Ross has been mentioning a pretty unique set of circumstances in time, where we see an opportunity for kimco to take advantage of the disruption and we've always tried to be opportunistic investors and myths of disruption and so the key for us in the differentiation between in the past is we're underwriting the real estate, that's our core cause.

Competency for underwriting grocery anchored real estate in high barrier to entry markets that we feel would be a tier one asset for kimco for the long term. So it's a way for us to get a foot in the door. It's a way for us to invest accretively and it gives us I think a unique set of circumstances to take it.

Vantage of the situation, but we know that these these coupons are not longterm either a real short term opportunities because of a lack of liquidity and we continue to focus longterm on our strategy of owning and operating redeveloped in creating value leasing like crazy on our tier one portfolio going forward, but the inverse.

<unk> strategy for this period of time, a disruption we think we've found a nice niche for us to create value, but it's value on our core product, which is I think the key differentiator for us.

He ended up look I I agree I mean, you guys been successful with the retail front, but I'd point out like if you look at what what else. How green has done I mean, they've been incredibly successful and yet you know the market doesn't really give them credit. So it would seem like this business is maybe something that's good for like small targeted but just seems like the market you know sort of pushes back when it becomes.

You know anything of size. The second question is just on on on the tenants you guys have made a lot of improvements with rent collections. You know so as you guys look over the next you know to call at six months from a national side from my mom and pop do you feel that you have a good handle that he was gonna end up.

Being your remaining sort of credit issues I don't know if on the national side, if that means like fitness or theaters and on mom and Pops, you know I'm guessing that you sort of have a friend who's gonna make it or not but it just seems like basically you know almost 90% rent collections that you guys would have a pretty good handle on what the ultimate shake out it's gonna be from both a national in there.

Mom and pop so maybe you could just comment on that.

Yeah. So.

You're right in terms of the collections, obviously, we've been encouraged by that I'm heading into the winter months, you know obviously creates some unique challenges, especially in the northeast at will closely monitor we we've been very proactive with with a restaurant base and other service based tenants that of how to utilize some sort of outdoor facility.

To help offset the the limited capacity indoors, but obviously as winter sets in what we have to be observing what happens there we haven't been very good pulse on on the tenant base. That's in our portfolio now, we obviously talk to them on a daily basis, and keep very detailed records of their individual situations.

So I I, you know from a from a tenant disruption standpoint, a credit standpoint, a lot of what we've seen happen as a result of Covid were those that were already in distress. You know continue to fall into that category. The bankruptcies that were filed they were anticipated at some 0.2 occurred just.

Pulled again pulled that trend for.

So and I think we've seen the lion's share of that and raised can actually sneak I think a little more detail about it but you know what's been encouraging as we've seen a lot of yeah. A lot of these companies are re emerging from bankruptcy with a stronger balance sheet right they've done that to equity swaps and have come out with a reorganization.

Plan that actually enables them to survive in the future as we go in to January when you think about the next six months.

Historically speaking, we've typically seen another dip at occupancy in Q1, which happened as a result of post holiday fallout that that's.

That's typical that's normal so we would anticipate that to occur and then as we get through Q1 and instead of emergency queue 221, I think we started to see the plateau or an effect in in the growth opportunity there coupled with obviously the continued growth in our in our new deal pipeline. So.

That's right I think we start to see 21 emerge.

Thank you.

Thank you. The next question comes from Craig Smith with Bank of America. Please go ahead.

Yeah. Thank you.

Hi, I I'm wondering if the dip in small shop occupancy might represent a trough is it in three Q or do you think that the occupants in this small shops could go Lola.

Yeah, Hey, Craig Great question, I, I I tried to answer answered a little bit in the in the previous question at the end there. We anticipate again just based on historic norms that you'll you'll see probably another dip in into Q1 as a result of the post holiday hangover and and what happens usually in our portfolio.

<unk> and then as you move out of Q1 and blend into Q2, and then through the balance of 21, I think you'll start to see that recovery mechanism of her both from a reduction of the vacates, but more importantly, an increase in demand of the space to.

To offset so and and just to put it in context too. So a lot of the majority the vast majority of the bank and see that we've seen has been a result of these bankruptcies uhm that were on edge pre covid already uhm. So it just again to tip the scales that much further and so.

Oh, yeah, Unfortunately that the balance of the portfolio.

All of these small shop tenants are grinding it out every day and we're here to support them and we actively reach out to them to make sure that they have the tools necessary to to come out the other side, but that's so we expect probably a little bit of a further decline before it starts to read it again.

Right and then you know for your tenants that are working on you know being better fulfillment and distribution less smile I'm wondering it would do any of these efforts require a change in zoning.

Great.

<unk> it really depends on the on the scale in which someone's trying to to achieve that so if you're just reallocating some of your square footage within your four walls, but you're predominantly still a retail in nature and and functioning as you were prior to this enhancement.

Of your of your box.

Most likely not it's just a matter of reallocation of space, if you're doing a full micro fulfillment center 15 to 20000 square feet that may require a use variance or some other means and what you would have to go to the city and the time to to have that as an accepted us two very very different stories.

There and and and strategy. So right now I'd say, we're talking more about the former where retailers are just repurposing some of their square footage to to meet this demand, but it's not a total reinvention of space.

Alright, Thank you for lunch, Craig I think it's a lot easier for retailers to not go through the rezoning process and to just repurpose portions of their stores.

Phil and distribute and it's a lot less capital intensive as well so we see that that being a lion's share of what we're experiencing.

In what we're hearing that Amazon was supposedly pursuing would that be both ladder meaningful they might have to get Sony changes for that area.

I mean, you know you know as as well as I do Amazon Amazon Tryin', a whole bunch of stuff and a whole bunch of markets and they'll continue to to run the trial and error to see what sticks in what works best So it really just depends on what they're they're doing at any given point in time I mean, we all know that they have multiple different.

Brick and mortar verticals right now that they're exploring so.

Yeah, if it's more of the sorry, the traditional groceries and that's a grocery use if it's something that's more expansive in terms of distribution then maybe but it's really case by case, you know an independent on the municipality in the existing zoning that's already in place for the center.

Great. Okay. Thanks for the detail.

Thank you. The next question comes cheap and Kim with chest. Please go ahead.

Thanks, and good morning. So it was good to see a lot of improvements in your portfolio, including collections Uhm. It's just hard to think about a more sustainable dividend policy what are the things that you're looking at and any kind of kaipo if they can provide.

Sure I keep it.

<unk> reset the dividend <unk> and sent level first and foremost we're going to focus on just making sure. We pain are taxable income requirements for 2020.

As we roll up our budget and looking cashflows for 2021, one of them establish really Ah set level set dividend that is sustainable and growable and with that one would be somewhere around no great and 80% of a F. F O probably a little less than that uhm, but it's all.

We're going to have to be managed with what tax be taxable income is but in terms of target. It's really in the 70% to 80% a F O level keep it I think you've seen our board be very involved in the dialogue and the analysis of our cash flow and the a F F O and what we Wanna do going forward, we want to be as Glen said in a position.

One of strength or we have a lot of free cash flow after dividend, where we can reinvest and retain and so we're in a position where you're starting to see that free cashflow pretty significantly grow from where we are and then they will will monitor the read taxable income and make sure that the dividend is is covering that.

Got it and and going back to something you guys said earlier about you know those seasonal vacancy that you're experienced in the first quarter, which is quite normal you know doing this covid environment. You also had a chance to possibly take that into account and your reserve with your credit reserves at about eight per cent of a <unk> of rent.

Would you say that you reserve for any kind of potential fallout that might happen in the first quarter or is that something that you have to revisit later on.

I would say no I mean, you have to deal with reserves.

As they come along quarter by quarter you you can't go ahead and put up <unk>.

General reserves for things that you think really happened out really happen out in the future.

No I would say that we don't have reserves bill for 2021 at this point because the only thing I would come in and that is that clearly we're reserving against the tenants that are not performing and so if you're not performing today and you're struggling through to make it to the to the holiday season, you're probably not gonna make it post holiday season. So that's the.

I think I would either.

Okay. Thank you.

Thank you. The next question comes from hang on St chest, It's Michelle Huh. Please go ahead.

Hey, good morning.

Alright, so so kind of you mentioned the board earlier and I guess.

A question I have is it is you know kimco sent out a survey a few weeks back to the analysts community and one of the questions. I found most interesting was asking at the rink six key financial metrics by how we think the priority of them should be or how we perceive them price day of faux print F. O N E B Saint store in a lie dividend.

<unk> and debt EBITDA, So I guess I'm curious, how you and promptly board I'm thinking about the privatization of these metrics and how it informs how you run the business into 2021 that would be all thanks.

Yes. It is a great question I think are fundamental strategy is pretty consistent pre covid and post covid and that is to make sure. We have a rock solid balance sheets. So a lower net debt EBITDA that gives us the ability to not only maintain our triple B plus beautiful a one credit rating, which is a huge differentiator too.

Hey, I'm sure you've been well aware that the difference between unsecured secured borrowing today has never been wider and retail and we believe that's a big differentiator for us so in the midst of the pandemic, obviously the balance sheet as a as a critical focus and making sure that it is on the path to not only maintaining a strong triple b plus beautiful able.

But hopefully putting us in a position of strength going forward to potentially see an upgrade their F. F O growth will be significantly important for us in 2021, there's no doubt about that when you look at the leasing moment that we had when you look at the ability for us to improve collections. The combination of those two with a cashflow growing.

That is gonna be what really grows yep I vote for us in 2021, you Gotta remember, we did push out a lot of debt maturities right. So we don't really have a whole lot other than some some mortgages coming to do that we plan to pay off to really delever. So our growth profile is all about leasing we have a couple of projects starting to come online as well.

Well from the Boulevard in from Dania that'll help grow our cash flow and 21, but it is all about the F. F O growth for us, which is tied to a leasing moment, though.

That's great. Thank you for that and second question is on I guess the dividend I guess, how does the lack of liquidity in the transaction market play a role.

In the dividend sizing and how are you thinking about the difference I think historically you guys are filled at the at the foundry development pay down debt and it looks like even that'll be it. Thank you you said $580 million Alvin can stock you have your pro forma leverages still probably somewhere in the mid to high sixties next year. So maybe you could help.

With some thoughts on that and then also remind us on the timing of.

The realisation of the Albertson's capital how much of that can be liquidated next year. Thanks.

Sure I'll I'll I'll take the dividend piece of it in Glen and I will combine on the Alberta inside of it but we continue to monitor the dividend and think that you know monitoring are taxable income is the right approach, making sure that we have ample coverage and the ability to grow with over the long term and start to generate some pretty significant free cash flow, which you're going to start.

To see at the end of the 20th into 21, which allows us to go and read redeploy that capital accretively into the pipeline and into the redevelopment opportunities. We think that's the right approach. We think that's the way to really not only managed through the pandemic, but put us on a glide path for the future to be able to grow that dividend along with the F. F O growth from the.

Portfolio and then it'll be Albert's inside we did mentioned we have over $550 million of the marketable security. It is it a lockout period, but it's starting to pay a dividend. So we continue to think that that's a wonderful investment for for US both short term and long term and again again the habits investment gives us lots of options.

Finality about when we wouldn't want to monetize it and you know how best to use those proceeds again, we think about it primarily to try and reduce debt. Although it is now earning asset which is helpful. But it gives us a lot of again it gives us a lot of optionality.

Yeah, just one last piece are handled.

<unk>.

Dispositions really are not a major player how we think about the dividend in in a lot of cases in the past many of the dispositions that we did we really done is 10 31 exchanges to kind of Shelton absolutely from that went with them. So that really does not play a whole lot into how we think about the dividend it's really about.

Cash flow and generating as much free cash flow as we can.

Sure No I appreciate that I was just curious about how the perhaps less potential sourcing liquidity overall in the market could play enrolled into how you view your forces it and use it until they're coming here and then maybe can you just clarify I know, there's a certain timing mechanism tried to how much would be <unk> capital stock you could sell all the time.

How much theoretically what proportion pets are you able to sell next year. Thank you.

This is ray new transaction with Alberson, there was a six month blackout for the first 25 per cent to be available and that lockout.

Ended December early January and then every six months thereafter 25 per cent more on the investment is released from the lock up so I guess for 21 half of it would be available to us out of the lock up but it's claim said you want.

When we decided to.

Monetize that will be the decision between us management mood board.

Got it got it thank you.

Thank you and the next question comes from that Caitlin Burroughs, Let's Cozman sacks. Please go ahead.

Pardon me, we do have my commute air with J P. Morgan is the next question. Please go ahead.

Yeah, Hi, I guess going back to the preferred in as investments is that something you're contemplating for on balance sheet or would that be candidate to go into that investment vehicle that you set up with the spring.

Yeah currently we're doing it on balance sheet as I mentioned, there's only a couple of a relatively small deals in nature Ah depending on the size of the opportunity set as we round. The corner 21, we could consider alternative structures. We've had the ongoing dialogue with several potential investors that would love.

<unk> to invest alongside US we have not made any commitments to do that so right now we're doing it sort of on a one off internal basis, and then depending on how.

How much activity, we see we can always looked out outside capital sources.

Got it and is is there an update on that investment vehicle for the spring.

I mean, that's essentially the update their we've had lots of conversations with capital providers that wanted to take advantage of our plus business. The preferred equity a mezzanine financing being a current sort of applicable Ah program for that plus business. So again, we haven't made any formal commitment to any outside capital sources.

But we have plenty that are sort of on the sidelines waiting to see if we're ready to bring them in or not.

Got it okay that was it thank you.

Okay.

Thank you. The next question comes from that Caitlin for hours with Goldman Sachs. Please go ahead.

Hi, Good morning, just a question back to Albertson's could you talk about just your latest such for the whole thing. So I guess do you expect to be a longtime hold their given the kind of Optionality said in terms of what could be filled in 2021 and do you think it would be to sell the shares on the if he had an expansionary.

Such as that conditions or development them or would you tell us sooner and use the proceeds or something like that pay down to the extent that you could.

Again, we have a lot of optionality with it.

As Ray mentioned in the first 25% doesn't become unlocked until really the end of this year. So that we don't expect to do anything for the rest of this year and then we'll evaluated as we go through 2021 again and if there is.

Good source for us to something accretive you use that capital to do that including.

Yeah.

Okay, and then just the push it back and kind of the rent collection topic on the portion of the rents in the bucket of that to be decided uncollected on that negotiation seems like it's roughly like 6% to 8% of each L. 223, Q in October rent him. So I was wondering what sorts of.

Tenants are included in this category and what's the outlet forgetting D 3000.

Yeah, so in terms of the.

Go ahead no go ahead.

Alright, so yeah in terms of the of the open accounts. It it is within the categories that you'd probably expect you know <unk> restaurants theater.

Some fitness entertainment et cetera. So we can we continue to work through those individuals and helping them structure program at least modification program that works for them and works for us as well, but there's also a a sizeable amount that's related to outstanding billings and Cameron real.

Pay taxes and a good majority of that is typically tied to your larger national tenants that have a a period of time in which they do a review.

Ask questions and then eventually it's reconciled and paid and that could lag up to 60 days or so on average. So you you would see that there are some of those account I'm open account items that would fall into that category.

I guess as a quick follow up to that could you. Just say then does that suggest that normal of that collection I feel like we haven't ever talked about it before 2020, but that normal rent collection is in quite 100% right away and that some sort of blanket normal yeah. He had a great question I'm glad you are.

Actually asked it so.

Our historic average on collections has actually never really 100% it's around 95%. So when you think about where we are today and that 90% to 91% range, we're not that far off from what we've historically collected and what we anticipate collecting when you. When you use 95 is really your your ceiling.

So there's always there's always a component of their that's outstanding that's in dispute or may not be collected as a result, so when you put that back into contacts you you start to get a sense of <unk>, we're getting fairly close to where our historic norms where.

Okay. Thank you.

Thank you. The next question comes found that Flores.

With Comcast Plaint. Please go ahead.

Thanks morning, guys quick two two quick questions I guess number one is what is your your billable wrench in the third quarter relative to your first quarter and what is your recurring so what I was trying to figure out is there what is your record.

<unk> revenue in the third quarter relative to your Karim revenue in the first quarter.

Yeah Flores statements Nikki billable amounts haven't changed dramatically from the first quarter to where it is now if anything maybe because of rent fall out from some of the tenant bankruptcies, but outside that if you're trying to get back to that denominator change it.

Really hasn't changed much at all because even our cash based tenants as we've increase then we still a crew that red and shows the Bill will peace and then we'd taken as part of the reserve.

Alright, so today.

<unk> today's point and cash basis tenants during the third quarter embedded in embedded in that $25.8 million reserve is $17 million of reserve that relates specifically to the cash basis tenants.

So if you think about that.

If you didn't have that accrual.

You have 8 million eight and a half million dollars of reserve alright, we just showing it gross stuff so that the denominal really hasn't changed all that much again, you denominate as low of it and if that was it and it's still at that you have from the bankruptcies.

Okay. Let me let me ask you one other question, obviously Ross Thanks for giving your your views on top right development. I think that was that was you know obviously, it's worse at looking at the stocks are they appear to be trading at a big.

<unk> I was curious to get your views on and then a in the sector. When would you think we will trigger it and also maybe Glenn if you can give your views on at some point if this discount persist when do you start to think about buying back.

<unk> what would be the triggers for you to to do that.

Yeah, I mean, I I think as it relates to M&A, it's always a bit tricky we've done at five different times in the past in the company's history. We continue to stay very focused for kimco purposes on on location geographic quality et cetera. So the discipline will remain.

There, we'll continue to monitor the landscape, but I, it's a very challenging environment for that particularly when you look at it as I mentioned the landscape in terms of financing. It makes it very challenging for any sort of privatization in the market as well so.

So while while it looks like the the opportunity could be right just based upon the discount to nev it still becomes a very challenging endeavor.

That we will see how things play out as we rounded the 21 with some of the companies out there today.

As far as the buyback again, we are very very focused on liquidity was very focused on bringing on net debt EBIT levels down.

In this environment again, and we're still.

US and everyone else no one fully out of the woods yet with this virus I mean today alone you had on new 100000, New cases reported so no one knows the full impact of what's going to happen and I think it's prudent to just be very cautious at this point, so again, having liquidity is crucial.

Uhm and until that until we have real.

Clarity that we are moving back in the right direction I think it's very important to just hold onto your liquidity.

Thanks, guys.

Thank you. The next question comes from that Chris Lucas with capital one. Please go ahead.

Hey, good morning, I started the call going but just had two quick ones come Ah Dave just on the.

Sort of on your inventory of space that it's come come back to you in the last couple of quarters, how does that match up to sort of where the demand is in the market.

Good question. So on the on the anchor space side, <unk> had filed and and we're gonna see that fallout. This quarter, that's very well in line with a lot of the off price and the grocer activity that we're starting to see in the market.

In the mid shop size, you know they need to 12000 range you know you're seeing the likes of five below alter and others that are actively expanding including the dollar stores. So that that that's that's a bright spot in encouraging on the small shop side.

It will start to see again the recovery on the small shops will be more prolonged a little bit slower, but when you see service oriented tenants medical health care, that's in growing category that fits well in the small shops as well as some of the the very well capitalized Uhm quick service fast food restaurant.

Opportunities as well I mean, they're seen opportunities here to to expand their footprint. So that's four were seen the alignment that that works out well.

And but it it's I'd say the the inventories it's fairly consistent to what we've seen historically, it's just right now we we're obviously seen more of it in a shorter period.

And and I think they'll Fortunately, we will start to see because of the higher quality, we will see that absorption accelerated pretty quickly as we move into 21 and 22.

So when you think about your pier one modal massena boxes that you're getting back if you feel like you can get those back and.

<unk> least up on a single tenant basis or do you feel like there's gonna be some components of meaningful component that will be you know you don't need to split up in order to take.

It varies you know a case by case the orientation of the box depth of the box how much store frontage. There is does it make sense for a retailer to stretch it a little bit to take the whole box to make the economics more favorable or or do we have an opportunity, where we can split and and put it into smaller shop tenants at work well so.

It's hard to suggest one way or the other it's always.

A unit by unit assessment to what works best but as I mentioned earlier. There are you know tenants that are of high quality and good credit that have interest in their sizes, which is encouraging.

And then like Glenn just a quick one for me on the Frank Repentant, how much did they contribute in terms of revenue to record the results for the third quarter.

So.

And then think of patterns account for approximately 2.3% M I N.

E R.

And at that corner.

For the third quarter, Thank you for calling us.

Without 65% of that was collected from those tenants.

Okay, great. Thank you.

Our next question is time Samir can all of that Bercor. Please go ahead.

Good morning, just one for me here for modeling standpoint on Jan a what what's the run right. We should be thinking about I knew you had a couple of moving parts there with the streamlining of.

Businesses.

Reason.

Yeah. So so we took as I mentioned smear, that's $8.6 million charge during the quarter related to the voluntary retirement program that we offered plus the emerging as a two regions it'll probably have an impact going forward of about four $5 million a year reduction in G N a.

But you'll start seeing it towards the middle of the second quarter next year is everything winds down and it gets and it gets completed.

A samir there's two other real modeling things they should keep in mind one of them relates to camp interest burnt office or development and redevelopment projects of kind of scaled down and the other is our equity in income from other real estate investments well, maybe you could give a little color on that.

On both of those points.

Ah redevelopment and development pipeline is probably the lowest it's been in about five years. So you have is burn off of the cap interest. So we would expect next year cap interest would probably be about half of what it was so that's probably around a $7 million less number next year and then as I mentioned, we sold a pretty large portion of the.

Preferred equity investments that we still Oh, so if you look at the balance sheet, you'll see that we sold about 40% of those in the recurring income on those would probably be about $4 million to $5 million less next year. So those two items account for about probably $12 million. So let's F F O going forward.

Okay. Thanks, guys. That's it for me.

Our next question will come from Vince about enough Grant Street. Please go ahead.

Hi, good morning.

I would like to come back to the commentary provided on cap racist cap rates may not have changed much since covid, but but that's NOI expectations are certainly lower today versus where they were in January. So I. Just wanted you know here's some color on how buyers are typically underwriting NOI today compared to 2019.

Level, then do you have a view how much asset values have fallen all in this year.

Yeah, no. It's definitely a very specific undertaking that each organization takes we we have an extremely robust risking underwriting room and certainly in this environment you Wanna make sure that you're protecting your downside. So I think it's fairly common in this environment.

Buyers and anybody that's evaluating cash flow is being very conservative.

Looking at a space space space analysis determine the credit.

The the actual Turner.

<unk> tendency that you have in place what type of services, they perform or provide and and lots of buyers are structuring around that whether it be looking for certain escrowed or hold backs and there's a variety of ways to skin a cat to ensure that you are protected but there's no doubt that pegging, the NOI that you're <unk>.

Happening today is the biggest challenge in terms of underwriting and getting comfortable and frankly that that also in addition to the lack of financing is a big gap in the bid ask between buyers and sellers is coming to a determination and an understanding of what that appropriate NOI is today.

It would be very difficult to specify what a decrease in value is pre and post pandemic I would say what were clearly seeing is that the bid ask spread is much more narrow or the essential based retail properties grocery at home improvement.

Being two categories that.

Are still transacting add add pretty close.

Two pretty pandemic levels, and you're seeing that wide now pretty significantly when you get outside of the essential based retail so I think that it's <unk>.

Previously it was grocery verse tower or core versus non-core. The analysis today is the percentage of income coming from essential base retail versus non essential and that's really the biggest differentiating factor in underwriting today.

Got it though that's helpful. Color is is there any that available for power centers today or is it kind of come back to us with the essential mix and some of the stuff you touched on.

There is it's very dependent upon the tendency in the location of that power Center, we did see one transaction occur last week.

It was a grocery anchor power center, but the grocer was a relatively small component of the property and from my understanding the buyer clothes with 65% LTV interest only dead at low 3% interest rate. So when you have the right tendency you can you can find out but it it is more challenging today and it's been in the past.

Got it one more Super Brooklyn for me just you know it looks like operating expenses were up 8% year over here on the corner, whereas most of your peers caught up cut off acts in the mid single digit range. So does that increase at all attributable to some of the internal restructuring or is there something else kimco, maybe doing differently.

Then your peers.

No because I really had to do a timing issue more than anything else, we deferred a bunch of cat projects in the early part of this year, especially with the pandemic. We're also holding off. So this is where during this scortese or a lot more of that coming through.

On the recovery as well yeah, I mean, if you <unk>. If you look for the nine months of the year basically flat.

Yeah, No I just wanted to see if it was just more but I mean, it sounds like the one time issue anyway, there are catch up right or the other appointment is some of the day or deserve related to.

There's also some expenses related to things we did around covid that we needed to do as well. So that's all factoring in but it is Clinton mentioned for the year to date for consistent where we were last year.

Great. Thank you for the time.

Ladies and gentlemen at this time, we will conclude our question and answer session. At this time I'd like to turn the conference back up or did they keep sneaky for any closing remarks.

Great. We just want to thank everybody to participate on a call today as a reminder, or supplemental NR investor presentation is posted to the our website. Thank you very much and enjoy the rest of your day.

Ladies and gentlemen, the conference has now concluded we thank you for attending today's presentation you may now disconnect.