Q1 2021 Kimco Realty Corp Earnings Call
Good morning, and welcome to Kimco first quarter 2021 earnings conference call, All participants who had been listen only mode should you need assistance. Please take another conference specialist by pressing star key followed by zero.
After today's presentation there'll be an opportunity to ask questions.
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Please note that debt is event is being recorded I would now like to turn the conference over to David pushed me Keith. Please go ahead Sir.
Good morning, and thank you for joining kimco, it's first quarter earnings call. The Kimco management team participating on the call. Today include Conor Flynn Kimco C E L. Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO.
David Jamieson Kimco, Chief operating officer as well as other members of our executive team are also available to answer questions during the call.
It is important to note that we will need to keep this core focus on kimco is first quarter earnings results and outlook as a standalone company with more information forthcoming when the merger proxy statement is filed with the S. Each day.
As a reminder, statements made during the course of this call maybe deemed forward looking and it's 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 adjust address such factors.
During this presentation management may make reference to certain non-GAAP financial measures that we believe help investors better understand kimco operating results reconciliations of these non-GAAP financial measures can be found in the Investor relations area of our website.
Also in the event our call was to occur technical difficulties, we will try to resolve as quickly as possible and if the need arises we will post additional information to our IR website.
And with that I'll turn the call over to Conor.
Good morning, and thanks for joining us today.
Today I'll focus my remarks on our leasing results the supply and demand dynamics surrounding those results and the exciting strategic direction, we are taking the organization.
Ross will cover the transaction market and Glenn will cover the quarterly numbers and our updated guidance.
2021 is off to a refreshing and good start with robust demand for space in our last mile Open Eric grocery anchored portfolio coming from both well capitalized omni channel tenants seeking more market share as well as from smaller businesses that have regrouped and are prepared to reinvest in their business model.
The largest leasing demand categories include restaurants personal care fitness and dollar stores. We also see healthy activity and if consummated multiple leases with grocery stores off price and pet supply retailers.
Our leasing volume continues to build from the record setting trend last quarter, our new lease count was 121 totaling 586000 square feet. This exceeds both last quarter and the prior year quarters.
Of particular note the 586000 square feet of volume surpassed our five year first quarter average per new leased GLA of 506000 square feet and new lease spreads finished at a positive eight 2% pro rata.
We closed the quarter with 237 renewals and options totaling $2 2 million square feet of GLA exceeding the quarter sequentially and the prior year quarter renewable as an option spreads finished at $6 four per cent pro rata. These spreads continuing to reflect the recovery underway in the pricing power inherent in the quality of.
Of our portfolio.
Conversely, our ability to have withstood the impact of the pandemic reflects the defensive nature and strength of our recurring cash flows from a supply and demand debt perspective. The reality is that due to the speed of the recovery pandemic induced vacancies were short lived with limited new supply market rents never adjusted down in any meaningful way.
So when the demand snapback, we generated positive spreads.
While our occupancy dipped slightly from year end to 93, 5%. It strengthened as we moved through the quarter. It is our intent to continue expanding occupancy and we are encouraged by multiple demand factors playing to the strengths of our last mile locations on.
Our job is clear focus on the blocking and tackling on leasing work with best in class retailers enhance the merchandising mix and let the numbers speak for themselves as we've strengthened the resiliency of our cash flows.
Our first second and third priorities, our leasing leasing leasing and we continue to believe we are in the early innings of this reopening and recovery.
In addition to leasing we are prioritizing our smaller redevelopments at average double digit returns to create an additional organic growth driver.
Long term, we believe our entitlement program will continue to create shareholder value as we unlock the highest and best use of our real estate.
The pandemic has both validated and strengthened our conviction and our strategic vision to concentrate our open air grocery anchored and mixed use portfolio in the top msas across the country.
Tenants no longer look at the last mile stores simply a retail destination.
Rather its value to retailers is now viewed holistically, providing distribution fulfillment and retail.
In valuing the location retailers assess their ability to integrate ecommerce and bricks and mortar to give the customer what they demand convenience value and if a filling experience continues to point to the last mile shopping center as mission critical for both consumers and retailers.
Our platform is well positioned for growth and with that growth will come further debt reduction and other benefits of scale.
We are enthused about the opportunities ahead, yet recognize the challenges involved we remain committed to prioritizing ESG initiatives and supporting our tenants and look local communities as we continue to navigate the pandemic and beyond.
I'd also like to touch on the exciting recent news regarding our highly strategic merger with Weingarten a transaction that we expect to unlock considerable value and some of the highest growth markets in the country.
By coming together, we will be the nation's preeminent open air grocery anchored shopping center and mixed use real estate platform with our focus on these last mile locations and increased scale in our targeted high growth Sunbelt markets.
This transaction will significantly strengthen and enhance our portfolio quality to further gain market share and to make kimco, even more valuable to all of our tenants.
In closing Kimco is open air and grocery anchored portfolio diverse tenant mix targeted geographic presence and the strongest growth markets in the country and improving balance sheet provide us with a long runway for growth as we move ahead.
Needless to say the entire organization is generally energized by our efforts to build shareholder value.
With that I'll turn the call over to Ross.
Thank you Conor and good morning, what a different day quarter mix with continued recovery from the pandemic vaccination rollout and reduced capacity restrictions across the country. We have seen optimism building from retailers and consumers and real estate investors at the highest level since the pandemic began almost 40.
14 months ago specific.
Specific to the transactions from an.
Industry volume, while still off nearly 40% in the first quarter of 2021 compared to 2020 has seen a meaningful uptick on the back half of 'twenty 'twenty.
The conviction in the stability.
Property rent rolls and by extension cash flows has grown beyond only the essential retailers and now includes other categories that were much less clear previously.
There is no doubt the grocery anchored shopping center is still the most in demand category of retail and continues to command the most aggressive pricing and lowest cap rates.
Furthermore, open air is valued at an even higher premium free.
Recent transactions with more specialty and lifestyle components in the in addition to traditional power centers have given transparency to the value on stability that our approach provides.
Multiple grocery anchor deals have transacted at sub 6% cap rates in Dallas, South, Florida, California, Philadelphia, and Seattle to name a few they.
They are also on no signs of investor demand waiting for that product type.
We anticipate bidding to become even more aggressive as the spread of cap rates or interest rate remains wide for our asset class, particularly when compared to industrial multifamily self storage and others.
More recently aggressive bidding extending beyond the bread and butter neighborhood product is starting to emerge true.
Two recent deals that have a grocery store, but also a significant restaurant and entertainment component saw bidding wars with multiple rounds of offers and pricing well beyond initial expectations.
These properties located in Dallas, and Denver have the mix of grocery traffic restaurants, and entertainment last mile infill locations and future densification opportunities that investors are excited about.
On the financing side and equally important observation is the reemergence of the traditional lender in this space.
While the down the fairway grocery anchored assets had been financeable throughout the pandemic lenders were requiring significant hold backs and structure around deals with perceived risk.
As positive trends continue to emerge that is having direct impact on the transaction market with more deals getting across the finish line at superior pricing and terms.
With renewed optimism and conviction comes a vibrant transactions market and which we will remain it just depends on disciplined player and we expect to see deal velocity continue to accelerate which is a great sign for the continued recovery of our industry.
Now on to Glenn for the financial results for the quarter.
Thanks, Russ and good morning.
The positive results, we drove in the fourth quarter last year continued into the first quarter of 2021.
With the backdrop of an improving economy and strong leasing velocity. Our solid performance was highlighted by improved rent collections and lower credit loss relative to the fourth quarter last year.
Our balance sheet metrics also strengthened.
We continue to benefit from all of the capital markets activity, we undertook the past 24 months to enhance our financial structure.
Now for some details on first quarter results NAREIT.
NAREIT <unk> was $144 3 million with 33 cents per diluted share for the first quarter 2021, as compared to $165 million was 37 cents per diluted share for the first quarter of the prior year.
The reduction was mainly driven by lower pro rata NOI of 13.6 million due to COVID-19 related rent abatements and credit loss as well as the impact of lower occupancy on net recovery income below market rent recaptures and straight line rent.
These N O Y reductions were offset by a $5 5 million one time benefit from lease terminations.
So impacting NAREIT <unk> per BOE was $5 4 million of higher G&A and interest expense due to lower capitalization from development and redevelopment projects that had been placed in service.
Our operating portfolio is continuing to perform effectively all of our shopping centers are open and over 98% of our tenants are operating with.
With the strong leasing velocity has kind of discussed our leased versus economic spread has increased to 230 basis points, representing a total of $27 million of pro rata ABR, which is an excellent indicator of future cash flow growth.
As expected same site NOI decreased five 7% for the first quarter as it comped against a largely pre COVID-19 first quarter in 2020.
It also marked significant progress from the prior sequential quarter, which was down 10, and a half per cent. The improvement was mainly attributable to lower credit loss.
We collected 94% of pro rata base rent billed during the first quarter 2021 up from 92% for the fourth quarter last year.
Our cash basis tenants represent eight 9% of ABR and we collected 70% from these clients during the first quarter.
In addition, our deferred rent payments had been strong as we collected 84 per cent of deferred rents built for the first quarter with $34 1 million of deferred rent remaining to be done.
Turning to the balance sheet, our metrics continue to improve and our liquidity position is in excellent shape.
At the end of the first quarter consolidated net debt to EBITDA was six seven times and on a look through basis, including pro rata share of JV debt and preferred stock outstanding the level was seven four times.
This represents further progress from year end 2020 levels of seven one times for consolidated net debt to EBITDA and 7.9 times on a look through basis.
In addition, Moody's has affirmed our b double a one unsecured debt rating with a stable outlook.
From a liquidity standpoint.
We ended the first quarter with over $250 million of cash and full availability on our $2 billion revolving credit facility. In addition, our albertsons marketable security investment is valued at over $750 million.
Our debt maturities remain minimal as we have only $125 million of consolidated mortgages maturing this year, which will be repaid in the second quarter. As a result, we will be unencumbered, an additional 23 properties our weighted average debt maturity profile stands at 10.7 years one of the longest.
On the entire REIT industry.
Based on the first quarter results and expectations for the remainder of the year and includes same site NOI turning positive in the second quarter, along with further improvement in credit loss. During the second half of the year, we are raising our NAREIT <unk> per share guidance range to $1 22 to $1 26.
From $1.18 to $1 24 previously.
As a reminder, our increased guidance range is on a standalone basis and does not incorporate any impact from the pending merger with weingarten in.
In addition, the guidance range assumes no transactional income or core.
Core expense and no monetization of our Albertsons investment.
And with that we're ready to take your questions.
Before we start the Q&A I just want to offer a reminder, that this call will focus on our first quarter results and request that you confine your questions and comments to these results not the announced merger with Weingarten.
Maintain an efficient Q&A session. You may ask a question with an additional follow up if you have additional questions you're more than welcome to rejoin the queue.
Operator, you may take our first caller.
Let's now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If youre using a speakerphone please pick up your handset before pressing the keys to weaker real questions. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Rich Hill from Morgan Stanley. Please go ahead Sir.
Hey, Glenn Thanks for the disclosure on the prepared remarks, I just wanted to make sure.
I was clear on the percentage of rent collections from the cash based tenants I know, it's eight 9% of ABR you collect that 70% of those tenants.
Any way you could tell us what same store NOI would be.
Ex those collections just just so we can get a better sense of the core portfolio.
Right.
So so just going back a little bit the cash basis tenants. There was about 7 million collected debt related to a prior period.
From last year. So those came in during the first quarter.
So if you if you add if you if you didn't have those that would have an impact on same site of about 320 basis points.
Got it that's really helpful. I appreciate that and just a quick maybe nuance question, but I think it's important could you maybe walk us through what percent of tenants are in bankruptcy and then what percent of rent and you collected on on on those bankruptcy tenants.
Hi, Richard Kathleen I can actually help you out with that line. So if you recall at the end of 'twenty 'twenty on.
Several of our tenants actually emerge from bankruptcy. So we ended the year at about 70 basis points.
ADR being related to P and K tenants and actually as of Q1 was down to 20 basis points.
The question of what we have an idea on at this point.
Got it.
Dave is that one question on two questions can I ask one more.
You got one more that seem like [laughter].
Just a.
A quick question on the 2025.
Outlook in the same store NOI.
I guess the question I would have is why can't you grow any fact, why can't you grow faster than the plus 2% that that you you referenced it would seem like given the tailwind to their to the retail sector.
Maybe some of the e-commerce true.
Things that are emerging it seems like maybe you could grow above inflation. So so any.
Context, there would be a little bit helpful.
Hey, rich, it's Conor we definitely think that that's an achievable goal on the near term, but again. This is a long term goal. So the way we look at it is theres, obviously going to be you know an uptick in terms of same site NOI through this pandemic field recovery.
And then if you notice we did put two 5% plus so our goal is to beat that metric, we clearly see a lot of levers for growth as we outlined on the call in the remarks and had our job is to beat that number and obviously, we think we were on a good spot to do that in the near term.
Great. Thanks, guys.
The next question will come from Katy Mcconnell from Citi. Please go ahead.
Hey, this is Chris Mcquarrie on with Katy just on the grocery leasing front, how sustainable do you view this elevated level of grocery demand. If there is more pent up consumer demand.
Returned to say restaurants or other venues post pandemic.
Yeah, Hey, this is Dave Jamieson.
Right now, we're seeing obviously very strong demand and we anticipate that this.
Some level of demand will sustain longer term I think what youre seeing as people starting to adapt and innovate to what the consumer needs and.
Proximity to the end customer is critical so that last mile distribution element that we don't really see changing in the future, yes, there will be a reversion.
Some sort of new normal where people will start to go back to restaurants and some of those dollars spent will be diverted to that category, but when you look when you listen to some of the grocers public companies that are making you know.
Observing how their customers reacting or responding as a new normal starts to take hold they are still seeing net debt net gain.
Market share and shopping at home and I think people have adapted to not only going in store, but obviously utilization of omni channel vehicles for for accessing those groceries. So when you throw that all together, we still see the demand drivers being very strong and based on where we're located in those first range suburb.
Arbs, where theres been a lot on net migration out you know through the pandemic starting to take hold we still see the demand day being strong in the future.
Yeah. The only thing I would add to that is it's great to have a diversity of demand that's not sort of pigeon holed in one square footage category. So grocers right now spread from the bigger boxes to the junior boxes to even the mid sized boxes of like 10 to 12000 square feet with trader Joe's.
Others. So it's really remarkable to have a a a growth driver that spans all of the major categories in terms of square footage needs, which is really I think again why we're so confident that we can continue to drive that that driver for us.
Yeah got it helpful color and then a quick follow up could you comment on your strategy around some of the Albertsons investments just comment on some of the lockup provisions and maybe your intentions to monetize that investment.
Sure it's Glenn.
So as it relates to Albertsons, the lockup burns off 25% each six months. So the first 25% did burn off at the end of December the next 25%.
What happened at the end of June there still are other requirements related to our partners around it and as I mentioned in my prepared remarks, we're not anticipating monetizing anything on Albertsons. This year as we've talked about we do see real opportunity in 2022.
To start monetizing it and using it towards debt reduction or.
Our redemption of our perpetual preferreds that become callable in 2022.
Yeah.
Got it thanks guys.
The next question comes from Derek Johnston from Deutsche Bank. Please go ahead.
Hi, everybody good morning, and thanks.
On private markets Ross can can you discuss how pricing and cap rates are holding up in the northeast.
Versus the Sun belt or the markets, you mentioned in Dallas, and Denver, or South, Florida, and luck guys I'm not asking for updated disposition guidance right, but but given the merger there are likely some non core dispose that you may be able to take advantage of so you know any enhanced color by geography would be.
Full.
Sure happy to respond to that we are seeing robust demand across the country I mean theres no doubt that there is significant demand in the Sun belt other parts of the country that have been open.
More so than others throughout this pandemic, but when you look at the essential based retailers throughout the country. They have been operating and doing well throughout so we are still seeing a significant amount of demand in the northeast whether it be the New York suburbs, Boston, Philadelphia et cetera, and when you think about the migration of demographics, obviously, there's a lot.
Sort of headlines about the Sun belt in Florida, and the Carolinas and Texas, but you're also seeing it here on the New York Metro area, where we were where base is that a lot of people that are leaving the cities here I'm moving to the suburbs in long Island, Westchester, Connecticut et cetera. So there is an uptick still happening in those suburbs and we think that there is something to take advantage of their in inverse.
We're certainly doing that.
As it relates to future dispositions for US we'll continue to to look at our portfolio. We think that we're in great shape. We do have some non income producing land parcels that youll consider you just continue to see us chip away at that but again, when we think about the lift that we've done over the last five to seven years on where the portfolio stands today.
We feel very good about those markets those those opportunities that we have and the go forward portfolio that will be operating.
Yeah.
Okay, Okay great.
So given the pandemic washed out a lot of weaker retailers how does your watch list stand today as we hopefully move past the pandemic and our elevated bankruptcies, possibly in the rearview mirror at least for a while.
Yeah. This is Dave.
Terms of our watch list.
Obviously, the the categories that are most greatly affected through the pandemic. The the theaters fitness et cetera, we continue to watch and they stayed there there hasnt been much change beyond that obviously Q1 was or was it a muted bankruptcy season, yeah. Historically, that's usually where it it is a bit elevated.
And when you look at those that went into bankruptcy in 2020, a lot of those re emerged with better balance sheets, they're able to recapitalize them out trimmed their portfolios and start to to take advantage of some of this reopening trade now we will continue to closely watch and monitor the health of all of our tenants really looking two years out.
As we start to get to a new normal line stabilized.
This surplus of cash at some did receive throughout the pandemic, it's more a matter of where they made those investments and the operators that really started to innovate through this and stay ahead of the curb on what the expectations are for consumers. That's what we're really going to start to watch very closely and you'll start to see sort of who the winners and losers on.
Our downstream more so than they are today.
So the only thing I would add to that is clearly.
The tenants that reorganized.
We have not necessarily gotten their footing underneath them quite yet.
They are still maybe in those categories that have capacity constraints.
So we're watching that closely as they obviously have done the debt for equity swap, but theres still some opportunities I think there.
For us to upgrade tenancy in the long term and we're watching those those tenants closely.
Thanks, guys.
The next question question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
Hey, good morning.
Hi.
So.
Hey, sorry about that.
So two questions here first on the ESG front.
And I'm not just talking like solar panels on routes, but it would seem like shopping centers are really well positioned on the ESP from you know not only the supporting local economies small business et cetera, but also just from the benefit of centralized.
Procurement right people drive to the shopping center, they can return items, rather than throwing them out.
Don't have individual boxes, you don't have individual trucks driving in neighborhoods.
What are you guys thinking around this either individually or collectively as an industry to really showcase the benefits that a physical retail has in promoting the yesterday.
Yeah. So it's a great question.
Do you have to take into consideration all of the different constituents that go into making up the shopping center. It's obviously the on shopper the customer the retailers and ourselves as landlord.
For us as a landlord, we've always looked at ourselves as.
The conduit to bring all these retailers to the customer and vice versa and try to find ways in which we can service everyone. Collectively so when you think of curbside, what we did in 2020.
The intent there was to build a program and infrastructure that was agnostic to the retailer to everyone can take advantage of it to avoid having.
On a separate approach for each individual retailer that we saw as being very successful that said every retailer has their own defined strategy in which they're trying to solve for their own unique problems.
And at their day, there do become challenges when you try to consolidate them all into one central vision and that's our job is to continue working with each of these retail partners to find the best way forward and as we look to continue to innovate within our common areas and the way we work with our retailers and our goal is to try to find a.
From strategies that do work for all or at least start from that 80%.
And then with the customer obviously the closest we are to the home you know as you mentioned it does provide that opportunity for them to return or to revisit and to cut down on the travel time and the shifting costs. Obviously, we see that as a clear advantage for retailers with buy online pick up in store are more and more retailers are taking advantage of it.
Net today, but this is going to be an evolving process I think the pandemic did accelerate some of those trends I E with curbside that helped pull it forward a couple of years something that we've been talking about for a while.
But it's our job to continue to stay on top of that and to innovate where we can to provide those suite of services.
Yeah, but it would just seem like you guys have a benefit, especially as more investor funds have ESG mandates.
We showcase the true impact rather than just you guys. Its a cursory things like solar panels I would just say, there's a lot of untapped.
Data that you guys can provide to the investment community to really highlight.
The benefits of physical Ah study on Western maybe agree we agree by the way the only thing I would add is that I think we're going to coordinate with ICSC and others to it I think the voices louder. When we can combine all of our efforts and so I think theres a lot of public and private landlords that can come together.
And we can help facilitate that to really make that point because I agree with you Alex the other piece of it I was just going to mention is ESG clearly is a benefit to our entitlement program.
Kimco has been so focused on this for decades, we when we come into a community and showcase that work for the long term and that we want to work alongside the community.
Make sure that the b asset or the downtown that we're providing evolved alongside the community. We can showcase our ESG initiatives and all the accomplishments that we've been making to give ourselves the opportunity to partner with those folks and it really does help when we look to try and focus on entitlements and how to unlock the highest.
And best use of the real estate.
Okay. The second question is just on bread collection, almost all your category from really rebounded.
But fitness personal services and restaurants are still lagging your restaurants are doing quite well actually but still it looks like there's some more room to go is your view by sort of end of summer that really fitness and personal services will have fully rebounded to be something north of call. It 85% or are there some issues there.
You that you can see that's going to hinder the recovery of those two categories.
I think the biggest the biggest holdback as the capacity right I mean, despite there being some great success stories, you know on parts of the country, where capacity levels have increased substantially theres. Other parts of the country that are still a little bit behind and Theyre, just trying to manage through the spikes of coronavirus.
At a local level so we.
We envision as as those capacity constraints continue to get lifted more broadly across the rest of the country that will clearly be a big boost on a tailwind for those other service categories that are that have been hindered by that.
And the summer the summer should show quite well for that hopefully.
There's also been you know with those operators on fitness.
There's a number of operators that haven't reopened or won't plan to reopen so when you think of the supply can supply levels coming down a little bit we do anticipate.
The demand side to build people wanting to get out of their at home gem or the garage wherever they have been working out for the year I wanted to get back into some sort of facility, where there is some social engagement community so that should help as well.
Thank you.
Yeah.
The next question comes from Craig Smith from Bank of America. Please go ahead.
Thank you.
Wanted to and this maybe per Ross's, where do you see class a grocery anchored shopping center cap rates and how does that compare to the pre COVID-19 level.
Yeah, I mean, they continue to be extremely aggressive and frankly compared to pre COVID-19 in many cases, the cap rates are even lower and more aggressive.
We've seen lots of different examples in the low fives in some cases sub 5% and a lot of that just has to do with some of the other dynamics of the demographics, obviously, which tenant is the anchor gross or they are what the lease looks like where the rents are compared to market and frankly, how much term is left where you can actually look at <unk>.
<unk> net lease and pushing rents a little bit, but as you've seen from the collections. There is a lot of conviction in our rent role outside of just the grocer. The small shops in some of the other ancillary tenants are coming are coming back in a big way. So when you see the stability on the rent rolls you see the stability on the cash flow and still a very healthy.
Read from interest rates or cap rate, there is more and more conviction on our space today than what we've seen in a very long time.
Yeah. My sense is just the resiliency the format so during COVID-19.
<unk> increased our appetite to investors and with so much capital on the sidelines.
Seems like cap rates could in fact from lower.
Yeah and it is not just your typical investors that we've seen in years past, we're seeing a lot of buyers and bidders today that have historically been buying another asset classes that theyre, just sick of getting priced out or or getting the cap rates compressed so low that there's not enough spread and they see the risk adjusted return in our space.
Yeah.
Great and then just maybe for David I know you've been touching on this a bit but which tenants are not participating in this reopening period.
But when you when you say now on it and not not participating meaning those that are still still remain closed yeah, well not only debt, but they don't want open I mean, we were hearing a promo in the restaurant category, though that obviously had a rough time during COVID-19, but I'm just wondering if there are categories where.
There are people on the sidelines I noted that Conor mentioned some people are still.
Through some reorganization trying to get their feet on the ground, but you know I'm just.
Not every categories I assume is participating equally in the reopening period and I just wonder.
If you had some insight into which ones aren't.
Sure.
All the industry sectors are reopening and some capacity and even with some of the big flags that you know, they're they're focused on trying to get as many stores open as possible or fitness or theater locations. You know AMC is effectively all open.
There are constraints, it's either on a on a one off basis individual basis were similar cows and municipalities are inhibiting that or rolling back restrictions again.
Or you know it it's kind of on on one off basis, but generally speaking I think the reopening trade is starting to accelerate as the vaccine distribution does pick up so.
You know from an industry standpoint, we are seeing reopening across the board.
Craig the only one that I can think of that's probably tied a little bit too going back to work as the dry cleaners.
They obviously got hit very hard as people are working from home and they might be beneficiaries of going back to work in the summer when one offices reopened.
Great that makes a lot of sense, thanks, guys for the answers.
<unk>.
The next question comes from Juan Sanabria from BMO capital markets. Please go ahead.
Hi, This is Lilly Polish once that number yeah. Good morning, guys.
I have a question on inflation do you have any focus on leasing discussions to put the company in a better position should inflation accelerate from here or do you plan to change released breakdown, what's fixed versus CPI based.
We continue to work on the line.
We continue to work on a percentage on a per cent increase basis.
Birthday, a fixed dollar amount increase so typically with the percentage increases in base rent that tends to trend well with inflation.
Thank you and just a quick follow up on.
Thank you mentioned appointments this quarter were partially offset by from Tianjin in VJ could you. Please we called these pieces whats the amount of visa Inc.
Sure. So during the quarter, we recognized $8 9 million in abatement and about half of that was related to prior periods for which there was a significant reserve on that day.
Thank you I appreciate it.
The next question comes from Caitlin Burrows from Goldman Sachs. Please go ahead.
Hi, good morning.
Sorry, if I missed this but I was wondering if you could give some color on your outlook from from.
Occupancy over the course of the year on the anchor and small shop side I guess, given the leasing that you've done on the credit watch list and upcoming maturities at lease maturity do you think occupancy may have trough to or do you think there is still more downside risk.
Yeah. That's a great question. So we've been messaging previously that we anticipate Q2, most likely to be the trough of of occupancy for 'twenty. One we continue to make great progress and headway with our lease philosophy, obviously in Q1, and we started to see a net.
Net benefit.
Of gaining back some of the some of the debt towards the end of Q1, which is encouraging we do have dania, that's going to be placed into service into occupancy in Q2. So that is going to have a bit of an impact but.
On a on the flip side. It also will start to expand our lease to economic occupancy. So it'll help continue to fuel cash flow growth.
Through the back half of 'twenty, one into 'twenty two so we're continuing to be encouraged by the momentum that we're seeing on the lease side and Hum.
Hope to see it start to level out shortly.
Yeah.
Okay and then.
Separately, but kind of related are going on.
On the go on Bard are obviously, two large developments that you guys.
We're working on for a while.
It should be ramping up NOI. So I was wondering if you could give us some detail on the analysis on Hawaii currently being recognized by these properties firsthand what scale its a common kind of over what timeframe, we should expect that to happen.
Good day.
Yeah.
The NOI yield.
The NOI youll see the stock ramp up towards the second half of 2021 and for the Boulevard. It should stabilize towards the end of 'twenty two.
Danny I would say also probably towards the end of 'twenty two you'll have <unk>.
Stabilization of phases, two and three.
Okay. Thanks.
Okay.
The next question comes from Kingdon King from Twist. Please go ahead.
Thank you. Thank you good morning.
Can you just talk a little bit more about the $2 8 million square feet of leases that you signed this quarter I'm curious how much of this is truly additive vs.
Some shuffling of tenants around spaces or simply reducing space that might be currently occupied right now may be set to expire.
And if you can help us understand what type of tenants are actually driving this activity and credit quality as a comparison to like a pre COVID-19 environment.
Sure Yeah. So we did a 100.
21, new lease deals. So that's five on just roughly that 570000 square feet of GLA. So that's all the net new add on.
On the leasing side and when you think of the type of crew.
Credit to our tenants. It's the off price guys are obviously very aggressive, but we did sign a few grocery deals as well <unk> been very active on small shop side restaurant operators are actually starting to come back Fran.
Franchisees for example, see any opportunity of restaurants that are closed through the pandemic. These are fully fixture is units ready to go with with a bit of capital on a bit of love to get them back up and you can do it relatively quickly. So what we're seeing there's a lot of people anticipating the reopening trade the stimulus funding throw at me flowing through the.
Economy, and wanting to be prepared on a position to take advantage of that and that's where we're seeing a lot of the great demand through our leasing.
Yeah.
So it does too.
To recap that.
Is there more.
Much reshuffling of tenant spaces that makes its way into leasing activity in general.
There's always there's always some movement you know it depends on.
It's it's situational a lot of times in nature, you know the the prototype of our retail tenants does change some are expanding their footprint others are contracting their footprint and so if there's another opportunity within the center to create a better mousetrap for them and then subsequently you have an opportunity to backfill that space at a higher rent. So net net there is a net positive to that.
Cash flows for the center and Gil I always want to consider that.
Because you want to make sure that that merchandising mix is fresh and relevant to the market.
But I wouldn't say that any anything that's new or different than what's normal course of business.
Gotcha, and then just to follow up on the Dania Pointe question on the leasing staff didn't change much I know, it's just one quarter and wont be for myopic. In this question, but I'm. Just curious if you can talk about the demand you're seeing and expectations for lease up.
Sure Yeah no. It did the demand is demand is really starting to build back is as we're.
Looking through 'twenty. One here, we did have urban and anthro that did open in March and day exceeded their plan on the opening which was excellent and we do have that our hotel operators to Marriott flag that will be opening summer of this year and then we're continuing to see active construction on a handful of new tenants as well for Eagle is targeting to AUM.
And this fall and take advantage of the blockbusters that are there and are scheduled to be distributed into theaters for the holiday season. This year, and we anticipate that to be a big draw.
And then on the new lease activity, it's really started to ramp. So that's encouraging we did sign American Eagle Outfitters.
To take one of the other anchor spaces along main street.
And that will be a great complement and add to what urban anthro are currently going on.
Okay. Thank you.
Yeah.
The next question comes from sorry from the come from Compass point. Please go ahead.
Thanks for taking my question guys.
If you could inter.
Interested in obviously you can't talk about the the one garden thing so I'm going to ask you some questions on on the leasing.
I noticed you had a $5 $3 million.
Lease term.
Which is 5 billion approximately 5 million more than it was last year, maybe if you can give some some some color on that or what that represents and and then maybe also talk about some of the.
Regional differences.
Perhaps.
Just wanted to clarify the first question the $5 3 million could you just.
We've reshaped that I'm trying to understand.
Yeah. So did you you recognized $5 3 million or of a lease term fee. This past quarter last year I think it was 400000. So you had a basically a five.
<unk> 5 million increase in lease.
If you could give some more color on that what that represents or is that you know.
Obviously, presumably it's not that's not a sustainable number but just to get a you know what drove that debt that large increase and then maybe talk about some of the are there regional differences in debt in that lease.
On a term fee that you that you saw.
Sure Yeah, so the answer sorry.
Sorry, there's the lease termination agreements L. T. A's yeah, a portion of those were related to the tenants don't want to vacate early and so we're able to structure arrangements are opportunistic to.
Free them up their liabilities, while getting the net benefit and a LTA and we had the opportunity to backfill with other grocers for those spaces. So again when you look at the net add it made a whole lot of sense to proceed with those those deal structures to take advantage of but they are one time events, which is why we wanted to make sure to call them out and those do happen periodically throughout.
The course of our business. So it just happened to be that we had you know a few opportunities that it hit all at once in Q1, but when you look at those it's always about.
What is the opportunity to backfill how does that complement what you already trying to do with the strategy of the site.
And you want to be opportunistic at those times to take advantage of it.
And in terms of regionally, it's not really regional in nature, it's situational.
Depending on the center it could vary region to region quarter over quarter, if they if they do exist.
Yes, Floris just to give a little bit more color on that we did have a a lucky's grocery store, which was a ground lease backs by Kroger credit Kroger decided not to move forward with the Lucky's banner and so what we did have was a lease termination agreement with Kroger to determinate the ground lease with with us.
Which was which was in that number and we were able to backfill that space with our with the sprouts grocery store.
Dania actually so.
He was a net win for us there.
Yeah for right.
Nicky I'd also remind you that as you pointed out the L. P H P.
Purely transactional and so by no means with this first quarter be reflective of a run rate just as you saw that the prior period was much less.
Thanks, Thanks, guys.
My I guess my my follow up question here is in regards to leasing costs.
Leasing costs appear to be pretty stable.
Maybe if you can comment on what you're seeing and what you expect is going to happen.
Happen to two leasing costs going forward as you know leasing demand potentially builds are those going to trends.
Up down in your view and maybe if you can give us some more color on that that'd be great.
Sure you know as.
You mentioned leasing costs were relatively stable.
We do in terms of the scope and the demand on their requirements and the tenants that really hasnt changed so it's more about material pricing here that could have an impact on costs on a go forward basis in the interim obviously with there are we're still working through some supply constraints.
And distribution as a result of the pandemic so.
You have seen some increase in pricing for material costs, whether it be lumber HVAC et cetera that could be short term in nature as the distribution channel start to.
Relieve some of those bottlenecks that have occurred through the pandemic and so we just have to monitor those closely that could have some moderate impact.
In the near term, but we anticipate again, that's a short period of time and then hopefully it would subside again, but in terms of deal costs in general.
Haven't seen much change in terms of the day mandated requirements from from the retailer side. So if you if you net out any potential increase in the short term you know you would assume it to carry on as is it's also dependent on the type of deals you do per quarter.
If youre doing split box value creation opportunities, we had a couple of those this quarter that had elevated costs. While others are just a simple backfill or if you're going non grocery to grocery obviously, a big focus is on grocery right. Now. So you could see some deal costs that are a little bit higher.
But it's because of that that grocery conversion, but subsequently on top of that you're either seeing you're obviously seeing an increase in rent and some of those cases, but in addition to getting longer term. So on a net effective basis net net it's working out.
Pretty well.
So in summary of it I guess one of the fears that investors had is as you know during the downturn heightened vacancies are low.
Pricing power, our tenants have greater demand or have have greater ability to drive a favorable lease terms and end and higher leasing packages, that's not actually occurring based on what you're seeing right now.
No I mean, what we've seen so it's all dependent on quality right and you have to start with that the quality of the real estate and that will drive demand no different than what we saw on the great recession, where there is there are there is prolonged recovery cycle. The the the impact of the pandemic with show extraordinary so extreme so fast recovery has.
Almost just as quick so it's been more of this V shape. So you haven't really seen an adjustment on a reset up market rents.
And what we're seeing especially on the anchor side is that there's a short window of opportunity for those retailers to upgrade the quality of their portfolio and so they want to take advantage of that and step in but it's typically if you have at least you know more than one person there at the table looking to negotiate a space that helps level set the supply demand.
Side and that's what we're seeing we're seeing a lot of people wanting to upgrade get closer to the customer.
And our last mile distribution efforts.
Take all the lessons learned from the pandemic and really capitalize on it because the anticipation is that you know those opportunities more on exists for very long.
Yes, Floris the only thing I would add is that where the lack of supply. So it's been decades since we've seen any uptick in new supply is really benefiting us when we're focused on these last mile location that was like the density that surrounds our assets really inhibits a lot of new supply coming on line and where we're seriously experiencing that as the demand has been.
Has been robust.
Thanks, guys I appreciate that.
The next question comes from Tammi <unk> from Wells Fargo. Please go ahead.
Hello, Good morning.
Conor you mentioned in your opening remarks about enhancing the merchandising mix as an objective and I guess I'm wondering longer term, where do you see areas for improvement in your portfolio and one occupancy stabilizes I guess what types of retailers you would like to target.
And what categories, you could see lightening up exposure.
Sure I can start and Dave and others can add some color. It's you know it starts obviously with our grocery initiative, we really do believe that that creates a halo effect on the surrounding retail because of the cross shopping that generate and then you go from there and you start to continue to pick out the best in class with each category to make sure that you have an exciting.
Rising mix.
Clearly we've benefited from curbside pick up through the pandemic, but now our mission is to make sure that the merchandising mix is so alluring that regardless of why you came to that shopping center in the first place your eye catching something that makes you want to come back and so whether it's a coffee are big on the morning, Youre always looking to drive traffic throughout.
The entire day and so our mission is to really create a vibrant community center that drives traffic for multiple different demand drivers and so when you look at the demand of the different categories that are expanding right now, it's a really nice spot to be because it's very diverse and we can really pick and choose and understand Vaughan.
He is in trade areas that we can then backfill some of our vacancies with.
Okay, great. Thanks.
Then one question for Glenn you mentioned on repaying upcoming mortgage maturities and I was wondering with that.
And of your balance sheet and rating upgrade goals or or more a function of leverage on those particular assets on and maybe lender caution on certain segments within retail.
Well the way we have historically paid off any mortgage debt that we can as soon as we can as long as there's no real significant and Oh. Please.
So we had bought a portfolio of properties you've met room called the Boston portfolio years back and that portfolio had two large cross collateralized pools and pre payable without penalty in June so isn't it just pay those off so with that will you know prior to the Weingarten transaction will have very.
Little mortgage debt that remains on the balance sheet.
We very much focus on just really being good borrower, it's a much better way for us to operate it's much more efficient than having mortgage debt on individual assets.
Okay that makes sense. Thank you.
The next question comes from Linda Tsai from Jefferies. Please go ahead.
Hi, I'm, sorry, if I missed this earlier when youre looking at the leasing demand what percentage is coming from retailers looking to relocate and what percentage is coming from retailers looking to expand store growth.
It really is a combination so.
I think it's very clear that there is a lot of net new demand for some of our best in class retailers across our major categories that are looking to take the windfall from clearly the pandemic induced shopping that they've experienced and expand there but there is also Linda a continued.
On the playbook from retailers typically in downturns is again trying to take advantage of the increased vacancy look to upgrade their fleet and look to get into the best centers possible and so we do do constant portfolio reviews with our.
Our retailers to make sure that if there is a relocation opportunity, but the Kimco center is.
On the best in class opportunity for them in that corridor, so to look at that as well, but I would say the lion's share is coming from net new stores, which really is exciting because.
It's a nice spot to be having limited supply and a lot of different demand drivers.
Thanks, and then just a follow up.
The tenants looking to terminate early you gave one example involving sprouts was that the bulk of the $5 3 million and then do you expect elevated lease term fees for the remainder of 2021.
So linda that terminated.
Got it right. It was it was lucky it was lucky that terminated and placement.
The replacement tenant will be sprouts, and I think it was kind of mentioned that was a dania we had two other.
Lease terminations, they would actually with <unk>.
One was with actually two with Lidl and then and then I have a bank pad as well, but we don't really anticipate a whole lot more for the rest of the year you know, maybe another 1 million to $2 million for the balance of the year.
Okay. Thank you.
The last question for today's call will come from Greg Mcginniss from Scotiabank. Please go ahead.
Hey, good morning.
Glenn for the 7 million of <unk>.
Repaid rent such.
<unk> amounts from the cash basis tenants are those tenants now fully current on rent or is there more owed.
From those tenants. So obviously I'm just trying to get a sense for.
No additional one time or nonrecurring benefits that we might see this year.
Now there's this there's still more out from them as I mentioned.
We collected about 84 per cent of the deferred billings that we sent out but there's there's still more of that is still due from those tenants that are on that fully current yet.
And then the same thing if you look on the first quarter.
Again, as we mentioned.
70 per cent of the cash basis tenants have paid.
So there's still you know when you look at those debt total that's about $8 million. It has not been collected yet so we'll have to see how that plays out through the rest of the year on each quarter as we go forward.
Okay. I was I was more specifically talking about tenants that did payback something on the rent right I understand that some still arent paying the full amount I'm just curious of that $7 million for those tenants that did payback granted those tenants are fully current or not.
So the bulk of those are fully current yes.
Okay.
Great and then from an accounting standpoint, when might tenants start moving back to accrual accounting.
So we talked through it we go through a pretty in depth process. I mean, there are certain parameters that we've kind of worked out we want to see that those tenants are current for a certain period of time and that they have on.
No outstanding balance is net of 30 days are over so we evaluated on.
On a constant basis.
But it'll take some time for some of them to move back into accrual basis, even some of the tenants that emerge from bankruptcy they still remain on cash basis until.
Until they get really get the full footing back.
Okay and final question from me guidance is up three cents at the midpoint largely seems to capture that the nonrecurring payments in Q1.
On the in the opening remarks, you mentioned you.
Improvement in credit loss for the second half of the year.
Same store NOI, turning positive so becoming more positive in general it feels like plus with the leasing happening. So in terms of the guidance increase here or is that more of a.
Can we view that as a more conservative increase just based on what's happened so far or do you really think that captures the potential.
Kind of benefit we might see.
Yeah look I would say I would say that.
Still early in the year, we do expect that the second half of the year that credit loss will be much better than the first half and the guidance. There is still elevated credit loss for the second quarter.
But I would tell you that the revised guidance that we're more biased towards the upper end of the range right now based on what's happened.
We are feeling good and we.
We will take it quarter by quarter.
Great. Thanks, Glenn.
Okay.
Yes, no more questions so far.
Okay. Thank you very much I appreciate everybody for joining our call today, if there's any follow up questions. If you go to our website on the Investor Relations area for more information. Thank you very much from a nice day.
This concludes our conference call for today. Thank you for attending and you can may now disconnect Goodbye.
Okay.
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Yeah.
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