Q2 2021 Kimco Realty Corp Earnings Call
Good day and welcome to the Kimco Realty second quarter, 2021 and earnings conference call all purchased.
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I would now like turn the conference over to Dave who Sneaky. Please go ahead.
Good morning, and thank you for joining kimco second quarter 2021 earnings call. The Kimco management team participating on the call today include Conor Flynn Kimco, CEO, Ross Cooper, President and Chief.
<unk> investment officer, Glenn Cohen, our CFO, Dave Jamieson Kimco as Chief operating officer as well as other members of Kimco <unk> Executive team are also available to answer questions. During the call. As a reminder, statements made during the course of this call maybe deemed forward looking and it is important to note that the companys actual.
Actual results could differ materially from those projected in such forward looking statements due to a variety of risks uncertainties and other factors.
Please refer to the company's SEC filings that address such factors.
During this presentation management may make reference to certain non-GAAP financial measures and we bill.
Aleve help investors better understand kimco operating results Rec.
Reconciliations of these non-GAAP financial measures can be found and the Investor relations area of our website.
Also in the event our call was to incur technical difficulties, we'll try to resolve as quickly as possible and if the need arises.
And we'll 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 I'll focus my remarks on our operating results the supply and demand dynamics surrounding those results. The strategic direction. We are taking the organization and the powerful position kimco will have.
And closing of our merger with Weingarten Ross will then provide some perspective on the transaction market and Glenn will provide additional financial insight on the quarter, along with our updated guidance.
And as I've, often mentioned our core focus has been and will continue to be on leasing leasing leasing it fuels our growth validates the quality of our portfolio.
And upon that our balance sheet reduces risk and as a catalyst to overcome pandemic induced disruption.
Our second quarter leasing activity and overall results continue to build upon the success that began earlier this year as we leased 1.8 million square feet and signed 333 leases.
This leasing included 139 new leases.
<unk> GLA exceeding the prior sequential quarter.
Overall occupancy finished at 93, 9% up 40 basis points, while our new leasing spreads of 9.2% and renewal spreads of 4.7% <unk>.
Resulted in a record 42 quarters or 10 years in a row of positive spreads.
The combination.
Strength and record leasing demand and a 5 year low of new vacancies continue to drive the earlier than anticipated and occupancy recovery for kimco.
Traffic at our properties is back to 2019 levels and the healthy leasing market reflects the reopening of the economy and the rush by tenants to capture market share is apparent and as they pursue our high quality locations.
Moreover, and are attractive and strategically selected markets, we do not anticipate any material new supply and the near term to impact our pricing power.
Robust demand for anchor space continues across our portfolio centers with a grocery component have outperformed during the pandemic and continue to lead the rebound.
We're also seeing data on restaurants.
And of repo are eager to go out and eat again with a sunbelt states outperformance.
Similar trends with fitness, where traffic is coming back quickly.
And the store openings off price continues to be a leading source of demand, but we're also seeing solid demand from furniture home goods pet supply hobby health and wellness, including discount fitness just to name a few.
So from our anchor occupancy finished the quarter at 96, 9% up 70 basis points, which is the single largest quarterly gain since we started reporting anchor occupancy 10 years ago.
Mall shop demand also continues to recover.
At a slower pace the small shop demand. That's now building is coming from franchise.
And quick service restaurants, beauty hair, and nail salons and medical and other services all small shop occupancy did finish down 30 basis points and at 85, 5%. It was impacted from the inclusion of Dania phases, 2 and 3 and the occupancy.
If not for this small shop occupancy would have actually increased.
Sequentially by 30 basis points during the second quarter, and we remain confident that the smaller tenants will gradually accelerate their demand for space as they gain comfort that the recovery from last year's severe disruption and sustainable.
Further the importance of being located as a last mile solution for a multitude of potential tenants continues to grow.
Our mission critical.
Franchise brick and mortar locations will prove to be durable solutions for consumers retailers and many other businesses that want scale and reach to serve the and consumer.
1 silver lining of the last year and a half is that a showcase the strength of our repositioned grocery anchored portfolio. The resiliency of our cash flows and the strength and diversity of our strong.
And mix of high credit tenants as our occupancy recovers, we anticipate EBITDA and <unk> growth will follow and bolster our balance sheet metrics.
Also and a unique position to drive earnings results with multiple levers for growth led by our continued emphasis on leasing and attractive redevelopment opportunities.
On the strategic.
Last month, the completion of our accretive merger with Weingarten is fast approaching and ahead of schedule. The shareholder votes are scheduled for August 3rd and subject to customary closing conditions. The closing should occur shortly thereafter.
With Weingarten portfolio combined with kimco following the merger, we will have even more confident and our ability to drive significant.
And sustained value from this concentrated platform of open air grocery anchored and mixed use assets and the leading msas across the country.
Touching further on the power of the merger the combined company will continue to focus on operating and dynamic and well diversified portfolio and these markets, but with greater scale resources and embedded opportunities we.
From the complimentary business operations will allow us to extract annualized cost efficiencies, while deleveraging our balance sheet I think it is important to reiterate the scale and reach we will have with our targeted first ring suburbs of core markets across the sunbelt.
Together, we will have approximately 550 open air grocery anchored shopping centers and mixed.
We expect debt comprising more than 100 million square feet of gross leasable area at closing approximately 82% of the company's total annual base rent will be derived from strategic sunbelt growth markets and high barrier to entry top coastal markets.
The combined platform will also have a highly diversified strong credit tenant base.
The top.
Top 10 tenants all essential industry, leading grocers and best in class retailers with no single tenant representing more than 4% of ABR and given that we were not completely out of the pandemic woods, yet, but the reality and threat of new streams. We believe the combined portfolio strong balance sheet and battle tested team puts us in and even better positioned.
Positioned to withstand any disruptions to the ongoing recovery.
Looking beyond the closing the weingarten portfolio brings a largely funded and Derisked development pipeline and presents vast potential and the form of embedded untapped redevelopment from which we believe we can extract incremental value.
Ultimately, we believe this accretive combination.
Adult and enhanced financial strength.
With the flexibility and resources to efficiently capitalize and the value creation opportunities ahead.
While we won't be quantifying the impact until after the transaction is closed we are highly energized by the opportunities in front of us to maximize value for shareholders.
In closing our team is motivated and.
And we will as we look forward our ability to create value will be enhanced and the coming years by our last mile fulfillment opportunities with high growth high quality open air grocery anchored shopping centers and mixed use properties that will enable us to realize substantial operating benefits with that I will turn the call over to Ross.
Good morning, and thank you.
Meeting.
As the recovery from the pandemic continues to take shape and the essential nature of our open Air shopping center locations become more apparent the capital flowing into the space also continues to significantly increase.
Ah well capitalized private equity Investor recently told me Theres only so much.
Conor, 4% cap rate industrial and multifamily products, we can buy.
The risk adjusted return for high quality open air retail product has become increasingly evident.
We have seen the sentiment play out and the transactions market this quarter and the momentum continues to build we have seen it on portfolios and 1 off centers.
<unk> alike.
And velocity and renewal rates have given investors' confidence and both the stability and future upside of the existing cash flows and rent rolls.
With capital abundant and both the equity and debt side and with interest rates declining even lower recently, a very accommodative environment for deal flow exists.
This includes our recently closed grocery portfolio and the Philadelphia MSA, a diversified portfolio of retail assets and Phoenix, 1 off grocery deals and South, Florida, New Jersey, and several and southern California, and Atlanta to give a few examples.
As we see brokers starting to report results it.
It is clear our 2021 is on track to be 1 of the highest production years for the industry. There is no question that appetite for open air retail is voracious, we continue to be opportunistic yet selective and disciplines and the investments we make and the second quarter as an addition to our structured investments program.
We invested approximately $55 million and a preferred equity position into the rent a dominant retail entertainment and mixed use district, having over 1 million square feet of GLA located in the fast growing San Antonio market.
The property has consistently been the number 1 most heavily traffic center.
All of Texas with exceptional tenant sales to support the property.
We are extremely excited for the upside of this investment which was made at an attractive current yield and reasonable basis, along with a right of first refusal to buy the center and the future.
Another recent success is the sale of a true up to.
And all and California based distribution centers closed and the second quarter that were acquired by our taxable REIT subsidiary earlier, this year and a sale leaseback transaction.
When we completed the sale of these 2 properties at a price of $108 million. It represented a significant increase from the $84 million paid just 5.
Months earlier and generated a 72% IRR for kimco on this investment.
As we carefully consider capital allocation and disciplined investment opportunities, we believe that selective acquisitions and structured investments and partnership buyouts will continue to present themselves at the appropriate times.
And right now to Glenn for the financial results for the quarter.
Thanks, Russ and good morning, our solid second quarter growth was fueled by continued improvement and rent collections low credit loss and very strong same site NOI.
Our strong leasing efforts combined with an improving economy produced a sequential uptick in occupancy.
And another quarter of positive leasing spreads. In addition, as EBITDA has increased our debt metrics have also improved net.
And that for some details on second quarter results NAREIT <unk> was $148.8 million or <unk> 34 per diluted share for the second quarter 2021, which include.
Fluids merger related charges of $3.2 million or <unk> <unk> per diluted share and connection with the anticipated merger with wine bar.
This compares to $103.5 million with 24 cents per diluted share for the second quarter of the prior year.
The significant growth was mainly driven by increased pro rata.
Rata NOI of $44.7 million comprised of lower present loss from potentially uncollectible accounts and straight line rents of $50.9 million and higher lease termination income of $2.7 million.
These increases were offset by lower minimum rents and reduced and and real estate tax recoveries.
<unk> due to lower occupancy compared to the same quarter last year.
The improvement and credit losses attributable to our increased cash collections as we are approaching pre pandemic rent collection levels.
During the second quarter, we collected over 96% of pro rata based rents bills.
We also collect.
And over 77% of rents due from cash basis, and it's during the second quarter up from 70% collected and the first quarter.
Further collections of prior period amounts from cash basis, and its totaled $7 million during the second quarter of 2021 versus $1.8 million.
Adjusted during the same period and 2020.
Our cash basis tenants comprise 8.8% of total annualized base rents.
In addition, we collected almost 90% of the deferred rents billed during the second quarter.
At the end of June we have approximately $25.4 million of deferred rents.
Collected remain to be build over the next 12 months and 64% of this and that is reserved.
And as Conor mentioned, the operating portfolio delivered significant improvement and the second quarter with a sequential increase in occupancy and positive leasing spreads.
Our same site NOI growth, including redevelopment.
Which was 16, 7%, including a 30 basis point uplift from Redevelopments.
This is the first positive quarter of same site NOI growth since first quarter 2020, and shouldn't be the start of a recurring trends and.
Other positive indicators is the increase and the spread of lease versus.
Economic occupancy, which now stands at approximately 300 basis points up from 230 basis points last quarter and represents $33.4 million of pro rata ABR.
The spread bodes well for future cash flow growth.
Turning to the balance sheet at the end of the second quarter.
<unk> and elevated net debt to EBITDA was 6.3 times on a look through basis, including pro rata share of JV debt and pro rata and preferred stock outstanding and.
A metric was 7.1 times these metrics are better than the pre pandemic levels at the end of 2019.
Some are liquidity standpoint, we ended the second quarter with over $230 million of cash and full availability on our $2 billion revolving credit facility.
We will be using cash on hand, and a portion of the revolver to fund the cash component of the weingarten merger consideration and transaction costs.
And our Albertsons marketable security investment was valued at close to $800 million at the end of June and there are no plans to monetize any portion of this investment during 2021.
During the second quarter, we repaid $120 million of mortgage debt unencumbered, an additional 23 assets.
And you have no consolidated debt maturing for the balance of the year and our next bond maturity is not until November of 2022.
Our weighted average consolidated debt maturity profile stands at 10.7 years, 1 of the longest and the REIT industry.
As for JV debt, we have only 53 million.
In addition, <unk> for the remainder of the year with refinancing alternatives already identified.
With respect to outlook for the balance of the year based on our first half 2021 operating results and expectations that include ongoing improvement and credit loss and same site NOI growth we are again.
And raising our NAREIT <unk> per share guidance range to $1.29 to $1.33 from the previous range of $1.22 to $1.26.
This new range is presented on a standalone basis, and does not incorporate any impact of the pending merger with weingarten other than the 3.
$3.2 million or 1 penny per diluted share of merger related charges incurred during the second quarter of 2021.
Assuming the merger is completed during the third quarter as anticipated we will provide updated guidance on a combined basis on our next earnings.
Lastly, with.
With respect to our common dividend.
Shortly after the merger is completed the board of directors and expect to declare a regular quarterly cash dividend, which will be payable during the third quarter.
And now we'd be ready to take your questions.
We have been advised to keep this call focused on kimco second quarter results and the outlook as a Standalone company.
More information will be forthcoming once this transaction closes, which we anticipate will be shortly after the completion of the respective meetings of stockholders, which is on August 3rd.
In terms of the Q&A, we want to make this and efficiently.
Process you May ask a question with an additional follow up if you have additional questions you're more than welcome to rejoin the queue. Tom you can take the first caller.
Thank you and just again to remind star and wanted to join the queue start to remove yourself from the queue. The first.
Question comes from Craig Schmidt with Bank of America. Please go ahead.
Thank you.
Obviously enjoying the improved results.
I wanted to know if the recent spike in COVID-19 cases, and some of the breakthrough cases are giving any of your tenants are retailers hesitancy.
Fisher regarding longer term leasing decisions.
Yes, Greg it's a great question, obviously top of mind for all of US right now the Delta variant and as we know it.
Is there any across the country, but we haven't seen any meaningful change in terms of their outlook or views right.
Right now obviously all markets are open and a.
A lot of lessons have been learned over the last 16 months of how people have adopted.
And to sort of a new normal and and how you shop and access those retailers and the retailers themselves.
And as evidenced by our occupancy gains this quarter continue to look for new opportunities to expand as they prepare for.
The new normal.
For 'twenty, 1.2020 strength.
Great and then the.
Follow up question from public for Ross.
Regarding the increased transaction market.
Neighborhood community lifestyle or power centers, which are you seeing the biggest.
Pick up in activity and transaction.
And what youre seeing the lowest rides and transactions.
Yes, I mean, theres no doubt that grocery anchored infill shopping centers are very much and demand right now as I mentioned in the prepared remarks, I mean, you think about the risk adjusted return and the spread on high quality grocery anchored centers and the and.
And the high fours low fives, and you're still getting a good hundred hunter and 125 basis point spread compared to some of the other asset classes and so we're starting to see a lot of both private and some of our public peers getting much more aggressive on that product type and we.
That will just continue.
And we arent seeing more activity on power and lifestyle.
Style, there's not as much.
And that we've seen transact as of yet, but with the improvement and the economy with the improvement and the retailer sales. We are seeing much more conviction on some of those categories that you see and lifestyle centers, such as restaurants entertainment and fitness really coming back and solidify and themselves.
I think that there's just a lot of demand for all product types right now within open air retail.
And thank you.
The next question comes from Juan Sanabria with BMO capital markets. Please go ahead.
Hi, Good morning, just hoping you could spend a little time talking about the assumptions behind our collections of past due rent.
And do a reversal of bad debt for.
For the balance of the year and if you could just go over what was in the second quarter as the numbers.
During your prepared remark.
Sure.
Pretty quick paced.
So in terms of what we collected $7 million from.
Our tenants are cash basis tenants from the prior periods during the second quarter.
And is it in terms of the outlook for the.
And so the year again, it is still and also still going to be a wait and see how it all goes but collections as I've mentioned have improved.
And we collected and close to 96% of our base rents we collected 77%.
The cash basis tenants that were built during the quarter. So it's.
The balance to wait and see though for the balance of the year, we do have and the in guidance. There is credit loss. That's still that's built into the numbers to the low end.
And has still has about $20 million of credit was built in the.
The high end of our range has about $5 million, so based on where things are today.
And more comfortable when we look at our guidance towards the upper end of the range.
Is there a follow up 1 or are we could go to the next caller.
And I apologize.
And as a.
Suppressed price.
If you could give a little.
Color on doing and how our leasing is tracking and there for the small shop space and where the demand is coming from it and how youre feeling and bag of underwriting there. Thank you.
Yeah, and we are we actually feel very good about the direction that day news going with the new.
And earlier this year with urban Outfitters and Anthropologie.
Later this summer we have several other new openings there.
On the Horizon, you are American Eagle towards the end of the share Regal the true Marriott flag hotels that'll be opening.
And this fall as well as and including some of the additional restaurant space.
Opening and so there's tremendous change and growth that's coming from Dania and as we started to get these are other retailers open and we have sprouts debt scheduled to open towards November December of this year as well.
Followed by that obviously has a strong leasing demand and.
And the economies have started to recover and people and really appreciate at the location of the site.
Along I 95, and all of the growth that's happening and Fort Lauderdale market were very encouraged by the direction of Daniel long term.
And the only point I'd add is spirit airlines is and for permanent on their on their piece of the project, which is their headquarters.
But I think it should be a nice component of the live work play environment that we're building there.
And.
Oh, and 1 on top of that and honors and is that the second residential tower is also permits and and ready to break ground shortly.
Thank you.
The next question comes from Rich Hill with Morgan Stanley. Please go ahead.
Hey, good morning, guys I wanted to come back to occupancy for a second by all indications and I think your prepared remarks support this the leasing market feels pretty good but.
But I think a lot of the recovery depends upon how long we're going to how long it takes to get occupancy back to normal I think your peak prior to Covid and correct.
And if I'm wrong was just a little bit higher than 96% and so while the trends look really good I'm wondering if you can just comment on the path to getting back to pre COVID-19 levels. How long do you think that takes and what does that what does that mean for a recovery and total NOI.
Is that is that small and mid 'twenty 3 event or do you think after this quarter.
And that pulled forward to maybe late 'twenty 2.
Yeah.
Good question.
And it's really dependent on demand and so I think he had to start there and understand.
Where the retailers are today and and what we anticipate going forward I think for a few reasons you know we will continue to see the demand.
Pace for were maintained as from what we've seen and the last 2 quarters..1 and you still are the retailers are still working through their open to buy numbers that they're trying to achieve in 'twenty and now in 'twenty, 1 and so there's a bit of a bottleneck. There that they are actively trying to expand and upgrade the quality of their portfolio and to 8.
Quality sites.
With the new supply that's obviously come on line not the new supply, but the bacon and see as a result of the pandemic.
And that's given them and the opportunity.
Second of that other retailers are able to raise additional capital or rightsize, our balance sheets to read about it through the pandemic. So when you look at groceries, such as fresh market that may have not been necessarily.
State and the iron expansion mode.
Pandemic there are now starting to look at new stores and Lula and <unk>.
Grocery and new market. So you now have some new demand drivers on top of that pent up demand from existing retailers and then there and you have others that are really testing new formats. We've learned so much the line 16 months and how consumers.
<unk> response to retailers, how they want to shop, and so you do have retailers like container store that had been fairly set and they're way about their historic format, but now looking at smaller formats and penetrating other markets as well. So you'll continue to see that it is demand factor and then new concepts new concepts like choice.
<unk> market, which is trying to reinvent the C store and.
And and adapt to more millennial trends door dash has come out with dash smart and so you're starting to add some new categories.
And on top of what what we've historically seen so I think as long as you maintain those demand drivers.
And be able to make.
Good.
And recovery and our occupancy and and get back to what was our.
Pete.
Rich the only thing I would add is just the kimco differentiator I think as our team obviously first and foremost, but then we've optimized the entire portfolio with the curbside pickup program and I think retailers are really resonating with that program they've come.
<unk> and said, it's best in class they want to do more sites with us and I think when you combine that with our team. It leads us to believe that the occupancy is going to continue to trend and the right direction and we might see a pause next quarter because of some of the eviction moratoriums that are that are burning off.
But we think there is enough demand obviously, there to backfill that.
To us and it's led by the anchors and then we think that's going to follow with the small shops anchor to demand as diverse which is which is great to see and then the small shop should follow along after that.
Got it and Conor just push and push a little bit more on this 1.
And what I'm trying to get at is the trough just higher than what we and participated but.
And point is the same and if I looking and if I'm looking at sort of your prepared remarks, and your press release, where you talk about may.
Maybe stronger portfolio occupancy gains and what you were previously anticipating that that leads me to believe that the trough is higher but the recovery also a little bit steeper. So if I can push with.
The little bit and I am.
Sorry, if I'm, putting words in your mouth, but I think you've said mid 'twenty 3 for recovery and the past does that do you feel better about that recovery and point post to Q or <unk>, just just a sugar high that that leads to a higher trough.
It's.
Obviously Richard.
And just here, it's hard to predict the future, especially with the Delta variant out there, but what we've seen so far is the demand is not subsiding I think that that timeline is still holds true.
And I think we've got to obviously execute and let the numbers speak for themselves and right now with this quarter.
It's not a sugar high quarter, we see the backup of pent up demand.
And it's occurring through the leasing pipeline that we've built up and <unk>.
Believe that we can continue the momentum, but clearly theres a lot of various factors out there that we can anticipate the future with but right now where we said we like what we see.
Okay, great guys nice quarter. Thank you for the additional color that's it from me.
Amanda.
The next question comes from Michael Goldsmith with UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question.
Rent spreads on new leases accelerated further during the period, how much pricing power do you have right now and can that can that continue to accelerate from here.
Yeah. So the leasing spreads are always quarter and opinion about the population.
Net on any given quarter, but there's.
The supply demand balance right now, where it where retailers are really looking to upgrade the quality of that portfolio. Our efforts to right size, our portfolio and to make sure that we really own 8 quality assets enables.
With us and maintain that supply demand balance and so we're able to push rents on the below market leases that we have and when you look at Nee and it'll lease exploration schedule. That's on the horizon and the next couple of years and Theres still those leases and those rents are below what our corporate average is right now so we still see that there is opportunity.
And to push those rents further <expletive>.
And as leases roll and the demand for last mile retail has just come Roaring back and when you look at some of the tidbits that we're hearing from tenants that are typically I would say any pinching.
Better, saying that they will pay up or the locations.
Fit their needs.
Clearly a supply and demand dynamic has shifted in our favor and.
And with no new supply on the horizon, we do feel like we're going to have pricing power continue in our favor.
That's really helpful and as a follow up.
And when retailers are looking to expand you know what what are they looking for specifically.
Locations are they are they focused on certain geographies are they focused more on first ring suburbs of maybe more suburban.
Areas like how are how does the expansion look and where are you seeing that demand.
Yeah, it's retailer dependent based on their on their.
Our corporate strategy. So its why what are the voids and they see and their program and how are they trying to fill it for example.
And you could have a you could have a grocery store that's either modify their format sprouts did that a couple of years ago between 30000 square feet now down to around that 22% to 24000 square foot range. So theyre looking at.
And their nox opportunities that are more prototypical to what historically they had targeted while others are looking to potentially expand the box to incorporate more last mile distribution and Conor mentioned earlier, our summer or some other form of fulfillment and the <unk>.
First ring suburb, that's really where we're focused and obviously theres been a huge.
New value add and being closer to the customer and where they live and now with sort of what the world will look like with hybrid back to work model is definitely much more of a balance between urban and first ring suburban markets and so we will continue to see that that demand pick up on the first ring suburbs. So it's a really hard and.
Answer to give that specific and 1 general and 1 specific way because every retailer is looking at it a little bit differently based on historically, what they've done and where they see these voids and how they want to achieve that.
And the retailers today have more data on their customer than they've ever had before and so really where they're focused is how do they best serve that.
And our customer and now with the data that they have and how important that last mile store is not only the 4 wall, but the the actual halo effects of buy online pickup and store curbside pick up the ease of returns.
Lot of the feedback that we're hearing from our retailers as the spaces that we may have passed on before.
We want to look out again.
And I think that's sort of the tidbits that we're taking away from this as you know theres a lot of pent up demand. There's a lot of boys that need to be filled and last mile retail has become more valuable due to the pandemic.
I appreciate it good luck and the back half.
Next caller.
The next question comes from Katy Mcconnell with Citi. Please go ahead.
Great. Thanks, good morning, everyone.
So I'm wondering if you can provide a little more background on the rite aid transactions and the market dynamics that led to the quick monarch.
And with that and Thats 1.
Sure Yeah, I mean, when we started the conversation with Rite aid back in May of 2020. Obviously, it was a bit of a different environment. We stated publicly around that time that we were looking to be opportunistic and felt that the balance sheet and our liquidity position enabled us to do that.
And so we.
We were fortunate enough to have those conversations directly with 1 of our retailers and we felt very good about.
And the leases that we were able to negotiate with them in terms of the rent versus market, having annual increases that we felt were very attractive and obviously seeing the demand for single tenant products, particularly in the industrial space.
And I can do that and there was a lot of value that was created on that acquisition.
We wanted to maintain as much flexibility as possible, which was why we bought it into the Trs and the market spoke and clearly there was some good upside rather quickly that we wanted to capitalize and we were able to do that with the monetization.
Monetization of it so it was a bit of a unique transaction, but we.
We were excited about and of course, and we will continue to look for those diamonds and the rough where they where they come.
Katie you know, but others may not but this really falls into our plus business, which we believe is a real differentiator for kimco.
We focus on retailers that are real estate.
<unk>.
And have the ability to come in and hopefully and unlock a lot of value for our shareholders through a differentiated strategy. So it is 1 that is.
Unique to kimco, and we're very proud of and obviously, we own a lot of Albertsons shares because of this strategy and this is just another data point of why we think it's a it's a nice differentiator for kimco to unlock value.
State and retailers that are real estate rich.
Okay, Great and then bigger picture and can you provide some more commentary around what youre seeing from and institutional capital perspective, and your appetite to put capital to work and chips today and maybe touch on your appetite to monetize assets if approached line.
And from that part and ice from watching video today.
And I missed the beginning of the question and I'm, sorry, do you mind just repeating that.
Yeah, and just looking first and my commentary around what Youre seeing from and can get snow capped on the demand per capita out of whack and channel today.
Sure Yeah, I mean its inspiration.
And as I mentioned and the and the opening remarks I mean, there is a significant amount of capital that was raised during this pandemic everybody.
I was looking for distress it really did not materialize and now what you're seeing is that a lot of that capital is really focused on core. So we're in a pretty unique position in that.
Nick a lot of investors that want to invest and retail.
But maybe lap the operational expertise. So we are fielding a lot of questions a lot of comments a lot of inquiries from institutional capital that want to invest in retail and wanted to take advantage and see that there is clearly a.
A need and utility of our open air space, but how do they actually go about investing and that so we're having a lot of those conversations there's plenty of capital that's looking for it and now it's just being very selective as to where we put our capital and who we invest alongside that being said there are other investors that have substantial legacy.
There's retail investments many of which are not necessarily and open air retail that are looking to maybe reduce debt exposure and that also becomes an opportunity for us.
They're looking for what component of their retail investments are liquid and this market. It's clearly the open air and neighborhood grocery shopping centers.
And our attractive.
Are attracting a lot of capital.
And they know that they can monetize and and we're there to discuss that with them as well.
Okay, great. Thanks.
The next question comes from Greg and Macinnis with Scotia.
And your bank.
Please go ahead.
Hey, good morning.
So I just noticed that renewal lease volumes were down from last quarter, but I assume that bucket is primarily driven by expiring leases and somewhat out of your control and that said have you noticed any changes.
Our trends with regard to tenant retention.
Yeah. So Q1, you tend to have a higher renewal rate, because that's where more of leases rollover and so you're spot on there and it's really related to the population and a given quarter about when and when their leases roll, but as it relates to retention trends.
They've been they've been.
And strong and people that have certain retailers that have made it through the pandemic at this point, you know and things feel good about the position there and.
For US you know as Conor mentioned earlier with curbside, we've done extraordinary amount and working with our tenants and trying to provide a.
True kimco advantage to be a a retail partner with and again.
Very center and I think.
What what retailers have come to learn is that your landlord matters. You know if you're well capitalized you have vision, you're willing to test experiment and be a true partner and good steward of of not only the retailer but of the community itself. It makes a big big difference for a lot of these small.
This is their livelihood and and they're investing a tremendous amount of sweat equity and their own money into the business and so they want to make sure that whoever they are aligned with its also and partnership with them I think that's been a big and I.
Opening experience for a lot of those retailers and so that's definitely helped us with the with retention levels.
So.
So as that maintained retention and then or is it increased like versus pre pandemic.
Well I think I think our renewals and I've always been being quite strong and so I think and sustaining and improving.
Yeah, Greg I think most retailers today are.
We're looking at their space.
Faces and and recognizing that the leases might be below market and it might be very difficult to replace that location. So retention rates are high and we feel like we're confident and the portfolio and knowing that the supply and demand dynamic we don't see that changing.
Okay. Thanks, and then 1 partially covered this question earlier.
But Glenn I'm, just curious how you're thinking about switching tenants back to accrual based accounting and you're kind of waiting to see what happens with a kind of a rising COVID-19 cases, right now or could we start to see some of those reversals.
Kathy and I.
Your line.
Okay. It sounds like Youre right Theres, no way and that means that the thought of what's to come with the pandemic and and as you probably know cash basis isn't that kind of category where cash.
And and out of that from a GAAP perspective, and as you know criteria that you need to staff and generally we like to see that the county.
And I'm, calling on their base rents and tenant to 9 months.
And and so well continue to monitor that trend and I do anticipate that and second half a day here there will be and kind of our tenants now that makeup at 8.8% of ABR that from non soon and that will be coming out of cash basis.
But just something to keep in mind when thinking about that.
And just because it kind of comes out of cash basis, obviously, and they said and need to be current on Iran, and the impact that you're going to see on credit loss is very minimal right, because they're actually paying and where you may see some set of ethical and tactically on the straight line side, which although I wish that was cash and not that there could be and ethical impact on that.
Thank you so much for the clarity.
Okay.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Okay.
Hi, good morning, and in the beginning in the prepared remarks, I think you touched briefly.
Redevelopment opportunity that kimco high and so I was wondering if you could give more detail on kind of the depth of that opportunity and I know you're working on a number of a large mixed use projects, but even just the smaller ones how much about activity do you expect you could complete each year and what types of projects are most appealing.
Sure.
On them and so on the on the redevelopment side, we continue to see a lot of opportunity. We continue to look for what's the highest and best use of our real estate and what we've seen is we've been averaging around 700 to 1000 multifamily units a year of entitlements and so we continue to think that's a great use of our sweat equity to create opportunity for.
Caitlin and value creation on the Asa and and activate that and are you know what is the best time to do so on the smaller redevelopment side and clearly those are ones, we get the best Bang for our book where were on average returning over 10% on invested capital. So we continue to monitor and mine the portfolio for those typically it's adding a pattern.
For future, Brian with it with a drive through or expanding a shopping center and some way shape or form and those continue to be right around and I would say between $8 million to $100 million a year of capital investment now we'd love to do more of that clearly its the some great returns on capital and we'll continue to try and look for those opportunities.
Going forward.
And then on the larger scale redevelopment projects.
We continue to look through our portfolio and say, what's the best way to activate these these projects and we want to be mindful of the fact that we have a lot of opportunity, but there's different ways to.
Structure of those opportunities and so you've seen us do it in the past per.
And we sold entitlements typically office entitlements, we ground leased entitlements those.
And sometimes or multifamily projects or joint ventured and done projects debt.
That adds a nice live work play experience to the to the shopping center and so we'll continue to do that as you know we've done a lot of work on entitlements already or upfront.
<unk> thousand apartment units entitled and continue to think that's a great use of our of our time and effort going forward.
And just to clarify you mentioned on the smaller ones and twist that $80 million to $100 million per year.
That's correct.
Okay and.
Okay, and then maybe a question just on leasing volume you guys pointed.
The bad debt for the second quarter, historically, Tiki 21, 11% higher than historical level. So it was just wondering if you expect the above.
Historical average leasing activity could continue through like mid 'twenty 3 as occupancy comes back or do you think the current strength is more of that.
Pointed out like a quick bounce back and then it could flow to more historical levels.
Yeah, I mean, obviously when you hit a peak to peak right I mean, if we've never achieved that level. So we are we're very proud of that effort and in Q2.
To meet or exceed that on any given quarter will obviously be.
Big effort and and so we had anticipated.
Probably being a little bit less but you know with the demand side as we've mentioned earlier and smoothed rather remarks, you know and it is very very strong so we still anticipate growth.
Over the next year and a half to 2 years.
With with retailer demand and place.
And I think the way.
I continue to think about it is you'll see anchors, we've the way until it hits that sort of.
Historical high occupancy levels, and then once that hits that you'll hope you'll see the small shops actually starting to pick up the slack and so that's the way we think about it you know typically the small shops around and anchor lease up once the anchor has been Lee.
And so that's what we continue to think we'll will play out.
Hi, Thanks.
The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
No.
Good.
Morning out there.
So 2 questions first on the cap rate side.
And you guys did the prep deal and San Antonio are and just curious when you as you guys see the acquisition market are you seeing sellers, maybe reluctant to sell because either they want to stabilize.
Your line of why or they view the cap rates or value in which case, we should expect to see more sort of partial investments like prep deals or JV stakes with the option to buy out eventually or do you see that sellers are willing to just.
Outright transact, even though there's a view that.
Fundamentals are getting.
Getting better and that cap rates are going to continue to compress.
And I think it's it's every circumstance is a little bit different so as evidenced by the amount and transactions that have occurred there are plenty of owners that are willing and have been executing on dispositions. They see that you know the.
<unk> continues to work in their favor the finance ability of these assets and has never been greater with interest rates, where they are so it is a very good time, if you're a seller.
To take advantage of all time, low interest rates and and thus cap rates at the same time and are there is an opportunity for owners that have the capital.
<unk> and the financial wherewithal to reinvest in assets to try to stabilized cash flow if they were be.
And be down a little bit during the COVID-19, depending on what type of tenancy. They had so you're seeing certain decisions potentially being delayed for a period of time.
And and you always have to compete with the opportunity.
And tomorrow and or to refinance their asset because as I mentioned, the finance ability of those assets is very much available. So every circumstance is unique but we're finding plenty of opportunities. We do think that we'll continue to see <unk>.
Structured investments with the preferred equity and the Mezz financing present themselves we'll.
And we'll continue to be very disciplined and and only look to invest and those assets, where we feel very good about the basis of our current return and then of course it has to check.
The box is 2 and a.
Asset that we would potentially look to own and the future and that's where we secure a writer first refusal or right of first offer so we've <unk>.
Intentionally not put out any sort of mandate on the amount that we're going to invest and that program, but to the extent that debt those opportunities present themselves, we're ready and excited to do that.
Okay, and then and Oh.
Sorry go.
No you go.
And Alex.
Okay. Thanks, sorry net.
Question is for Glen just you know sorry for all the confusion I didn't I didn't go to CPA school, so apologize odd on accounts receivable and reserve rents, but big picture, you're collecting north of 96 per cent of the rents and yet you have 51%.
And of your a are reserved so big picture what it sounds like is that basically almost all your tenants are healthy operating it's just a matter of when you can get paid up for past bills and then that comes down to you know I guess, either a payment plan or if you guys.
They look for a tenant who just up and have the wherewithal to pay the backstop just watched that clean pay the rent going forward. So just trying to reconcile sort of north of 96 per cent and collected but you have 50% reserved.
It's a good question Alex.
And to help you a little bit 36.
We're gonna have a sense of of it of the a or is there a cash basis tenants that haven't paid yet so a big portion of the reserve is really related to the cash basis tenants.
The other portion of the reserve just comes down to timing and our own policies around Cam and tax bills and.
And disputes.
So those are really the 2 big the 2 big pieces that make up with the reserve is.
So that hopefully.
Clarity.
So the 36 per cent of Ey are that is.
The other part of that little 4% of rents and haven't been collected.
Well again, when you look at total a or it's a combination.
Month after month, and what Hasnt been collected some of it is it's fully reserved or member all cash basis tenants that have and aim.
They're they're 100% reserved.
So it's a buildup of of total.
Right, but basically.
Some of those tenants are still and the portfolio they may be paying you.
Now so I mean, when you say, 96% collected and the second quarter that includes cash pay.
And that's that's what I'm just trying to understand.
And that includes the cash basis and its debt paid so so as we mentioned 888.
Some of the tenants or the ABR that we have.
<unk> is on a cash basis of that amount, 77% of those tenants during the quarter. There was about I think the numbers I think it was about $9 million that wasn't paid by those cash basis tenants during the quarter and therefore.
<unk> reserves and the number.
Okay. So that's a 36% and other words.
And in total in total when you look at the total number 36%.
Is it related to cash basis tenants and so we're still accruing.
Moving them, they're just fully reserved.
Okay.
And that 36% and is a cumulative number so drained when COVID-19 with really high back in Q2, and Q3 of 2020 that a our web and at the 96% still and the highlight and the high 80, so that balanced.
Still sitting.
Sitting and that a are you putting a reserve on that old balance as well and then to your point that debt within the 90 day continues to get a reserve on it.
Okay Awesome awesome listen thank you very much.
The next question comes from Wes Golladay with Baird. Please.
Please go ahead.
Hey, good morning, everyone and just had a question on when do you think paint occupancy will bottom and how much of an impact with the eviction moratorium moratoriums have on occupancy and then 1 last 1 there would be you still have a lot of abatements about $5 million when will those start to burn off.
Yes.
Sorry, I just missed the very first part of that it was a word and then occupancy.
And so I'm looking forward.
Yeah paying occupancy when do you think that will bottom I understand that you have some people that may still be and the occupancy number but there could be and eviction moratorium just trying to quantify the impact of that and the actual yet.
Yes sure.
At this at this point debt.
And back to that should be fairly small and immaterial. There are there are obviously and moratoriums and the west coast that are still in place that I believe California lift towards the end of September. So we would anticipate that there is some modest impact to that but nothing that would be too meaningful.
On a.
Per basis.
And then what was the second question or second part of your question. Yeah. The second 1 was regarding the abatements you still have some abatements run and through the numbers just saying when that those will end.
Yeah, we anticipate that those will start to trail.
Q3, and Q4, I mean that as we've gone through the majority of the impacts of the pandemic at this point.
Yeah, just to give you a little bit further color. The abatements that would book during the quarter were $5 million, but only about $2 million of that related to second quarter rent. So to Dave's point, it's really starting to whittle down and we expect it to be lower and as we've talked with a balanced year.
Okay.
Got it yeah. Thanks for the color on that and then.
And I guess, 1 more big picture question do you have a sense of what percent of the new lease and is being driven by demand that emerged during the pandemic such as the last mile. The first ring suburb and is it more concentrated and shops are anchors at the moment.
Well, our our demand, obviously, you're increasing the occupancy and the anchors.
And see it more and the demand side with the anchors, which was anticipated they usually have a quicker recovery rate and then we will be trailed by the small shops, it's really hard to narrow it down to whether or not it was as a result of 1 specific category.
Last mile distribution and pandemic demand first.
And as you can general growth and revision or adjustment to their retail strategy, but it's really a combination of all of these things and you know Rev.
Currency and back to a few of the point, Jim and I made earlier between identifying and lessons learned to historic.
Growth opportunities to expansion and new markets and sort.
Net of all culminates into higher demand.
Got it thanks, everyone.
The next question comes from Hamzah <unk> St Juste with Mizuho. Please go ahead.
Hey, Thank you.
So I appreciate the commentary.
Just about your desire to pursue more preferred investment as they present themselves, but I haven't heard any mention of the returns there. So maybe can you share more on the.
And the return on the investment and that the robots at the $55 million. There what are the returns you're targeting there and how do they compare versus comparable asset quality acquisition yields.
Sure, Yeah, and and each deal obviously is an individual negotiation, but I would say from a more macro level the difference between preferred and mezzanine and preferred investments. We typically look for a high single digit current return on our investment, but we do participate in the back and profit.
Profit assuming that the asset performs the way that we've underwritten and they're usually back and participation that can juice that return somewhere into the teens from an IRR perspective on the mezzanine financing oftentimes those are higher coupons, but don't necessarily have the back and participations. So we're getting double digits.
<unk> current.
Sometimes even into the teens.
But it very much depends on each asset as it relates to the Ram that 1 is a preferred equity investment. So like I said, we got very high single digits current but when we look at the opportunity on that asset and some of the things that we think can occur in terms of occupancy increases and maybe some repositioning.
Or.
And just the general strength of that asset and the market. We think that we will we will certainly see some participation on the profit on the backend. So typically looking for at a minimum you know teens IRR.
Great Great. That's helpful. I appreciate that and.
Just going back to Albertsons drink.
Second I am.
Curious and I understand there's no need to tap into the stock here.
And given the lack of near term debt maturities the liquidity you've talked about before but I guess.
Curious under what scenario a scenario that.
Thinking could change or are you waiting.
More for art.
Mr deals.
And I have fall in your lap or is it waiting maybe another year or 2 out and as you start to approach some of those debt maturities. Just curious as you have this liquidity and know how.
And the available options that youre considering.
<unk>.
Could perhaps drive a change of thinking there. Thanks.
And that's a great question.
I mean.
The good part as you point out is there is very little in terms of debt maturities and the near term so theres no theres no and.
Emergency you need necessarily today from March.
Enterprise it too.
Still have to manage our REIT taxable income position. The good news is the.
And I think we've talked about this previously.
Built in gain actually Burns off next month, so the federal income tax piece of it is no we will no longer be an issue, but we still have to manage our REIT taxable income.
In addition, there.
Are certain lock ups related to our investment with.
And so in order to monetize it today, we would need it would be subject to a marketed sale and.
And in agreement with the rest of our partners.
Come June of 'twenty, 2 there are no further restrictions on the investment and then we'll also and when we look into 2022, we know we have 2 preferreds.
And that are callable, we havent bond that will come due so there's lots of opportunities to use that capital to further deleverage balance sheet.
Got it got it thanks that sounds like it's more of a 'twenty 'twenty 2 event at this point based on what you're looking at okay.
Thank you.
Pardon.
The next question comes from Floris Van <unk> with Compass point. Please go ahead.
Thanks Scott.
I guess, a follow up question or in terms of cap rates.
Uh huh.
I understand there's this big.
Institutional portfolio from dental Kennedy I think it's just trading or about to trade you know $800 million price tag sub 5 and a half cap rates from market sources.
As you look at obviously why and garden.
And get a higher cap rate.
Do you think there's you know the disconnect between private and public.
Real estate can you maybe give some some comments on that and also what kind of implied cap rate are you valuing the the the rim transaction at and and maybe you mentioned something else.
You're buying.
Jv's, obviously, you know your JV assets better than others.
As you look forward is there an opportunity to buy out JV Stakes in your portfolio and for that matter in the Weingarten portfolio, which has I think something like 39 or 30.
About 1 or you know somewhere in that neighborhood of of JV assets and if you can comment on that and then and you have provisions in there are you know what.
Whether you have the right of first offer and your JV is typically.
Sure happy to address some of that and and I'm going to kind of keep it at a high level rather than comment directly on the weingarten specific questions but.
And you know Theres no doubt that we think that there is still a disconnect between public and private pricing when we look at <unk> of ourselves and some other peers versus like you said some of the transactions that are happening and the and the low fives and we're also starting to see them dipping into the high fours.
And there there is still very.
Very much a spread between those 2.
But that's all green oak portfolio.
Very high quality grocery anchored products and was not surprising to see a very strong demand and many bidders and multiple rounds of bidding.
Before that deal was ultimately awarded and I think we're going to continue to see more.
More of that in.
In terms of partnership buyouts, I mean that is something that we have taken advantage of in the past.
Oftentimes, it's difficult to model, our forecast or predict when those opportunities present themselves all of our partners have different investment horizons and and reasons for why they may look to exit.
But we do stay ready we stay in very close communication with our partners and we have a pretty good sense as to when they may look to exit or what might trigger that and as I mentioned in the prepared remarks, we do think that there's going to be some of that.
And in the relatively near future.
And.
And 2 our ability to have sort of a right of first offer a writer first refusal.
There's no doubt that for these assets that we're managing and that were operating day in and day out we are the logical buyer, we can move quicker than any other third party can given the fact that we know the assets inside and out so typically it's a win.
When and if it's an asset that we view as a long term hold and for 1 reason or another are partners looking to exit it.
It's a great. It's a great chance for us to buy out the remainder and for our partners to have a very smooth and quick execution. So.
Again, we'll see more of that.
As time goes on over the next year or so.
As it relate and thanks, Ross, maybe just do you see anything imminent is happening and any of these potentially and your jv's and over the next 12 months.
I think that's very possible.
Great. Thanks.
The next question comes from Mike Mueller with Jpmorgan. Please go ahead.
Yeah, Hi, just a quick 1 on guidance. So it looks like ex the weingarten charge and midpoint of guidance went up around 8 cents I'm, assuming about 2 cents of that is tied to the prior period collections, but can you walk through the major components of.
Of that increase.
Sure Mike.
The bulk of it really is coming from just the improvement and credit loss. That's really that is really the driver. So we had credit loss built in and are in our guidance all along.
Loss and total including the impact on straight line rents.
For the quarter was about $800000 versus versus what we had been budgeted. So the bulk of it really is coming from credit loss improvement.
And the driver.
Got it okay and that was that thank you.
Okay.
The next question comes from Chris Lucas with capital 1. Please go ahead.
Good morning, everybody Hey, just.
2 follow up questions and Glenn just going back to the guidance as it relates to the <unk>.
Bad debt number you've provided earlier over a range of 5 to 20 million for the back half of the year are there.
And the offset to that meaning like prior period ran for deferral payments that are included and that sort of from.
And that offset that that number or is that a gross number.
So it's all it's all built into that Chris.
We've been as we mentioned, we collected $7 million of rents from prior periods, but all.
Also during the current quarter, they're a cash basis tenants that didn't pay so that as I mentioned, we collected 77% from the cash basis and instead of the 23% was not collected so well.
And we'll have to see how that goes during the third and fourth quarters, but the expectation and guidance as debt at the high end of our.
Our range, we would incur a total of about 5 million and credit loss and towards the lower end of the range it could be as much as $20 million, but again based on where things are headed today, we feel more comfortable towards the upper end of the range.
Okay, and then just on the move from cash to accrual the straight line impact that was.
As mentioned earlier it was a possible tailwind is that do you have and assumption built in on that and as it relates to your guidance as well.
That and that no we really haven't because we haven't and it to.
To date, we really don't know exactly who live and a move and when we're going to move them. So we have not built that in and so should we start moving some in and their straight line.
Yeah.
There would be some there would be some uplift from straight line and straight line rent.
Okay and then last question from me Conor you you've talked about the tenant demand and I guess I'm just trying to think through the whole process of how much.
And insight you have how and how much.
And sort of visit.
And you have in terms of demand given that.
I'm, assuming that retailers are making their open to buys this year for store openings and 'twenty 3 'twenty 4.
And given what you're hearing from them.
What's your confidence level that debt.
You know this.
<unk> demand remains as strong as it has been so far first half of 'twenty 1 yes.
Yes, that's right Chris we have since we have been virtual for most of this pandemic, we've been able to do more virtual portfolio reviews and talk with more tenants on the regular on expansion.
And plans and looking for space throughout the portfolio 1 thing you're right about the cadence there, but 1 thing. We have found is that many of our retailers that are well capitalized have actually come to us and say hey, you know.
We actually need a few more deals for this year or we need and so there is there's actually a bit of that going on as well so it's broad based which.
I'd like to see.
Nearly grocery is continues to expand and is white hot but then you've got the other categories that we'd like to see that complement the cross shopping which typically is led by off price and then you've got the home improvement home goods section continues to be very very strong.
And it goes on from there and the.
The interesting part I think is the pent up demand for probably the most impacted categories that we're seeing so the entertainment fitness.
And the restaurant side of it have really come back strong faster than we anticipated and we think that that bodes well for the recovery of those sectors.
And obviously, we're not out of the woods, yet as I mentioned in my prepared.
Our remarks and.
And we want to be careful about how we talk about the future because we still got.
And the Delta variant, that's causing a lot of issues, but we have a playbook now we have you know the kimco branded curbside pickup program. That's on the entire portfolio and we have a battle tested team that I think can really manage through this and the customer is more aware of how to.
About utilizing last mile retail and more ways and 1 so I think our portfolio is well positioned.
To weather whatever storm comes our way.
Thank you.
The next question comes from Linda Tsai with Jefferies.
Please please go ahead.
Hi, good morning, and based on your earlier comments it seems like there's a pull forward of demand for core assets given the validation of necessity based and grocery anchored retail and then still low interest rates and how does that impact your view on potentially increasing disposition activity and this favorable environment.
And it doesn't it doesn't really move the needle for us and in that regard we look at the portfolio. Every day every week, we look at where there is risk where there's opportunity where there is concern where demographics may be shifting and that's really what motivates our decisions and the good news is that we've done a tremendous amount of heavy.
He lifts over the last 5 to 7 years to put in the portfolio and a position that debt and when you look at the numbers that we were able to put up this quarter I think it speaks to the fact that the portfolio is in very good shape is performing well and we will continue to prune here and there where we see specific assets that don't necessarily make sense from a long.
Term bolt scenario.
But when we think of it from a macro level it doesn't move our decision, making and and feeling very confident and the portfolio that we own.
And Linda I would just add that it's.
It's been and if we were and are very fortunate position right. We've gone through a massive transformation and the portfolio we've derisked the port.
We've really now we're at a sweet spot, where we can look and see across the portfolio that weren't what sites are flattish in terms of growth and use those for recycling capital and.
They're not necessarily low quality, because some of those might be single tenant type ground leases or some of those might be.
Assets that we've squeezed all the juice out of where we are in a very fortunate position to be where we are as our disposition strategy can be used for for incremental growth.
Thanks for that and then when you think about last mile distribution and it seems like most rescale most retailers start with making changes within the 4 walls of their existing boxes.
<unk> accommodate onsite fulfillment.
And that are you seeing more instances of retailers, making physical changes to existing boxes vis vis physical expansions.
Yeah, it's either expansion or modification and utilizing the square footage within the 4 walls.
Some examples are those that create.
And I'll pick up point, obviously and in front of the front of the store.
<unk> seen it if you go to a restaurant chopped or otherwise you know they've just.
A couple of shelves and to do the curbside pickup or just to walk in and pick up but on the back and back of house with some of the.
The bigger.
Formats, they repurpose some of their back of house for distribution of fulfillment, while others are still doing pick and pack within the stores. So again each retailer is trying to do what's best for them based on how they are logistically are set up.
And I think we'll just continue to see that this trend of all some layer on technology.
Efficiencies there to manage stocking and inventory levels is going to be I think a hyper efficient system and as.
As we progress through the coming years, we're starting to see some tenants and this is early but starting to see them lease adjacent space for almost like sortation centers. So that's and that's the.
Incremental net new demand factor and where work.
And we're watching that closely to see if that's going to have an impact and hopefully it's a new demand source for us.
Thank you.
Yeah.
This concludes our question and answer session I would now like to turn the conference back over to Dave who schnittke for any.
Closing remarks.
And just want to thank everybody that participated on the call. We hope you enjoy the rest of your day take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yeah.
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