Q1 2022 Kimco Realty Corp Earnings Call
Greetings and welcome to the Kimco Realty Corporation first quarter 2022 earnings call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded and will be limited to 60 minutes.
Now my pleasure to introduce your host Mr. David Bouchey, Hickey Senior Vice President of Investor Relations and strategy. Thank you. Mr. Bush checking you may begin.
Good morning, and thank you for joining kimco quarterly earnings call at Kimco management team participating on the call today include Conor Flynn Kimco CEO .
Ross Cooper, President and Chief Investment Officer Glenn.
Glenn Cohen, our CFO Dave.
Dave Jamieson Kimco as Chief operating officer.
As well as other members of our 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'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 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 were joined her technical difficulties, we'll try to resolve as quickly as possible and if the need arises we will post additional information to our Investor Relations website.
I'll turn the call over to Conor.
Good morning, and thanks for joining us today.
I'm going to lead off the call with a brief review of the current retail environment highlight a few of our Q1 accomplishments and provide an update on our overall strategy.
Ross will describe the transaction market and the high demand for our open air and mixed use product.
And as usual I will cover our financial metrics and provide updated guidance for the year ahead.
2022 is off to a very good start.
The integration of the Weingarten merger is now complete and as anticipated our scale geographic clustering and operational platform is stronger than ever.
This success is occurring at the same time that retailers are taking a fresh look at the real estate portfolios and concluding that the physical store has proven to be the linchpin of retail.
To put that in perspective, it wasn't long ago. When many people thought that the physical store was on the verge of extinction and that E. Commerce was the be all end all for retail.
Now retailers are looking at the physical store through a new labs, a lens that is focused on optimizing the store for retail e-commerce and distribution.
Tenants are revising their capital spending budgets to address the Omnichannel Revolution and ecommerce platforms. They are readily investing capital on refurbishment expansion fulfillment and last mile distribution.
When retailers evaluate their real estate.
No longer separate their warehouse and distribution needs from their sales requirements today.
Today, leading retailers are taking a holistic approach to determine the best locations to ultimately serve their customers.
Indeed, this integrative approach the dominant recurring theme during our portfolio reviews with retailers and it's creating more demand for optimal location.
We are seeing renewal and new deal demand for well located space that is not only suitable for generating in store sales.
Also conducive to last mile distribution fulfillment.
Target stores as a bellwether for this new approach with more than 95% of their total sales physical and online being fulfilled through their store base.
The result is a tremendous halo and value add to their existing and growing store fleet.
This trend of increased capital spending by retailer and a renewed focus on and demand for quality location is good news for kimco.
Higher retention lack of new supply quality real estate in a well coordinated team effort are strengthening pricing power and accelerating the speed of recovery throughout our portfolio.
Salt is higher cash flow greater leasing velocity improved net effective rent and growth in recurring F. F O. Our.
Our incredible team produced a record 475 renewals totaling $3 9 million square feet and the renewal and option spreads of 6.4% continue to underscore the supply and demand dynamics I just described.
Specifically, new first quarter leasing was strong producing 178, new deals totaling 719000 square feet and our pricing power is reflected by a solid new leasing spread of 18, 6%.
Retention levels remain high with lack of new supply, putting more value on existing stores and resulting in more remodels and lease extension with minimal capital required from kimco. It is worth noting that positive net absorption in the first quarter historically has been a rarity and yet our superb leasing team generated a 30 basis point increase.
And our pro rata occupancy, which now stands at 94, 7%.
This is our highest first quarter sequential occupancy gain in over 10 years year over year occupancy is up 120 basis points strategically we continue to focus on enhancing our already strong open air grocery anchored and mixed use portfolio in our top markets.
Ross and his team are constantly analyzing new potential acquisitions as we look for the best fit for our portfolio.
We've also made excellent progress on entitlement in the first quarter, we entitled 1300 apartment units and three of our core markets Denver Fort Lauderdale in Washington D. C. R.
Our mixed use assets are benefiting from the dual recovery in both the apartment and retail sectors.
All of this activity gives us flexibility and optionality to create <unk> growth and shareholder value.
While we are proud of our results we recognize it is not all smooth sailing.
The war in Ukraine, the Lockdowns in China, the ryzen Covid numbers and the reemergence of mass mandates in certain areas present real challenges.
The consumer is being stretched by a record inflationary environment at the gas pump and the grocery store.
Despite these headwinds traffic continues to flow to our grocery anchored neighborhood and necessity based centers.
<unk> in the first quarter of 2022 was 108, 9% relative to the same period in 2021.
Value provided by our central based retailers remains as important as ever.
Closing I want to thank our entire organization. They respond to every challenge worked tirelessly and maintain or do the right thing culture.
Their collective drive has enabled us to push a recovery faster than we anticipated and execute our strategy with precision.
It feels like we're just getting started which makes it so exciting to be a part of this great team and with that I'll turn it over to Ross.
Thank you Conor and good morning, and it's been an exciting start to the year and while our first quarter transactions were somewhat limited we remain encouraged by the acquisition pipeline we're actively building.
As we have mentioned in previous quarters, our transaction activity remains very selective and focused on a combination of third party acquisitions structured investments and partnership buyouts, thus far almost four months into the year, we have deal flow for all three categories in our acquisitions pipeline.
In terms of first quarter transaction activity, we acquired a couple of adjacent land parcels highlighted by a junior anchor box located within our Columbia crossing Center in Columbia, Maryland.
We expect the pace and frequency of closings to ramp up as we move through the balance of the year and we are eager to capitalize on the external growth. We can deliver as these transactions are completed.
As we indicated last quarter, we have taken the opportunity to prune several joint venture assets that we felt had maximize value with limited future growth we.
We sold three shopping centers from joint ventures for a gross value of $81 9 million and Kim share of $17 5 million in.
In the second quarter, we expect to complete additional JV dispositions from both legacy Kimco and recent weingarten partnerships.
We are at a very interesting time in the marketplace today.
Even with the recent rise in interest rates, we have not yet seen any impact on pricing or demand for the product.
Equity capital is abundant which is creating further competition for quality open air centers.
5% cap rates for the best of the best is now the norm and we are seeing these comps throughout the country portfolios or back to commanding a premium if the composition of the assets checks the boxes for institutional investors.
Bidding wars are commonplace for not only grocery anchored assets, but for the better quality power and lifestyle assets as well. This comes at a point in time, where rates are rising rather quickly and lenders are taking a closer look at quality of sponsorship and disciplined loan to values. It is worth noting that there is a.
Strong advantage in the marketplace today for the all cash buyer, which gives our balance sheet and liquidity position like kimco is a major benefit.
We intend on utilizing this privileged position wisely and protecting it while selectively adding unique core properties and structured investments into the portfolio.
Another kimco differentiator in this market is creativity and structuring specifically the ability to offer a tax deferred structure.
For certain tax sensitive owners of property. This is the best way to optimize net value for a seller and an uncertain regulatory environment.
Given the various paths we have to prudently deploy capital we are confident in our ability to unlock accretive investment opportunities for the company and all three phases of our external growth strategy.
And now to Glenn for the financial results for the quarter.
Thanks, Ross and good morning.
We are encouraged by our strong first quarter results driven by increased occupancy strong leasing volume and continued positive leasing spreads. In addition, our same site NOI growth benefited from higher collection levels and lower credit losses as compared to the same period last year.
Naveed S. F. O was 246 million was 39 cents per diluted share and includes a $7.2 million charge or one any per diluted share for the early extinguishment of our 500 million bond, which was scheduled to mature in November of this year.
This compares favorably to our reported first quarter 2021, NAREIT <unk> of $144 3 million was 33 cents per share.
The increase in <unk> was primarily driven by higher consolidated NOI of $104 7 million of which the Weingarten acquisition contributed $88 6 million.
NOI also benefited from improvements in credit loss and growth from a rent commencement at our signature series projects.
S S. All from our joint ventures also increased by $14 4 million comprised of $8 6 million from the Weingarten acquisition and $5 8 million from our other joint ventures. These increases were offset by debt prepayment charges of $7 2 million and higher interest expense of 9.3.
Million, mostly attributable to the $1 8 billion of debt assumed in connection with the Weingarten acquisition.
Also our G&A expense was higher by $5 5 million associated with the increased size of the operating portfolio and new associates, we brought on from Weingarten.
However, our G&A as a percentage of our revenues significantly improved by approximately 100 basis points further showcasing the cost savings synergies from the Weingarten acquisition.
Our operating portfolio delivered robust same site NOI growth of eight 9% over the same quarter last year.
The growth was comprised of 3.9% from increased minimum rents and 90 basis points from increased Cam and tax recoveries, resulting from higher occupancy.
Lower abatements contributed another 2.5% and low credit loss, including collections from cash basis tenants.
Contributed 80 basis points.
As we look forward our same site NOI for the next three quarters will be more challenging given the prior year comp range of 12, 1% to 16, 7%.
Driven by the large reversals in credit loss realized in 2021.
Our guidance for the remainder of 2022 doesn't anticipate additional reversals of bad debt or collections from cash basis tenants from prior period rents.
It is worth noting that today only five 2% of our ABR comes from cash basis tenants, which is essentially back to pre pandemic levels. All of that said, we expect same site NOI growth for the full year 2022 to be positive.
Our balance sheet remains strong with liquidity of approximately $2 4 billion comprised of 370 million in cash and full availability of our $2 billion revolving credit facility.
Our look through net debt to EBITDA, which includes our pro rata share of joint venture debt in NOI and a perpetual preferred issuances has improved to 6.4 times.
This is the best level achieved since we began disclosing the metric over 10 years ago and does not include the potential benefit of monetizing our albertsons investment, which had a current market value of over $1 3 billion as of March 31st.
During the first quarter, we opportunistically issued a new $600 million 10 year unsecured bonds at a coupon of three 2% and use the bulk of the proceeds to repay early $500 million of 3.4% bonds scheduled to mature later in the year.
Of note. The 10 year Treasury has increased over 80 basis points since its issuance also as of today, we have repaid all our consolidated mortgage debt due in 2022 totaling $115 million.
Our only remaining consolidated maturities for 2022 is a $299 4 million 3.3, 75% notes due in October . We also have two perpetual preferred issuances totaling $489 5 million that become callable later in the year with a weighted.
Average coupon of five 2%.
This should present, an opportunity to further reduce our fixed charge costs.
Subsequent to quarter end, we renewed and increased the unsecured credit facility for our joint venture with the New York State Common retirement fund.
This new unsecured facility as a total term of five years and has been upsized to $425 million comprised of a 275 million fully drawn term loan and a $150 million revolving credit facility with zero outstanding.
The pricing grid includes the sustainability component, which can reduce the borrowing spread by up to two basis points.
Based on reductions in greenhouse gas emissions from the core portfolio.
Turning to guidance based on our strong first quarter results. We are increasing our 2020 to NAREIT <unk> per share guidance range to $1 50 to $1 53 from the previous range of $1 46 without it.
The increase range is based on the following assumptions.
Positive same site NOI growth for the full year.
Approximately $13 million of credit loss for the remainder of the year.
No additional charges associated with debt prepayments was the redemption of the callable preferred issuances that are outstanding as well as no monetization of our Albertsons investment.
As a result of our strong first quarter results and the increased guidance range. Our board of directors has raised the quarterly cash dividend to <unk> 20 per common share from the previous level of 19.
Even with this increase we still expect to generate over $200 million of free cash flow after the payment of dividends and maintain a dividend distribution level, which is in line with the estimated taxable income.
We truly appreciate and thank the entire kimco team for all of their efforts commitment and focus on creating shareholder value and now we are ready to take your questions.
Yeah.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line has been the questions here.
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Okay.
Thank you. Our first question is from Craig Schmidt with Bank of America. Please proceed with your question.
Great. Thank you I, just wonder are there any anticipated changes or enhancements to your curbside pick up.
Installation of peso.
Hey, Greg Dave Jamieson, Great question, and it's something that we are actively trying to better understand now and explore what the curbside to point O version will be.
As you know we have curbside at all of our properties, where it's warranted and we're expanding.
Any of that into the weingarten sites, but it is interesting that as we start to talk to retailers and what the next iteration will be so it's really incumbent upon us to continue.
Building that conversation with them and see what their needs are and how their needs are changing and that we will we will adjust accordingly, but we're very much in that learning phase right now I don't understand what's next to come but assuming that something will be different tomorrow than what it is today.
Thank you. Our next question comes from Greg Mcginniss with Scotiabank. Please proceed with your question.
Hey, good morning.
So kind of it seems like the portfolio of your site development could easily play a bigger role than it currently is.
Curious what is maybe holding back.
Greater development investments what size you anticipate development pipelines for each site by year end, especially when we consider some of those kind of mixed use entitlements.
Ground leases that we're starting to see enter the pipeline.
Great. Thanks for the question, Greg I think when you look at the pipeline of opportunity for US. If we do have as you've been seeing a war chest of entitlements and so we really want to focus on giving ourselves optionality and flexibility for the future.
And we've determined that the best use of our time and our capital is really focusing on unlocking the highest and best use of our own real estate, rather than taking on development and land banking certain development parcels for future because we really do believe that the assets that we own and control are better master plan for future and then.
We can activate them at our so choosing we do have a couple that are getting close to being shovel ready that youll see added to our supplemental in the back half of the year, but we want to be mindful of the fact that you know.
The structure that we think is best suited for growth going forward is to again really focus on the internal growth of the organization and how do we add to that internal growth by layering in some of these mixed use redevelopment opportunities in the future. So I don't see us going back to adding some large scale ground up development.
But I do like the fact that we continue to stockpile entitlements and then activate those entitlements are so choosing in the future. We have done it a number of different ways as you know, taking a little bit less risk with ground leasing them and parcels or entering into joint ventures with best in class multifamily developers by contributing the land.
Mark the basis with the entitlements in place we liked that approach.
Thank you. Our next question comes from Rich Hill with Morgan Stanley . Please proceed with your question.
Hey, Good morning, guys first of all congrats on a really nice start to the year.
I did want to talk about what looks to be a pretty attractive leasing opportunity.
For the next couple of years.
But specifically do you think this is becoming more of a of a renewal business and a new lease rate business I guess, it's a two part question where do you think you can take occupancies versus where they are today.
And and do you think that just means more stable renewal business, which is a great predictable cash flow. So how should we think about that.
Yeah that is a multipart question. So let me try to break it down first.
First first this quarter, we saw historically low vacates about 25% less than what we've typically seen in Q1. So when you start when you think about our base is very very solid and I think obviously that that way.
We've cleaned up a lot through the pandemic a lot of high risk tenants moved out moved out of our portfolio. So we start with a much more solid foundation that when you look at the rollover as you mentioned the retention the retention levels are at the highest point that we've seen two in the last five years, it's a rubber that that 90 plus percent range, so you're not retaining.
Those quality tenants for longer when they have that opportunity to punch out either wasn't an option comes up or the renewal renewal notice comes up so I think it's showing validation of property validation of the sector and the strength of the retailer themselves about what they're doing with in our centers.
When you look at the new lease activity of 178, new leases, which is also one of the high watermarks for US you see all those points of demand that we've been talking about over several months I mean from all sectors. So you are seeing you know real growth.
I mean, youre seeing other retailers say like a boot barn for us this quarter was very active.
That's small or midsize you know junior box categories are really winding to expand and grow their market share across the country. So you're having all of these forces combined which is helping either sustain or occupancy and or grow it.
When I look at where we can go I go back in time and say, we're at where we come from and when I look back at the great recession.
We averaged around a 10 to 30 basis point gain through several years to recover or occupancy. This quarter. You know Q1, which is historically a bit of a dip in occupancy we gained 30 basis points.
So we are moving in the right direction and I and I think it's real it's a real growth components that are help driving that.
Again, where it goes from here. We'll continue this you know we see good momentum through 'twenty two there's obviously a lot of macro forces out there that we can't control.
But for now we are managing with what we have and and feel cautiously optimistic of the direction we're headed.
I would just add on that claim you know the renewals and options for the quarter were up six 4%, which is a real testament to the just this whole shift of where the portfolio is today.
Tenants are staying in the other benefit we have is renewals and options for the most part there's a lot less capital required to go win.
To those to those boxes, when they're staying like that so it's it's really very very beneficial.
Thank you. Our next question is from Quants and operator with BMO capital markets. Please proceed with your question.
Hi, Good morning, just wanted to ask about the Albertsons stake that you guys have obviously tremendous value, but I'm curious if they're strategic review influences your thoughts on the timetable about monetizing shares or how youre thinking about harvesting that value.
Yeah. It's a great question again, there they are doing their own thing with their strategic reviews, we're not aware of anything specific at this point.
As you I think you're aware are.
Our lockup expires were scheduled to expire at the end of June . So we're just going to continue to monitor how the investment is.
Performing at that point, and then we'll make decisions after that about the appropriate timing for monetization or getting the monetization, but again keep in mind, we can.
Can't monetize the entire thing all at once do to wanting to retain our REIT status as we've talked about on some previous calls we could have a gain of around somewhere in the 350 million ish range and maintain our REIT status within the REIT. If there was a larger transaction.
And I'm, making this up but if there was a total take private of the company and it was monetized all at once we would have to ship the remaining portion of our investment into what T. R. S.
You have obviously, all the cash available and over time, we would dividend that money back up to our wheat over a period of time to maintain our REIT status.
Thank you. Our next question comes from Samir Khanal with Evercore ISI. Please proceed with your question.
Hey, good morning, everybody I guess, Conor I was a little surprised that guidance did not move up more here considering how strong the tailwind you already talked about.
The record leasing volumes, you've got the rent growth occupancy moving up here.
Here it sounds like you have acquisitions in the pipeline I guess it looks the opposite here is it.
Higher rates that could impact earnings growth related to the weingarten debt just trying to make sure I'm not missing anything here and maybe walk us through sort of the swing factors killed.
Kill Lindzen potential headwinds to earnings growth this year. Thanks.
Sure. So I did outline in my earlier remarks, though it's not all smooth sailing right you've got masked mandates back in Philadelphia, you have got obviously record inflation going on you've got supply chain issues still being resolved. So there's lockdowns in China, you've got the war in Ukraine. So there's there's plenty of headwinds out there, but we.
Nice we have to deal with and continued up to monitor for in terms of the earnings guidance you do have a few one timers in some things that that that impacted the first quarter.
You want to walk charters, where the breakdown I mean keep in mind, we did raise the lower end of our guidance by four cents in the upper end of the guidance by three cents. So today's guidance. The low end of the guidance was the previous high end. So we have incorporated all of that and as I mentioned in my prepared remarks, we do have $13 million.
The remainder of the year of credit loss, that's in the numbers. So that's about two cents a share.
We'll have to see where that falls out of that.
So it makes it that's a little conservative and that's fine we'll play it out because we are still dealing with some of the pandemic issues that are there.
And we did during the first quarter, we had about $2 million of L. T. A so a little bit of one timer stuff.
But overall I mean again, we're focused on where the credit losses, and we want to continue to put ourselves in a position to feel comfortable that we can meet the guidance that we've put out and.
On a conservative basis.
Thank you. Our next question comes from Alexander Goldfarb with Piper Sandler. Please proceed with your question.
Okay.
Good morning, and thank you.
Thank you the Q is much more efficient this quarter than last quarter.
Conor just a question on the cash buyers and Kimco is advantage certainly can appreciate your line of credit availability your access to the debt markets, but when it comes to equity you know on our numbers you're trading at sort of just a tick under an implied six cap versus the you know the sub fives that you described second you guys have been.
Pruning a lot of your legacy JV. So it doesn't sound like joint Venturing is is in is is in order you already addressed the potential proceeds from Albertsons, So where does kimco get the equity advantage to compete with you know, especially the non traded REIT than the other private market rates that are raising money yeah basically at.
Versus where you guys are which is a discount to anybody.
I think when you look at it Alex when you look at the amount of cash we have sitting on our balance sheet start. There you know we were sitting with records amounts of cash that's not earning anything on our balance sheet. We have tremendous access to capital. So start. There then you look at you know the 200 plus million of free cash flow we have after dividends.
So you combine those two factors and obviously, we're sitting pretty with the amount of cash we have there and that doesn't account for any monetization of Albertsons, which Glenn mentioned earlier, which is an additional call. It three to 400 million plus but we do feel like we are in a good position to accretively invest our cash.
Sitting on the sidelines right now now we do look at our cost of capital every day and make sure that we focus on investing accretively, there and and we do feel like when you look at the opportunity set of what how Ross outlaid all of our investment opportunities and blend those returns together, we do feel like we actually are in a unique position.
To invest accretively, even in these competitive markets, where we're trying to add to our scale and our concentration yeah. So I would just add you know theres no doubt when you look at the cap rates that some of these assets are trading at that where we're going to be passing on a lot more deals and we're gonna be winning but we also factor into our analysis.
A variety of different metrics. So you know the going in cap rate is one metric, but you know if theres, an asset or a portfolio that has substantial growth substantial below market leases redevelopment opportunity a year, one cap rate and NOI is really just one of many factors that we're taking into consideration when evaluating our strategy.
And as Conor mentioned, it really is a blend of the structured investment with the acquisition the partnership buyouts. So when you put it all together it does come at you know blend out to a return that's well in excess of our cost of capital.
Thank you. Our next question comes from Michael Bilerman with Citi. Please proceed with your question.
Thanks.
I wanted to talk about the sort of spread between leased and occupancy which has continued to grow and what could you just sort of unpack it a little bit it sounds like the leasing activity in terms of driving the lease rate up is a big driver for that and I just didn't know if the tenants not taking occupancy is that.
Due to any sort of is at LIBOR labor or is it construction is there just a delay in getting these stores open for that rent will start commencing or is it just that the leasing environment is so strong to you're pushing the headline lease number faster than you're able to get the stores open.
How do you sort of see that trending as we move throughout the year.
Sure. Thanks, Michael I'll start and then Dave you can you can jump in it is a combination of right now we're seeing leasing volume continued to be a robust levels, where it's taking that that spread up in that that's sort of the driver of it in the first quarter. Now we are laser focused on trying to get our tenants open and paying rent as quickly as possible.
For many many years, we've even have internal expediter that are just focused on the process of as soon as the anchors. The paper on lease we take that tenants in hand walk them through the process of getting their permits and getting open and operating as quickly as possible because the sophistication of tenants very greatly in that process and we felt like it's a <unk>.
I already have ours every day is a is a day that we could be collecting more rent. So that is a big focus of ours and other supply chain issues. As I mentioned earlier are still a factor we have pre ordered a lot of HVAC units roofing materials. Those types of items that we know we use a certain amount on an annual basis to try and expedite the pre.
Labor is still an issue as you've seen the list the tight labor markets now our scale does come in handy. When we are doing multiple projects in areas. We do have the ability to use multiple crews on on <unk>.
On assets that are clustered together. So we do have some scale advantages there and some efficiencies of scale. So thats again, one of the ways that we continue to try and use our platform to our advantage.
Yeah, and then just to speak a little bit about the numbers I'm.
So or at least economic did grow from 270 to 310 basis points. This quarter that annualized rent amount of that delta spread is now equal to a 46 million, whereas previously it was 40 billion when we talked about it last quarter.
We did have a number of tenants that commenced rent this quarter in the quarter is about $1 3 million.
Annualized basis that represents just over $8 million and do you anticipate another $10 million to $15 million to come through the balance of this year through tenant openings specifically to your question Michael.
The new lease activity did outpace any impact that we have seen as a result of tenant delays and is still relatively modest when you look at the larger some so we're still on track for the year, but the pool is growing as a result of the demand that we've seen on the new lease activity.
Thank you. Our next question comes from Anthony Powell with Barclays. Please proceed with your question.
Hi, Good morning, just a question on Augusta prior collections.
They were also strong in this quarter.
Our discussions with them with tenants that make that had prior fare collection issues and just generally where are you in terms of the potential pool of prior year receivables that you could continue could correct.
Yeah.
Yeah.
So someone having to prior questions just answered that part of your question, we didnt have that $6 4 million and collections that related to prior period receivables.
And then just also to note our cash basis tenants.
Yeah, we did collect 76% on the receivables.
Thanks for the question.
If you're looking at you know, what's the potential off of course.
Would love to know truly what it is we're going to get paid on our uncollected, but I think it's helpful to break it down and in this way we look at our reserve about 70% of the reserve relates to cash basis tenants such as it's about any part of <unk> and.
And then inside that number I'll break it down a little bit further for you.
$9 6 million of that was related to kind of that nature.
So I'm quite when the tenant vacates, the probability of collecting a little bit harder at that or.
They're not a ton of them.
And then the piece to that to keep in mind.
That cash basis number 1.5 million related to the receivables so.
Have a long period of time to pay those receivables, but I think with all of those pieces. It kind of lays out what do you have potentially on on a high rise, but again, we don't really know exactly what it is we're going to collect I'm hopeful that when you acquire something but I'll, probably do brings everybody to be conservative.
Thank you. Our next question comes from Derek Johnston with Deutsche Bank. Please proceed with your question.
Hi, good morning, everyone.
Ross given the rise in the tenure.
Cap rate spread is pretty compressed versus historical.
No there is ample investor capital focused on retail, but what are you starting to see any real time upside pressure to cap rates, perhaps fewer bidders I mean, so far I agree they do seem pretty firm.
But either in future potential deals or not yet how is private market investors sentiment trending.
Yeah, no. It's a great question and we're watching it very closely and what I can tell you is we have not seen any slowdown as of yet for our product type and I think it's a variety of factors you named a couple there is a substantial amount of capital the fundamentals of our business continue to showcase the strength and when you look at the spread that we have.
Still to some of the other asset classes. It is a very compelling case for investors to buy high quality open air shopping centers. So again, we're watching it very closely we have not seen any slowdown on bidding on both asset that we're trying to acquire as well as some of the assets in our joint ventures that are on the market for sale.
We have an asset right now.
And the best and finals that we're selling and there's there's three or four groups that are really neck and neck trying to win the deal. So I think if there was any sign that there was concern about that we would start to see it in some of these processes and it's just not there yet, but we will continue to be very disciplined with our capital and we watch the capital market.
As closely.
Thank you. Our next question comes from Handel St Juste with Mizuho. Please proceed with your question.
Hey, guys, good morning, and I apologize in advance for a multi parter here, but.
But I wanted to ask you about the spreads the spreads were up big in the first quarter.
I guess I'm curious are we looking at a new norm here, a new level of norm and that you know small shop is becoming a bigger piece of your leasing here.
And with small shop occupancy at 88% what's in the guide for yearend small shop, and then can you clarify what is the same store NOI Guide I think last quarter, you mentioned around 3% just want to get some clarity on if that's been updated at all thank you.
I will take the first two and then I'll kick it over to my colleague Who's going to take third as it relates to two just spreads.
And to say every quarter spreads are lumpy you know spreads are all dependent on the population of that given quarter. This quarter. Obviously, we were encouraged by the spread count.
But even that 18% last quarter was a little bit less but still you know in the double digit range. So it is really just dependent on a quarter over quarter, but generally speaking when you look at the trend line, we look at the net effective rents.
Net effective rents when we look at the trailing four quarters is still growing at a modest pace going in the right direction. So we're encouraged by that as the new rents are helping offset some of the obviously the increase in costs that we've seen due to inflation and supply chain issues et cetera. So it's still very much encouraged by that trend as it relates to it.
Small shop occupancy, yes, it is at 88, 4%.
When you look at a year over year comparable you know, it's up 260 basis points. Weingarten did you have that have an impact to that you know to the positive which is good but even if it can go I guess your stuff were up substantially year over year. So it is moving in the right direction.
In terms of credit we're seeing you know 60% of our small shop deals come from National and regional players who are building a stronger credit base with these new deals on a go forward, which is which is a good sign in terms of sustained cash flows.
Future, but we don't we don't post guidance for occupancy at.
At year end, but again to my earlier remarks, we tend to see a 10 to 30 basis point recovery during the great recession or.
Well now we have a 30 basis point overall game. This quarter. So were encouraged by the science and the direction we're going.
Sure.
As it relates to your question regarding same site NOI as well as we've mentioned a few times already you know 2022 same site NOI guidance is.
It's a little tricky I'm you know that you have so much of a reversal of credit loss in the prior year.
So which is why you saw an incredibly strong same site NOI last year.
Looking at very very difficult or challenging comps for the next three quarters because of that having said that if you want to pull out all the credit loss I'm, just looking at where the growth is coming from it.
It isn't that 3% range and the real encouraging point is because of the increased occupancy.
The minimum rent composition of it really improves so during the first quarter minimum rent component of same site NOI growth made up three 9% of that total growth number so that that that to me is really the driving factor. So.
So we and again at the end of the day, we still think that it all together, even with the credit loss that will be possible.
Yeah.
Thank you. Our next question comes from Caitlin Burrows with Goldman Sachs. Please proceed with your question.
Hi, Good morning, maybe just a follow up question on the Albertsons plan given that late June is just two months away at this point. So could you confirm probably again, whether any monetization is currently assumed in guidance and if it's not why is that is it just that at this point you aren't sure what the use of proceeds would be so choose not to or is there a possibility that you don't want it.
Hi, Sam.
This year.
So it's it's it's not in guidance, except for the fact that the dividends that we earn from the investments are in our guidance numbers.
Again, we monitor the investments very very closely and until we get to the end of the lockout period, it's very very hard to predict what we're going to be able to do and they're still in the middle of their own strategic alternatives. So it's somewhat fluid, but come the end of June we see that we'll have our Apis.
These are options available to us, but again not in the guidance except for the dividend.
Thank you. Our next question comes from Mike Mueller with Jpmorgan. Please proceed with your question.
Yeah, Hi, I'm I'm wondering did any parts of the port portfolio disproportionately add to the quarter sequential occupancy gain whether it was something geographical or weingarten or something else.
So overall occupancy actually.
Gains were made across the entire company. So that was actually a really encouraging sign when you saw.
East to west North to South all see positive gains and momentum in terms of occupancy obviously, when we look at the Sun belt in coastal markets and it's representative of over 95% of our activity.
That's what we're seeing.
Sizable momentum I think it's no surprise to anybody obviously, Florida is doing quite well as is Texas and other markets down there.
And so you are seeing.
Some stronger stronger rent growth coming from from the Sun belt slashed coastal markets versus our non coastal non sunbelt markets, but overall, everyone had a positive gains.
Thank you. Our next question comes from keeping Kim with Truth Securities. Please proceed with your question.
Thanks, and good morning.
So given the strong leasing environment I'm curious about your strategy when it comes to perhaps proactively engaging somebody a weaker.
Credit tenants that may have gotten a boost from corporate demand.
Any kind of insights procure mental approach that you can share.
Jeremy I mean, we're in touch with our entire tenant base on a regular basis for any of those that continue to struggle I feel like the end is in sight, we wanted to be proactive in trying to recapture that spacing and get an opportunity to release to enable them to move on and do something else.
That's what I think is relatively small again a lot of it was purchased through the pandemic.
But we're always normal course of business stay very very close to your tenant base and and the sisters that need help basically like have a longer run rate.
And worked out an agreement for those that you don't think will make them.
We did see a few tenants renew that we anticipated vacating this quarter, which which we found to be interesting because we didn't see sort of the same move outs as we budgeted our anticipated there was a much higher retention rate even on some of the tenants that we thought were going to get back their space. They did not so again that.
And in your earlier comments that we made.
Yeah.
Okay.
Our next question comes from Florida, then take them with Compass point. Please proceed with your question.
Thanks, Good morning, guys I was going to ask you something about getting a green light from the market because you're trading in line with consensus NAV, but Alex sort of asked that one already so I'm going to move on and maybe talk a little bit about leasing strategy and maybe Dave you can comment on.
When you're signing new leases are obviously the majority of your space is anchor space as it is for most strict owners.
And you know those anchor tenants that tend to have longer rents, but when they come up you have bigger bigger spreads potentially but if you can talk about the the bumps that you're getting in particular also the bumps on the small shop space.
Has that gone up are you getting or or are negotiating higher fixed bumps in your rents.
As a result of the <unk>.
Either the market strength for you know the higher inflation environment today, and maybe if you can sort of comment on your on your profile and how that is shifting potentially going forward with the lack of new supply in the market in the last decade in the shopping center spaces that gives you more confidence going forward.
George on some of your.
Some of your growth prospects.
Sure Yeah of course, a lot a lot there so I'll try to unpack it a little bit when economics are really driven by the markets right and in each of the Submarkets supply demand dynamic or is your number one driver to help determine where you have pricing power, obviously with our spreads and what we've been showing we feel good.
The position that we're in that we have the pricing power to push rents north.
Across the majority of all the markets that we operate it as it relates to the bumps and Escalations. When you look at the anchors you know, we typically say 10% to 12%.
On average this is what you're pushing for again it you might get a higher rent maybe an adjustment in the.
Are your increase is maybe there's some consideration to cost so it all goes into the soup there.
German the final economic deal, but you know we tried to push those as much as we can on the small shop side. You know we've averaged around 3% to 4% are historically there are submarkets you know in the Sun belt area that pricing power is such that we can push it further north and that at times.
And our teams are tasked and know the markets best about when they can do that and when they can leverage that opportunity as our occupancy starts to tick up that pricing power should should increase as well.
But really it's a it's a multi dimensional negotiation.
I'm in a place and what's available and in the rest of the economic structure that goes into the deal.
But net net we're seeing encouraging signs or we need to be.
That's the only other thing I would add is that we're in the very early innings of trying to understand the dynamic of how much occupancy costs are changing due to the fact of e-commerce being a halo to the physical store and we don't really have perfect data on that yet, but I think that's part of the reason why our renewals and our written.
Pension rates are much higher.
Cause that occupancy cost is dramatically different than the traditional occupancy costs that reflects sort of the four walls. So I think that's a trend where we're actively trying to unpack.
As Dave mentioned, it really is all market driven but I think the retention rates are going to be higher.
Due to the fact that this additional benefits occupancy cost is flowing through to the retailer.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue.
Our next question comes from.
Chris Lucas with capital one securities.
Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.
Hi, Good morning, one of your smaller peers discussed the capacity to buy non anchored centers given the ability to pursue centers with a higher percentage of credit tenants I know your bread and butter is grocery anchored but is this something you would pursue maybe given the opportunity to achieve better yield.
That's a good question, we do look at a lot of different formats of retail at the end of the day for US. It's a very local business that comes down to the real estate. So if we determine that there is value creation, our upside with below market leases with redevelopment potential there and we would consider any format.
Out of open Air retail you know what.
But we tend to see in the marketplace. Today is the strength of the grocery anchor the amount of visits that it creates the traffic that it creates being a real benefit to the overall asset in the cash flow of that asset. So you know we continue to focus on maybe some larger format centers and grocery anchor, but that's not to say that for the right piece of real estate, we wouldn't consider alternative.
For nuts.
Thank you. Our next question comes from Chris Lucas with capital One Securities. Please proceed with your question.
Hey, good morning, everybody.
Just wanted to follow up sort of counter on your comments about.
<unk> of last mile and I guess I was really trying to understand if there's any relationship in rent pricing between last mile industrial, particularly in selected you know maybe coastal or very urban markets and what youre seeing in terms of what you were able to get out of some of your anchor and junior anchor tenants for you in terms of rents just trying to understand if there.
Any relationship there between the industrial markets and in the box.
Box.
Retail space.
Yeah, Chris It's a it's a really good question because I think we're starting to see that that line being blurred dramatically and it is a tenant by tenant specific of what does their coverage look like in a certain trade area to service the customer and how do they go about utilizing both our industrial footprint and their retailer footprint.
The solve that equation and I think it really just comes down to the specifics of that retailer in that geographic area and how difficult. It is.
To penetrate that trade area. So that's where I continue to think we have a pretty unique situation, where this ongoing trend that's gaining momentum is starting to blur those lines and again on the occupancy cost that I mentioned earlier is starting to change the dynamics I think of the economics of retailers and how much value.
They put on their physical retail brick and mortar space as it can operate in a multiple different capacities. So it is early but I do think that's a trend worth watching.
Thank you. Our next question is from Pollino Rojas with Green Street. Please proceed with your question.
Good morning.
I think that's at the higher interest rate environment to us how your hurdle rate for acquisition.
I'm thinking of that independent of whether you used or not that's financing.
They're keeping all other things constant and the attractiveness of the real.
Beckman.
Oh gosh like relative to other fixed income vehicles.
Yeah, it's very much as a factor and and really it factors into our cost of capital. So when we look at our cost of capital on a daily basis. It is a blend between our cost of equity and our cost of debt and the volatility there does have an impact on that metric. So in theory. It does play into our mindset and our.
Thought process and the hurdle of what we're looking to acquire you know that being said the cost of capital doesn't necessarily move in tandem with interest rates and what we've seen in our program and our external growth is that the combination of the structured investments, which have a very high yield combined with some of the.
Third party acquisitions and partnership Buyouts does still provide us the opportunity to invest at a meaningful spread to that cost of capital even in a environment where interest rates are moving upwards.
Upwards today, so we will watch it very closely we will continue to see how it impacts pricing in the marketplace.
But with the pipeline that we've created thus far.
We're very confident in our ability to invest accretively.
Thank you we have reached the end of a request for an answer session for today I would like to turn the floor back over to management for any closing comments.
Just like to thank everybody that participated in the call today, we hope you enjoy the rest of your day. Thank you so much.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
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Okay.
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