Q3 2022 Kimco Realty Corp Earnings Call
Greetings and welcome to the Kimco Realty Corporation third quarter 2022 earnings call.
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It is now my pleasure to introduce your host Mr.
Bruce Mckee senior Vice President of Investor Relations and strategy. Thank you Mr. Bush Nicky 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.
Thanks, Dave today, I'll kick things off with a brief update on our strong operating fundamentals and our strategic plan as we navigate what appears to be an uncertain and challenging macroeconomic environment.
Ross will follow with an update on the transaction market and Glenn will close with our financial metrics and updated guidance.
First our results.
Another strong quarter continues to validate the quality of our portfolio and our talented team that each continues to shine.
These two Constance will continue to serve us regardless of the ever changing external environment.
The current supply and demand landscape continues to benefit kimco as retailers prioritize our portfolio of open air high quality grocery anchored shopping centers and mixed use assets positioned in first strain last mile suburbs of major Metro markets sequentially total occupancy finished up 20 basis points pro rata to nine.
Five 3% and year over year occupancy was up 120 basis points due to positive net absorption anchor occupancy increased 20 basis points quarter over quarter to 97, 8% and was up 90 basis points year over year.
Small shop occupancy ended flat sequentially at 89, 2% and was up 190 basis points year over year.
It is worth noting that small shop occupancy would have been up 10 basis points this quarter, but for some vacancies associated with our recent acquisition of two grocery anchored centers and fish town Philadelphia in Massapequa Long Island, which had a 10 basis point impact on our overall small shop vacancy.
We view these vacancies as future upside in that leasing activity on all 10 of the small shops at these properties.
During the quarter, we signed 146, new leases totaling 620000 square feet or new lease rent spread was 16, 5% with Burlington, replacing of vacating bed Bath and beyond and the southwest a notable driver. This is indicative of the embedded value in many of our older leases, including that form of.
Our bed Bath, <unk> beyond boxes, which have a mark to market upside ranging from 15% to 20% in.
In the event, we are able to recapture these bed bath and beyond spaces, we have a variety of backfill candidates such as grocers dominant omnichannel players or off price retailers, many of which have already shown interest in those boxes with virtually no new supply in over a decade, our strong credit tenants are finding it difficult to meet their new store.
<unk> targets and have been aggressively pursuing opportunities.
Nothing accentuates, the supply and demand imbalance more than the heightened retention levels, we continue to experience.
During the quarter, we closed 315 renewals and options totaling 1.5 million square feet.
Third quarter renewals and options spread was six 2% with options ending at seven 9% and renewals at five 2%.
We reported only 111 vacates totaling 430000 square feet this quarter, which is almost 20% lower than the five year historical average for third quarter Vacates overall third quarter deal volume was a record at 461 deals totaling 2.1 billion square feet with a combined spread of seven 5%.
Notwithstanding.
Standing the favorable demand we continue to monitor the quality of our tenant base and remain confident that the tenants who have endured the pandemic with kimco are battle tested and have a higher credit quality. We are mindful of the current inflationary environment and the potential shifts in consumer behavior with that in mind I want to highlight our strategic priorities that have already put us in a strong position.
<unk> and which we believe will enable us to continue to outperform.
At Kimco, we always focus on creating long term value.
Building a business for multiple cycles multiple black Swan events is not easy and the.
Last five years. It seems we have experienced more frequent once in a lifetime event than in previous decades, combined and a critical component of our success in navigating these occurrences all starts with our team and our culture.
We're fortunate to have a seasoned energetic diverse team and our board of directors that understands it takes resolve and patience to allow a strategic plan to be executed.
We prioritize integrity, we're doing the right thing is embedded in the culture and working together through adversity can be highly rewarding.
Having the right people is unequivocally essential for weathering economic cycles, and we are laser focused on building out the best team.
Our team building efforts have not gone unnoticed, we are proud to be the only public company to receive a great place to work and real estate a war as voted by our employees.
We take sincere pride in continuing to elevate and nurture that kimco culture and serve as a leader in the industry.
Another priority is liquidity, which always needs to be a top priority and real estate.
When a company like Kimco has financial strength relative to others. It provides a unique advantage, enabling us to seek out opportunities in moments of distress and find those generational opportunities in.
In addition, we benefit from a long dated debt maturity profile that is predominantly fixed rate a.
A diverse lender base, a large line of credit ample amounts of free cash flow and an investment grade credit rating, which sets <unk> apart.
Our recent partial albertsons monetization has already boosted our unique liquidity position as we move forward, we'll have the opportunity to monetize additional ACI shares and reinvest in growth opportunities.
We also plan to continue focusing on our core competency, which is owning open air grocery anchored shopping centers located in high barrier entry markets with below market leases.
Importantly, our grocery anchored necessity based portfolio offers proven defensive characteristics, while simultaneously offering ample opportunity to execute a re merchandising plans.
These include further improvement in traffic sales and cash flow at the asset level. This.
This is how we anticipate being able to continue to outperform with the ever changing economic environment notwithstanding.
And finally, we are patient and able to wait for unique opportunities for which can go can use its platform to continue to create long term shareholder value.
We are well positioned to look at the broad landscape of investment opportunities and make sure we invest at a spread to our weighted average cost of capital that will help kimco outperform over the long term and with that I will turn it over to Ross.
Thank you Conor and good morning, it's been a busy few months and a variety of fronts, but importantly, kimco is as well positioned as we've ever been to potentially take advantage of the ever changing market conditions.
With the recent bond refinancings and partial Albertsons monetization completed our liquidity positions us to continue to be opportunistic.
On the transactions front as previously mentioned, we began the quarter by completing the acquisition of two grocery anchored assets from the Cedar portfolio. In addition to the participating loan on three grocery anchored assets in Pennsylvania.
Select disposition activity continued with the sale of nine shopping centers and two land parcels in Q3 or $188 million with Kim's share of $64 million.
These sales included several joint venture assets highlighted by the exit of a legacy Weingarten joint venture consisting of the five remaining assets from the partnership.
Kimco has ownership of that venture was 15% and included assets with demographics inconsistent with our core portfolio.
Additionally, during the quarter Kimco was repaid in full on the first mezzanine loan that we made since the formation of the structured investments program in 2020.
The Unlevered IRR on that 20 months investment was 12%.
As the quarter progressed rising interest rate environment, and overall market uncertainty led to a slowdown in deal flow given a widening spread on the bid ask between buyers and sellers.
Majority of assets that were put on the market for sale. This summer either have not transacted are delayed until 2023 or had been pulled altogether.
The exceptions were committed deals that already had financing plans finalized.
For kimco, given the strength of the portfolio, we have minimal dispositions planned and have the luxury of being price sensitive due to our strong liquidity position.
As we look at the remainder of the year, we expect to execute on a few dispositions that were committed in prior months and should get done by year end.
Looking ahead to 2020 three we remain confident about the fundamentals of our business and our core portfolio, but also excited about the prospect of taking advantage of dislocation.
Rivers, well capitalized companies with strong conviction for open air retail properties.
As was the case in the early stages of the pandemic in 'twenty 2020 'twenty, one we intend to be judicious and disciplined with our capital allocation, while ready to capitalize on unique opportunities.
This should enable us to generate outsized returns on quality real estate when liquidity is at a premium and our enviable capital position is the exception and not the rule.
I will now pass off to Glenn to provide the financial results for the prior quarter.
Thanks, Russ and good morning, we had another very productive quarter highlighted by the strong leasing activity in that kind of walk through as well as positive same site NOI growth. In addition, we have further improved our leverage metrics and extended our debt maturity profile, while maintaining a high level of liquidity.
While we can't predict the future as it relates to stubborn inflation and continuing rising interest rates, so far consumers and our retailers are weathering the impact now.
Now for some details on our third quarter results.
<unk> was $254 5 million or 41 cents per diluted share for the third quarter 2022.
This compares favorably to the $173 7 million was 32 cents per diluted share in the third quarter 2021, which included $47 million or eight cents per diluted share related to weingarten merger expenses.
The increase in F. F O. Excluding the weingarten merger related costs was primarily driven by higher pro rata NOI of $42 4 million with $32 4 million contributed from the Weingarten acquisition.
The NOI increase also included $13 7 million from core portfolio growth $4 million from other net acquisition disposition activity and $2 million from lease termination fees.
The NOI increase was offset by the $9 1 million change in credit loss due to the significant level of credit loss reversals recorded in 2021.
It is important to call out through the first three quarters of 2022, we have recognized $7 4 million of credit was income from reversals of prior year reserves.
In terms of interest expense, although it was only $700000 higher and includes a one time $7 million benefit from the acceleration of the fair market debt amortization from the early repayment of two weingarten bonds during the quarter altogether, we derived approximately two cents of <unk>.
So benefit in the third quarter that will not carry forward.
Our operating portfolio delivered positive same site NOI growth of three 1%, which includes a 10 basis point benefit from a redevelopment projects.
If we excluded the impact of credit loss and abatements. The same site NOI growth would have been five 7% for the third quarter.
This is an excellent result, as we were comping against a 12, 1% level last year.
The minimum rent component contributed 480 basis points, lower abatements added 90 basis points and higher percentage rent added another 60 basis points.
These increases were offset by the significant level of credit loss reversals recorded in the prior year quarter.
Turning to the balance sheet during the quarter, we issued a new $650 million, what 0.6% unsecured bonds, which was scheduled to mature in 2033.
Proceeds along with cash on hand, we used to repay all our remaining unsecured debt due in 2022, and 2023 totaling $902 million with coupons ranging from 3.125% to 3.5%.
We also paid off $46 million of mortgage debt during the quarter. These actions enabled us to proactively address all our near term refinancing risk.
Importantly, our weighted average debt maturity profile now stands at nine seven years.
We finished the third quarter with look through net debt to EBITDA of $6 three times, which includes our pro rata share of joint venture debt and a perpetual preferred issuances.
This is the lowest leverage level, we have ever reported since we began disclosing this metric over a decade ago.
Further this ratio does not include any benefit from our Albertsons investment, which had a value of just under $1 billion at quarter end.
Our liquidity was approximately $2 billion at the end of the quarter comprised of nearly 1.9 billion available on our revolving credit facility and $124 million in cash sub.
Subsequent to quarter end, we sold 11, and a half million shares of our Albertsons stop receiving $301 million in proceeds.
Based on the capital gain of approximately $250 million, we expect to pay approximately $61 million in capital gains tax, which would net kimco approximately $240 million, which can be used for accretive investments and further debt reduction as a side note to the extent the company pay.
This federal tax on this capital gain our shareholders will have an opportunity to receive a credit for their pro rata share of the tax the company is paid.
We will provide more details on this as we approach year end.
Based on our strong year to date results and our expectations for the fourth quarter. We are again, increasing our 2022 <unk> per share guidance range to $1 57 to $1 59 from the previous range of $1 54 to $1 57.
This new guidance range takes into account the onetime benefits we derived during the year.
Higher interest expense from our debt refinancing completed during the third quarter and the reduction in debt fair market value amortization.
Credit loss for the fourth quarter of zero to $1 million positive same site NOI growth and the impact of the Albertsons monetization discussed earlier.
As we have in the past we plant to provide our 2023 outlook. When we report our fourth quarter results that said given the ever changing global economic landscape, we want to provide some perspective for the coming year.
Based on our current total debt stack, we expect interest expense to be $24 million higher in 2023.
This is the result of the reduction in the fair market value adjustment associated with the Weingarten bonds recently paid off higher interest rates from the refinancing we have completed and higher sulfur right.
We recognized $7 4 million of income from credit loss reversals. This year, which we do not expect to continue in 2023 instead.
Instead, we will likely revert towards historic norms with an initial credit loss expectation of 75 to 100 basis points to revenues given the uncertain macro environment.
In 2022, we had about three cents per diluted share of one time items that we don't expect to repeat in 2023.
Moving on to our dividend.
<unk> on our strong third quarter results and increased guidance range.
What if directors has again raised the quarterly cash dividend for the fourth consecutive quarter to a new level of <unk> 23 per common share.
This represents an increase of 4.5% from the previous level of 22 cents per common share and 35, 3% over the 17 cents per common share a year ago.
We continue to maintain a dividend distribution level in line with estimated taxable income from recurring operations and retain over $200 million of free cash flow annually after dividends and Capex. These amounts do not include the benefit from a partial monetization of albertson stock or dividend.
Proceeds we expect to receive from the announced Albertsons special dividend, which we are scheduled to receive on November 7th totaling $194 million.
Upon receipt, we expect to declare a special dividend comprised of either cash or a combination of cash and common stock before year end to satisfy the REIT distribution requirements and retain as much cash as possible for future investment and debt reduction.
Lastly, I would like to again acknowledge the efforts and commitment from the entire kimco team and all they do to create shareholder value.
And now we are ready to take your questions.
Thank you we will now begin the question and answer a question to ask a question you May Press Star then one on you touched on firm.
You are using a speakerphone, please pick up in Hong Kong.
The key.
If it wasn't part of your question have been understanding I would like to would you issue.
Thank you.
Please note please limit yourself to one question and you are welcome to jump back into queue for a follow up.
At this time, we will pause momentarily.
Uh huh.
The first question comes from Michael Goldsmith with UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question Conor last quarter you qualify the results with cautious optimism. This quarter. The market was described as uncertain and challenging can you talk about what you're seeing in your seat on the overall market and how it's evolving and presumably tenants are starting to have conversations.
<unk> is about 2023 store openings has there been any change in posture to their thought process and I recognize you have a lot of different tenant types of just trying to understand.
The change in tone, and how that may translate to tenant demand kind of in the upcoming year.
Sure. It's a great question I think when you think about how we've positioned ourselves. We continue to think our portfolio is poised for growth and so our cautious optimism remains.
Our strength of our portfolio and our team is shining through as you can see the results really continue on the same path as previous quarter on the macro side clearly the cloud you've got darker on the horizon, there's more uncertainty. So when you get those types of flashing warning signs you need to make sure you prepare for what May come next and that's where I think the tone and our earning.
Scripps have.
To outline exactly how we're focused on preparing for what could be a challenging environment.
The good part a good part for kimco as.
They've got a very battle tested team and the portfolio has been transformed so when you look at the supply and demand dynamic for kimco portfolio and the resilient kimco consumer.
We feel like because we offer that value and convenience component.
Should be in a very good position to weather any type of storm.
Come next year. So overall the retailer commentary has not changed 23 is pretty much baked by this point when you look at the retailer open to buys.
Those deals have already been solidified.
Looking for deals in 2024, and they haven't slowed down there's still a lot of demand out there and a lot of ways. This might be the best leasing environment, we've ever seen.
The breadth of the retailer demand and the lack of supply.
Next question comes from Samir Khanal with Evercore. Please go ahead.
Good morning, everyone, Hi, Connor in your opening comments, you talked about seeking growth opportunities given your financial strength.
Especially in light of.
Given the recent monetization of that.
Albertson's that you've done thanks.
We're happy to do it wrong, you can chime in as well clearly we've got a.
Nice landscape of opportunities, but we look forward.
With our liquidity positioning it's pretty unique to come into a point, where banks are already pulling back we're not seeing a lot of bond deals getting done youre seeing a lot of floating rate debt, that's coming to maturity, you're seeing a lot of C. N V S maturity coming up.
Typically signals distress or some type of dislocation, where if you've got dry powder, you could pretty much take advantage of it.
When we look at our unique set of opportunities clearly, we'd love to buy core acquisitions with growth embedded in the cash flow those have been hard to come by in our markets, where we continue to mine for those unique opportunities.
What we have found a little bit more on the opportunity side is on the preferred or Mezz structure. We continue to think that that capital with the higher return is a nice opportunity for us to get out the door with the Roper robo to have a future acquisition opportunity on that asset.
And that may be something that again may come into focus next year as capital.
That's tightened up.
Yeah, no and a lot of ways these environments or where we have the ability to view our most attractive yields just looking back at the onset of the pandemic in 2020 and early 2021, I think we were able to accomplish some really unique opportunistic investment that became much more challenging over the last 12 months as the market recovered and a lot of them.
That's fast money that came in 10 31 exchanges and we're really pushing pricing have all subsided at this point, so and a lot of ways. We think 2023 will be the perfect environment for us to go back out there to buy some really attractive structured investments. We continue to have conversations with all of our joint venture partners.
Who may have an interest in monetizing in a choppy environment and as Conor mentioned, while the bid ask spread on the core acquisitions had been wide.
Late you do hanging around the hoop and have lots of open dialogue with progress with brokers and a lot of owners that they consider selling next year.
And we'll be ready to do that with our liquidity position and move quickly if given the opportunity.
Our next question comes from Greg Mcginniss with Deutsche Bank. Please go ahead.
Good morning.
No Glenn in line with your goal to retain as much cash as possible from Albertsons proceeds as you mentioned in your opening remarks.
Now how much might you pushed that kind of share and a cash ratio and a special dividend.
I'm, sorry can you repeat.
The last part I didn't hear it.
How much might you pushed the share versus cash distribution on the special dividend.
So we haven't finalized it yet it's something that we still need to go over with the board.
There's a requirement to do a minimum of 20% in cash.
So we will finalize it over time, but I mean, ideally, we're going to try and retain as much cash as we can and again, it's at the shareholders' Royal Maple relative to any stock dividend that we would issue since its pro rata amounts.
The full range of shares shareholders.
Question comes from one corner three outlet BMO capital markets. Please go ahead.
Hi, good morning, and thanks for the time, just maybe a question for Glen on on the guidance.
Thank you walked through it and apologies if I missed it what the driver is from an ethical perspective on the implied fourth quarter T cell for <unk> and then just curious if you can give more comments as part of that on the same store NOI guidance I believe here at 5% year to date, but you're kind of holding the.
Commentary about just being positive. So maybe you could just give a little bit more context around some of the puts and takes.
Same store NOI.
Sure. So first just on the guidance. So we didn't as I mentioned, we did raise the guidance.
$2 $57 69 in the previous level.
We are comfortable quite candidly at the upper end of the range.
So that would imply roughly a 39%.
As I mentioned, the third quarter. It did have about two cents.
Oh quote one timers in there from the other.
Fair market value of amortization that would helpful.
A couple of million dollars of LTA. So.
We feel pretty comfortable at the upper end of the range as it relates to the guidance.
So on the same on the same on the same site NOI I would say will there probably be close to where you saw us in the third quarter in that range probably not.
3% ish range.
When you look at the whole.
What can it altogether I think we are up against a pretty tough comp of over 12%, but I think it'll be pretty close to where we saw the third quarter.
Okay credit loss.
Income has come down significantly and as I mentioned, we really think we've come to the end of where we're having income from private wealth.
It's a little start to revert back towards something more in line with what you've seen previously 75 basis points plus of credit loss.
Hum.
Oh, okay.
Please go ahead.
Hey, good morning, So I guess, maybe one.
Ross on the transaction side given your activity here in the quarter I was curious maybe.
Maybe you could give us some perspective on cap rates I know, they've they're moving but curious on where you you transacted on your acquisitions dispositions during the quarter.
When those occurred I think there's probably around the quarter, and then where do you peg cap rates today.
And then.
What would you need to see in terms of cap rates to get more active given your higher cost of capital here. Thanks.
Sure Yeah, I mean cap rates are certainly a bit of a moving target in this environment, while they don't necessarily basis point for basis point with interest rates there has been a little bit of a lag.
It's have risen pretty dramatically and so it is a little bit difficult to peg exactly where yields are today, particularly because as I mentioned deals that are not previously committed.
As of the last 45 to 60 days, plus you're really seeing a bit of a pause in the market place today.
Where I think buyers are still comfortable moving forward on core acquisitions are not necessarily where sellers are willing to sell today.
Now that might start to change if you see a little bit more distressed and of course, selling which I think will start to mark.
Where cap rates will trend at that but right now you're seeing a pretty wide.
This is Brad.
Clearly the sub five cap a grocery anchored shopping center transactions that we saw through the first half of the year.
Are not penciling for our investors today.
Deals that we did close in the quarter.
Were all based upon an insight in place cap rate.
That work in the mid to high fives.
Again, as we talked about in previous quarters are often looking at cap rates. It really is just a spot check at a point in time I think guy in the prepared remarks, you talked a little bit about some of the vacancy in the assets that we acquired.
Be able to fuel our growth and get our CAGR and our IRR is to an acceptable level.
While cap rate is something that we do factor in its not the end all be all metrics that will be looked at so we'll be watching very closely the condition that we're in enables us to move once the potential Asian with sellers starts to occur.
Clearly, we're waiting for a little bit more clarity on where sellers are willing to transact or do you see a whole lot of.
Closings occurring certainly by the end of this year and as we get to the beginning of next year.
The next question comes from Alexander Goldfarb with Piper Sandler. Please go ahead.
Hey, good morning, good morning out there it sounds like it's a one question.
So I'm going to focus on the Albertsons and the tax.
On the dividends and capital gains and all that fun stuff can you just provide.
To the extent that you can disclose.
How much of Albertson sits in the Trs how much is in the REIT.
Abilities to.
Either you know manage the taxable gain it doesn't sound it sounds like you're already paying out sort of your taxable income, but maybe theres some stuff coming up next year, but just give some perspective and then also more color on what do you mean, the tax credit that shareholders get.
In REIT land, we don't normally hear about that so maybe just a little bit more color on that aspect as well.
Sure Great Great Great question, Dallas, and you're right. This is definitely.
It's definitely not the norm for the REIT sector at all so.
Really great problem to have like the support.
So first of all the shares today sit in the REIT.
Yes Hello.
So I got six years ago.
We had in 2016 the shares were in the Trs we have merged them back is what we.
And upon waiting five years, which is which is past any of the built in gain related to the shares in the Trs.
Really expired. So now all the shares are sitting in the weeds.
Now, it's a matter of as we deal with the game.
It's a capital gains so we have to make sure that we're staying in compliance with.
The recast one of the REIT test being the gross income so we monitor that and we'll find the capital gain then question is how best to retain the capital for future investments debt reduction are all things that we're doing business.
We have decided that we're going to pay the capital gains tax on the piece that we've monetized and as I mentioned attached is about $60 million with us paying as a REIT with us paying the capital gains tax.
I'm going to provide information that all of the shareholders are entitled to a credit how does adoption credits their pro rata share.
So we say.
So there's a form to be filed and tax returns that might be filed by non exams.
But there's a clear path to getting that cash even if you're not paying anything.
We plan to provide pretty significant detail on that on our website as well as outreach to our shareholder base, so that they understand the roadmap.
Need to take I think it's a as you said, it's a unique situation and we will make sure we have allocated time and efforts.
You understand what they need to do to get that tax credit.
And then the other thing I'd add is you know, we still own $28 3 million shares of stock.
And that our expectation is that over the next two years 'twenty three 'twenty four well monetize it and that'll allow us allow.
Allow us to maximize.
As much cash as we can as we continue to work through the distribution requirements.
Our next question comes from Craig Mailman with Citi. Please go ahead.
Hey, guys.
Just a quick question is Ross and we're running to the investment environment through guidance.
There was no mention of the $400 million acquisition in long Island that you know you guys have talked about in the press. Just curious is that still on the table here or should we think about that as sort of the country are delayed into 'twenty three.
Sure.
Yeah, I mean look our policy has been not to comment on transactions until they close.
We do anticipate that there will be a different additional closings. This year in the next 60 days on both the acquisition on the disposition side. So we'll certainly provide more detail.
As soon as any of those transactions do close now the one thing that I would comment on the lifecycle of some of these deals is that they all have their own nuances and they all have significantly different timeframes.
Our bread and butter all cash transaction can close very quickly other larger portfolio transactions often times have different nuances that name.
Very significant created tax structuring.
To that point certain deals do.
The next question comes from Snowy and Beach come that Congress Green. Please go ahead.
Good morning, Thanks, guys for taking my question I wanted to actually.
But not necessarily talk about yields and yield expectations, because as you rightly point out that can be a moving target Ross, but maybe if you could talk about what has happened to your IRR expectations since the beginning of the year and and how do you how do you see that evolving.
A good question, we absolutely look at our cost of capital on a daily basis. So while cap rates are a moving target you know frankly, our internal hurdles are also a bit of a moving target, but I can tell you is that from an unlevered IRR perspective at a minimum we're looking at transactions that have a clear high single digits low double digits.
The next question comes from Craig Schmidt with Bank of America. Please go ahead.
Thank you.
As a run rate can we expect closer to the double digit gains in operate operation expense.
Craig It's a good question I think we're gonna have to get back to you on the detail on that breakdown I think the operating expenses may have some one time items in there.
That type of jump, but well well well unpack that and give you the detail and follow up with you I don't think you'll see that continue I think.
A pretty good job of making sure we manage our operating expenses.
I don't see any sort of spikes that we can't control. So we.
We'll get back to you on that one.
The next question comes from keeping team that's truly securities. Please go ahead.
Thanks.
Good morning.
Want to go back to your earlier comments about 2023, and I think you've mentioned.
Youre expecting a credit loss reserve of 75 to 100 basis points I was wondering if you could just put if you can frame that for us.
What that looks like in a typical normal year I realize we haven't had a normal year in a while.
And how much of that reserve.
Account for tenants that are pretty much identified versus stuff a buffer for things that might.
That might come from left field.
Yeah sure sure Okay.
So the credit was historically pre pandemic for a pretty long run rate. It was running somewhere in that 60 to 75 basis point per year range.
It's just mathematically if you looked at it.
This 75 to 100 basis point target area, our expectation area because of where we are viewing the economy and the uncertainty in it we're looking at something in a dollar range of.
And then ran $18 million, so $15 million to $20 million in total on that 75 to 100 basis point spread.
So that'll give you an idea it is not targeted or specific to any particular tenants I mean the I.
Our tenants at risk list is actually pretty short.
But again.
Yeah, we're watching pretty closely it's been a it's been a long cycle not a lot of bankruptcies.
Rents have held up incredibly well, but.
Again, we're in a pretty uncertain time, and there's a lot of rhetoric around recession coming and what that might mean, so our approach is just to be.
I'm cautious about how we how we guide.
Okay great.
Our next question comes from John He'll Camden with Morgan Stanley . Please go ahead.
Great just a quick one for me on just the financing markets are just number one can you remind us.
Where you could sort of issue debt today I recognize you may not need to and so forth that'd be helpful. And then the second piece of it is if I just take a step back and I think about the <unk>.
You know <unk> to 2020 five target that that team has put out.
Clearly, we're in a different sort of interest rate environment financing environment for retailers for REIT, maybe can you just comment on what you think changes potentially.
In this new environment.
So I'll take the first part of your question I would say that we're really really happy that we went to the market. What we did and found a very small open window through the issuance we did.
We pushed our debt maturities out so we have no debt maturing for the balance of this year or really all right.
Great.
It is interesting is as rates have risen pretty dramatically normally we would would've expected spreads to come in a little bit, but I would tell your spreads are wider today than the day, we issued our issuance was done at 190 over the.
We're probably in the $2 20 range in terms of spreads today on a 10 year.
So you can do the math that Oh treasury today is around sports and.
So you're looking at somewhere around a coupon of around 635 to probably what he.
So again we.
Have no need to go to the market.
The nice part about our debt all the consolidated debt virtually fixed rate for a pretty long time at nine seven years. So we don't have short term exposure to the rate environment.
And like anything else, we'll continue to look at the debt stack and be opportunistic.
Oh and look to repay.
Future bonds at an appropriate time.
Your question about the 2025 goals I think that we're consistent in trying to make sure that we set a.
Goals that we want to try and achieve that might be somewhat aspirational, but we want to push off each other to try and reach those goals clearly financing market has changed pretty dramatically, we see the cash flow growth continuing.
That's the exciting part about our business fundamentals are quite strong when you look at the leasing demand and the lack of supply.
The stickiness factor that we're seeing with our retention rates. We continue to think the business is on very solid footing.
So we'll continue to monitor that situation, but yeah, we've got a lot of future entitlement bullets that we planned ahead as well.
We secured 1500 units this year, we'd like to get that up to maybe eight to 800 in 2000.
By the end of the year, so we're stretching to hit that.
They continue to think that when times get tough typically it is.
It is sometimes loosen up on entitlements, because that's usually what they're trying to.
To find ways to increase their tax base and find ways to increase the operation of their of their there'll be poly. So hopefully we can secure even more entitlements if things do get talk.
Before we go to the next question I just wanted to clarify Craig Schmitz question on operating expenses. The increase in operating expenses really was derived from having a full quarter of wind garden.
Portfolio. This quarter, we closed in August of last year. So now we have a full three months. This quarter. If you look at our operating expense ratio margin, which we put in the supplemental this quarter you could actually see we're recovering more than we had previously so honest point, we're doing a better job there.
You could take the next question.
Thank you. The next question comes from MS. Golla Die led bank. Please go ahead.
Hey, good morning, everyone. It's Wes.
And just a quick question on the Albertsons monetization potential for next year would that'd be a cleaner year, where you'd call. It monetize 375 million and you wouldn't have to pay any taxes you'd be able to retain all the cash flow and then when we look into 2024, if you get the bigger lump sum we may be looking at a scenario that is more like this year, where you may have.
Some cap gains that you have to distribute it and then if I could get an unrelated second part question and here I'm just kind of curious why the jb's have higher floating rate that we've seen that for many companies just didnt know if with the partners we're pushing for.
Great question. So let me let me take the Albertsons first and then I'll talk about the JV partner.
So if you look at where our current dividend is we are very very close to where.
Taxable income and the dividend are really in line, but just from the recurring operations does not include what would a capital gain from the remainder of the Albertsons. So it's going to require additional tax strategies adoptions that we can find along the way to shelter some of that.
If not we would be in the same position actually this year, where we would have to either pay the tax.
To retain as much capital.
You know that that those those are our options I mean, because we are keeping the dividend, it's really important for us to keep the dividend based on recurring operations keep that fad number.
Low 70% range and we have lots of cushion for us the specials, we just have to deal with them as they come along and look for whatever whatever shelton.
As it relates to the Jv's.
Again, some of it is because again.
Again, theres somewhat sometimes viewed as a little bit more transitional.
As you've seen we've got a lot of.
Properties out of the joint ventures overtime.
You know it's been a you know it's kind of an agreement between the partners how they want to do it in the care portfolio, we actually have almost fully an unencumbered pool of properties. That's financed with unsecured bank debt. So there is there its been done is floating rate and it's been fine for the lever.
Just so.
To just keep it keep it floating for now.
But you are right, we do use more floating rate debt within the JV and anything in the parent then it's a it's a combination of working with partners.
The partners like us to give them a little bit more flexibility to if they want to put the asset on the market for sale.
In essence, you don't take out the floating rate, so I think thats part of it as well.
The next question comes from Mike Mueller with JP Morgan. Please go ahead.
Yeah, Hi, I guess looking at the size of your redevelopment and mixed use pipelines and just given the backdrop today can the size of that pipeline stayed the same over the next couple of years as projects are completed or should we think of it as likely contracting some.
Thanks, Mike I. Appreciate the question I was getting back inquired over here. So I can jump in at the end.
Yeah, we were very opportunistic with our with our redevelopment pipeline. As you know do you think is kind of our entitlement program, it's pretty exhaustive with thousands of units that are entitled.
Ready to go when the markets are warranted and what our cost of capital as such and we can find a structure that makes sense and we're looking at multiple projects.
In the near term that potentially activate.
While considering all those other variables I just mentioned you know the good thing about.
Our program in the markets in which we operate in there there's still clear demand for the product, especially on the multifamily side you hear a lot of headlines you read a lot of headlines related to the under supply in the residential market.
So there is housing demand that is very much a driver of the opportunity as well in California, and Florida et cetera. So we continue to look at that in terms of our core redevelopment pipeline that we continue to activate it it is driven by leasing right and the opportunities there as Conor mentioned in his earlier remarks.
Leasing demand is such that we really have the COVID-19 inventory that's getting absorbed quickly our retailers are very much out there trying to hit their open to buy targets are achieved their growth goals and in our core redevelopment program fits right into that to help solve.
For their needs and our needs and build a better mousetrap. So we continue to see a nice healthy cadence and pace.
And in the coming year, and again, you'll hear more in the coming quarter, it's about the.
The rest of the program.
This concludes our question and answer session I would now like to turn the floor back over to the management.
Closing common.
We appreciate everybody taking the time to join US today for the earnings call. We hope you enjoy the rest of your day.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.