Q3 2022 Kite Realty Group Trust Earnings Call
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Okay.
Good day, and thank you for standing by.
Welcome to the Kite Realty group's third quarter 2022 earnings conference call.
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I would now like to hand, the conference over to your speaker today.
Ian Mccarthy Senior Vice President of corporate marketing and communications. Please go ahead.
Thank you and good morning, everyone welcome to Kite Realty group's third quarter earnings call.
Some of today's comments contain forward looking statements that are based on assumptions of future events and are subject to inherent risks and uncertainties actual results may differ materially from these statements.
For more information about the factors that can adversely affect the companys results. Please see our SEC filings, including our most recent Form 10-K.
Today's remarks also include certain non-GAAP financial measures. Please refer to yesterday's earnings press release available on our website for reconciliation of these non-GAAP performance measures to our GAAP financial results.
On the call with me today are chairman and Chief Executive Officer, John <unk>.
President and Chief operating Officer, Tom Mcgowan, Executive Vice President and Chief Financial Officer Heath fear.
And your Vice President and Chief Accounting Officer, Dave <unk>, Senior Vice President capital markets, and Investor Relations Tyler Henshaw I will now turn the call over to John Thanks, Brian Good morning, everyone.
So before we dive into our strong quarterly results.
I wanted to take a moment to mark the one year anniversary of our highly successful merger.
While we knew from the outset this is going to be an incredible transaction with.
We significantly outperformed both internal and external expectations.
Due to our best in class operating platform.
And the strength of our high quality portfolio over.
Over the past year <unk> generated a quantum leap forward across every meaningful metric.
Of the top 10 open air peers by total enterprise value.
We ranked first in year over year <unk> growth.
And year to date blended cash spreads.
<unk> and NOI margin.
First in recovery ratio and.
And first in year over year decrease in G&A as a percentage of total revenue.
We ranked second and net debt plus preferred to EBITDA.
And year to date leasing production as a percentage of our total GLA.
And percentage of ABR coming from the Sunbelt and second and signed not open NOI as a percentage of same store NOI.
We also ranked fourth in liquidity as a percentage of total enterprise value.
The numbers I've listed a remarkable and we've demonstrated our ability to operate with the best in the industry.
When you compare metrics across our sector.
We stack up much higher than were given credit for.
And I, specifically wanted to call attention to that before diving into our results.
Turning to our fantastic results.
<unk> generated <unk> as adjusted per share of <unk> 48.
Beating consensus estimates by <unk>, <unk>, and representing a 45% increase per share over the comparable period last year.
Our same property NOI growth for the quarter was four 4% and four 7% year to date.
Keith will discuss guidance and provide more details around the components of these metrics, but suffice to say, we're continuing our streak of outperformance.
The primary driver of <unk> results has been our outstanding leasing performance.
We signed 221 leases, representing nearly one 6 million square feet. This quarter, which is an all time high for the company.
To put that in context that is 5% of our total portfolio GLA in this quarter alone.
The strong leasing volume was bolstered by blended cash spreads for a comparable new and renewal leases of 10, 8%.
Excluding option renewals blended cash spreads for comparable new and non option renewals or 15, 8%.
For the first three quarters of 2022, we've leased over $3 8 million square feet.
Blended cash spreads for comparable new and renewal leases of 12, 9% to provide some additional color on our spectacular leasing efforts year to date.
I'd like to highlight three important metrics.
We achieved return on capital for comparable new leases of 37% comparable.
Comparable non option renewal spreads have been 11%.
And our retention ratio.
It has been just under 90%.
Leasing vacancy continues to offer us the best risk adjusted returns available and retailer demand remains strong.
The <unk> portfolio and team are firing on all cylinders.
In addition to the robust leasing environment, we're making excellent progress on delivering our $38 million signed not open pipeline.
Our pipeline decreased by $3 million sequentially as.
As rent commenced moderately rent commencements moderately outpaced new leases signed.
Tenants continue to commence rent ahead of our internal budget and the timing for the NOI to come online can be found on page 10 of our investor presentation.
Our team's ability to deliver spaces on time and on budget and our supply chain constrained World is a testament to the intensity that we have within our organization.
The signed not opened pipeline continues to bode well for our NOI growth trajectory.
As tenants commence rent and we continue to lease additional space.
As a reminder, the $38 million of signed not open NOI is only a portion of the near term growth opportunity as shown on page nine of our investor presentation.
<unk>, our active developments and the balance of the portfolio to pre pandemic levels would equate to an additional $23 million of NOI coming online over the next few years.
On the development front, we have four active projects remaining with limited future capital commitments of just under $60 million.
As we've mentioned our near term capital outlay is primarily dedicated to leasing.
In addition to our leasing efforts our development team continues to further enhance the value of our entitled Land Bank.
In fact, we recently took a significant step in establishing our vision for our adjacent land at one Loudoun.
We received rezoning approval to convert $2 9 million square feet of commercial GLA to 1745 multifamily units and one 9 million square feet of commercial GLA.
Adding entitled multifamily units at one Loudoun is a huge win for the project considering the first phase of multifamily materially outperformed the pro forma absorption rates and rents per square foot.
As a reminder, we will prudently evaluate each parcel in our land bank to determine the highest and best use of the real estate and the best risk adjusted returns for K R. G.
The culmination of all the great things I've, just discussed is allowing us to raise our 2022 <unk> as adjusted guidance to a range of $1 86 to $1 95.
Increase per share at the midpoint.
We're also raising our 2022 same property NOI growth to a range of 4% to 5% an increase of 50 basis points at the midpoint.
I'm extremely proud of the <unk> team's dedication and relentless efforts to produce our strong results.
We definitely come a long way in the past year, and we will continue to showcase showcase our operational excellence.
I'll now turn the call to Heath.
Good morning, and thank you for joining us today as we Mark the one year anniversary of the merger I am in awe of what our team has enabled to accomplish.
Looking a little further into the past it is evidenced that the sheer velocity of positive change I witnessed at <unk> over the past four years is unparalleled in my career.
All of this change would not be possible, but for the boldness of our initiatives tenacity of our people. We are in the business of fulfilling our promises to our stakeholders and that's exactly what we've done project focus in 2019, our sector, leading Covid response in 'twenty.
The execution of the transformational merger in 2021, and the intense integration efforts over the course of 2022 all of these are promises kept.
Here's one more we promise to work tirelessly until we get the appropriate credit for all the progress John noted in his remarks.
Turning to our results for the third quarter <unk> generated 48 per share on an as adjusted basis same property NOI grew by four 4% this quarter with 260 basis points of this growth being driven by contractual rent bumps and increased occupancy and 100 basis points attributable to an increase in net.
<unk> do.
Due to our continued leasing outperformance and higher levels of overdraft versus our initial expectations. Our same store results this quarter beat our internal budget.
Given our same store guidance was increased 50 basis points to four 5% at the midpoint. It is safe to assume that our same store growth for the balance of the year is expected to be largely in line with this quarter.
As John noted earlier, we are raising <unk> as adjusted guidance to a range of $1 86 to $1 90, which is a <unk> <unk> increase at the midpoint from this point forward. We don't anticipate any further variance between <unk> as adjusted and NAREIT <unk> as we've lowered our estimated merger cost to $2 5 million from $4 million.
Which is offset by prior period collections of approximately $2 7 million through the third quarter.
<unk> of the guidance increase is attributable to same property NOI in the form of leasing outperformance higher overage rent and a higher retention rate. The other one is attributable to the change in our assumptions regarding the impact of our full year transactional activity from neutral to one penny accretive further.
More at the midpoint of our <unk> as adjusted guidance, we kept our bad debt assumption flat at 1% of revenues.
As you look towards 2023, please refer to page five of our Investor presentation. While we are not in a position to discuss our internal outlook. We have highlighted some of the components of our 2022 <unk> guidance that will assist you in modeling into 2023.
On the balance sheet front, we had a very active quarter, our net debt to EBITDA stands at five four times, which is in line with our long term target.
As previously announced this past quarter, we upsized our line of credit by $250 million and we issued a seven year $300 million unsecured term loan and fixed the interest rate at three 9%.
It is important to note that our line of credit is currently Undrawn and with $1 1 billion in capacity, we have enough dry powder to satisfy all of our maturities through 2025.
As mentioned on prior calls our goal is to retire maturing debt with proceeds from unsecured issuances once the fixed income market stabilizes.
As previously disclosed last December we entered into two forward starting swaps for an aggregate notional amount of $150 million.
We were fortunate enough to lock in the 10 year swap rate at 136%, which at the time was equivalent to 152% 10 year Treasury.
Subsequent to quarter end, we cash settled both instruments when the 10 year hit approximately four 2% generating total proceeds of $31 million.
For accounting purposes, and based on our intent to issue fixed rate unsecured debt in the future.
We will be realizing the proceeds as an offset to interest expense amortized over the next 10 years starting in 2023.
With our leverage and liquidity profile, we feel extremely confident headed into next year, we like to say that our balance sheet is built for all weather conditions.
<unk> and our conversations of late have been dominated by anxiety associated with the economic gloom. However, negative speculation regarding 2023 is useful to the extent it helps us prepare at this point we are fully prepared our time is better spent planning for the potential opportunities that lie ahead.
Thank you to everyone for joining the call today operator. This concludes our prepared remarks. Please open the line for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
Please standby, while we compile the Q&A roster.
Our first question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.
Hi, Thanks, Good morning couple of questions around the guidance the revised guidance maybe.
Maybe you can help us bridge.
The move down from from 48 in the third quarter to 45 at the midpoint of the revised guidance for the fourth quarter. It didn't seem like there was anything really non recurring in the third quarter.
Lease term fee income was pretty minimal.
Just curious if you could maybe provide a little bit of detail around that that step down as we look forward.
Yeah, absolutely. So first of all there was there was a land sale gain which is nearly a penny in the quarter. So that's sort of a onetime item again, these things recur, but theyre unpredictable.
We also said in our investor deck on page five our development fees are decelerating and.
And we had some nice outperformance this quarter of overage and specialty rent and we hope to be able to repeat that into the into the.
The fourth quarter is something that we can't bank on so again.
It's a slight deceleration based on some things that we are like I said recurring but unpredictable that happened in the in the third quarter I think I would just add that it's a range. So we're giving you a range.
And so far this year, we've we've outperformed so we would hope to.
And the top end of that range not the mid point, but we will see as he said theres a couple of unpredictable things, but it's a range.
Okay with regard to the fee income so, yes, I see that and I appreciate that.
23 considerations that you provided in the slide deck, so $6 6 million of fee income.
What should we be thinking about in terms of how that moderates going forward I mean, whats an appropriate range to consider relative to that $6 6 million.
That's a great question, Tom and I are really allowed some more visibility on that.
In February the issue is that we're sitting on a project with a third party.
<unk> may be or may not commenced into next year. So we have the development fees from existing projects, where sort of trailing off into 'twenty three and then theres a potential that we will sign up something else and have some additional fees in the back half of the year. However, I can tell you that it's going to be.
Yes, even though we start that other project and so maybe for your purpose is thinking about it is maybe half.
Or a little less than half going into next year is probably the right number but again, we'll have more visibility in February in terms of where those fees will be and whether or not we've got southern.
Projects started yes.
We're working on it right now in the first phase. So we are hoping to take that continuous point, but like he said well, we'll wait for the final information.
Okay got it and then.
Regarding the.
The <unk> increase.
In accretion from investments that were completed during the year and that change to the guidance what was the driver of that.
At this point in the year, Todd We don't think we're going to close anything else.
For the balance of the year and were $25 million net acquirer at this point. So just based on the fact that the acquisitions were early in the year that the dispositions and that were slightly net acquirer.
<unk> works out to one penny.
Okay.
Alright, great. Thank you.
Thanks.
Thank you.
And our next question comes from.
Craig Millman with Citi. Your line is now open.
Thanks, guys.
Just kind of curious here.
RPI kind of in the books for a year could you just maybe walk through your experience on.
<unk>.
Maybe the performance results for underwriting more.
Any disconnect between the performance of that portfolio of embedded mark to market versus the legacy portfolio I guess I'm just trying to get at how much of.
Cognizant.
Topper on growth.
To be a feedback to continue to kind of bring the value out of it.
Hey, Craig I'll try to I'm trying to.
I understand the full question, but in terms of just.
I think we are pointing that out in our comments that the.
The performance a year in.
Absolutely exceeded expectations.
I mean, if you just look at where we started the year in terms of the midpoint of our guidance and were 10% above that now so I mean, each quarter that has gone along the leasing has been pretty balanced across our total portfolio and.
It's also in terms of the top line rents.
We've grown.
Each quarter as well, if that's what you're asking so.
I think at this point a year and as you know we don't really look at these.
Properties independently, we look at the totality of the company and we're in a really good position right now with our signed not open pipeline our balance sheet.
And actually the fact that we have room to run on our on our occupancy right. So overall I don't think there's any one particular thing in terms of the underwriting that is different other than the fact that we outperformed our estimates on <unk>.
Rent.
And the timing of the lease up I mean, we significantly outperformed.
And those two categories.
And we've talked about that each quarter and it's coming from the different elements of all of the property types that we own and I think it's really important that we have that balance between neighborhood centers and community centers and lifestyle and mixed use because we're able to generate these returns those returns on cash.
<unk>, we talked about north of 20%, while driving <unk> and cash flow. So that may not be exactly what you were looking for in the question but.
That's how we feel right now.
Yes.
Alright.
A little bit weird.
Just trying to get at you guys did raise guidance by about 10%. This year how much of that may have been outperformance from RPI versus outperformance from kind of a legacy portfolio as we head into 'twenty. Three is there may be more juice.
And then maybe what you guys are willing to underwrite going forward I'm just tried it it was just.
As a way of getting at.
Although upside that's maybe not quite as.
Understood by industry.
Yes, no I appreciate that and I think youre right. It is misunderstood.
And the fact that our operating platform really.
Has shined across this combined portfolio and yes, there is no doubt that.
The acquired portfolio that there was opportunity for us to step in and squeeze more out of.
The orange so to speak so yes, I mean, I think we think that continues.
It's why we've kind of set it up.
The way we have in terms of looking into the year end and again when you have one of the very highest percentages of signed not open NOI in the space as a percentage of your total NOI.
NOI.
<unk> got more room to run.
Yes.
Helpful.
In the quarter, you guys had a pretty good step up.
Renewal leasing versus versus new I assume maybe some of that is higher retention and then could you just talked about <unk> had over the last couple of quarters.
Tenants really working this game space despite rent increases.
How that bodes for kind of the 23 role.
Sure Tom you want to hit that yes, I would say there is no question about the fact that the overall demand generators have really helped us in terms of our ability to both maintain and secure new tenancy.
We're in a position right now that we have a limited amount of space and as part of that the demand is truly outpacing what we have so we're hoping that that that situation continues and that has been the basis for us for being able to generate strong.
Turns and be able to generate the numbers that we're reporting here today.
We like we like where we are at this point.
We'll proceed for us forward in a cautious manner, but all indications if you look at our pipelines through the fourth and first first quarter are not showing slowdowns.
Okay, and then if I could slip one one for Keith just on the amortization will be game.
I missed when how many years that is going to be amortized over that I. Just assume that's probably just ratable is that the way to look at it.
It was a 10 year swaps. So it's over a 10 year term and that amortization will start in 2023.
Great. Thanks, so much.
Thanks.
Thank you.
Our next question comes from.
Jeff Spector with Bank of America. Your line is now open.
Hi, Good morning, I guess my first question just again greatly appreciate all the comments and the <unk>.
Great presentation, and comparing your metrics versus the peers. So just trying to pinpoint.
What you think the disconnect is is it is it too much of a focus let's say on average sized henter demographics is it.
Maybe just a few quarters, where you've consistently are delivering these these type of numbers to close that multiple.
What are your thoughts.
Hey, Jeff.
Yes look I mean, I wish we knew I wish we knew the specific answer to that I think our job is to lay out the disconnection.
And then work to <unk>.
Fix that.
I think when we look at the total picture part of it.
<unk> I would say when a company does a major merger.
A year ago it more than doubles in size at a complex time in the world I think there was a lot of.
People wanted to wanted to see a show me story and I think we've clearly clearly clearly shown them.
And now we just need to get people to understand that you are looking at a company that stacks up.
As one of the best in this open Air shopping center business, but is priced.
And in opposite way so.
Can't tell you exactly Jeff I mean, when you talk about demographics.
Our demographics are strong the three mile average household income in three mile population are both over 100000 or in the Sun belt, we have a good mixture of grocery anchored properties.
So we check the boxes and more importantly, we've outperformed I mean, we've just flat out outperformed and that was what I laid out in my opening remarks. So when you have this combination of quality real estate one of the best teams in the business and outperformance, we do not understand why its not reflected.
Thanks, John Fair comments.
My second question then is just on the.
The signed but not opened.
Just what are the risks I guess, if you think about the next 12 months at least.
On the opening in particular anchors is there any risks around these.
Nine leases in openings.
Compared to the your chart, where you lay out kind of the.
Expected.
Income over over the coming years.
Well I will tell you one thing and part of this relates to our construction and backgrounds.
A group that has been doing this for a tremendously long time, we have a mentality that we're going to we're going to figure out whatever it takes to make it happen and I'll tell you that or so.
Sourcing parts in China.
Looking for different components for switch gear or trying to figure out the pre source mechanical yet so there's a tremendous amount of work that goes on to make sure. We hit these dates but I think you can you can be assured that this team has got a lot of experience on how to deal with issues we haven't.
Holding right now that has 800 Amps service center in Florida.
Not going to have permanent power for a while and we're figuring out how to get underground power to it. So we're going to figure it out and Thats that thought ISR mentality.
But it's a battle.
I will tell you that but that's what this team does so we have confidence in our ability to deliver it then does.
I mean, Jeff bottom line, though if you look at what we've done this year. We've delivered on time this year and frankly have been ahead of schedule. So I think what Tom is referring to is this is another reason to own. This company because we have the background, we have the strength and a particularly complicated world.
And construction that a lot of our other peers don't have because that's how this company started it was it was a construction company when it started and we don't anticipate that we'll have any problems.
<unk> to do that.
Next year in 2023 and.
And frankly.
When you do have a problem, it's 30 days 60 days whatever.
The rents common so this idea that <unk>.
Maybe people don't understand what signed not opened means that rents coming.
It's a matter of which month it is coming in and we lay it out in our investor presentation as good as we can and we believe that that's pretty accurate.
Thank you.
The drive to hit the bottom line.
For the comments.
Just to clarify that we still get that question.
In particular again on the anchors are there any clauses, where the anchor could still back out.
No I mean in general.
Obviously, you have got you cannot over categorize something like that each each deal is different every lease has some nuance to it but when youre talking in general that's not a big risk.
Of anchors backing out generally once your under construction, it's really all on the landlord and you've got you've got times built in for cure et cetera. It would be rare I mean is it possible of course, it's possible, but it would be very rare we cant remember the last time I mean honestly, we're not happened to us.
Last decade.
Very rare, but im glad you bring that up Jeff if that is a question I think people are missing a lot of potential upside there for us.
Great. Thank you.
Thank you.
Yes.
Thank you and our next question comes from.
Wes Golladay with Baird. Your line is now open.
Hey, good morning, everyone and congratulations on the new zoning allowed I'm just curious if you're going to do more of the residential yourself youre going to look to joint venture the platform.
I think like we talked about west I mean, we're going to analyze this like.
Like we're going to analyze every.
Land parcel that we own I think we've mentioned in the past we generally like to look at these from the perspective of what is our what's the highest return on capital we can get in any particular situations. So we haven't determined yet exactly what the structural will be I mean, we just.
Got the rezoning within the last few weeks.
The point I think we're trying to make is that the land value.
A significant bump relative to what's going on in that particular market in multifamily.
<unk>.
Well.
Take that one step at a time.
But whatever we do we're going to maximize the value for <unk>.
Got it and then as we look to next year not looking for guidance, but is there any other moving parts that we should be aware of we discuss the fees we discuss the the swap.
One of the questions. We're getting is there anything on the noncash fair value adjustments as we go into next year or anything along those lines or any other things you want to call out that maybe onetime in nature.
No.
<unk> fourth on page five of the Investor presentation. There is nothing happening in the noncash. So again, we're not prepared to give our outlook for 2023, but we don't expect any noncash surprises.
Got it thanks, everyone.
Thank you.
Thank you.
As a reminder to ask a question you will need to press star one one on your telephone.
In the interest of time, we ask that you. Please limit yourself to one question and one follow up.
One moment for our next question.
Okay.
Our next question comes from Connor Mitchell with Piper Sandler Your line is now open.
Hey, good morning, Thanks for taking my question I.
I guess, just looking at a big picture view, so we see the headlines of inflation.
Impact on people the ability to shop.
Retailers with tougher sales, but what are you guys are talking to your tenants and retailers does it seem like there is any correlation to their demand and maybe if they are changing their real estate positioning.
Okay.
No not at this point as we pointed out.
I think in our remarks in our results.
At this point, we continue to see.
Strong demand for ever.
Ever shrinking supply base and class a open air retail, which is what we own.
Sometimes people like to draw these correlations that our second derivatives that don't necessarily happen right away.
I would say that our conversations now continue to be long term conversations and we've mentioned this before that when youre dealing with a quality retailer, they're thinking about their physical real estate and the sense of decades not.
Months right. So these are decisions that are generally decade long decisions investments in that platform and I think it's been pointed out on other earnings calls, it's pretty pretty darn clear that the profitability.
In retail is generated in the physical space. There's a lot of reasons why you do other types of retail, but if youre looking to make money you need physical space. So I think that kind of combination of things is really great for us.
And we take it one month at a time in terms of the overall economy.
But right now.
It continues to be pretty strong.
Okay. That's helpful. And then I guess, just kind of sticking with the big picture theme, maybe narrowing it down to the markets and to different regions. You guys are in I mean, you pointed out that you are in the Sun belt, but I guess, it's more.
Focusing on the Sunbelt or you guys also looking at some of the higher growth highest growth markets that you pointed out in your IR deck.
It seems that a lot of your acquisitions are in the Sun belt or southern regions.
Versus dispositions being further north so if you guys could just touch on the.
The market's update.
Sure I mean, yes, we definitely.
Our and have been focused on the sunbelt markets I mean, but we are also very fortunate to own extremely high quality real estate in some major metros, such as New York, Seattle, Chicago et cetera.
Not beyond that sunbelt.
Kind of definition, but when you own 200 properties and you're looking at growth rates and you are looking at opportunities to increase cash flow, that's really what's driving our decision making.
But we continue to be very enamored with the markets that we're in and.
As I pointed out in the past.
We're the only open air major player that owns 40% 40% of the revenue comes from Texas, and Florida. So you can't deny that those two states are very very important that doesn't mean that there aren't other markets that are important and there are other markets that we're in so I think our balances.
Good.
And we will continue to grow where we see appropriate going forward.
Okay I appreciate the color. Thank you.
Thank you.
And our final question comes from.
Linda Tsai with Jefferies. Your line is now open.
Hi, It seems like the 19 signed but not occupied coming online in 'twenty. Three is a nice cushion could you remind us the expectation for bad debt this year and what Youre thinking about for 'twenty three.
This year because of my remarks to the assumption is 1% of revenues.
And then I'd like to sort of pass and the next question in February we'll have a better a better view on where we think that that will be for 2023, and we took a very conservative approach. This year started out with 150 basis points into 2022, I wouldn't be surprised if we're looking at 2023.
Our conservative approach, probably not as conservative as 150 basis points, but maybe a little bit higher than what our historical averages.
Based on just some of the headwinds we're seeing so again, it's something that we'll have a lot more clarity on.
<unk>.
In February when we give our full year guidance, but.
I think it's going to be prudent for us to remain conservative on our assumptions.
Helpful and then Nate.
Same store NOI growth momentum in raising guidance by 50 basis points. How are you thinking about it preliminarily same store NOI growth for 2003.
It's going to be done.
Obviously, you've got obviously the stack.
Stacked ethanol pipeline. In addition, we had leases I've turned on last quarter that theyre going to be fully annualized into <unk>.
<unk> 2023 as well so we're at this point in time and again, it's we'll know more in February and we're going through our budget season here in November to really look at all of our assumptions heading into 'twenty three but the preliminary outlook is that we're looking at a very very strong same store NOI heading into <unk>.
Going into next year.
Got it and then I didnt merger integration cost estimate.
Why did that quite did that go down so much.
There were some technology items that we had a conservatively budgeted to be higher than they were.
And some of those items were.
Just was less costly and some of those items were going.
Going to trickle into next year. So again, it's just basically technology costs.
Got it just one last one for.
John when you look across the different formats community neighborhood mixed use tower, where are you seeing the most leasing competition from retailers.
Well I mean, I think I think it's competitive across the across the board Linda I mean I think.
The segment that is has picked up a ton this year as we pointed out in the past as the lifestyle segment.
So we've seen real strength, there, but we've also seen real strength really across the board. So.
I just think again.
Going to pound the table as one person put it.
We're in a shrinking supply world so.
The the macro is maybe a little less sensitive in the sense of this idea that we have headwinds I mean, I hear that I understand that but the reality is as I said. These tenants are making really long term decisions. They have limited quality space and they're moving around I mean as.
As we said before I mean, we did and Adidas deal for example in a power center.
And it's performing extremely well.
You look at total wine and what Theyre doing in the different types of properties that theyre going in.
I mean I can give you a long list Tom can give you even a longer list.
That.
It's actually pretty strong across the board is what I'm trying to say.
Got it thank you.
Thanks Linda.
Thank you and we do have an additional question from Christopher Lucas with capital one.
Your line is now open.
Sure.
Can you hear me.
Got you, Chris Chris Okay, Sorry started before you maybe I.
I missed a bunch of the call I just wanted to find out.
If you touched on it don't worry about it but.
Spiking the maintenance Capex for the quarter was that specific to Ian.
No it was not in.
Alright, everybody that was definitely not in but go ahead, Tom yes, so so on the.
Go ahead, Chris.
I was just going to say, so what drove that big spike.
Yes, so the spike related to a couple of items. One is we're coming out of Covid.
Which which delayed some of the process. The other one was.
We're really trying to contemplate what is the best way to spend the capital during this inflationary supply chain situation that we had so we move some things out of roof because of pricing being so high and brought them down in the parking lots. So we were really maneuver and trying to get the best Bang for our Buck.
And that really pushed us to create this higher spend towards the end of the year and then I think the final thing Chris is we spent a lot of time going through the portfolio through the merger and we wanted to make sure that everything in the portfolio portfolio met the standards and there were some things that we wanted to.
Address to make sure we add consistency throughout the platform. So.
Thats an overview, but it was really just a timing and a lot of a lot of hard work going in to make sure. We got the best pricing possible.
Say it another way Chris I mean, we have strong free cash flow. So we're investing in the properties.
As Tom said so.
I don't think Theres, a particular, one reason and some of its seasonal by the way, but going into next year, we will continue to spend and invest in these properties and thats one of the beauties of having good free cash flow.
Okay. Thanks.
And then while I have you.
<unk>.
So we've got a good.
That's an over next year.
What is the likelihood at this point.
You sort of your pipeline of deals will contribute to next years.
Sure.
Yes.
I can't be too specific but we have we have a very nice pipeline.
Boxes coming up and so I think we're going to continue to see nice growth in that area.
I was just looking at that list as we came in but we feel like our round is going to continue into two 2023.
And then obviously, we're going to try to opus openness. Many of these projects as possible based upon my previous comments and get them done in the most efficient way.
We still have a lot of gas in the tank in terms of pushing pushing those signed NOI.
Are you guys running into any permitting delays or is it mostly supply chain that is impacting it if at all your ability to get commencing.
Correct, Yes, Chris I was down in Florida last week and we.
We return all the properties that ran into issues. We are very fortunate to end up with a number of damage around $1 $5 million, So where we felt very good about that and the group is already jumping on taking care of those and get it fixed.
Quickly as possible.
So overall I mean.
I think we feel pretty good in terms of where we are on that whole fraud.
And then last one for you guys for me as well.
Operating margin recovery rates all bounced up.
Okay.
On my numbers one of them is at a record level I guess I'm just trying to understand is <unk>.
All of the opportunity that you saw in the RPI portfolio fully wrenched out now in terms of those kinds of metrics or is there more opportunity.
No I don't we don't think that.
We've gotten where we want to get Chris and we have more room to push there.
I think as we pointed out in the past, there's many ways to do that but one of them that we were very successful with historically it was fixed camp and the RPI portfolio was at.
Basically had no fixed cam so we've gone from maybe about 50% to probably 35% that's off the top of my head, but I know it's close.
So there is room to run there.
And then just getting more and more efficient in.
And the way that we operate.
And then also how we price things. So I think I think we hope that we continue to press that just like we will continue to press our lease percentages.
We still have good room to run so I am really excited about the opportunity to get back to pre COVID-19 levels.
Great. Thank you guys appreciate it.
Thanks, Chris.
Thank you.
And our next question comes from.
Paulina Rojas Schmidt with Green Street. Your line is now open.
Good morning.
And good morning.
The outlets from <unk> merger was.
A reminder of the risk of seeing further consolidation in that industry.
So let me take about how you think about this risk broadly speaking not just related to this merger and if you incorporate that in any way in your leasing decisions when you evaluate <unk>.
Hey.
Look I think in any industry that has potential consolidation youre always looking and trying to think through how your portfolio is affected by that in this particular situation.
We don't see this as a big risk to our portfolio.
Our largest grocer as publix.
Which is an extremely strong independent private grocer.
So in particular in the grocery sector.
We see this as a massive risk to us and I think quite honestly. It's why we continue to talk about how important it is to have a balanced portfolio when it comes down to the property types.
I think people misunderstand that end mispriced that so we love. The fact that we have the diversity in the different property types.
We still have.
About 75% of our centers are so have some sort of a grocery component associated with them but.
That's a good thing and we don't see a massive risk of future consolidation.
Then when you get into the other.
Retailer types.
Value the value players et cetera, it's probably less of an issue than it is in the grocery space.
But so far not a huge issue to us in particular and polymer specifically just to put some numbers around Kroger Albertsons merger. We have 17 units 10 of them are Kroger seven or albertsons represent about one 9% of our ABR.
Huge exposure there and also we did a three mile study for overlap, which arguably in the grocery world as a larger ratings to necessary and we only have two overlaps.
And Mr Klauber area, and the Dallas area and the one Mr. Calgary Authority already operating under the same flag solar.
We're already competing with each other so we feel very good that this merger is going to be transparent to us that if the merger goes through you may have seen the news. This morning, a couple of the state Attorney generals are now challenging the merger. So we will see they've got a little bit of work to do to get it done.
Okay.
Yes, it seems that it will be a long process.
Sure.
And then the other question I have.
<unk> is an <unk>.
If any at bed Bath <unk> beyond store closing your portfolio.
Any any bed baths closing no I mean, we obviously have some we have some bed bath that have lease expirations and so there is potential that upon those lease expirations I think a couple of them in 'twenty three two of them expire so they may potentially close, but thats not unusual but.
We don't know of any premature closings and candidly.
We have very strong real estate there.
The bed Bath.
Component of that company versus buy buy baby for example, the bed baths are generally lower rents.
So it could be a very good opportunity for us.
But we have studied we have studied all of our stores other than the ones that go through the natural explorations and if you take a look at our sales the way our stores are positioned we feel we feel pretty confident in terms of where they are we of course talk to bed Bath <unk> beyond and their advisers.
<unk> consistently so or keeping a close eye, but we like our position in terms of the specific stores themselves.
Great. Thank you.
Thank you.
Thank you. This concludes our Q&A session I would now like to turn the conference back over to Mr. John Kite, Chairman and CEO for closing remarks.
Well I just wanted to thank everybody for joining us Andrew.
You soon at NAREIT.
We look forward to it.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
As Johan during Q&A, you can dial one one.
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