Q4 2022 Kimco Realty Corp Earnings Call
Greetings and welcome to the Kimco Realty Corporation fourth 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. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad, if you'd like to ask a question. Please press star one on your telephone keypad confirmation tone will indicate your line is in the quest.
Thank you.
You May press star two if you'd like to remove your question from the Q.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the keys as a reminder, this conference is being recorded it is now my pleasure to introduce your host Mr. David push Nikki Senior Vice President of Investor Relations and strategy. Thank you Mr. Butte Bush Nicky you may begin.
Good morning, and thank you for joining kimco quarterly earnings call.
Kimco management team participating on the call today include Conor Flynn Kimco CEO .
Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFO .
Dave Jamieson Kimco, Chief operating officer as well as other members of our executive team that are also available to answer questions during the call.
As a reminder, statements made during the course of this call may be 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 rec.
Reconciliations of these non-GAAP financial measures can be found in our quarterly supplemental financial information on the Kimco Investor Relations website.
Also in the event our call was to encourage technical difficulties, we'll try to resolve as quickly as possible and if the need arises we will post additional information to our IR website with that I'll turn the call over to Conor.
Thanks, Dave Good morning, everyone and thanks for joining us today I will provide a quick recap of our major accomplishments for 2022 and share some of the progress we have made on our longer term strategic goals.
Ross will follow with an update on the transaction market and Glenn will report on our earnings results for Q4, and our guidance for 2023.
At Kimco, we believe a winning strategy is one that can be successful in any economic environment.
It needs to be opportunistic have multiple growth drivers and be resilient during downturns.
Winning strategy also needs to be easy to understand and be supported by a best in class team to implement and execute on it.
At Kimco strategic plan meets all these criteria and that is why we're so proud of our 2022 results and excited about our longer term prospects. If the ultimate measure of evaluating our strategic plan as results than it is abundantly clear that we are on the right track.
2022 was a banner year in the fourth quarter was again outstanding from a leasing perspective.
Our team achieved some recent and all time highs across many of our key metrics. This includes strong overall occupancy that finished up 40 basis points pro rata to 95, 7%.
This represents the recovery of nearly 90% of the Covid inventory, we experienced in only 70 basis points below our all time high year over year overall occupancy was up 130 basis points, which is one of the highest year over year gains we've experienced.
Contributing to our strong results was a 20 basis point sequential and a 90 basis point year over year rise in anchor occupancy to 98%.
Small shop occupancy increased 80 basis points sequentially to 90% and was up 230 basis points year over year in 2022 we leased over 11.5 million square feet, which is the highest level on record specifically.
Specifically, we ended the quarter with 152, new leases totaling 795000 square feet exceeding the five year average new lease GLA for the fourth quarter.
Our newly spread was very strong, 34% and includes new grocery leases with whole foods and albertsons.
We closed the quarter with 340 renewals and options totaling 1.7 million square feet exceeding the five year average for renewals and options GLA for fourth quarter.
The spread on renewals and options was 4.6% during the quarter with options and he had 8.5% and renewals at 2.7%.
Total fourth quarter 2022 leasing volume was 492 deals totaling 2.5 million square feet at a combined spread of eight 7%.
We experienced only 99 vacates totaling just 305000 square feet in the fourth quarter, which is 37% lower than the prior five year historical average for the fourth quarter. Our mixed use entitlement initiatives reached new highs in 2022 as we continue to unlock the highest and best use of our real estate, we set another Kim.
So record by Entitling 2805 apartment units in 2022 bringing our current total entitlements to 5461 units combined with the 20218 apartment units. We've already built and 1139 units that are under construction. This brings our overall total to.
8818 units and we are well on our way to our Upsized target of 12000 by the end of 'twenty twenty-five.
Our percent of ABR for mixed use assets is now up to 13% and we continue to use our capex light strategy to activate projects like either ground leasing or joint venturing with best in class apartment developers.
Turning to 2023 and beyond we believe our platform advantage is just beginning to demonstrate its potential efficiencies of scale often take time in multiple cycles to play out, but thus far it is clear from our performance throughout the pandemic and during 2022 at both our strategy and efforts are being validated or.
Unmatched diversification, our access to capital, our internal and external growth profile or large scale M&A experience, our capex light mixed use redevelopment strategy and our opportunistic investment record are just some of the differentiators that characterized kimco.
That said, we can't rest on our 2022 accomplishments, we know 2023 will require a full team effort to produce another year of sector. Leading results. We are also encouraged by the fundamental strength of our operating business limited new supply high retention levels and robust retailer demand for quality space such as ours.
It makes for a healthy leasing environment, while we anticipate leasing velocity and retention rates to continue at elevated levels, we can't ignore the macro environment and the potential for credit defaults to revert to the mean that is why our 'twenty 'twenty. Three priorities include additional focus on controlling expenses upgrading the credit and merchandise.
Of our tenant base and attracting recurring customers.
One of the keys for Kimco in 2020, three will be to expedite tenant openings and compressed the least economic occupancy spread of 260 basis points that represents approximately $43 million of annual base rent that is not yet contributing to cash flow, while our size and diversification have significantly reduced our exposure to weaker credits.
Tenants, we still need to be vigilant and proactive we need to closely monitor our tenant watch list anticipate changes and turn them into opportunities.
Bed Bath and beyond as a case in point.
Subsequent to year end, we sold a shopping center with one bed bath, reducing our exposure to twenty-five bed Bath, one cost plus sublease and four buy buy baby locations.
At this point, we know that bed Bath is planning to close six stores.
Those locations, we already have two leases executed to ready for execution and see with active LOI negotiations with the combined potential spread of over 12%. We are also in Akron negotiations with retailers on the balance of the portfolio, representing 60 basis points of Kim share a b R of which 10 basis point.
Relates to buy buy baby.
This level of activity proves we continue to see strong demand from a diverse set of retailers for the vast majority of these well located boxes, which are primarily in desirable demographic areas, where there is virtually no new supply.
Leasing leasing leasing will continue to be our mantra in 2020, three and together with a solid balance sheet strong free cash flow and ample liquidity, including further potential monetization of our albertsons stake we are poised to take advantage of any dislocation and ready to pounce as opportunities present themselves.
We have made meaningful progress towards our stated 2025 goals both on the operating and earnings front, along with further strengthening our balance sheet, specifically, we have improved our debt maturity profile and increased our portfolio of unencumbered assets, while minimizing exposure to floating rate debt.
At Kimco, we are never satisfied with the status quo and our entrepreneurial team is laser focused on building upon our past achievements and advancing what we believe to be is our best in class platform and portfolio.
You will see the continued evolution of our portfolio composition through a mix of our unique leasing strategies, including adding grocery anchors, where feasible entitlements redevelopments and data analytics and tools that give our platform our unique advantage with our focus on owning and operating the last mile Open air grocery anchored shopping centers along with it.
Rowing portfolio of mixed used assets Kimco has come a long way in a short period of time and we all collectively believe that the best is yet to come and our efforts to maximize long term shareholder value.
Ross.
Good morning, I hope everyone is having a great start to their ear I'll quickly touch upon a few additional details on the fourth quarter and year end before getting into the current environment and our external growth expectations for 2020 three.
As previously mentioned in the fourth quarter, we closed on the $375 8 million dollar acquisition of eight open air retail centers from a privately held portfolio based in a high barrier to entry Long Island, New York market.
With five of the centers grocery anchored this acquisition is well aligned with our long term investment approach you.
Utilizing a combination of cash the assumption of below market fixed rate debt and tax deferred downright units, we were able to structure an accretive transaction for this generational portfolio. We are very excited about the potential to create incremental long term value on these properties with our leasing and our operating platform.
Also in the fourth quarter, we closed on another unique opportunity for our structured investment program. We had previously mentioned a $22 million participating loan on a three property grocery anchored portfolio in Pennsylvania.
In just over four months, our borrowers sold the assets for a sizable gain.
As such our loan was repaid and we received a 4 million dollar participating interest on.
On an annualized basis, our investment yielded a 76% IRR. These two transaction served to reinforce our already strong operating results.
Subsequent to the fourth quarter, we kicked off the year by disposing of two slower growth commodity power centers located in Georgia, which included several watch list tenants, including a bed bath and beyond.
We recycled the capital from the sale of these two properties into a 10 31 exchange on two high quality open air grocery anchored shopping centers in southern California that were previously held in one of our institutional joint ventures in which kimco owned a 15% interest.
We were successful in securing and purchasing our partner's 85% stake of these two last mile centers located in Huntington Beach in Tustin anchored by our bonds grocer and a soon to open 99 range grocer.
The demographic profile for the area includes a combined average three mile population approaching 200000 people and average household income in excess of 120000.
In the coming years, we anticipate the growth profile on the two acquired assets will far outpace that of the sold properties in Georgia, a tradeoff, we continually seek as our portfolio enhancement efforts continue to generate outperformance.
We also expect partnership buyouts to yield additional opportunities for us as we move ahead.
As far as the transaction outlook for 2023 we believe kimco has an enviable position in a market marked by uncertainty and inefficiency for.
For 18 months through mid to late 'twenty two liquidity in this sector was abundant and capital was relatively inexpensive.
We saw open air and necessity based retail rise to the forefront of investors' minds and appetites with other sectors, such as industrial multifamily and self storage setting all time low cap rates and sectors, such as office and enclosed malls experiencing operational challenges.
Fast forward to today the conviction in our focused asset class open air grocery anchored last mile necessity based retail remains strong however access to capital has certainly tightened with elevated borrowing costs institutions, such as private Reits opportunity funds and pensions have seen redemption Rick.
Quest and withdrawals. This has created additional uncertainty on pricing and once extremely efficient market has become much less predictable we view this as opportunity.
Kimco has the strongest liquidity in the company's history with over $2 1 billion from cash on hand, and our line of credit and now our unique access to additional low yielding capital in the form of Albertsons stock, which we expect to continue to monetize in 2023.
We plan to take advantage of our position with a combination of select open air grocery anchored acquisitions continued partnership buyouts, where appropriate and mixing and opportune structured investments that present themselves in an environment with substantial dislocation.
Dispositions will be modest in 2023 as our portfolio has proven to be in very healthy shape with only a select level of pruning and sales of non income producing land parcels in holdings. We are excited about the new opportunities that 2023 will bring and while we anticipate that there will always be challenges, we believe we position Kim.
Co to take advantage of the uncertainty to create additional long term value I will now pass it off to Glenn to talk about the financial results and forecast for the year ahead.
Thanks, Ross and good morning, we finished 2022 with solid fourth quarter results highlighted by strong leasing activity, which produced an increase in occupancy positive leasing spreads and same site NOI growth in.
In addition, we further enhanced our liquidity position the partial monetization of our Albertsons investment.
Now for some details on our fourth quarter results.
Oh was 234.9 million with 38 cents per diluted share. This compares to fourth quarter 2021 of $240 1 million was 39 cents per diluted share, which includes about one cent per diluted share related to the valuation adjustment of the weingarten pension plan works.
Noting this is the first quarter with the full impact of the one garten merger included in the year ago comparison, the key reasons for the Penny per share decrease are higher consolidated NOI of six and a half million offset by higher pro rata interest expense of $5 6 million.
Other items included higher G&A expense of $2 9 million from the increased personnel levels as part of the weingarten merger and costs associated with the upbeat conversion and a $3 $2 million change in the Weingarten pension valuation I just mentioned.
The growth in consolidated NOI is comprised of higher minimum rent of $12 1 million higher lease termination income percentage rent income and other rental property income totaling two and a half million dollars offset by higher credit loss of $10 million.
With $3 million of credit loss in the fourth quarter 2022, as compared to $7 million of credit was income in the comparable quarter.
Our operating portfolio continues to deliver positive results same site NOI growth was one 9% for the fourth quarter 2020 to comping against 12.9% for the fourth quarter of last year.
Bringing full year 2022 same site NOI growth to 4.4%.
During the fourth quarter same site NOI benefited from higher minimum rents and lower abatements of $13 7 million.
As well as higher percentage ran a point 8 million compared to the same quarter last year.
These increases were offset by higher credit loss of $9 5 million, primarily related to reversals of reserves in the prior year quarter and a normalized level of credit loss for the current period.
The minimum rent component contributed 3.9% to the same site NOI growth, while credit loss was negative 3%.
Turning to the balance sheet during the fourth quarter, we monetized 11 5 million shares of our Albertsons stock receiving proceeds of $301 million.
This sale generated a capital gain for tax purposes of about $250 million.
In order to maximize the amount of proceeds we were able to retain from the sale for future investment and debt reduction we elected to pay the income tax on the capital gain of approximately $57 million, allowing us to retain $244 million.
Further our shareholders are eligible for a pro rata credit of the federal income tax we paid.
We've added a F. A Q on our Investor Relations website that provides further detail on this.
We ended 2022 with a very strong liquidity position comprised of $150 million in cash and full availability from our $2 billion revolving credit facility.
Additionally, after year end, we received a $194 million special dividend from our Albertsons investment and continue to own $28 3 million shares currently valued at over $600 million.
As of year end 2022, our look through net debt to EBITDA, which includes our pro rata share of joint venture debt and preferred stock outstanding was six four times and represents an improvement of two two times from the six six times level at the end of 2021.
Our weighted average debt maturity profile is nine and a half years, and we have only $50 million of mortgage debt maturing in 2023.
Now for our 2023 outlook.
We remain confident about the growth prospects of our operating portfolio, but as we mentioned on our last call. We anticipate earnings headwinds due to higher levels of credit loss more consistent with pre pandemic levels as.
As well as higher interest expense compared to last year.
Also as I touched on in 2022, we benefited from credit was income of $7 4 million, which amounted to about a penny per share for the year.
Our initial 2023 S F O per share guidance range is $1.53 to $1 57.
The guidance range is based on the following assumptions.
Positive same site NOI growth of 1% to 2%.
Included in the same property NOI guidance range is a credit loss assumption of 75 basis points to 125 basis points reps.
Representing a credit loss ranging from 15 million to $22 million.
No income attributable to the collection of prior period accounts receivable from cash basis tenants lease termination income between 14 million to $16 million with a substantial portion being received in the first quarter of 2023 and.
An increase in pro rata interest expense of 20 million to $28 million, most of which is attributable to lower fair market value amortization to the weingarten bonds paid off during 2022 and higher interest rates on the floating rate debt in our joint ventures.
Total acquisitions, including structured investments net of dispositions of 100 million subject to timing.
Monetization of approximately $300 million of Albertsons shares subject to timing.
Also the $194 million special dividend received in January we will not be included in SFO.
Annual G&A expense of $123 million to a $129 million with the first quarter higher due to the timing of annual equity grants.
No redemption charges or prepayment charges associated with callable preferred stock outstanding or early repayment of debt obligations and no planned issuance of common equity and with that we're ready to take your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone, if you're using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then two please note colors will be limited to one question and you'll need to rejoin the queue to ask a follow up at this.
Tom we will pause momentarily to assemble our roster.
Our first question comes from Michael Goldsmith from UBS. Please go ahead.
Good morning, Thanks, a lot for taking my question last quarter, you talked about reverting to an initial credit loss expectation of 75 to 100 basis points kind of in line with historical levels. Youre guidance is 75 to 125 basis points, so a little bit higher at the top end. So what are you seeing in the market what is the.
Oreo reflected by the high end of the range and junior concerns extend beyond the usual suspects that we've been talking about thanks.
Hey, Michael it's Glenn.
Again, we took a hard look at just the overall portfolio and looked at really the environment that we're in today.
There's a little bit more risk started to see some more bankruptcies than we have in the past years, we felt it prudent to just widened the range a little bit and thats baked into the guidance and it takes into account really the scenarios that we see both top and bottom.
Our next question comes from Samir Khanal from Evercore ISI. Please go ahead.
Good morning, everybody.
Conor can you provide a little bit color on the timing of the monetization of the $300 million Albertsons shares which.
You mentioned the guidance just trying to think through the allocation of that capital proceeds and maybe along that just expand on the.
The opportunities that you talked about right and in your opening remarks as well. Thank you.
Yeah happy to thanks for the question look we think that the capital coming from the Albertsons investment is a big differentiator for kimco.
We've already received a special dividend as we've talked about in our opening remarks, we do have the opportunity to monetize another portion of our of our Albertsons shares similar to what we did last year in the same the same type of a range of value.
The exploration of the lockout is end of May.
So that really sort of shelf showcases when we have full potential to take advantage of that than we.
We have Ross can talk a little bit about the menu of options. We have to reinvest those proceeds it's a real opportunistic investment that is going to actually really reward our shareholders. Because when you think about it you don't have to issue any equity. This year. We have this investment that's really coming back to us now to redeploy into our core business.
Which should generate significant earnings growth not necessarily in this year, but obviously in the out years that that's where the long term value creation is really going to shine.
Yeah and in terms of the opportunity set I mean, we've talked about our different acquisition verticals and we're having lots of conversations and in all three components of bad but as I mentioned in the remarks, we do anticipate that there'll be continued partnership buyouts, we were able to execute on the acquisition of two assets from a partnership at the beginning of the year.
Focused on potential additional structured investments as we start to see some additional dislocation in the market and then depending on where pricing is and if we see a song of the market to a certain extent and we'll be active on on acquiring open air grocery anchored shopping center. So we like the fact that we have all three opportunity sets that we can be nimble.
When they present themselves.
The next question comes from Juan Sanabria from BMO capital markets. Please go ahead.
Hi, good morning, Thanks for the time, just curious Gordon if you could lay out a little bit more somebody assumptions.
Behind the guidance.
Mainly what's assumed I guess for bed Bath Party city and in the bad debt and is that the driver for lease term fees that you noted something chunky in the first quarter and if you could just provide any expectations, where you think occupancy will end the year at please.
Yeah, so as far as the credit loss again, we know that there are several bankruptcies.
We obviously filed already a bed bath and beyond obviously has it seems to have found a lifeline for the moment, but we have taken into account really all the scenarios around that in our overall guidance and again as I mentioned as it relates to the credit loss again, we did widen the range a little bit just deal with what we.
We are seeing in the current marketplace today.
As it relates to the LTA that he mentioned income in the first quarter. Its associated the majority of it is associated with the deal structure that we did with Kohl's.
As consideration of the LTA, we help restructure at least with them for two locations, where we were able to recapture those opportunities just in one being just in northeast Philly and the other one just outside of Philadelphia across the border in New Jersey.
And then third to that we're also able to recapture fee title operating box.
Shadow of one of our centers as well so net net there is a positive on both sides there.
As it relates to occupancy.
It is always fluid throughout the course of the year.
Dependent on the outcomes of bed Bath and party city, there could be some.
Yeah volatility on the anchor side of it small shop is extremely robust right now.
And as a matter of activity there as ECS now cresting over 90%, which is great. So we will continue on our stride and I hope to meet and exceed our goals and we do anticipate a little bit of Q1 normalcy.
A potential what we called jingle mail of tenants closing after the holidays and seeing a little bit of a dip in occupancy in Q1, which is traditional seasonality for us. So we think that that's again reverting back to the pre pandemic ways of historical averages.
And just a reminder, that LTA income is not included in our same site guidance.
Our next question comes from Greg Mcginniss from Scotiabank. Please go ahead.
Hey, good morning.
Glenn just a quick clarification.
When looking at.
The corporate financing disclosure and the it looks to be about $19 million to $20 million higher for 2023, what's the delta between the pro rata interest expense Thats 20 to 28 million higher.
Right. So that's a great question. So the corporate financing line that you see is really the consolidated.
Portfolio assess our interest expense and the cost of our preferreds.
Included in the portfolio contribution of Baas is the pro rata share of the joint venture interest expense, that's about $9 million to $10 million higher.
Then it was last year and again, that's it's attributable to the rise in rates there was more floating rate debt in the joint ventures, we have.
It's actually swapped out about a half a billion dollars of debt in the mid to upper 5% range. So we fixed it a good portion of it but that's what's causing the $9 million to $10 million increase over last year.
Our next question comes from Floris Van <unk> from Compass point. Please go ahead.
Hi, Good morning, guys. Thanks for taking my question I had a question on your small shop, obviously the.
Very nice pickup in occupancy there maybe if you can talk about the the spread between occupied and leased and also maybe where your peak our small shop occupancy was previously and where do you think you can get it to this cycle.
Sure Floris that are happy to happy to take that so just to reconcile for us in the least economic overall, we're at 260 basis points that was compressed down from $280 were down 20 basis points there.
Which shows two things one we're able to get these tenants open and operating with a huge achievement considering some of the activity in the environment right. Now so we had a lot of openings in Q4.
Outside of that too with all of the gains in occupancy that you saw as well as in Q4 are gaining 40 basis points of raw on the bringing our small shops up to 90% as it relates to small shops, specifically, we're at 340 basis point leased economic spread.
Just around.
$23 million or so baked into that so there is a huge opportunity there to actually bring those tenets online obviously, you see that growth in the coming quarters, which we're excited about.
And as we move forward, so feel pretty good about that and then finally, Oh, Yeah, and then our high watermark on small shops.
It's at 91, one that was in Q4 I believe 19.
So our goal is always to meet and exceed our high watermark levels and we'll continue to do our best to achieve that.
Our next question comes from Craig Mailman from Citi. Please go ahead.
Good morning.
Just a question on the leasing environment here I know everyone's.
Pretty focus on sustainability.
As we look at the economic weakness coming there relative to previous cycles, it's a little bit more more telegraphed, maybe and maybe expect it to be more garden variety. So I'm just kind of.
Curious you know.
You think about tenant behavior, maybe between anchor and small shop.
And the timing of where we are today versus maybe the coming at the end of the year.
And how these tenants look at when they need to lease stores for store openings I mean is there.
Any thoughts around whether just the timing of a potential recession.
You know relative to when people need to open stores that the leasing demand could continue at a level maybe above expectations just because.
The space needs for 'twenty, three we're already weeks previously and if the recession start so deep.
People are going to look out for 'twenty four 'twenty five openings I'm, just kind of curious your thoughts there and whether there is any big difference between anchor and small shop behavior.
Yeah great.
Great Great set of questions all rolled into one.
Thank you first start with the fundamentals right and the fundamentals here Theres no new developments to supply on the horizon in the coming years.
The COVID-19 inventory that we've talked about in past quarters and continue to talk about now is really the inventory that's available so.
Some of that inventory may increase as a result of any bankruptcies party city at that in the two obvious ones right now is as potential to get some space back.
That's still it's representing a very limited amount of inventory to actually backfill. When you look at US we're at 98% on the anchors 90% on the small shops for high quality retail, it's really really hard side.
So the retailers I think of what they're doing is they're seeing through that and saying Hey, where do I find gross you know not just next year, but years 234, and five if theres no new supply I really have to take advantage of what opportunities I see today to set myself up for growth potential going forward to hit my own targets and so I think you.
To see that and some lessons learned from past cycles is.
Is that it's really hard to ramp up a program to find new stores and to grow into open them and then just shut it down and then try to re ramp, but again youre always kind of playing a game of catch up and you tend to Miss the better opportunities early so I think for some of those well capitalized retailers they've sort of seen through that and said, let's continue on our plan.
Let's continue to source and find new opportunities knowing that if we sign a lease say midyear 'twenty three we can be looking at a 24 or maybe in some cases, a little bit further out is that opening and as you've seen these market cycles compressed in terms of.
It's cycled through the program of dipping and then recovering.
At the time of recovery seems to be compressing.
Much quicker so by the time you get these stores open the intent hopefully is that your we do go through a bit of a dip that you are on the backside of that and you're already at your opening during the growth cycle again.
So those are a lot of the conversations that we continue to see on the small shop side Youre seeing yes.
Service based tenants restaurants et cetera continue to open and find opportunities theres still some of that Covid inventory out there that had you know fully fixture is units.
Operators can go in and started to operate quickly we will continue to watch that closely obviously the discretionary side it would be the full service restaurants, and some entertainment and see how that plays out in this coming year, if theres any any disruption in terms of the broader markets, but yeah.
People are really kind of looking through it right now.
Our next question comes from Handel St Juiced from Mizuho. Please go ahead.
Hi, there sorry about that so just wanted to follow up if I could Ross on the transactional market comments you made things. Obviously you have installed out there retail volumes and transactions were down 60% I think in the fourth quarter and we're still here of a pretty wide bid ask spread out there. So I guess I'm curious what you.
We're seeing in terms of maybe cap rates for the quality of open air centers, you'd like to own and given your cost of capital Whats. Your your hurdle rate or maybe where what is the price need to be if we could get more active.
Yes, it's a good observation and to your point it is still somewhat wide in terms of the bid ask spread.
It's a nuanced market. So every deal is a little bit unique.
I would say historically in most cycles, it's a pretty efficient market, but right now its fairly inconsistent. So you are seeing select deals getting done, but it really depends on having two motivated parties to do so.
I would say that where we're in a position where we're not forced to do anything.
So when the market comes to US we're happy to continue to invest and to put our capital to work on.
On the acquisition side and I would say the partnership by outside that are pretty closely aligned.
We're seeing pricing where deals make sense to us.
Somewhere in that low six cap range now certain sellers or in many cases are still looking for pricing from 12 months ago in the low fives, and Thats, where youre seeing a lot of the deals stalling out but to the extent that we can obtain.
Obtain assets that are 100 basis points higher than where they were a year ago with very strong fundamentals that really haven't changed based upon all the comments that you heard from David and the team here and we feel really good about putting to work in that are in that range and then when you factor in or layer in our structure and investment program with.
<unk> has a higher yield currently in the high single digits or low double digits, that's sort of blends together to get us above our hurdle rate and make our acquisition pipeline.
And our program accretive from an overall standpoint, so we'll continue to look to put money to work. If we find those otherwise we will continue to stay patient as the year progresses.
Our next question comes from Craig Schmidt from Bank of America. Please go ahead.
Thank you.
What is your expected.
Expectation on consumer sales and traffic at your properties in 23 versus 22.
Hey, Greg Great question.
So we're off to a good start in 2023.
The traffic that we've experienced thus far has been above 2022 levels I think the consumer continues to gravitate towards the shopping center towards the grocery anchors that we have towards the off price users that are that are getting great value.
And convenience so that continues to show well.
The future is still a little unclear that's why I think from a guidance standpoint and from what we're talking about we're not we're not necessarily sure what the what the second half of the year it looks like and so as we've all been.
Talking about so far so good retailer demand is robust the consumer continues to gravitate towards our product and we see virtually no new supply on the horizon. So as as we continue to monitor the situation we feel like the business is on very strong footing.
Allows us to really see into the consumer and their habits and so far it looks like we're really delivering on what the consumers looking for.
Our next question comes from keeping Kim from Truest. Please go ahead.
Thanks, Good morning.
So you guys have done a great job increasing your entitlements.
A lot of your different.
Different sites can you just.
Provide a kind of a high level path for the next couple of years of how youre thinking about monetizing it.
Second when I look at your supplemental on the development section for somebody's ground leases multifamily ground leases.
Can you help me understand that a little better because if I look at the value that is contributing at and the yield is it doesn't seem to make sense because the land contribution value should be much higher even after taking account for the higher yield. So just if you can help me understand that a little better.
Sure happy too good question Kevin.
So it's a long term strategy for us as I mentioned in my prepared remarks, we want to activate these entitlements using our capex light strategy, meaning that we really want to increase the value of the asset unlock the highest best use without putting a tremendous amount of capital out it doesn't necessarily return a high yield.
During the construction and development process. So what we've done is tried to entitle as much as we possibly can across the portfolio layering in projects each year. So that we can activate we've been running around 1000 units a year of how much we have in the active pipeline. We built over 2000, we've got a little over 1000.
The pipeline today, we continue to want to set us up for long term value creation.
It gives us optionality and flexibility to look at each asset and look at those entitlements and say what should we monetize which should we ground lease and which should be contribute to a joint venture and so the way. We've been doing is we've been monetizing the office entitlements.
In ground leasing assets, where we have multifamily Reits build but we think that that market may need a little time to mature so in essence that the ground lease.
US time to activate the project without having a lot of capital at risk, but then having a writer first refusal on it to bring it into the core upon the right time and place.
Or the contribution to a joint venture where we see the project is ripe to participate in the economics of the cash flow growth.
So that's the way we've set up the program. We continue to think that long term, it's a great way to create value on the asset and we will continue to monitor which are the what's the right time to monetize those.
If we see fit but that's the way of the projects continue to evolve and we've seen great results in terms of.
Being able to actually.
Create a environment of mixed use environment, where the multifamily feeds the retail and the retail feeds the multifamily and that's the that's the flywheel you're trying to create is you're actually generating higher than that market rents on the retail and even higher market rents on the residential when the environment is complementary.
Our next question comes from Ronald Camden from Morgan Stanley . Please go ahead.
Great. Thanks, let me try to sneak in two really quickly really appreciate the castle statement you put in the supplement I think you guys are one of the only ones that do that do that so it's really helpful. So.
So I see cash from operations here at 861 million.
And presumably that's being held back by the large tax bill.
That you sort of incurred this year. So you can maybe get to a 900 million number.
When I'm thinking about sort of sources and uses.
You've got a dividend that you got to pay out 550.
Maybe another 150 to 200 million for Capex is that my thinking about it right that presumably next year, you're in the $150 million to $200 million range of just free cash flow that that that that you can use for whatever is that is that the right thinking because number one and then the second was just would love an update on your thoughts on Albertsons Kroger.
Thanks.
Yes, I'll take the first part for sure yes, the freight the free cash flow expectation is it is around $150 million for 2024 and again.
They don't all the point I'm sorry.
23.
You've kind of hit on all the points right we have.
Really the free cash flow after dividends at that Ti and leasing commissions and that's based on the current dividend level at 23 cents a quarter of 92 cents a share for the common.
Right right on track with that.
And then your question about the Kroger Albertsons merger, we're watching it just like you are it's an interesting.
To say that they have to go through.
Clearly there is still some hurdles to get over but it seems to be tracking and continues to move forward, we'll watch it as closely as we possibly can.
Have you seen the earnings results from both are very strong. They both have very complementary portfolio. So it's one that if the merger were to go through I think it's a net net win for kimco on our shareholders, but if it doesn't go through obviously, they're both very well capitalized strong performers good grocery operator, so we're watching.
It closely and it's.
It's not necessarily a clear yet what's going to happen there.
The next question comes from Alexander Goldfarb from Piper Sandler. Please go ahead.
Good morning, good morning out there.
And if I could just given end of towards the end of Cooper.
So a two part one Conor I think you mentioned, 12% rent spreads on the bed Bath I think some of your peers have been more like 25 or 30. So didn't know if that's mix second Glenn what gets you to the bottom end of the range because it seems like you guys have baked in a kind of bad stuff into your guidance already which I'm assuming is more.
The midpoint, so I'm just sort of curious what gets to the bottom end of the range.
Hey, Alex So on the first question on the 12% that's on the six that we have visibility where we are lining up leases to backfill all of those individual users to take the entire box on the entire bed Bath portfolio is youre right. Its a bit higher we have a 15% to 20% type of range and again some of those.
You know it might be opportunistic and we can reposition those boxes.
Yeah, I mean in terms of getting to the bottom end of the range again.
Our credit loss.
Above what we've baked in could potentially get you there.
High end of that credit loss range of being in that $22 million range.
You also had some timing issues right timing of when we would monetize our albertsons investment and the redeployment of that cash when it.
It comes in.
You also have.
The retention.
Tenants versus the Vacates, so theres a whole assortment.
No potential timing issues that kind of come into play. So if everything happened later or vacate happens faster you could wind up more towards that bottom end of the range.
That's kind of how you get there.
The next question comes from Wes Golladay from Baird. Please go ahead.
Hey, Yeah. Good morning, everyone I just have a follow up on that bed Bath question on the 12% spreads is there any box splits on that.
And why are they there are potentially a little bit lower spread.
No not right now there's no box splits on the spreads spreads are a product you have like the vintage of the box right. Maybe some of the older boxes that we have in the balance of the portfolio are our older leases started at lower rent some of them are slightly newer so it does range. So I think you have to get a broader view.
On spreads in general.
And where you see opportunities and I think you have to turn it back to <unk> comment about that 20.
20% of our entire portfolio.
Just a small subset of that.
Our next question comes from Anthony Powell from Barclays. Please go ahead.
Hi, Good morning question on your 2025, I guess goal of two 5% same site NOI growth are you doing a minimum rent growth of 4% and higher given kind of strong lease spreads and whatnot. What gets you from that four plus the two and a half it seems a bit conservative now given given the strength of the business.
So to your point you know, we've actually been running ahead of that of that goal.
Traditionally this business is run around a 2%.
Growth profile, and clearly obviously with the transformed portfolio and a lot of the last mile retail reinventing itself using online as a way to connect to more customers and getting more value out of the last mile store I think is the game changer. So your point is well, but I mean, we've been obviously running ahead of that.
It's one that we thought at two 5% plus that's the target not two and a half two and a half plus and so again exceeding that is our goal and that's so that's what we've been doing so far so cycles are are constant in real estate and so you've got to make sure that you recognize that over a longer term.
We we obviously experienced a COVID-19 rebound really generated outsized results and so as we go through another cycle it'll be you know in my opinion, we should probably reset the bar a little higher but we'll have to wait and see and see how things play out, but so far so good on that.
Our next question comes from Mike Mueller from J P. Morgan. Please go ahead.
Yeah I'm curious are you seeing any opportunities at this point or was the I guess the change just some longer term planning.
Yeah. So in terms of the upper a conversion it really is intended to be an additional tool in our toolbox. So it's a bit early in terms of finding opportunities to utilize it as we just recently converted but as you saw with the long island portfolio that we acquired last year, we have utilized tax strategy.
<unk> and tax deferred units as a way to differentiate ourselves in a competitive marketplace. So we do anticipate that there will be opportunities to utilize it we will be selective with it.
Because it is still a form of capital that needs to be accretive when we utilize it. It is something that we've considered for quite some time now it was previously a bit cost prohibited but things have changed in terms of some of the transfer taxes in certain states and so it was a it was we felt the appropriate time to do it now versus in years.
Yes.
Our next question comes from Paulina Rojas Schmidt from Green Street. Please go ahead.
Good morning can you, please remind us where the capex per square foot it looks like a.
Box starts to go I understand there every situation is different but if you could provide some branches maybe framing it as either a single tenant replacement, whereas box.
Very helpful.
Thank you.
Yeah I mean.
Unfortunately it is it is every case is different and whether or not it's doing and as is and your any it over issuing them at T. I T I check or if you're actually doing a built to suit is going to range vastly between a single tenant user box split.
Or an expansion to actually combine two boxes together for a larger tenant all has implications and then related to electrical roofing facade renovation and whatnot. So I would what I would say is that it's been consistent over the course of several years. Obviously, we've had inflationary pressures that we've had to navigate through issues.
With switch gear H V C et cetera that that some pricing to Europe .
Overall conversion of our box, but fundamentally it hasn't changed all that much.
Our next question comes from Tayo Okusanya from Credit Suisse. Please go ahead.
Hi, Yes. Good morning, I just wanted to go back to a question that handout asked.
About the transactions market again, the color you provided about looking at deals at sub six cap rates is helpful. But just trying to understand the $100 million of net investment that you guys. Do you have any guidance exactly what does that comprise of.
How do you how do you kind of come up with that number and within the context of how youre thinking about the transactions market on your current liquidity.
Sure, Yes, the 100 million net acquisitions, it's a baseline number that we are starting the year with as I mentioned in the response to handles question. We feel that we're in a wonderful position where were not forced to do anything.
We're waiting for the market to really come to us and when you have a motivated seller. We can move ahead on that transaction. So we started with.
Modest guidance that we think that we can certainly achieve and as we see further opportunity as the year progresses, as we showcase our ability to monetize the albertsons investment and reap the benefits of that additional cash we're confident that we'll be able to use it but for now we've kept a relatively modest.
Guidance range that we'll look to update as things progress over the course of the year.
Our next question comes from Linda Tsai from Jefferies. Please go ahead.
Hi, Thanks for taking my question Ross can you give us color or anecdotal data regarding private Reits opportunity funds and pensions being redemption requests and withdrawals are opportunities coming to market and from past cycles is there a tipping point, where you'd start to see a wave of opportunities.
That's a great question, it's well publicized as we've all been reading about.
I would say that it's a bit more nuanced in the sense that each individual company has their own strategy as to how to obtain that liquidity that they are seeking and we do anticipate and having conversations with a lot of these different groups that.
There will be some assets that get shaken loose in the process, but you have to realize that a lot of these companies are generalist investors that own all asset classes. So I think they're going through their own internal analysis as to where they deem most appropriate to look to move certain assets, whether open air grocery sort of.
Lines with that strategy is.
As yet yet to be seen.
As I mentioned in my prepared remarks, there are certain asset classes that have been extremely aggressive in terms of the cap rates that they are commanded so for those companies that have recently acquired multifamily or industrial or self storage chances are that they're not looking to move those assets today at a price that is.
Lower than what they obtain those assets just in the last 12 or 24 months on the opposite end of the spectrum. There's other asset classes that are much more challenge in terms of an investment profile and the ability to move those assets. So we do expect that open air grocery is a asset class that has retained its valley.
Q as well as any.
So that's what we're sort of waiting for and those are the conversations that we're actively having each and every day.
That is all the time, we have for today's question and answer session I would like to turn the floor back over to David push Nikki for closing remarks.
Just like to thank everybody, who joined our call today, otherwise enjoy the rest of your day. Thank you.
Okay.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
[music].