Q2 2023 Kimco Realty Corporation Earnings Call
Good morning, and welcome to the Kimco Realty second quarter 20 twenty-three earnings conference call.
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Would now like to turn the conference over to David Bush, Nikki Senior Vice President of Investor Relations and strategy. Please go ahead.
Good morning, and thank you for joining kinko's quarterly earnings call.
Kimco management team participating on the call today include Connor plane, Kimco, CEO , Ross Cooper, President and Chief Investment Officer Blink.
Glenn Cohen are CFO , Dave Jameson, Kimco, chief operating well Sir.
Well the 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 is important to note that the company's actual results could differ materially from those projected in such forward looking statements do do a variety of risks uncertainties. Another factors. Please.
Please refer the company's S D C 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 kinko's operating results wreck.
Conciliations 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 or call was stinker technical difficulties, we will try to resolve as quickly as possible and if the need arises will post additional information to our I R website with that I'll turn the call over the counter.
Good morning, and thanks for joining us today I.
I will begin with an overview of the leasing environment highlight a few of our notable accomplishments during the quarter and provide an update on our longer term strategy.
Russell then cover the transaction market and Glenn what clothes with our financial metrics and updated guidance.
Easing inflation and a robust labor market Ah bolstered consumer sentiment demand for space remains strong as retailers continued to pursue their expansion plans, resulting in a favourable leasing environment for the kimco portfolio weekly.
We close the second quarter with 153, new leases totaling over 650000 square feet with strong demand from our high quality first drinks suburban locations and limited new supply rents are up across all of our agents.
Are strong leasing spreads continue to validate our portfolio quality and embedded pricing power.
Our new leasing spread was 25.3% and included new leases on four of the bed Bath and beyond speak.
Two of which were recaptured during the quarter.
Overall, because 485 deals during this quarter totaling 2.7 million square feet with a combined spread of 9.9 per cent.
Our second quarter renewal and options spread was seven six per cent with renewable sending a 6.5 per cent of options at 9.3% as a result of healthy consumer spending and desirable location. The majority of our tenant base, including small shops and anchors are electing to renew retain and reinvest in their stores.
We ended the quarter with 332 renewals totaling 2.1 million square feet exceeding the previous five year average for second quarter renewal, an option volume and kept our retention rate and your all time high.
Small businesses grew throughout our portfolio with sequential occupancy gained 30 basis points to 91 per cent only 10 basis points shy of our all time high and we executed 26 acre leases disorder. The most substantial anchor activity, we have generated over five years.
Overall occupancy for the second quarter finished <unk>, 95.8%.
Include the recapturing of eight bed bath and beyond boxes.
Second quarter.
Eight plus 11 from Tuesday morning resulted in anchor occupancy reduction of only 10 basis points sequentially to 97.7%, while still up 10 basis points year over year.
This leasing activity bodes well for the absorption of our remaining bed bath and beyond boxes.
And is also widen are spread between the signs, but not open retailer pipeline 300 basis points. Another good indicator of future growth embedded in the portfolio.
Well, we are not immune to retailer bankruptcies, the overall quality and diversity of our tenant mix high demand locations and best in class leasing team enable us to withstand and in some cases take advantage of the short term vicissitudes of 10 failures.
In terms of bed Bath and beyond we've released seven locations to the end of the second quarter, including the four new leases executed during the second quarter with a pro rata mark to market spread up 31%.
In addition, three of our leases were purchased by the retailers as part of the bed Bath and beyond auction.
Currently we have activity on the 19 remaining bed bath spaces with the mark to market opportunity of over 20 per cent.
While we anticipate a dip in occupancy during the third quarter vacating of the remaining 19 bed Bath leases at the end of July we have seven locations at least an activity on the 12 remaining.
Overall, we are encouraged by the brisk lease up all these boxes, which further demonstrates the quality of the portfolio and the strength of the retail market and ultimately we believe will benefit from Backfilling These boxes with stronger credit tenants.
With respect to our longterm strategic goals, we continue to make good progress.
First we added a new sprouts grocery store to an asset in Virginia, increasing our percentage of grocery anchored assets in the portfolio to 82 per cent.
In addition are mixed use portfolio continues to shine.
We have now reached 2471 apartment in operation across the kimco portfolio with over a thousand apartments under construction 5300, entitled offering a significant pipeline a future densification opportunities.
Residential justification, both compliment and enhances a retail site, resulting in higher asking risks and leasing activity.
A perfect example of this is our Pentagon project in Virginia.
Newly completed 253 unit apartment complex affectionately named the Milton, which is already 49 per cent lease and a head on rental rate and absorption assumptions. The addition of the Melton will have a positive longterm impact on the economics for the rest of the site.
In closing we are.
Pleased with the performance of our operating platform and proud of our team strong execution that allowed us to quickly and accretive Lee backfill or vacancies that meaningful rental spreads.
True Testament to the quality of our portfolio and <unk>.
We have also made significant progress in our ongoing efforts to maintain a strong balance sheet related metrics Glen will provide the details shortly.
That we continue to challenge ourselves to do better.
Tracking our deal costs and or build out of time from lease execution <unk>.
Slightly enhance efficiency, we continue to focus on growing that effective rent and ever Deuce the timeline for building out space year over year for the past two years. In addition, we are proud to be recognized by four is a net zero leader the only shopping center <unk> make the top 100 list as we strive to be a leader and sustainability all these.
Accomplishments are reflective of an enormous team effort I can pick up.
While we are positioned to withstand headwinds that will inevitably emerge. We're also ready to take advantage of opportunities as they present themselves in our ongoing effort maximize results for all of our stakeholders.
Ross.
Thank you Connor and good morning, I hope everyone is enjoying their summer so far.
Industry volume of open air retail transactions in the first half of the year was down significantly compared to 2022.
That said, we're starting to see the market saw with activity warming up in the sector.
While we did not acquire any new properties or utilize our structured investment program in the second quarter, we believe our patients and strong liquidity position will be rewarded as opportunities arise in the back half of the year since the Icrc convention in late May we have seen a noticeable increase in quality products hitting the market with.
Sellers that are seemingly prepared to meet current pricing expectations at the same time, there continues to be significant demand from both institutional and private investors for high quality open air retail.
While borrowing costs and equity yield expectations remain elevated the significant levels of capital seeking core retail remains strong and ready to deploy.
With this dynamic the market's yells healthier and more vibrant now than it has at any point in the past nine months.
Considering this backdrop, coupled with over $500 million cash on our balance sheet at the end of the second quarter, we've been selectively targeting acquisition opportunities and accretive structured investments.
There will be more details to come on the existing pipeline as we move some of these deals across the finish line and we expect to close on a few select investments by year end.
As it relates to dispositions, we continue our selective approach choosing assets for specific reasons.
Most notably we sold our Cristiana, Delaware land parcel for $32 million directly to an auto dealership operator.
After evaluating several potential development plans for both retail and industrial it became clear that our best risk adjusted return was a direct sale to the operator, allowing for subsequent redeployment of proceeds into income producing investments.
We will continue to assess various prospects on both the new investment side and select pruning opportunities as we strive to generate incremental F. F O growth, while further strengthening our balance sheet over time.
I will now pass it off to Glenn for an update on the financial than outlook.
Thanks for us and good morning, or high quality operating portfolio continues to deliver favourable results highlighted by another quarter of positive same site and <unk> and strong leasing spreads. Furthermore, with additional proceeds received from our Albertson's investment we continue to win answer liquidity position and leverage metrics.
Now for some details on our second quarter results.
S. S. O was 243.9 million was 39 cents per diluted share as compared to last year second quarter results of 246.4 million or 40 cents per diluted share.
Our second quarter results were driven by increased pro rata NOI growth of 7.4 million largely due to higher consolidated minimum ran some 12 and a half million dollars and higher percentage rent is two and a half million.
These increases raw set by higher bed that expensive 3.8 million is the current period had a more normalized credit lowest level compared to last year, which benefited from $800000 credit lost income due to reversals of reserves.
<unk> the increase in rental property expenses, which includes greater insurance costs eclipsed the increase in recovery come by 3.5 million other factors related to the change in second quarter results or higher G&A expense of 4.8 million and pro rata interest expense of 5.9 million. We also benefited from.
Higher interest income earned on our investment cash that was partially offset by lower dividend income, resulting from the sale of albertson chairs during the past 12 months similar to last quarter. The uptick in G&A expenses was largely due to the anticipated staffing levels following weingarten merger as well as greater non.
Cash expense related to the fire valuation of equity awards.
The increase in interest expense relates to lower fair market value amortization linked to the previously repaint above market weingarten bonds as well as higher interest rates associated with floating rate that in our joint ventures.
Moving to N O y.
Same side NOI growth was positive 2.3 per cent for the second order and would have been even better at 3.2 per cent. If we exclude the impact of prior period collections.
Looking at the components of the same site and <unk>. We are encouraged by 310 basis point, an increase from minimum ranch and 70 basis point boost from high up to Senator Trent.
These improvements raw set by a rise in credit loss of 120 basis points. Overall. These results demonstrate the continued strength of our well located portfolio.
As it relates to our albertson's investment during the second quarter, we sold 7 million shares of ACI stock.
<unk> net proceeds of almost $145 million.
Our intention to pay the tax on the capital gain from the sale and have recorded a 31 million dollar tax provision both the gain on sale and the related tax are excluded from that that though ear to date, we have monetize 282.3 million of ACI stock and expect to retain approximately 220 million for <unk>.
Mystic investments and debt reduction, we currently hold 14.2 million shares of Albertson's, which has a value of over 310 million.
As a reminder, during the first quarter of 2023, we received the $194.1 million special dividend from Albertson's, which was included in net income, but not S. S. Though.
The Albertson's special dividend is considered ordinary income for tax purposes, as such the team and board continue to evaluate the amount of the special dividend to our stockholders needed to maintain our compliance with weak distribution requirements, which will be paid by ear ache.
Turning to the balance sheet. We ended the second quarter of 2023 with consolidated net debt to EBITDA, a 5.5 times on a look through basis, including pro rata J V that in perpetual preferred stock outstanding net debt to EBITDA was 5.9 times the best level since we began reporting.
This matrix and the first time, it's been less than six months.
Sector, leading liquidity position remains very strong with over 2.5 billion of immediate <unk> <unk>.
Comprised of over $500 million of cash on hand, and the full availability about 2 billion dollar revolving credit facility. In addition, we have the remaining albertson chairs valued at over $310 million based.
Based on our solid first half results the monetization of our albertson chairs and expectations for the balance of the year. We are again tightening R. F F O per share range to $1.55 to $1.57 from the previous range of $1.54 without 57 with all previously disclosed guidance assumptions remaining.
The same <unk>.
That we are ready to take your questions.
We will now begin the question and answer session.
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At this time, we will pause momentarily to assemble the roster.
And our first question will come from Samir Canola of Evercore ISI. Please go ahead.
Good morning, everyone, Hey, Quatre <unk>, you mentioned, the mark to market opportunities bed, Bath, and I think the balance and and you said it was like 20 per cent.
With the number you gave I guess, how are you thinking about the the capital required or the Capex involvement.
That'll be required to get to that that Richard.
Yeah happy to take that one then David you can drive it as well I think obviously you have seen the demand side of that would be very strong for individual users to take the whole box, which obviously creates an ideal situation, where if you have a single tenant user taking the entire boxer your tenant improvement allowance and your landlord worker or quite a bit lower than if you were to split the.
<unk>, yes, we we've given that range of 20 per cent plus on the mark to market on the bed Bath boxes, obviously, you've seen the ones that we execute it up in a little bit ahead of that as we continue to work through the box inventory.
The deal cause I for the ones that we've executed and the wines were currently tracking at least it's falling brightened my with what we've seen historically with our anchor repositionings with boxes around 20 to 40000 square feet that range is around 60, 70 bucks, but so we have another 19 to go you know, obviously there'll be highs and lows related to.
But I think there'll be more or less if my but we've been seem so far.
The next question comes from Jeff Specter of Bank of America. Please go ahead.
Great. Good morning counter you talked about retailers continuing to pursue expansion plans can you talk a little bit more about what you're seeing since we saw you at ICSC a knee re.
B categories regions.
<unk> is the <unk> like in in these expansion plans are we talking about.
24, and 25 can you provide a bit more color.
Sure happy to but it's it's a broad base of demand drivers were experiencing right now which is great. When you think about you know the bed bath boxes that we have coming into inventory you know, we really have the pick of the litter right now in terms of the best in class retailers.
And we have a we have I think a nice combination grocery anchor that are looking to expand so if you look at the traditional grocers, whether it's Kroger albertsons.
Ah hold they they continue to grow you've got the specialty grocers with wood hopefully within trader Joes ramping up expansion plans, you've got ethnic grocers continuing to expand and you've got the off price sector that continues to be you know warring first base. It really is an incredible demand driver there with T. J maxx at all of their banner is rosten there.
Manners, Burlington of course, being very aggressive at the bed Bath auction and continuing to look for space.
That that combined with some of the other categories that we have like sporting goods and other things. It's a nice combination of a real drivers for the the anchor space. The other piece of it though that I wanted to make sure I don't forget to mention is this the small shop demand is quite robust and that's very very encouraging I think for the overall U S economy.
Cause if you think about the small business being really the heartbeat of the U S economy, we're seeing tremendous demand on small shops, you know driving our occupancy up near all time highs continued you know building a pipeline of new leases there and the retention rates are very high there. So it's it's a nice combination on both anchors and small shops.
The next question comes from Michael Goldsmith have you B S. Please go ahead.
Good morning, Thanks, a lot for taking my question as we think about the capital that you haven't had $500 million in cash $300 million, an albertsons chairs and then you kinda marry that with what Ross is saying about the activities tying and what sort of opportunities are you seeing out there in the marketplace to acquire.
Centers you what are the catalyst for sellers and then.
It sounds like there is much.
Much more narrower gap and pricing so what's the ballpark for the cap rates right Nowadays for.
For the transactions that you're pursuing.
Sure I'm I'm happy to address that yes to your point as I mentioned, we are seeing additional activity in the market.
Nowadays, it's still somewhat hit or Miss in terms of <unk> that are in the market, where their pricing and which ones are training, but there's been more quality grocery that it hit the market that is still demanding some six caps in any case isn't getting that we're starting to see some larger assets at the market that maybe have a little bit of a higher spread.
You can get a bit more yield still pretty strong quality I do want to address the the cash that you were talking about and it uses for that we're still.
Committed to the the net acquisition spread of about 100 million to the positive.
But we do have certain uses for that cash already allocated as well we talked a bit about some of the redevelopment spend that we have taxes on the ACI sales and the special dividend. So while we do have some.
But all that is already sort of earmarked for that's been we do think that given our cash position. We're in a pretty unique position to be aggressive on the acquisition Simon still maintain a strong level of discipline.
The next question comes from Craig Melvin of City. Please go ahead.
<unk>, maybe Ross to follow up on that that prior question on the acquisition market, maybe just some incremental color on.
Where you're seeing better opportunities structured finance side of things as in the equity side of things and you know you guys were reported to be by like 170 million dollar acquisition in Northern Virginia is that something that could close here in the near term then.
You said 100 million that acquisitions, but is there an opportunity to go above that and do you have enough.
Suppose teed up.
<unk> <unk> <unk>, it's a little bit back up about six times in the near term again has that kind of drift back down.
Sure Yeah, I mean, I I think we're we're seeing opportunity today from a pricing standpoint is on sort of the larger deal size and and some other portfolios single asset grocery anchored in the 20 to 40 million dollar range are still pricing as aggressively as ever and when you think about the cash position that we have which is.
Currently, earning 5% there needs to be a meaningful spread.
I get excited about an acquisition.
I'm not going to comment specifically about the yes, it that you're referring to but as I mentioned, we we are active and we do believe that there will be some closings within the the program within the back half of this year, both on the structured investment side as well as the opposition side.
The next question comes from <unk> BMO capital markets. Please go ahead.
Hi, Good morning, it's Eric on for one I was just curious if you could talk about the cadence of can store in a Y posts bed Bath auction and just understanding that any downtime of the stores could create some lumpiness you over a year. Thanks.
Yeah. So on on the same side and a wide guidance again, we left our guidance Saint one to two per cent.
For the for the second quarter as I mentioned in my remarks, we were at 2.3%, we will obviously have a little bit of headwind with the <unk>.
<unk> Uhm bankruptcies in the least that we got back in the third order, but overall, we feel very comfortable with the guidance range that we put out but yeah yeah.
And with the with the downtime on the on the back showing at the boxes. Obviously it varies based on existing conditions and that type of use ever converting so it could go anywhere from nine to 12 months slightly slightly longer if the conversion slightly more complicated, but ah right now that that's more or less falling in mind.
What we've seen traditionally with our anchor activity as we've been closely measuring that monitoring it over the last several years.
Our next question will come from Caitlin Burrows.
G. S. Please go ahead.
Hi, Good morning, I know that you don't have any significant get maturity that you do have some in 2024. So it's only if you could talk about how you weighed paying off preferred in the second quarter of perceived your cost of BB tenure and stayed that today and that you do have 2024.
The charity.
Oh sure I'll take that.
Have 600, just under $650 million of bonds maturing in the first part of 2024 again, we have cash on the balance sheet. Today, we have lots of liquidity, obviously with a revolver, but orange tip would be to take those bonds out before the end of the year in terms of pricing and pricing moved around.
A bit.
Base rates have moved around but I would say today will with probably about 175 over on tenure.
With where it is you you'd be refinancing somewhere in the 5.6 range 5.7 range uhm relative to the bonds that are coming a loft bed alright, 2.7%.
<unk> has been sent to deal with that 1%.
The next question comes from Alexander Goldfarb of Piper Sandler. Please go ahead.
Hey, good morning up there and.
Nice touch naming the tower the Milton Connor.
Connor assume one day, we'll see the Connor in an apartment.
So question question for you.
Our insurance not necessarily for you guys per se, but for your tenants in Congress, specifically you spoke about the strength of the small tenants small shop opening given all the property insurance headlines would've been reading about not sure. How this affects business you know insurance, but is there a <unk>.
Way that tenants can avail themselves of Kim coast rapper that they pay into you and as a result get lower insurance rates or you know business interruption and the type of insurance that that's smaller tenants would avail themselves of is not something that you guys want to play in.
Just trying to think about ways that you can help your tenants given your size and scale.
Yeah, what I, what I would say I'll just you know overall, we're always looking to try and be a robust provider and try and keep costs down as best as we can.
Property insurance has been a challenge this year in the market now we do have a blanket policy, which avails us right.
That blends all of our properties together, which we think doesn't help us.
<unk> <unk>, but again, we do everything that we can to try and minimize it look at the overall recovery right. Yeah, Yeah, I think you're <unk>, you're spot on and trying to figure out how to use that as a as a strategic advantage because we've talked about that a lot. Obviously the residential insurance market has gone through a whirlwind a pain.
The commercial side of it you know we've benefited from our portfolio diversity and I think that sometimes goes unnoticed, where you know if you look at our portfolio and how we really continued to evolve. It we've got the benefit of having tremendous diversity of geographic spread that allows us to price extremely well in the insurance market.
Even though individual insurers are obviously feeling the pain or one off commercial properties are feeling the pain. We do have a big benefit there is Glenn said that we pass onto our tenant base.
The next question comes from handle Saint just off Mizuho. Please go ahead.
Hey, good morning out there I wanted to go back to the transaction the line of questioning a bit and kind of Ross I understand the sensitivity and not wanting to discuss is spelled <unk>.
Two specifically, but the press is reporting it to be a seven per cent cap rate. So can you talk a bit about where the market is today in terms of calories for the quality of <unk> you would be interested in buying and if you're starting to see some moving halfway from the 6% you discuss last quarter.
Uhm and perhaps if there's something more specific here, perhaps the the larger size, maybe a motivated seller that would be leading to the highest kathleen for this transaction and then perhaps just house elves are thinking about selling in this environment now facing higher interest rates versus perhaps the expectation of lower interest rate to the back of your legs.
Yeah, I think as we were talking chatting about a little bit earlier, it's the the neighborhood grocery centers that are bite sized that are all cash buyers that aren't <unk>.
So reliant upon financings are still pricing as aggressively as they have in in quite some time in the sub six cap range. When you start to get into the larger format and large or check size.
There's a a fewer bidder fewer bidders that can cut that check without finance contingencies, which.
Ultimately leads to a bit of a higher yield. So you are seeing some of the hundred million dollar plus transaction size able to achieve a better yield in the smaller deal size.
The sellers you know they they are a little bit all over the map, but it's the dynamic of a lot of demand and the fundamentals of our product continuing to be really strong.
And owners and buyers that really want a an open air shopping centers. When you look at it compared to other asset classes were in a really good spot and I think that a lot of institutions have noticed that in his sellers that are looking to raise capital. It's a good place to be able to sell and still maintain relatively strong pricing, particularly for asking that would require.
And the last couple of years, where shopping centers opener centers never really got to those extremely low cap rates like some other sectors. So we've maintained our value in this that they are really well.
The next question comes from Flores symptoms of Compass point.
Please go ahead.
Thanks.
I wanted to maybe you know have you expand a little bit more on you know occupancy keeps goin' higher here there seems to be very little supply in in in in retail maybe corner. If you can get some general comments on where you think occupancy could try and obviously you know near term.
It's gonna go down in the third quarter, you've indicated because of the the bed bath spaces, you're gonna get back, but how much beyond peak occupancy can this portfolio pushing your view and and how do you position your company and and how does your pushed into mixed use also <unk>.
Help you boost your your occupancy levels on a on a going forward basis.
Sure happy to take that one Flores I think when you look at the demand drivers we have today.
Sort of a new paradigm retail, where we haven't had this breath of demand for for multiple different sized categories. We've had it before in certain specific sizes of square footage boxes, we haven't had it across the board in terms of a large anchors junior anchors mid size box and small shops.
And that's where I can get really excited about the future potential that we have because we really started to enter into a base of retail where for the last 12 years, we've been at virtually no new supply and demand continues to grow and we're starting to get the net benefit as well as new demand drivers, whether it's medical health and wellness coming into the shopping center space.
It's all about convenience and value and mall at tennis are starting to anticipate that as well so you're seeing now that snowball effect starting to occur as well as originally it started with just a handful, but they're starting to gain traction as multiple mall retailers are looking to the located closer to where their consumer lives and works in place and so when you think.
About the all time high occupancy of can go in the past I do feel like that's a look back and we're looking forward.
The nice part about I think where we set is yes, we will get some bed bath inventory back in the third quarter, but we've got tremendous activity on those spaces as I mentioned before the small shops are really encouraging because I think that's where you're gonna see significant upside versus are all <unk> and I I continue to see that breadth and depth of demand.
Balding as the shopping center is you know multi use multi category and you add mixed use of that component and all of a sudden you've got this dynamic where the amenity based at the shopping center is providing is driving significant upside and Reds to the apartments and vice versa. The apartment, so you're built in consumer base or driving sales.
For the retail and so there is this harmonious effect that we're experiencing and that was our original thesis when we when we started the mixed use program just a few years ago and it continues to bear fruit.
Obviously mixed use for US is focused on apartments, we have no percentage of NOI coming from office. He really liked the combination of the apartments in the retail driving off of each other.
Mmm.
The next question comes from Craig Mcinnes.
Scotiabank. Please go ahead.
Hey, good morning.
So regarding the bed Bath and Tuesday morning boxes, how long do you expect it will take to fully lease all those boxes what types of tenants are taking over those units and how are you thinking about bad that expense guidance given the level of tenet credit events to date and expectations for a year and.
Sure. So as we mentioned on the bed Bath boxers right now we have we have 10 resolved we had seven that released and then three that were picked up I'm sure that you auctions.
At least 19, we also mentioned earlier the the activity that we currently have we have around seven.
Is in process with your existing bed Bath locations, and we have a number of Ella wise so.
Like we're in a pretty good position to exceed at least 50 per cent, obviously by you're adding in terms of getting resolved and obviously trying to push that as far as we can through the balance of this year as it relates to the Tuesday mornings, we have 11 that vacated in Q2.
One other one that vacated in Q3 three of which are picked up by assignment a Bible that were very active in that regard. Obviously you have a lot of those other mid size box tenants that are looking at Barnes of the world.
Others that better currently pursuing uhm pursuing those boxes, so I think from and absorb absorption standpoint, we are we have a very good pace you know that we're currently on and they were looking to maintain that the balance of the year, yeah as it <unk> as it relates to the <unk>.
Do it again this is 75 to 125 basis points.
Six months around 80 basis points of what is the lower end of the range is the appointment just to keep in mind at our range. It really doesn't account for some potential loss rent on.
And budgeted vacancy so kind of built that into into the guidance and again, we remain comfortable with the guidance range W.
Alright here.
The next question comes from Anthony Powell of Barclays. Please go ahead.
Hi, Good morning, I have a question on the lease, but not I guess commenced rent pipeline, which now 300 basis points.
What's the optimal number for that I'm guessing that'll go up in a few quarters are defined new bed bath leases and whatnot, but when <unk> when should start coming back down and and how have store opening trends.
Evolved from signing to opening in the past two quarters.
Yeah. So I mean, the least economic occupancy obviously expands through you each activity and then also the loss of occupancy right. So those are the two metrics that can expand or contracted show you have obviously expansion of a new deals that were sign this quarter.
All set by some openings and offset and additionally by by some of the big into your bed Bachelorette, three 300 basis points 50 million in total you know the.
We would anticipate that the least the economic will fluctuate in in the near term.
As we continue to open new stories, we still have those other 19 bed Bath.
Getting back this quarter, so that will have an impact on that number as well.
But but on a go forward basis, I'm, sorry, I missed the rest of the question.
That that snow cab.
Running and you have a high 100 slow to Hunter Green. So again as we as we continue to Lisa further and the openings continue to catch up you'll start to see it come down at that 0.9, sorry that was the other part of your question. It was the execution to our C D days.
We're we're tracking pretty well counter messenger describe that we've seen a decline in in the execution of our C. D. Over the last few years come down around 7%, which is a little bit contrary to what you know we we I.
Anecdotally I have shared in the past because of supply chain issues permitting issues et cetera. So when we looked at the total pool of our population of activity. I think you tend to focus on the ones that are that are more challenge to get through but when you realize the volume of activity that we have on a regular basis at night when you average it all together we've actually.
Modest improvements I think that's usually attributed to obviously the team that's heading heading coordinators in the construction teams that are constantly out there in the market working with the tenants early on in the process of getting their plans and permits and plays working with the cities to get this permits issued and then I <unk>.
Should really working with the G. Six collaboratively to get those and it's open and trying to order materials as soon as possible or repurposing. The the use of existing materials like H B C equipment to limit that downtime.
You know that that is <unk> really accomplish them all of that that's helped me drive God's success here.
The next question comes from Tori testing of Wells Fargo. Please go ahead.
Yeah, I mean, the library should I think it it's it's obviously been in favor of landlords over the last several years because of the the limited supply you know very very low new development has been a theme for years now.
And if it was originally the Covid inventory now it's just some bed bath inventory that are creating opportunities for tennis.
Quatre alluded to earlier, you know you're seeing a lot of tenants expand their market share wanting to grow into new markets penetrate shopping centers that otherwise, we're not reachable before because the occupancy was so high so given those those opportunities you're seeing a lot of those demand forces come into play a job.
The Navy.
Enabled us to negotiate favourable terms.
The end of the day, we do deal that works for both parties and it is a long term partnership which is really important so outside of wrenches, obviously cost you know it'd be capability of our team to open a tenant I think it's really important that was a theme that came out of COVID-19, whereas you know some some other landlords may not have had the resources available that we.
Do that ensure the opening components for retail tenants, which is so important for them to hit their gross numbers. So I think that's where you're seeing a lot of strength in the growth in these longer term partnerships that we have with her with our major retailers.
You're also seeing the annual Escalations continue to improve you know historically you know the business was running around call at 2% and now we're seeing it above three per cent money and you'll escalation. So I think that on the small shop side, that's really where you're seeing a meaningful pricing power shifting to the landlord side.
The next question comes from Ronald Camden off Morgan Stanley . Please go ahead.
Hey, just a quick questions on on on same store in Hawaii and interest expense trying to get some bread crumbs here as we're thinking about sort of next year. So you have minimum rank growth I, you know, 2.9% call at three per cent and a quarter.
As as we're thinking about next year is the bad that really sort of the biggest delta. That's 75 to 125 basis points given that they're still you know some tenants.
On the watch list is is number one and then on the interest cautious cute provide a little bit more comments, you talked about refinancing that that early 24 maturity.
This year and as well as capitalized interest just just maybe what are what are some other things we should be mindful of thanks.
Yeah on the on the same side NOI question again, I would I would say that dead dead expense now is <unk> normalized level. So I think when we look at 2023 versus what it would probably two.
2024.
The bad debt extend should not have a dramatic impact on what happens within the same. So I don't know why we have to watch for Alicia activities at the base of the least slip activity and then assist potential mother.
She's situations that would have an impact on it.
As it relates to the interest expense again, Sam market value amortization that we've talked about continues to burn off.
To visit that another $10 million less next year that will burn it off.
Then it'll really come down to the pricing. The next set of bonds relative to the plans that we have today. So we do expect interest expense will certainly be higher next year goal is obviously for the operating portfolios outpaced the interest expense.
And then on the capitalized interest side of it really should be modest changes in that because we have the milton coming into service. This year and then we have the suburban square mixed use apartment project coming in to the to the shop as as well as a redevelopment program.
The next question comes from Paulina Rosa Olive Green Street. Please go ahead.
Good morning.
You mention seeing good interest for opening our shopping centres from institutional investors.
Okay provided each month of color and on the on the topic in particular <unk> what segments within this back and you're seeing more active and get transaction market.
And.
I'm sure it's difficult to say by the East is you're sensing in any interest in.
<unk> <unk> <unk> their expulsion retail purchase either ask classes.
Yeah, I think we've we've continued to see capital formations coming together I have some strong operators in the market today that are aligning themselves with with institutional capital whether it be pensions are sovereign wealth.
Again, I think opening our shopping centers in the United States when compared to other asset classes are as attractive on a relative basis as it's ever been so I think as we continue to see quarter over quarter. The fundamentals of our business from anything strong and some of the worries of of the macro economy.
Subsiding to a certain extent as it relates to the consumer end to the open Air shopping center. It just gives a lot more conviction to buyers on the private side as well as institutional capital in our our <unk>.
Appears here so there's no shortage of capital, it's just a matter of making sure that the combination of a risk adjusted return his fur and again as you are seeing it on a relative basis other sectors. It feels pretty good right now.
The next question comes from West Goliday off Bird. Please go ahead.
Yeah. Good morning, everyone do you have an estimate of the range of cash leaving for special dividend is there anything you can do to minimize it by the end of the year.
So so we're still evaluating.
A variety of strategies to try to reduce.
Reduce the amount that would be required it's still in flux today I would say that by the end of the water will have a much better handle on where we think that level of day uhm, you'll get we look at overall taxable income the hundred and 94 million dollar special <unk> received from Albertson's goes into the total myth.
I don't think that the special <unk> will be that large we've already been able to mitigate it somewhat but I think as we get towards the end of the end of the third.
For the next conference call will have a good handle on it and the payment will be made by year end.
The next question comes from Stephen King of Truest. Please go ahead.
Alright. Thanks. Good morning, just a couple of questions on expenses first on taxes. It looks like the growth is pretty minimal I'm just curious if.
You know is there a timing element to this and you know what your views are on real estate taxes go into next year.
And on your recovery margins and when you compare your date number two last year, you're running at about 100, <unk> 120 basis points lower recovery, Rachel I'm not sure. If there's a tiny element with that that that's happening, but just kind of your overall thoughts on.
That recovery ratio going back up thank you.
Hi, Steve and I'll take that has caffeine I'm second on your question on <unk> site increases that happened on our property and can we get to see that trend to continue I'm. So no anomalies.
Uhm my recovery side, and as I mentioned, it and he is prepared with <unk> an increase.
And also can you <unk> can add a category.
So that is impacting that ratio covering it at the last thing on.
My page Uhm, we're gonna continue to monitor a controversy.
<unk> and we can authenticate that Alex Avenue.
Hi, Sharon yes.
The next question comes from Linda <unk> of Geoffrey's. Please go ahead.
Hi, where do you expect occupancy to N. P ran just given some of the moving pieces and then how do you think about the capex being allocated to the bed Bath purses Tuesday morning boxes.
I mean occupancy we anticipate you know probably having a slight jumping through three it's a it's a 50 basis point headwind due to the bed bath, but as we mentioned throughout the call.
We're very encouraged by the activity that we've seen not only through the bad bad, but all of the other the box activity and small shop activities. So our job is to push as hard as we can to to maintain the levels. We have an <unk> you need to do in terms of Capex application I mean, it. It's it's we signed twenty-six angry releases this court.
<unk>, which is the highest since 2017 and then you have to go all the way back to 2013 with that size volume. So obviously, there there's a sizable allocation more towards the anchor boxes that you would see on a go forward basis relative to update it Tuesday morning.
The next question comes from Mike Mueller of J P. Morgan. Please go ahead.
Thanks, I was wondering can you just give us a little bit of color on the types of structure divestments, you're looking at and how we should be thinking about economics.
Sure well, we're looking infrastructure investment program first and foremost if it comes back to the quality of the real estate and as well as the the quality of the sponsoring the operator, so we really have not strayed far at all from our acquisition criteria, what we would like to acquire as to where we would like to put out preferred X.
What are your medicine ads, so we're staying very discipline with that approach and as you've seen this quarter. We didn't we didn't do any new deals because nothing fit the target, but we do think that in the back. After you know there'll be some other opportunity that we'll be able to close on so the pricing continues to be well in excess of our cost of capital. So it's a nice program from an accretion standpoint.
But we do expect that our investment will be able to generate a double digit returns on a minimum and hopefully with some upside participation it can be greater than that in the future. So that's that's really the way that we're evaluating that program. So that really nice component. Two is the preferred equity investments. We may cover right of first refusal on it which allow us again.
Almost like a a future acquisition pipeline. So it's building building the <unk> the destruction of investment program to allow us to acquire those assets that we would love to own 100 per cent of in the future as well.
This concludes our question and answer session I would like to turn the conference back over to David Bush Nikki for any closing remarks.
Just like to thank everybody for joining us today I hope you enjoy the rest of your day. Thanks, so much.
The conference has now concluded. Thank you for attending today's presentation and you may now disconnect.
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