Q3 2023 Kimco Realty Corp Earnings Call
Good day and welcome to the Kimco Realty third quarter 2023 earnings Conference call.
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I would now like to turn the conference over to David Bush, Nikki Senior Vice President Investor Relations and strategy. Please go ahead.
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 maybe deemed forward looking and it's important to note that the companys actual results could differ materially from those projected in such forward looking statements due to a variety of risks uncertainties and other factors.
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 Kim goes operating results reckon.
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 it 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 and thanks, everyone for joining us this morning.
I'm going to lead off today with an overview of the macro environment summarize our operating performance for the quarter and provide an update and some color on our strategy for navigating through these uncertain economic times.
Ross will cover the transaction market and Glenn will close with our financial metrics and updated guidance.
Despite the headwinds of higher interest rates, some high profile tenant bankruptcies shaky debt and equity markets and the on again off again predictions of an impending recession.
Underlying shopping center sector fundamentals remain robust.
More importantly, our portfolio continues to produce strong operating results as we have been able to nearly overcome from an ethical perspective.
<unk> <unk> of noncash accounting related headwinds relative to last year in an environment marked by virtually no new supply strong demand from new recurring traditional and non traditional anchors and small shops at it.
Along with the resilient consumer we continue to produce strong operating results. Indeed, our third quarter results were stronger than anticipated, enabling us to raise our outlook for same site NOI, while raising the bottom end of our <unk> guidance for the remainder of the year.
A few more third quarter highlights.
We signed 457 leases totaling $2 1 million square feet during the third quarter, our small shop occupancy reached an all time high of 91, 1% as demand for our portfolio continues or.
Our strong positive leasing spreads of 34, 9% for new leases and eight 8% for renewals and options reflects the pricing power of our high quality portfolio of note. Our combined spread of 13, 4% is the highest in six years.
As anticipated our anchor occupancy dipped 50 basis points quarter over quarter to 97, 2% due to the recapture of the remaining bed Bath and beyond boxes, we released seven bed Bath box this quarter at a positive spread of 54%.
Remaining 12 bed Bath boxes are all in negotiation and continue to benefit from the favorable supply and demand dynamic for well located retail.
Our overall occupancy is off only 30 basis points to 95, 5% notwithstanding the headwinds described.
We are encouraged by the continued push by tenants to secure the right real estate with the REIT landlords. This continued strong demand is perhaps best evidenced by our signed but not opened spread which actually widened out this quarter to 320 basis points, representing about $52 2 million of grant that is not yet cash flow in.
It is these operating dynamics in our own portfolio that continue to build our team's enthusiasm for the pending RPT transaction.
While we remain excited about our portfolio the headwinds I noted earlier cannot be ignored as a result of the dramatic rise in the 10 year treasury due to persistent inflation in all likelihood we will remain in a higher for longer interest rate environment for the foreseeable future.
To mitigate balance sheet uncertainty and maintain a stamp of derisking our exposure to market forces, we do not control, we proactively addressed our near term debt maturities Glenn will provide more detail on how we plan to maintain optionality and flexibility.
We also continue to prioritize generating free cash flow, we are laser focused on expediting store openings and rent commencement date, while reducing expenses that are not income producing.
Free cash flow growth will allow us to be self funding and help produce strong organic internal NOI growth as we move ahead.
In summary, we continue to build a company team and portfolio that is resilient and able to drive growth in challenging times. We believe we are well positioned to execute and take advantage of the additional opportunities that will inevitably arise as we continue to work to optimize shareholder value.
Uh huh.
Thank you Conor and good morning, all it was a busy quarter for kimco on all fronts, including the transaction side of the business.
While the macro backdrop continues to be volatile the dislocation that has begun to emerge clearly benefits well capitalized owners and operators those with the scale and liquidity to not only weather challenging times, but take advantage of that.
With rates continuing to rise and financing more difficult to obtain creativity and utilizing unique advantages as how to win in this environment.
To that point in August we capitalized on an opportunity to acquire a dominant grocery anchored lifestyle center and one of our top markets Stonebridge Epistatic Town Center is a 500000 square foot Trophy asset in Washington D. C Metro with all the attributes we look for in a property starting with the best in class grocer.
In this case wegmans with exceptional sales the market also has excellent demographics with over 115000 annual household incomes and over 110000 people in a three mile radius that also pulls from a trade area that stretches upwards of 40 miles due to the tenancy and regional location the property.
Will allow us to layer in our platform to create additional value and cash flow growth both from upgrading specific tenants and rental levels over time.
Additionally, we ask that includes over 50 acres of land, providing us with the optionality to densify with mixed use in the future.
Historically this is an asset that every institutional owner would be chasing and would likely have a premium cap rate attached to it due to all the positive attributes.
However, with financing site and for a large deal sizes kimco stood out with its ability to close all cash on the $172 $5 million purchase price, which allowed us to negotiate a cap rate north of 7% for our newest signature series asset.
During the quarter, we also announced the merger with RPT Realty.
This is another clear example of utilizing our platform to negotiate a highly favorable cap rate for a well regarded portfolio of primarily grocery anchored centers.
Similar to the timing on the Weingarten transaction, we view this as another unique window during which the competition is limited and we can take advantage as it relates to structured investments there has been a noticeable uptick in discussions and potential opportunities in the past 30 to 60 days admits.
Admittedly, we expected these conversations to ramp up earlier in the year, but it seems to be happening at a more significant pace as of late.
Conversations are taking place with operators facing debt maturities groups looking for capital to transact on unique one off opportunities as well as institutional investors facing redemptions that are looking at recaps.
We're being very selective in where we participate so we expect this part of our business to grow as we move forward.
All in all we are excited about the activity during the quarter and our ability to utilize our position and sector, leading liquidity to remain active when others are sidelines, we will continue to be extremely judicious with our capital, but be ready to move opportunistically.
And now off to Glenn for the financial highlights of the quarter.
Thanks, Ross and good morning.
Our third quarter results continue to demonstrate the strength of our high quality operating portfolio highlighted by robust leasing spreads and positive same site NOI growth.
Importantly, our strong liquidity position and leverage metrics position us to effectively handle the macroeconomic headwinds, resulting from southern inflation and the higher interest rate environment.
Unknown Executive: Good day, and welcome to the Kimco Realty, third quarter 2023 Artings Conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Now for some details on our third quarter results.
Unknown Executive: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star than one on a touch-tone phone. To withdraw your question, please press star than two. Please note this is the event is being recorded.
<unk> was $248 6 million or <unk> 40 per diluted share as compared to last year's third quarter results of $254 5 million or <unk> 41 per diluted share.
Our third quarter results produced an increase in pro rata NOI of $3 3 million.
David Bujnicki: I would now like to turn the conference over to David Bushnicki, Senior Vice President Investor Relations and Strategy. Please go ahead.
The key components of the increase were higher consolidated minimum rents of $12 6 million offset by lower LTA income and straight line rent of $4 7 million.
Conor Flynn: Good morning, and thank you for joining Kimco's quarterly earnings call.
David Bujnicki: The Kimco Management team participating on the call today include Conor Flynn, Kimco CEO, Ross Cooper, President and Chief Investment Officer, Glenn Cohen, our CFL, Dave Jameson, Kimco's 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 is 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.
In addition, bad debt expense was higher by $2 8 million as the current period had a more normalized credit loss level.
Compared to last year, which benefited from $600000 of credit was income due to reversals of reserves.
Overall credit loss was at 71 basis points as a percent of revenues for the nine months.
At the favorable end of our 75 basis point to 125 basis point credit loss guidance assumption.
Pro rata interest expense was also higher by $10 million comprised of $8 million from the consolidated portfolio and $2 million from our joint ventures.
David Bujnicki: Please refer to the company's SEC filings that address such factors. During this presentation, management may make reference to certain non-gap financial measures that we believe help investors better understand Kimco's operating results. Reconciliation of these non-gap 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 incur technical difficulties, we'll try to resolve as quickly as possible, and if the need arises, we'll post additional information to our IR website.
This was due to lower fair market value amortization, resulting from the early repayment of weingarten bonds in the third quarter of last year and higher interest rates on the floating rate debt and our joint ventures.
Also included in <unk> for the third quarter, 2023, or $3 8 million of costs incurred in connection with the announced RPT merger and the net benefit of $4 8 million associated with the final liquidation of the Weingarten pension plan.
Moving to the operating portfolio leasing activity remained brisk throughout the quarter as Conor mentioned.
Conor Flynn: With that, I'll turn the call over to Conor. Thanks, Dave, and thanks everyone for joining us this morning. I'm going to lead off today with an overview of the macro environment, summarize our operating performance for the quarter and provide an update in some color on our strategy for navigating through these uncertain economic times.
Same site NOI growth was positive two 6% for the third quarter and if we excluded the impact of prior period collections. It would've increased to three 1%.
The primary drivers of the same site NOI growth or higher minimum rents contributing 290 basis points and other rental revenues, adding 40 basis points. These increases were offset by a more normalized level of credit loss impacting same site NOI growth by 90 basis points.
Conor Flynn: Ross will cover the transaction market and Glenn will close with our financial metrics and updated guidance. Despite the headwinds of high industry, some high profile tenet bankruptcies, shaky debt and equity markets, and the on-again off-again predictions of an impending recession, underlying shopping center sector fundamentals remain robust. More importantly, our portfolio continues to produce strong operating results as we have been able to nearly overcome from an FFO perspective over six cents of non-cash accounting related headwinds relative to last year. In an environment marked by virtually no new supply, strong demand from new recurring traditional and non-traditional anchor and small shop tenants, along with the resilience consumer, we continue to produce strong operating results.
Overall these results demonstrate the continued strength of our well located portfolio and brings our year to date same site NOI growth to 2%.
Turning to the balance sheet, we ended the third quarter with consolidated net debt to EBITDA of five five times on a look through basis, including pro rata JV debt and preferred perpetual preferred stock outstanding.
Net debt to EBITDA was five nine times the same as last quarter end 0.4 times better than a year ago.
Conor Flynn: Indeed, our third quarter results were stronger than anticipated, enabling us to raise our outlook for same-site NOI while raising the bottom end of our FFO guidance for the remainder of the year. A few more third quarter highlights. We signed 457 leases totaling 2.1 million square feet during the third quarter. Our small shop occupancy reached an all-time high of 91.1 percent as demand for our portfolio continues. Our strong positive leasing spread is 34.9% for new leases and 8.8% for renewal and options, reflects the pressing power of our high quality portfolio.
Our liquidity position remains very strong at over $2 4 billion at quarter end.
This was comprised of more than $400 million in cash and full availability of our $2 billion revolving credit facility in.
In addition, we have our remaining albertson shares which have a value of over $320 million.
Subsequent to quarter end, we issued a new $500 million long 10 year unsecured bonds, which is scheduled to mature in 2034 at a fixed coupon of six 4%.
As we are all aware interest rates have risen dramatically over the past year and further rate increases are not off the table.
Conor Flynn: Of note, our combined spread of 13.4% is the highest in six years. As anticipated, our anchor occupancy dips 50 basis points quarter over quarter to 97.2% due to the recapture of the remaining bedbath and beyond boxes. We release seven bedbath boxes this quarter at a positive spread of 54%. Our remaining 12 bedbath boxes are all in negotiation and continue to benefit from the favorable supply and demand dynamics for well located retail.
As such we felt it was prudent to address our upcoming 2020 for unsecured bond maturities, which come due in the first quarter of next year.
Pending the maturity, we have invested the proceeds and high quality instruments to mitigate a large portion of the dilution.
Now for our outlook for the remainder of 2023 as Cotter noted earlier, we began the year facing a noncash headwind of <unk> <unk> per share totaling $36 million compared to 2022 stemming from the anticipated lower fair market value amortization from the early repayment of the.
Conor Flynn: Our overall occupancy is often in 30 basis points to 95.5% notwithstanding the headwinds described. We are encouraged by the continued push by tenants to secure the right real estate with the right landlord. This continued strong demand perhaps best evidence by our signs but not open spread, which actually widened out this quarter to 320 basis points representing about 52.2 million of rent that is not yet cash flowing. It is these operating dynamics in our own portfolio that continue to build our teams enthusiasm for the pending RQT transaction.
Weingarten bonds and the normalization of credit loss. In addition, we reduced our 2023 lease termination income assumption by $10 million or <unk> <unk> per diluted share in the first quarter.
As a result of the strong performance from the operating portfolio. We have caused most of the stack our ability to overcome these headwinds and the stability and strength of our operating portfolio.
Conor Flynn: While we remain excited about our portfolio, the headwinds I noted earlier cannot be ignored. As a result of the dramatic rise in the 10-year treasury due to persistent inflation in all likelihood we will remain in a higher for longer interest rate environment for the foreseeable future. To mitigate balance sheet uncertainty and maintain a stance of derisking our exposure to market forces we do not control. We proactively address our near-term debt maturities.
Based on our year to date results and our expectations for the fourth quarter. We are again tightening our 2023 <unk> per share guidance range to $1 56 to $1, 57% from the previous range of $1 55 to $1 57.
This includes improving our full year credit loss assumption to a range of 75 basis points to 100 basis points from the previous range of 75 to 125 basis points and increasing our same site NOI assumption to 175% to $2, 25% from the previous level of one person.
Conor Flynn: We will provide more detail on how we plan to maintain optionality and flexibility. We also continue to prioritize generating free cash flow. We are laser focused on expediting store openings and rent commencing dates while reducing expenses that are not income producing. Free cash flow growth will allow us to be self-funding and help produce strong organic internal NLI growth as we move ahead.
Sent to 2%.
In addition, based on our full year expectations. Our board has elected to increase the fourth quarter common dividend to <unk> 24 per share representing an increase of four 3%.
Conor Flynn: In summary, we continue to build a company team and portfolio that is resilient and able to drive growth and challenging times. We believe we are well positioned to execute and take advantage of the additional opportunities that will inevitably arise as we continue to work to optimize shareholder value.
As a reminder, we received a $194 million special dividend from Albertsons early this year, which is considered ordinary income for tax purposes, but not included in SFO.
We continue to evaluate the amount of special dividend needed to satisfy our REIT distribution requirements.
Ross Cooper: Thank you, Connor and good morning all. It was a busy quarter for Kimco on all fronts, including the transaction side of the business. While the macro backdrop continues to be volatile, the dislocation that has begun to emerge clearly benefits well capitalized owners and operators. Those with the scale and liquidity to not only weather challenging times but take advantage of them. With rates continuing to rise and financing more difficult to obtain, creativity and utilizing unique advantages is how to win in this environment.
The board is expected to declare the amount of special dividend in November and we expect to pay it by year end.
Looking ahead, we plan to provide our 2024 outlook when we report our fourth quarter results. We anticipate it will be inclusive of the RPT merger being completed early in the year.
And with that we're ready to take your questions.
Or are we begin Q&A one additional item of note today's call will be focused on kimco third quarter earnings results and outlook as a Standalone company.
Ross Cooper: To that point, in August, we capitalized on an opportunity to acquire a dominant grocery anchored lifestyle center in one of our top markets. Stonebridge Epitemic Town Center is a 500,000 square foot trophy asset in Washington, D.C. Metro with all the attributes we look for in the property starting with the best in class grocer, in this case, Wegmans with exceptional sales. The market also has excellent demographics with over 115,000 annual household incomes and over 110,000 people in a three mile radius that also pulls from a trade area that stretches upwards of 40 miles due to the tenancy and regional location.
This discussion may also contain forward looking statements about the company's pending merger with RPT, which remains subject to customary closing conditions, including the approval of RPT shareholders as such our sponsors around this pending transaction are limited the information thats already publicly available.
Transaction announcements, yes for in the merger agreement, which can all be found in the Investor Relations section of our website, but now it can be in the Q&A.
We will now begin the question and answer session.
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Ross Cooper: The property will allow us to layer in our platform to create additional value and cash flow growth, both from upgrading specific tenants and rent the levels over time. Additionally, the asset includes over 50 acres of land, providing us with the optionality to densify with mixed use in the future. Historically, this is an asset that every institutional owner would be chasing, and would likely have a premium cap rate attached to it due to all the positive attributes.
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The first question today comes from Michael Goldsmith with UBS. Please go ahead.
Ross Cooper: However, with financing sites and for a large deal size, Kimco stood out with its ability to close all cash on the $172.5 million purchase price, which allowed us to negotiate a cap rate north of 7% for our newest signature series asset.
Good morning, Thanks, a lot for taking my question Hugh.
You purchased an asset in the quarter you sold assets in the corner you are presumably in the market for selling some of the RPT assets, who went through when you acquire the company can you kind of provide an update of the transaction market with a particular emphasis on how things have changed since the 10 year rate increased.
Ross Cooper: During the quarter, we also announced the merger with RPT Realty. This is another clear example of utilizing our platform to negotiate a highly favorable cap rate for a well-regarded portfolio of primarily grocery anchored centers. Similar to the timing on the wine garden transaction, we view this as another unique window during which the competition is limited and we can take advantage. As it relates to structured investments, there has been a noticeable uptick in discussions and potential opportunities in the past 30 to 60 days.
Sure happy to address that so yes, youre right. We had a very active quarter as I mentioned, we are very excited about the acquisition of the Stonebridge Center.
We are long term hold where it can create some significant value.
<unk> on the chemical side, we're fairly limited, there's one transaction, which I would note that we sold out of one of our joint ventures are grocery anchored shopping center in southern California at a very low cap rate in the low fives, which I think showcases the strength of the market and that there is significant capital, particularly for core grocery centers.
Ross Cooper: Admittedly, we expected these conversations to ramp up earlier in the year, but it seems to be happening at a more significant pace as of late. Conversations are taking place with operators facing debt maturities, groups looking for capital to transact on unique one-off opportunities, as well as institutional investors facing redemption that are looking at recaps. We're being very selective in where we participate, so we expect this part of our business to grow as we move forward. All in all, we are excited about the activity during the quarter and our ability to utilize our position and sector-leading liquidity to remain active when others are side-lines.
That being said, we're being I think very cautious in this market in terms of the fourth quarter and our expectations. There is essentially nothing in the pipeline on the acquisition side between now and year end and on the disposition. They continue to be limited to a couple of select land parcels and a few smaller joint venture assets that were exploring.
I would tell you that the market is still active although transaction volumes are down plus or minus 70% year to date. There is still is capital that is being put to work.
Glenn Cohen: We will continue to be extremely judicious with our capital but be ready to move opportunistically and now off the ground for the financial highlights of the quarter.
Recently, they were transactions that very aggressive sub six cap rates in southern California. Aside from the one I mentioned that we sold as well as in Miami, we've seen grocery anchored centers as well as power centers in Chicago and other parts of the Midwest that are trading in the sixes and sevens and in some cases lower.
Glenn Cohen: Thanks, Ross and good morning. Our third quarter results continue to demonstrate the strength of our high-quality operating portfolio, highlighted by robust leasing spreads and positive same-site nano-wide growth. Importantly, our strong liquidity position and leverage metrics position us to effectively handle the macroeconomic Edwin's resulting from sovereign inflation and the higher interest rate environment.
The financing is still available, albeit at higher rates than what we've seen in the last 12 months or so which is obvious.
While the rate environment has gone, but ltvs can still be obtained from private owners or investors in that 50% to 60% range. So there there is still activity out there.
Glenn Cohen: Now for some details on our third quarter results. FFO was 248.6 million or 40 cents per diluted share as compared to last year's third quarter results of 254.5 million or 41 cents per diluted share. Our third quarter results produced an increase in pro-rata and OI of 3.3 million. The key components of the increase were higher consolidated minimum rent of 12.6 million or step by lower LTA income and straight line rent of 4.7 million.
Courage by what we see in the fundamentals of the business as we've talked about and we believe that we can selectively executed the appropriate time.
The next question comes from Juan Sanabria with BMO. Please go ahead.
Hi, Thank you good morning, just hoping to pick up on the back of Michael's question with regards to.
Targeted RPT dispositions, presumably that would be focused in a lower growth Midwest markets. Just how committed are you to trying to.
Glenn Cohen: In addition, bad debt expense was higher by 2.8 million as the current period had a more normalized credit loss level compared to last year which benefited from $600,000 of credit loss income due to reversals of reserves. Overall, credit loss was at 71 basis points as a percent of revenues for the Williams, at the favorable end of our 75 basis point to 125 basis point, Credit Lois Guidance Assumption. Prior added interest expense was also higher by 10 million, comprised of 8 million from the confiolidated portfolio and 2 million from our joint ventures.
Prune that part of the portfolio if at all.
And how should we think about cap rate spreads or differences between kind of typical primary gateway markets versus more secondary maybe mid.
Midwestern rust belt type markets.
Yeah.
Sure.
We are going to save the specifics of the RPG strategy for once we close the merger.
That being said I would tell you that there is still activity out there as I mentioned.
We've seen transactions in the Midwest as well as in the Sun belt in other parts of the country. So investors are still looking at all parts of the country in all formats of retail.
Glenn Cohen: This was due to lower fair market value amortization, resulting from the early repayment of one joint ventures. Also included in FFO for the third quarter, 2023, are 3.8 million of cost incurred in connection with the announced RPT merger and the net benefit of 4.8 million associated with the final liquidation of the one-garden pension plan.
Theres a significant amount of capital that is currently sidelined that that is waiting for the appropriate opportunities and frankly for more supply to hit the market as it has been a pretty stable and static amount of supply. That's been introduced so well be very selective we're going through the integration process of pre merger integration.
Glenn Cohen: Moving to the operating portfolio, leasing activity remained brist throughout the quarter, as Conor mentioned. Same-site NOI growth was positive 2.6% for the third quarter, and if we excluded the impact of prior period collections, it would have increased to 3.1%. The primary drivers of the same-site NOI growth are higher minimum rents, contributing 290 basis points, and other rental revenues adding 40 basis points. These increases were all set by a more normalized level of credit loss impacting same-site NOI growth by 90 basis points.
Process right now so we're formulating our strategy, but we're very encouraged by the direction of the RP portfolio.
And as we get to the merger and beyond it will be much more specific.
Do you think about the strategy and the plan there.
The next question comes from Jeff Spector with Bank of America. Please go ahead.
Great. Good morning, I guess just to push on that a little bit just given the year to date stock performance.
Market is clearly not appreciating the opportunities or the market is too concerned over the risks on these opportunities and it sounds exciting youre seeing more opportunities.
Glenn Cohen: Overall, these results demonstrated the continued strength of our well-located portfolio and brings our year-to-date same-site NOI growth to 2%. Turning to the balance sheet, we ended the third quarter with consolidated net debt to EBITDA of 5.5 times. On a look-through basis, including pro-rata JV debt and perpetual preferred stock outstanding, net debt to EBITDA was 5.9 times. The same is last quarter and 0.4 times better than a year ago. Our liquidity position remains very strong at over 2.4 billion at quarter end. This was comprised of more than 400 million in cash and full availability of our $2 billion revolving credit facility. In addition, we have our remaining Albertsons shares which have a value of over 320 million.
To come I guess is there anything else you can share today to alleviate maybe some of these concerns.
That.
Kimco is executing the right strategy to be opportunistic.
Yeah, Jeff I'm happy to take that one so I think when you see with our results and let the numbers speak for themselves. Early we are very focused on executing our strategy and having that result in strong operating results strong football we raised our dividend we raised our guidance. We raised our same site NOI guidance, you all time high occupancy for small.
Shops is reflected there six year high.
Our leasing spreads. So we believe we're executing and we're showcasing at the numbers speak for themselves clearly we're at an opportune time.
Glenn Cohen: Subsequent to quarter end, we issued a new 500 million long 10-year unsecured bond which is scheduled to mature in 2034 at a fixed coupon of 6.4%. As we are all aware, interest rates have risen dramatically over the past year and further rate increases are not off the table. As such, we felt it was prudent to address our upcoming 2024 unsecured bond materities which come due in the first quarter of next year. Hending the maturity, we have invested the proceeds in high quality instruments to mitigate a large portion of the delusion.
The dislocation in the financing market, we try and be.
Opportunistic and I think that's what kimco is known for and so obviously, it's a show me story and we believe we've executed in the past. We we know we're only as good as our last deal and so we're going to make sure that we continue to put up.
The numbers that speak for themselves and when you look and I know we've been very vocal about the health of our of our industry, but when you look at the supply and demand side of the shopping center sector with the demand the store openings of what we track over 6900, new store openings for this year the supply of 5%.
Glenn Cohen: Now for our outlook for the remainder of 2023. As Connor noted earlier, we began the year facing a non-cash headwind of $0.6 per share totaling $36 million compared to 2022, stemming from the anticipated lower fair market value amortization from the early repayment of the wine-garten bonds and the normalization of credit loss. In addition, we reduced our 2023 lease termination income assumption by $10 million or two cents and we could dilute a share in the first quarter. As a result of the strong performance from the operating portfolio, we have employed most of this back. Our ability to overcome these headwinds speaks to the stability and strength of our operating portfolio.
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Listing stock of new construction, which is the lowest amongst all commercial real estate categories.
The vacancy levels for the whole entire open air sector, depending if you look at Cushman and Wakefield or CBRE is the lowest as they've ever been tracking so between 16 years at Cushman 18 years at CBRE has the lowest vacancy rate in the country has ever experienced and so we're in a good spot and we see that opportunity we think that.
The RPT transaction is exactly that it's a high quality portfolio with all the wind at its back. So we can crystallize the G&A synergies very quickly what gets us most excited obviously because the opex margin that we can believe we can execute on quickly and bring it up to a kimco level and block and tackle and showcase what the platform can do.
Glenn Cohen: Based on our year-to-date results and our expectations for the fourth quarter, we are again tightening our 2023 FFO per share guidance range to $1.56 to $1.57 from the previous range of $1.55 to $1.57. This includes improving our full-year credit loss assumption to a range of 75 basis points to 100 basis points from the previous range of 75 to 125 basis points and increasing our same site and a wide assumption to 1.75% to 2.25% from the previous level of 1% to 2%.
Okay.
Great. Thank you.
The next question comes from Gregg Hillman with Citi. Please go ahead.
Hey, guys.
Just maybe coming at things from another angle on RPT here.
Just 10 years up call. It 70 bps since you guys announced the transaction you're interested the debt deal at six four you have to refinance that $80 million could you just talk about kind of given where rates are where they could go.
Glenn Cohen: In addition, based on our full-year expectations, our board has elected to increase the fourth quarter common dividend to $0.24 per share, representing an increase of 4.3%. As a reminder, we received a $194 million special dividend from Albertsons earlier this year, which is considered ordinary income for tax purposes but not included in FFO. We continue to evaluate the amount of special dividend needed to satisfy our redistribution requirements.
What the optimal mix of cash versus new debt could look like just to take that out and maybe how the accretion math has moved since the deal was announced just given.
The higher financing costs.
Yeah, Hi, Hi, it's Brian.
Again rates, obviously have moved a little bit, but we do have a full miss and we have a fair amount of optionality.
Glenn Cohen: The board is expected to declare the amount of special dividend in November and we expect to pay it by year end.
We have cash obviously that is on our balance sheet.
Glenn Cohen: Looking ahead, we plan to provide our 2024 outlook when we report off fourth quarter results. We anticipate it will be inclusive of the RPT merger being completed early in the year.
We also have our albertsons investment that we would.
First to be able to monetize in the beginning part of the year.
So between that our access to capital the revolver.
We feel pretty comfortable with that.
The debt at.
Prices relatively close to where we targeted.
Unknown Executive: And with that, we are ready to take your questions.
Their rates are up a little bit, but I think from the Gulf coast.
Standpoint, we still expect the transaction to be <unk>.
Unknown Executive: Before we begin Q&A, one additional item of note. Today's call will be focused on Kimco's third quarter earnings results and outlook as a standalone company. Today's discussion may also contain forward-looking statements about the company's pending merger with RPT, which remains subject to customary closing conditions, including the approval of RPT shareholders. As such, our responses around this pending transaction are limited. The information that is already publicly available, including the transaction announcement, the S4 and the merger agreement. You can all be found in the investor relations section of our website.
Oh accretive in the first year.
We have again the revolver is fully available soon with significant amount of cash on the balance sheet and Albertsons I think those give us the flexibility to take down what we need.
The next question comes from Handel St Juste with Mizuho. Please go ahead.
Unknown Executive: With that, now we can begin in the Q&A. We will now begin the question and answer session. To ask a question, you may press star than one on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star than two. Please limit yourself to one question and rejoin the Q if you have additional questions.
Hey, there good morning.
I will not ask the question on our P T.
I wanted to ask about the leasing spreads.
My question to you was on leasing spreads the bed Bath spreads in particular, which were stronger I think than expected. So maybe can you shed. Some more color here are you, perhaps offering a bit more T. I's are you cutting of boxes and maybe some color on how the conversations are going to backfill the remaining boxes and expectations for spreads on those things.
Unknown Executive: At this time, we will pause momentarily to assemble our roster.
Yeah, Yeah I appreciate the question.
I think it sort of dovetails.
Part of what <unk> mentioned about the supply demand and the demand factors that are very much in our.
Michael Goldsmith: The first question today comes from Michael Goldsmith with UBS. Please go ahead.
Our favorite right now with no new developments applied really do your existing inventory and so similar message to what we communicated previously there's a lot of these retailers are looking for opportunities to grow their store count.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. You purchased an asset in the quarter. You sold assets in the quarter. You are presumably in the market for selling some of the RPT assets.
Ross Cooper: When you require the company, can you kind of provide an update of the transaction market with a particular emphasis on how things have changed since the tenure rate increased? Thank you. Thanks.
Sure Brett.
Actions over the next several years and so they've always seen the bed Bath.
Inventory is one of those clear opportunity so in terms of.
They've made yet multiple players at the table looking for similar space that actually helps you push rents northward, which helps drive the spread when you look at the cost side the cost have been pretty much in line. You know all of these have been single tenant backfill. So we arent spending boxes, yet when you look at the balance of the 12, we still have a handful of those that.
Ross Cooper: I'm so happy to address that. So yeah, you're right. We had a very active quarter, as I mentioned. We were very excited about the acquisition of Stonebridge Center. It's going to be a long-term hold where we can create some significant value. The dispositions on the Kimco side were fairly limited. There's one transaction, which I would note that we sold out of one of our joint ventures, a grocery anchor shopping center in Southern California at a very low cap rate in the low size, which I think showcases still the strength of the market and that there is significant capital, particularly for core grocery centers.
Are going to be occupied most likely by single tenant users. There may be a couple in there that we anticipate splitting but that was to be expected.
From the very beginning and we still see very healthy spread margins as well for those remaining boxes. So again outlook looks fairly favorable right now.
Ross Cooper: That being said, we're being, I think, very cautious in this market in terms of the fourth quarter and our expectations. There's essentially nothing in the pipeline on the acquisition side between now and your end. And on the disposition, they continue to be limited to a couple of select land parcels and a few smaller joint venture assets that we're exploring.
The next question comes from Samir Khanal with Evercore ISI. Please go ahead.
Yes, hi, good morning, maybe a follow up to the bed bath sort of comment earlier.
I guess, how much how should we think about the downtime.
Ross Cooper: So I would tell you that the market is still active, although transaction volumes are down. Plus or minus 70% year-to-date. There still is capital that is being put to work. Just recently, there were transactions that very aggressive sub-six cap rates in Southern California aside from the one I mentioned that we sold as well as Miami. We've seen grocery anchor centers, as well as power centers in Chicago and other parts of the Midwest that are trading in the 60s and the 7s, and in some cases, low heats.
With those boxes, I mean, I'm trying to figure out.
The downtime and how long it will take to get kind of the rent.
Brent back online with new tenants, if we think about growth for next year you know so.
On the one side you have the headwind from <unk>.
Higher interest rates.
Net interest expense, but then on the other side I'm just trying to understand how much of a sort of a pickup from brents, you'll you'll get sort of as a tailwind for next year. Thanks.
Yeah sure absolutely. So we have we have 14 boxes that were executed three of which were assigned those 14 boxes are accounted for currently in our snow pipeline would you spend of 320 basis points $52 million in total.
Ross Cooper: The financing is still available, albeit at that higher rate than what we've seen in the last 12 months or so, which is obvious given where the rate environment is not. But LTVs can still be obtained from private owners or investors in the 50 to 60% range. So there's still activity out there.
For some perspective on timing, we do actually have our first few bed bath boxes that were backfill starting to flow this quarter and so that was under a 12 month window.
Ross Cooper: We're encouraged by what we see in the fundamentals of the business, if we've talked about. And we believe that we can selectively execute it the appropriate time.
Obviously timing will vary box to box and what needs to be done the balance of that is baked into our snow pipeline of which we anticipate seeing about 50% to 60% of that flow through the course of 'twenty four.
Juan Sanabria: The next question comes from Juan Sumbria with B&L. Please go ahead. All right. Thank you. Good morning. Just hoping to pick up on the back of Michael's question with regards to targeted RPT dispositions. A presumably that that would be focused in the lower growth, Midwest markets.
The nice part about the re leasing of the bed Bath boxes is again, there have been individual tenants, taking the whole boxes, which usually compresses the build out time and the rent commencement dates. So that's that's what we're we're already starting to see some flow this year.
Ross Cooper: Just how committed are you to trying to prune that part of the portfolio at all. And how should we think about cap rates spreads or differences between kind of typical primary gateway markets versus more secondary, maybe Midwest or West belt market markets. Sure.
The next question comes from Dori Kesten with Wells Fargo. Please go ahead.
Oh, Thanks, good morning.
With respect to your place for higher annual escalators that you're finding there is any incremental pushback or when do you expect to be able to continue to push that park for the near term.
Yes, it's market driven obviously, we'd say they sun belt markets have been.
Ross Cooper: You know, we are going to save the specifics of the RPT strategy for once we close the merger. That being said, I would tell you that there is still activity out there, as I mentioned. We've seen transactions in the Midwest as well as in the sun belt and other parts of the country. So investors are still looking at all parts of the country and all formats of retail. There's a significant amount of capital that is currently sideline that is leading for the appropriate opportunities.
Areas of opportunity, where we can push probably further north.
The increases, but it's really a case by case conversation with all the retailers. Obviously everything is a negotiation. So theres a lot of discussion on the table, but we felt we've been confident in our abilities to push it north we're in right now it seems to be holding pretty well.
Where they are with the small shop occupancy at 91, one obviously matching our all time high again that supply demand.
Ross Cooper: And frankly, for more supply to hit the market has been a pretty stable and static amount of supply that's been introduced. So we'll be very selective. We're going through the integration process, the pre merger integration process right now. So we're formulating our strategy, but we're very encouraged by the direction of the RPT portfolio.
Are you still working very much in our favor.
Okay. Thanks.
The next question comes from Conor Mitchell with Piper Sandler. Please go ahead.
Ross Cooper: And as we get to the merger and beyond it, we'll be much more specific about the strategy and plan.
Hey, good morning, Thanks for taking my question, so sticking with the lack of.
Applying a strong tenant demand I guess.
Can you about how you guys are heavy conversations or discussions with your acreage. So traditionally the anchor tenants are able to drive leasing terms of deals, but now that the availability is dwindling.
Jeffrey Spector: The next question comes from Jeff Spector with Bank of America. Please go ahead. Great good morning. I guess just to push on that a little bit, just given the year-to-date stock performance, you know the market is clearly not appreciating the opportunities or the market is too concerned over the risks on these opportunities. And it sounds exciting. You're seeing more opportunities to come.
How is kimco able to regain leverage in those discussions and maybe curtail some tenant friendly terms.
Sure Yeah, I mean outside of the economics Youre looking at co tenancy provisions exclusive provisions all of which you can start to rebalance loosen up and create more flexibility for us obviously to reposition and redevelop inner center centers.
Conor Flynn: I guess is there anything else you can share today to alleviate maybe some of these concerns that, you know, Kimco is executing the right strategy to be opportunistic. Jeff, I'm happy to take that one. So I think when you see the results and the numbers speak to themselves, clearly we are very focused on executing our strategy and having that result in, you know, strong operating results, strong FFO, we raised our dividend, we raised our guidance, we raised our saints by NOI guidance, the all-time high occupancy for small shops is reflected there six year high on leasing spreads.
It has been a core principle of ours, so having that flexibility to do so I also think we continue to grow into a data driven.
Market, where you have a better sense of be impacts and you see now.
Tendencies are understandings change a former principles about the impact of fitness long ago was sort of dispelled by the reality that people go to the gym and then they actually go and shop elsewhere afterwards, and so retailers have come to appreciate that so I think today more than ever it is very much a partnership I'm looking to it.
Conor Flynn: So we believe we're executing and we're showcasing it like the numbers speak to themselves. Clearly we're in an opportune time, you know, with the dislocation in the financing market. We try and be opportunistic and I think that's what Kimco is known for. And so obviously it's a show me story and we believe we've executed in the past and we know we're only as good as our last deal. And so we're going to make sure that we continue to put up, you know, the numbers that speak for themselves.
To build the best community for for the shopper and the customer and our retailer partnerships are very very strong and they are willing to explore new opportunities that work for both sides and the only thing I would add is I think youre seeing retailers become more flexible with the store footprint, which again opens up a lot more opportunities.
Days of sort of having their prototyping that's it doesn't seem to be in the past and so that may not be a lease term specific item, but it is the optionality that creates more demand for spaces that might be more tweener size and that's what you're seeing with some of the bed bath opportunities.
Conor Flynn: And when you look and I know we've been very vocal about the health of our of our industry. But when you look at the supply and demand side of the shopping center sector, with the demand, the store openings of what we track over 6,900 new store openings for this year. The supply of 0.5% of existing stock of new construction, which is the lowest amongst all commercial real estate categories. And the vacancy levels for the whole entire open air sector, depending if you look at Cushman and Wakefield or CBRE, it's the lowest incentive ever been tracking.
The next question comes from Floris van to come with Compass point. Please go ahead.
Thanks, Good morning, guys. Thanks for taking my question.
I'm, a I'm a little bit you know.
Price that the you know.
Some ways on the on the reaction from the markets on your increasing scale and at a time when the fundamentals of the shopping center industry are probably the best we've ever ever seen.
Conor Flynn: So between 16 years of Cushman 18 years of CBRE is the lowest vacancy rate the country has ever experienced. And so we're in a good spot. We see that opportunity. You think that, you know, the RPT transaction is exactly that. It's a high quality portfolio with all the wind at its back. So we can crystallize the GNA center is very quickly. And what gets us most excited, obviously, is the off X margin that we can believe we can execute on quickly and bring it up to a Kimco level and block and tackle and showcase what the platform can do. Great.
Unknown Executive: Thank you.
But maybe if you could put into context some of the your historical occupancy and leverage ratios.
And in particular, maybe highlight also maybe if you can talk about what your shop occupancy is at record levels already booked.
Are there big regional differences and how much more can you push that maybe comparing for example, your new Yorker long island shop occupancy versus your national obviously their market differences here, but.
Greg Mcginniss: The next question comes from Greg Milin with city. Please go ahead. Hey guys, just maybe coming at things from another angle on RPT here. Just the 10 years up called 70 bits, since you guys announced the transaction, you guys just did the debt deal at 64. You have to refinance the 80 million. Could you just talk about kind of given where rates are where they could go.
I highlight two two to the to the market a little bit on what the upside potential additional upside potential is here in terms of occupancy and also obviously as that snow pipeline comes online what that would do to your already.
I believe record low leverage ratios.
Sure happy to start, Florida, we can pass the mic around but.
<unk>, we're we're obviously encouraged by the supply and demand dynamics that we're experiencing at our portfolio. We're using a lot of data analytics to understand that theres virtually no new supply on the horizon and that we feel like our portfolio is well positioned for growth.
Glenn Cohen: What the optimal mix of cash versus new debt could look like to take that that out and maybe how the accretion math has moved since the deal was announced just given the higher financing cost. Yeah, hi, hi, second time. Again, it rate obviously a little bit, but we do have a full med, so we have a fair amount of optionality. We have cash obviously that is on our balance sheet. We also have our altitude investment that we would expect to be able to monetize in the beginning part of the year.
As assigned but not opened pipeline continues to build as you saw expand further this quarter, which indicates future NOI growth and we're trying to maintain the portfolio and strategy that allows us to grow regardless of the environment that we're facing and so keeping leverage levels are at all time lows for US is important you saw us be pro.
Active in and really sort of push out any near term maturities with our recent bond offering we continue to think that the small shop occupancy is going to be a bright spot for US is we've just reached all time highs and we continue to think there's more to push there.
Glenn Cohen: So between that, our access to capital, the revolver, we feel pretty comfortable. We've been answering that at prices relatively close to where we targeted, you know, rates are up a little bit, but I think from the up close standpoint, we still expect the transaction to be FFO created in the first year. We have, you know, again, the revolver's fully available, the city with significant amount of cash on the balance sheet and albums. I think those give us the flexibility to take down what we've done.
Demand drivers are multiple and there are more as I mentioned earlier theres traditional and non traditional and you continue to see the use cases for shopping centers the wall.
It's all about value and convenience and almost everything you can think of benefits from value and convenience and so that's why the shopping center. It continues to evolve I think the place of choice for whether it's a service use whether its a medical use whether it's a pure retail use you name. It it continues to evolve as the spot where people.
Haendel Juste: The next question comes from Handel St. Just with Mizzouho.
Haendel Juste: Please go ahead. Hey there, good morning. I will not ask the question on our PT. I wanted to ask you about the leasing spread. My question for you is on leasing spread. The bed to ask spread in particular, which were stronger, I think, than many of us expected. So maybe can you set some more color here? Are you transferring a bit more TI? Are you cutting up boxes? And maybe some color on how the conversations are going to backfill the remaining boxes and expectations for spreads on those.
I want to start businesses and that's why I think it gives us a lot of encouragement as well as the fact that we have all of this underutilized parking that we think has future upside in the long term. So we always want to think long term, we entitled over 800 units this quarter alone and the portfolio. We continue to think that you know the <unk>.
<unk> Centre will evolve to include multiple uses primarily multifamily for us while we position the portfolio for long term growth we've been on a roller coaster of retail as you know there's been retail Apocalypse theres been the Covid pandemic, there's been all things we've faced in terms of challenges and we feel right now we're in a really good.
Haendel Juste: Thanks. Yeah, yeah, I appreciate the question. I think it sort of dumps those part of what Connor mentioned about the supply demand and the demand factors that are very much, you know, in our favor right now with no new development supply. It's really existing inventory. And so similar message to what we communicated previously in a lot of these retailers are looking for opportunities to grow their their store count. They hit their projections over the next couple of years.
Spot hopefully be the bright spot of commercial real estate because at kimco is well positioned I think the opportunistic and showcase that when times. When people are nervous if you have the capability to execute should be able to make generational deals and we feel like that's what we're intending to do kimco going forward into the future.
Haendel Juste: And so they've always seen the bed bath inventory is one of those clear opportunities. So in terms of the commitment they've made, you have multiple players at the table looking for similar space that actually helps you push rent northward, which helps drive. The spread. When you look at the cost of the cost have been pretty much in line. You know, all of these people tend to backfill. So we aren't splitting boxes yet.
The next question comes from Greg Mcginniss with Scotiabank. Please go ahead.
Hey, good morning.
I'm just curious how you're thinking about spending on acquisitions versus redevelopment at this point, where do you see the bigger opportunity given the size of it.
Haendel Juste: When you look at the balance of the 12, we still have a handful of those that are going to be occupied most likely by single penny users. There may be a couple in there that we anticipate splitting, but that was to be expected from the very beginning. And we still see very healthy spread margins as well for those remaining boxes. So again, I love what's very favorable right now.
And growing size of the portfolio, whether or not you expect to see some increase in the redevelopment opportunities or whether the accretion yields there too.
Cost or whatever it might be.
Or just not worth the squeeze.
Sure happy to address that cost of capital is Paramount and doing deals that are accretive to that cost of capital is something that we discuss and evaluate it as a collective committee on a daily basis.
Haendel Juste: The next question comes from Samir Canal with Evercore ISI. Please go ahead. Yes, hi. Good morning. Maybe a follow up to the bed bath sort of comment earlier. I guess how much how should we think about the downtime with those boxes? I mean, I'm trying to figure out, you know, the downtime and how long it'll take to get kind of the rent back online with new tenants as we think about growth for next year.
To your point acquisitions in this environment at least one off sort of third party acquisitions I will be very challenging for us in the near term as cap rates have not moved nearly at the same speed that interest rates and our cost of capital have moved.
The bright spot is that redevelopment is particularly sort of the bread and butter retail redevelopment within our portfolio continue at very high clips double digits on average so that is.
Haendel Juste: So, you know, on the one side, you have the headwinds from higher interest rates, and Inter's Expans, but on the other side, I'm just trying to understand how much of a sort of a pickup from Rensfield, you'll get sort of as a tailwind for next year, thanks. Yeah, sure, absolutely. So we have 14 boxes that were executed, three of which were assigned. Those 14 boxes are counted for currently on our snow pipeline, which you spend a 320 basis, $0.52 million dollars in total. First, I'm perspective on timing.
<unk> opportunity that we will continue to pursue and activate across our portfolio and to your point as the portfolio continues to grow those opportunities grow alongside it. So we do believe that leasing and redevelopment and retail redevelopment will continue to exceed our cost of capital and be where we put a significant amount of our available cash flow and then what.
Be opportunistic with the structured investment program, which also.
Haendel Juste: We do actually have our first two bed baths, boxes that were backfilled, starting to flow this quarter. And so that was, you know, under a 12 month window. Obviously timing will vary box to box on what needs to be done. The balance of that is baked into our snow pipeline, of which we anticipated about 56% of that flow, of course, of 24. Here's a nice part to about the the releasing of the bed bath boxes is again, they've been individual tenants taking the whole boxes, which usually compresses the build out time and the recommended date. So that's, that's what we're, we're already starting to see some flow this year.
Double digit.
Turns requirements for us to proceed and we will prioritize each and every opportunity with that thought process in mind.
The next question comes from Anthony Powell with Barclays. Please go ahead.
Hi, Good morning, I guess, a question on where do share repurchases fit into the capital allocation I guess a matrix I think you have about 224 million left in your authorization. How do these how does that compare to a trucking in investments and other opportunities you have.
I think it's a similar conversation I think every investment opportunity that we look at is judged based upon our cost of capital and what is accretive to that.
Dori Kesten: The next question comes from Dory Keston with Wells Fargo. Please go ahead.
You talked a little bit about our leverage being at the lowest levels historically that it's ever been which gives us a lot more optionality to consider anything that's on the table. So we'll look at every single investment opportunity acquisition leasing redevelopment structure investment stock buybacks or whatever the case may be and prioritize it.
Dori Kesten: Thanks, morning, with respect to your push for higher annual escalators, are you finding there's any incremental pushback, or would you expect to be able to continue to push upward to the near term? Yeah, it's market driven. Obviously, you know, we would say the some belt market have been, you know, areas of opportunity where we can push further north on on the increases, but it's really a case by case. Conversation with all the retailers, obviously, you know, everything's in negotiation. So there's a lot of discussion on the table, but, you know, we felt we have been confident in our abilities to push it northward and right now, it's good to be holding pretty well.
Upon through that lens, and that's where we sit and that's how we consider it.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Hi, Good morning, everyone I'm kind of you talked about small shop occupancy is the bright spot and could you talk about what types of tenants, you're seeing that interest from local versus national when industry and also the timing I feel like we hear that macro uncertainty is lengthening the time it takes to sign leases and other property types I'm wondering if you're seeing there.
Dori Kesten: With the, with the small shop, oxygen to 91, 1, obviously matching our all time high. Again, that supply demand balance is still working very much in our favor. Okay, thanks.
Not at all in your property type.
Connor Mitchell: The next question comes from Connor Mitchell with Piper Samar. Please go ahead. Hey, good morning. Thanks for taking my question. So sticking with the lack of supply and strong tenant demand. I guess thinking about how you guys are heavy conversations and discussions with your acreage.
Sure from a small shop perspective, I think it's a it's definitely a bright spot. When you look at the uses no restaurants specialty foods like those types of users still dominates the percentages of new leases that we signed this quarter.
And then when you go past that it's really sort of a health and wellness and beauty categories.
Connor Mitchell: So traditionally, the acre tenants are able to drive leafy terms and deals, but now that the availability is dwindling, how is Kimco able to regain leverage in those discussions and maybe curtail some tenant friendly terms? Sure, yeah. I mean, outside of the economics, you're looking at, you know, potency provisions, exclusive provisions, all of which you can start to rebalance, loosen up, create more flexibility for us, obviously repositioning redeveloping our centers has been a core principle of ours, so having that flexibility to do so.
That continues to evolve you used to be dominated by sort of the old does the world now we're seeing sephora in a number of others continue to evolve to have open air shopping centers are the key components of our growth strategies.
When you look at the services category that continues to evolve we always have had hair and nail salons as a key component of the shopping center sector.
When you add in all of the medical uses that continue to evolve and want to be closer to the consumer and come out of the hospital I think that that continues to evolve as well and then youre seeing sort of these.
Franchise, driven concepts that continue to be the growth driver.
Connor Mitchell: I also think we continue to grow into a data driven market where you have a better sense of the impacts, and you see, you know, tenants, these are understandings change, former principals about, you know, the impact of fitness long ago was sort of dispelled by the reality that people go to the gym, and then they actually go and chop elsewhere afterwards. And so retailers have come to appreciate that. So I think today, more than ever, it's very much a partnership looking to build the best community for the shopper and the customer and our retailer partnerships are very, very strong, and they're willing to explore, you know, new opportunities that work for both sides.
Pop retailer today very different than it was even five years ago and a lot of what's being going whats going on as they are buying these franchises with a proven business model and that's how they are starting a business and I think when you look at the franchises that we're doing deals with you can actually improve the credit profile there are getting a corporate guarantee.
On it and so as we evolve our leasing strategy and we've talked about the increases that we're getting on small shops.
Continuing to improve the growth of the portfolio. All of these things are adding up obviously to an enhanced growth profile.
The next question comes from Alex Fagan with Baird. Please go ahead.
Connor Mitchell: And the only thing I would add is I think you're seeing retailers become more flexible with store footprint, which again opens up a lot more opportunities. The days of sort of having their prototype, and that's it, it seemed to be in the past. And so that may not be at least term specific item, but it is an optionality that creates more demand for spaces that might be more tweener size, and that's what you're seeing with some of the bad bath opportunities.
Hi, Thank you for taking my question I kind of wanted to.
Dig into the <unk>.
Structured investment conversation you guys had mentioned that the conversations with all of those have been picking up lately can you guys provide just some more details about the return criteria.
Those are what we can expect that book to grow too.
Sure, Yes, the conversations are picking up and we do anticipate there's going to be more optionality with that program as we enter 2024.
Floris Dijkum: The next question comes from Floris Van Dijkum with Compass Point. Please go ahead. Thanks.
Continuing with the theme of cost of capital is.
Unknown Executive: Good morning, guys. Thanks for taking my question. You know, I'm a little bit, you know, surprised, you know, in some ways on the on the reaction from the markets on your increasing scale at a time when, you know, the fundamentals of the shopping center.
Our hurdle rates increase the quotes that we're providing to potential borrowers are our capital have increased as well so what was previously.
8% to 9% with some back end participation potentially is now double digit.
Greg Mcginniss: [inaudible] The next question comes from Greg McGinniss with Scotiabank. Please go ahead. Hey, good morning.
As a starting point so the blended average of our structured right now in terms of the the rates that were obtaining and occurring.
Vision are in the mid to high Nines, and we expect that anything going forward, we will certainly start in the double digits, but we think that will ramp up.
Have just under $200 million outstanding on the book right now within the program. So we will continue to be mindful of that but we think that there's room to run there.
The next question comes from Linda Tsai with Jefferies. Please go ahead.
Hi.
Redistrict credit loss outlook as you're trending from Ireland, given the record most supply environment, you're operating in and your improved portfolio quality in terms of better credit tenants do you think it's premature to say credit loss will be a step function lower in the coming years.
Again, we're happy with the improvement that we've seen I think you've seen credit was coming back to more normalized levels similar to what we saw.
And dammit.
It's a little early to put it into the guidance for next year, but.
As a runway to Fortinet 7500 basis point range, I think get back to normalized levels.
The next question comes from Mike Mueller with Jpmorgan. Please go ahead.
Yeah, Hi, I'm going back to the structured investment opportunities are they all tied to real estate or are you evaluating some operator opportunities as well.
Yes, I mean, the core program is is looking at operating real estate in our core markets.
Strong demographics, the tenancy that were looking for high quality sponsors and as we've talked about in the past having that right of first offer a writer first refusal is a critical component of that program now that being said, we do have our plus business that has been active historically and as there are retailers that are real estate rich that have capital.
Needs, we believe that we're typically one of their if not their first phone call. So those conversations will continue and where we can be opportunistic and helpful. With retailers that have a significant amount of owned real estate will always look at those opportunities as well.
The next question comes from Paulina Rojas with Green Street. Please go ahead.
Okay.
Good morning.
Right.
Interest rates of course is being introduced into a question of how will we.
We pay their balance sheet and.
Nook after companies start stating that maturity.
So when you think about the future how do you feel about it.
And potential tenant fallout or do you think it will be soon.
Reasonable, perhaps you think about about rush.
And tenant failure, given everything that is happening and with interest rates.
It's a good question Paul I think when you look at the rate environment and how it impacts all all industries really the retailers that have near term debt maturities are going to be facing higher interest expense and the refinancing just like any other industry.
I would say that.
As for Kimco has never been smaller when you look at the retailers that we continue to track from a credit perspective, and when you think about the supply and demand dynamics that I talked about earlier, we feel very comfortable with the.
Ross Cooper: I'm just curious how you're thinking about spending on acquisitions versus redevelopment at this point. Where you see the bigger opportunity and given the size of and growing size of the portfolio, whether or not we expect to see some increase in the redevelopment opportunities, or whether the accretion yields there due to the cost or whatever it might be are just not worth the squeeze. I have to address that. Cost the capital is paramount and doing deals that are created to that cost the capital is something that we discuss and evaluate as a collective committee on a kind of daily basis.
The credit loss reserve that we have today, obviously, we just improve that this quarter and continue to be proactive on showcasing spaces that are not available today, but may be available in a year or two or even five years' time and that's what we're doing right. Now is we're showcasing not our current vacancies were showcasing what may be available.
<unk> in the near term or in the long term the lineup of best in class tenants because of the lack of supply retailers are engaged and not knowing that it's going to be hard to fill their promise pipelines with net new store openings in the current environment. So they have to align with folks like kimco to try and fill that and see where they can add where they want it.
Ross Cooper: To your point, you know, acquisitions in this environment, at least one off sort of third party acquisitions. We'll be very challenging for us in the near term as cap rates have not moved nearly at the same speed that interest rates in our cost of capital have moved. The bright spot is that redevelopment, particularly sort of the bread and butter retail redevelopments within our portfolio continue at very high clips, double digits on average.
Fulfill their needs.
The next question comes from Keybanc, Ken with Truest. Please go ahead.
Thanks, Good morning to follow up on that last question.
Just given the rise in the cost of capital for your tenants do you see that eventually weighing on their expansion plans.
Ross Cooper: So that is an investment opportunity that we will continue to pursue and activate across our portfolio. And to your point as a portfolio continues to grow those opportunities grow alongside it. So we do believe that the thing and redevelopment we felt redevelopment will continue to exceed our cost of capital and be where we put the significant amount of our available cash flow. And then we'll be opportunistic with the structured investment program, which also have double digit returns requirements for us to proceed. And we'll prioritize each and every opportunity with that process in mind.
And second question your active mixed use developments yields went up.
Pretty noticeably just curious on what drove that.
Yes, Steven.
If your question so with the first one.
We maintain a very close dialogue with our big retail partners and they're they're looking through I think the short term.
Impacts and engineering to try to grab market share where they can appreciating that that inventory is limited and if they don't get it today, there might not be new inventory available tomorrow that said every every retailer has a different capital strategy and that probably had to evolve as most likely as as ours evolved as well so suddenly.
Anthony Powell: The next question comes from Anthony Powell with Barclays. Please go ahead. Hi, good morning.
Glenn Cohen: I got the question on where do share repurchases fit into the capital allocation, I guess the matrix. I think you have about 24 million left in your authorization. How is that compared to a structured investment in other opportunities you have? I think it's a similar conversation. I think every investment opportunity that we look at is judged based upon our cost of capital and what is accreted to that. I think that we talked a little bit about our leverage being at at the lowest levels historically that it's ever been, which gives us a lot more optionality to consider anything that's on the table.
We stay very very close to them, but as I can say right now.
It doesn't seem to be slowing the pace of growth a majority of those retailers and as it relates to mixed use pipeline. Yeah. I. Appreciate the question. So what you see there as you see for projects three of which are ground leases in the fourth one being holter, which is the one that we identified as a preferred equity structure that was the first of its kind that we're doing so.
This quarter, we felt it was appropriate to actually show what the real returns are related to the kimco invested capital in the preferred returns related to those projects.
We see that that yields a higher for accretive growth.
Glenn Cohen: So we'll look at every single investment opportunity, acquisition, leasing redevelopment, structure investment, stock buybacks, whatever the case may be, and prioritize it based upon, you know, through that lens. And that's where we sit and that's how we consider it.
Growth profile than than if you were just to invest all the capital yourself. So that's what it's reflecting that's the change.
The only thing I would add on the retailer demand side.
And what we're seeing is because of the rate environment because of the construction costs.
Caitlin Burrows: The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
A lot of these tenants that used to do ground up development and then sell those assets or sale leasebacks are now looking for second generation space versus the ground up development side and so theyre.
Caitlin Burrows: Hi, good morning everyone. Connor, you talked about small shop occupancy as a bright spot. Could you talk about what types of tenants you're seeing that interest from, like, local, or national, what industry. And also the timing, I feel like we hear that macro uncertainty is lengthening the time it takes to sign leases and other property types. So I'm wondering if you're seeing that at all in your property.
They're looking at how do they how do they absorb existing inventory versus net new development because of that lack of financing availability and so that should drive more demand the existing spaces as well as that first generation ground up development has really dried up.
Caitlin Burrows: From a small shop perspective, I think it's definitely a bright spot. When you look at the uses, you know, restaurants, specialty foods, like those types of users still dominate sort of the percentages of new leases that we signed this quarter. And then when you go past that, it's really sort of the health and wellness of beauty category, you know, that continues to evolve. You used to be dominated by sort of the old does of the world.
Thank you.
The next question comes from <unk> <unk> with BMO. Please go ahead.
Hi, Thanks for the the second shot here just.
Just a couple of questions one just on going back to the RPT merger, where we started.
What are you guys assuming in terms of the deaths it needs to be refinanced. So that's part one and then part two if you could just give us an update on the rite aid exposure and what you're doing or expecting there.
Caitlin Burrows: Now we're seeing Sephora and a number of others. Continue to evolve to have open air shopping centers as a key component to their growth strategies. You know, when you look at the services category that continues to evolve, we always have had hair and nails and lawns as a key component of the shopping center sector. But when you add in all the medical uses that continue to evolve and want to be closer to the consumer and come out of the hospital, I think that that continues to evolve as well.
For the space that they deemed that they're getting.
Can it get back in one form or another thank you.
So in terms of the debt refi.
Finance for RPC is if you looked at our balance sheet at 930 is sitting there, saying with bank debt both revolver debt.
Caitlin Burrows: And then you're seeing sort of these, you know, franchise driven concepts that continue to. To be the growth driver, the modern pop retailer today is very different than it was even five years ago, and a lot of what was being going to what's going on is they're buying these franchises with improvement business model. And that's how they're starting a business. And I think when you look at the franchises that we're doing deals with, you can actually improve the credit profile there, again, the corporate guarantee on it.
Loan debt of about 350.
50 million and then they have about $511 million private placement notes, but that's the that's the magnitude of what we're looking at.
And then obviously there'll be merger costs that go into that so it's around $900 million in total and as I.
I mentioned, we have a variety of.
Options about how does how does come back.
Our albertsons investment cash on the balance sheet align obviously access to the capital markets.
Caitlin Burrows: And so as we evolve our leasing strategy and we talked about the increases that we're getting on small shops. You know, continuing to improve the growth of the portfolio. All these things are adding up obviously to enhance growth profile.
Yeah, and as it relates to the Rite aid Rite aid exposure right now we know that three of our leases have been rejected gave one that's about five basis points of occupancy right now.
De Minimis impact there are another two that we expect to close this quarter. So in total that's about eight basis points in total occupancy.
Ross Cooper: The next question comes from Alex Fagan with Faird. Please go ahead. Hi, thank you for taking my question. I kind of wanted to dig into the structured investment conversation. You guys mentioned that the conversations around those have been picking up lately. Can you guys provide just some more details about the return criteria on those and what we can expect that folks to grow to? Sure, yeah, the conversations are picking up and we do anticipate there's going to be more optionality with that program as we enter 2024.
On the impact and right now we have good activity in terms of hitting our our retailer list and oxides as appropriate for a lot of the mid box users.
And that's where the.
The larger or small shop operators as well. So we're very encouraged by the activity. We have one that has drives relocation.
So again, there's good attributes good two components here that we feel pretty confident we can backfill those quickly.
Thank you very much.
The next question comes from Caitlin Burrows with Goldman Sachs. Please go ahead.
Ross Cooper: Continuing with the theme of got the capital, as our hurdle rates increase, the quotes that we're providing to potential borrowers of our capital have increased as well. So what was previously 8 to 9% with some backend participation potentially is now double digit at the starting point. So the blended average of our structure right now in terms of the rates that we're obtaining in a current position are in the mid to high nimes and we expect that anything going forward will certainly start in the double digits.
Hi, Good morning, I had originally can I just sneak in a second but then we didn't get to say, hey, I am and maybe it's a little bit of a follow up to keep <unk> question, but can you hear that macro uncertainty is lengthening the time it takes to sign leases and like.
So I'm just wondering if you guys are seeing this at all like how is your kind of sense of urgency on five signing leases evolved over the course of the year and like have they changed or how do you like that.
Yeah, It really it hasnt changed I'm not anything related to the macro environment tied for negotiating certain guild points that may add some time, but that's normal course of business. If anything people are looking to get leases signed quickly. So they can get open sooner than they can start booking that growth within their portfolio. So there's been no real material change.
Ross Cooper: But we think that will ramp up. We have just under 200 million outstanding on on the book right now within the program. So we'll continue to be mindful of that but we think that there's room to run there.
Linda Tsai: The next question comes from Linda size Jeffries, please go ahead. Hi, you reduced your credit loss outlook as you're trending at the low end given the record low supply environment you're operating in and you improve portfolio quality in terms of better credit tenants.
In terms of time of execution.
Okay.
The next question comes from Libya, Bakken with Bank of America. Please go ahead.
Hi, This is Lindsey blinked and yeah, just a follow up.
Glenn Cohen: Do you think it's premature to say credit loss will be a step function lower in the coming years? You know, again, we're happy with the improvement that we've seen. I think you think credit loss coming back to one normalized level, similar to what we saw pre-endemic. It's a little early to put it into the guidance for next year, but you know, as a run rate of 4 in that, you know, 7,500 basis point range, I think you're back to pretty normalized levels.
So.
Do you think you could clarify the branch or the walk from Q3 Q4, just based on the guide it looks like it implies like a one to two step down into the fourth quarter.
Just curious on what's driving that.
Yeah again, we have a couple of onetime things that are in.
In the third quarter.
As Kim mentioned this some of this impact from the one God.
Ross Cooper: The next question comes from Mike Mueller with JP Morgan, please go ahead. Yeah, hi, going back to the structured investment opportunities, are they all tied to real estate or are you evaluating some operator opportunities as well? Yeah, I mean the core program is is looking at operating real estate in our core markets with strong demographics, the tenant team that we're looking for, high quality sponsors. And as we talked about on the past having that writer first off or writer first refusal is a critical component of that program.
<unk> plan.
That was liquidated during the quarter.
And there's a few other one time things, but again, we feel very comfortable with the guidance range and we're at the upper end of the range that we set up yeah again coming back.
We are paid a lot of a lot of headwind that we had going into the year.
We're moving towards that high end of the range today so.
That's really the driver.
There was a big one time item as Glenn mentioned.
And Chen.
We recognized it was about $8 7 million and that's what's in that other income line you back that out you're back to a more normalized level.
Ross Cooper: Now that being said, we do have our plus business that has been active historically. And as there are retailers that are real estate rich that have capital needs, we believe that we're typically one of their, if not their first phone call, so those conversations will continue and where we can be opportunistic and helpful with retailers that have a significant amount of own real estate will always look at those opportunities as well.
Got it thanks.
The next question comes from Anthony Powell with Barclays. Please go ahead.
Hi, Thanks for the follow up I saw them weekly summary that landlord work for square foot went up to close to eight bucks in the quarter I'm, assuming that's related to the bed Bath and beyond we've spent I wanted to confirm that and maybe talk about T is only I won't work trends going forward.
Paulina Rojas: The next question comes from Paulina Rojas with green street, please go ahead. Good morning.
Yes, sure. So theres a couple components, let's start with the first two new leases the new lease side is slightly higher driven by primarily three deals if you're lesser deals out the the total work for Ti and landlord work will go from 50 went down to 40, which is at the lower end of a more normalized rates of returns on the deal.
Paulina Rojas: Right of interest rates, of course, as being unprecedented and introducing the question of how will retailer batteries and looks after a company starts facing that maturity. So when you think about the future and how do you feel about potential tenant fallout, do you think it will be perhaps or that it's reasonable perhaps to think about above average tenant failure given everything that is happening with interest rates. It's a good question, Paulina, you know, I think when you look at the rate environment and how it impacts all all industries, really the retailers that have near term debt maturities are going to be facing our interest expense and the refinancing just like any other industry.
All right. We're in excess of 20 plus percent, so very accretive and the mark to market on this between 80 and 116%.
So very very accretive lucrative deals, but again back those out you get down to that $40 range in terms of the overall range the new leases renewals and options. It is elevated because of the weight of the number of new leases executed and we'd also did 24 anchor deals at quarter. This last quarter first the number of renewals and options. If you see those are.
A little bit lighter so obviously when you blend it together the weighted component of the new deals drove that number up a little bit but from a cost standpoint as you can see the renewals and options are pretty much in line as well. So that's just a nuanced difference between this quarter and prior quarters.
Paulina Rojas: I would say that for Kimco has never been smaller when you look at the retailers that we continue to track from a credit perspective. And when you think about the supply and demand dynamics that I talked about earlier, we feel very comfortable with, you know, the credit loss reserve that we have today. Obviously, we just improve that this quarter and continue to be proactive on showcasing spaces that are not available today, but maybe available in a year or two or even five years time.
This concludes our question and answer session I'd like to turn the conference back over to David Bush Nikki for any closing remarks.
Just appreciate everybody that participated on the call.
Join the rest of your day. Thank you so much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
[music].
Paulina Rojas: And that's what we're doing right now is we're showcasing not our current vacancies. We're showcasing what may be available in the near term or in the long term to line up the best in class tenants because of the lack of supply retailers are engaged in that. Knowing that it's going to be hard to fill their promised pipelines and that new store openings in the current environment, so they have to align with folks like Kimco to try and fill that and see where they can add where they wanted to fix the filter needs.
Unknown Executive: Thank you.
Kevin Kim: The next question comes from Kevin Kim, what truth? Please go ahead. Thanks, good morning. To follow up on that last question, just given the rise in the cost of capital for your tenants, do you see that eventually weighing on their expansion plans? And the second question, your active mix use development so yields one up pretty noticeably, just because what drove that? Yeah, I think Kevin, great question. So with the first one, we've made kind of very close dialogue with our big retail partners, and they're looking through, I think, the short term impacts and engineering to try to brand market share where they can appreciate that that inventory is limited.
Kevin Kim: And if they don't get it today, there might not be new inventory available tomorrow. That said, every retailer has a different capital strategy, and that probably has evolved as most likely. As ours evolved as well, so something that we say very, very close to them, but as I can say right now, it doesn't seem to be slowing the pace of growth, the majority of those retailers. And as it relates to the mix use pipeline, yeah, I appreciate the question.
Kevin Kim: So what you see there is you see four projects, three, which are ground leases and the fourth one being culture, which is the one that we identified as a corporate equity structure that was the first of its kind that we're doing. So this quarter we felt it was appropriate to actually show what the real returns are related to the Kimco invested capital and the current returns related to those projects. Obviously that that yield the higher or creative growth profile, then, then if you're just doing that, all the capital yourself.
Kevin Kim: So that's what it's reflecting out to the change. The only thing I would add on the retailer demand side and, you know, what we're seeing is because of the rate environment, because of the construction costs, a lot of these tenants that used to do ground up development and then sell those assets as sale these facts are now looking for second generation space versus the ground up development side. And so they're looking at how do they how do they ensure existing inventory versus net new development because of that lack of financing on availability. And so that should drive more demand to the existing spaces as well as that first generation ground up development is really dried up.
Juan Sanabria: Thank you. The next question comes from Juan Sanbria with the M.O. Please go ahead.
Juan Sanabria: Hi, thanks for the second shot here. Just a couple questions. One just on our back to the RPT merger will restart it. So what are you guys assuming in terms of the death that needs to be refinanced. So that's part one and then part two. If you could just give us an update on the right and exposure and what you're seeing or expecting there for the space that they've deemed that they're going to get back to one form or another.
Juan Sanabria: Thank you. So in terms of the debt to be refinanced for RPT, if you look at the balance sheet at 930, they're sitting with bank debt, both revolver debt and firm loan debt of about 350 million. And then they have about 511 million private space. [inaudible] it. I'm not going to talk about it. [inaudible] Thanks.
Glenn Cohen: The next question comes from Anthony Powell with Barclays. Please go ahead. Hi, thanks for the follow-up. I saw the leaky summary that landlord work first grew up, went up to close to eight bucks in the quarter. I'm assuming that's related to the bad, bad beyond least, but I wanted to confirm that and maybe talk about TI's and landlord trends going forward. Yeah, sure, so there's a couple components. Let's start with the first and new leaky side.
Glenn Cohen: The new leaky side is slightly higher and driven by primarily three deals. If you let those deals out, the total work for TI and landlord work would go from 51 down to 40, which is at the lower end of a more normalized rate. The returns on those deals were an access to 20 plus percent, so very creative in the market market on those between 80 and 116 percent. So very, very creative look for the deals, but again, back those out, you get that 40 dollar range.
Glenn Cohen: In terms of the overall, we're including new leases, renewals and options. It is elevated because of the weight of the number of new leases executed, and we also did 24 anchored deals at quarter to this last quarter. First, the number of renewals and options, if you see those are a little bit lighter. So obviously, when you blend it together, the weighted component of the new deals grow that number up a little bit, but from a cost standpoint, as you can see, the renewals and options are pretty much in line as well. So that's just the, the new ones difference between this quarter and prior quarters.
David Bujnicki: This concludes our question and answer session. I'd like to turn the conference back over to David Bush Nikki for any close remarks. We just appreciate everybody that participated on the call. Enjoy the rest of your day. Thank you so much.
Unknown Executive: The conference has now concluded. Thank you for attending today's